White House: Economy growing slower than forecast

(MoneyWatch) The White House on Monday revised downward its forecast for U.S. economic growth this year, citing government spending cuts, the ongoing recession in Europe, and slowing expansion in China and other emerging markets.

In its so-called mid-session review, the Office of Management and Budget projected that domestic GDP will expand in 2013 at an annual rate of 2 percent. That's down from the 2.3 percent rate of growth that the Obama administration assumed in its annual budget in April. OMB also reduced its forecast for growth in 2014 to 3.1 percent, down a tick from 3.2 percent.

    Despite stronger job growth, recovery still a long march
    If the economy is up, why are stocks down
    Feds: U.S. government deficit is plunging

"Although Administration actions helped spark the ongoing recovery, the economy has faced serious headwinds that have held down the...Read more on cbsnews.com »»»

Business term of the day - Term for July 9, 2013: «Asymmetric price transmission»

Keywords: Asymmetric price transmission, examples of price transmission

Asymmetric price transmission (sometimes abbreviated as APT and informally called "rockets and feathers") refers to pricing phenomenon occurring when downstream prices react in a different manner to upstream price changes, depending on the characteristics of upstream prices or changes in those prices.

The simplest example is when prices of ready products increase promptly whenever prices of inputs increase, but take time to decrease after input price decreases.

Terminology

In business terms, price transmission means the process in which upstream prices affect downstream prices. Upstream prices should be thought of in terms of main inputs prices (for processing / manufacturing, etc.) or prices quoted on higher market levels (e.g. wholesale markets). Accordingly, downstream prices should be thought of in terms of output prices (for processing / manufacturing, etc.) or prices quoted on lower market levels (e.g. retail markets).

Background Theory

Since (by definition) upstream and downstream prices are related:

1. in absence of external shocks, some kind of economic equilibrium relationship between those two should exist;
2. external shocks to the system (i.e. shocks to downstream or upstream prices) should trigger short- and long-run adjustment towards the long-run equilibrium, as:

• rational economic agents price their goods so as to maximize their constant utility function;
• in the long run prices of goods should reflect their scarcity.

Example of Price Transmission

Price transmission is best illustrated by an example. Assume that:

• commodities analysed are:
• crude oil - global upstream, and
• petroleum - local downstream;
• market for petroleum in question is small compared to market for crude oil (in terms of quantities sold / bought), so that downstream prices cannot drive upstream prices;
• in the short run, only crude oil prices drive petroleum prices (i.e., prices of other inputs are assumed to be constant);
• no substitutes to petroleum are available in the short run.

Given the above, one might expect that:

• increases and decreases in crude oil prices trigger appropriate changes downstream;
• resulting changes are symmetric in terms of absolute size / timing.
• Such behaviour, predicted by all canonical industry / market pricing models (perfect competition, monopoly) is called Symmetric Price Transmission.

In contrast to Symmetric price transmission, Asymmetric Price Transmission is said to exist when the adjustment of prices is not homogeneous with respect to characteristics external or internal to the system. As an example of Asymmetric Price Transmission consider a situation when:

• increases in crude oil prices lead to immediate increases in petroleum prices, but decreases in crude oil prices take time to be passed down to petroleum prices. This asymmetry is referred to as time asymmetry, or
• combination of the time asymmetry and the size asymmetry (i.e., a situation when increases in crude oil prices lead to bigger changes (in absolute values) in petroleum prices than decreases).

One should remember that the size asymmetry cannot occur on its own. If that had been the case the upstream prices and downstream prices would drift apart. Since downstream prices and upstream prices are by definition related to each other, this cannot be the case. Accordingly, size asymmetry can occur only together with time asymmetry and only when the long-run relationship between prices is restored after the impulse shock to upstream prices.

Consequences

The issue of Asymmetric Price Transmission received a considerable attention in economic literature because of two reasons.

Firstly, its presence is not in line with predictions of the canonical economic theory (e.g. perfect competition and monopoly), which expect that under some regularity assumptions (such as non-kinked, convex/concave demand function) downstream responses to upstream changes should be symmetric in terms of absolute size and timing.

Secondly, because of the size of the some markets in which Asymmetric Price Transmission takes place (such as petroleum markets), global dependence on some products (again oil) and the share of income spent by average household on some products (again petroleum products), Asymmetric Price Transmission is important from the welfare point of view. One must remember that APT implies a welfare redistribution from agents downstream to agents upstream (presumably consumers to large energy companies); it has serious political and social consequences.

Source: Wikipedia

Business term of the day - Term for July 8, 2013: "Associate Attorney"

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An associate attorney is a lawyer and an employee of a traditional law firm who does not hold an ownership interest as a partner. Generally, an associate has the goal of being made a partner in the firm, after a number of years gaining practice experience and being assigned to increasingly more important and remunerative tasks. At firms with an "up or out" policy, associates who are repeatedly passed over for promotion to partner may be asked to resign. Some firms will also have "non-partner-track" associates who, though performing satisfactorily as employees, for whatever reason, will not be promoted to partner.

Business term of the day - Term for July 7, 2013: "Asset stripping"

Asset stripping involves selling the assets of a business individually at a profit. The term is generally used in a pejorative sense as such activity is not considered productive to the economy. Asset stripping is considered to be a problem in economies such as Russia or China that are making a transition to the market. In these situations, managers of a state-owned company have been known to sell the assets which they control, leaving behind nothing but debts to the state.
A fictional example of asset stripping can be found in the 1987 film Wall Street. In this film, the ruthless investor Gordon Gekko, played by Michael Douglas, purchases the failing airline Blue Star, under the pretense that he will restructure the company and return it to profitability. However, we later learn that he intends to liquidate all of the company's assets.
Source: Wikipedia

Business term of the day - Term for July 6, 2013: "Analytics"

Keywords: analytics

Analytics is the discovery and communication of meaningful patterns in data. Especially valuable in areas rich with recorded information, analytics relies on the simultaneous application of statistics, computer programming and operations research to quantify performance. Analytics often favors data visualization to communicate insight.

Firms may commonly apply analytics to business data, to describe, predict, and improve business performance. Specifically, arenas within analytics include enterprise decision management, retail analytics, store assortment and SKU optimization, marketing optimization and marketing mix analytics, web analytics, sales force sizing and optimization, price and promotion modeling, predictive science, credit risk analysis, and fraud analytics. Since analytics can require extensive computation (See Big Data), the algorithms and software used for analytics harness the most current methods in computer science, statistics, and mathematics.

Source: Wikipedia

Business term of the day - Term for July 5, 2013: «Analyst Relations»

Keywords: analyst relations, corporate communications, marketing activity

Analyst relations is a corporate communications and marketing activity in which corporations communicate with ICT industry analysts (also known as research analysts) who work for independent research and consulting firms.

Large corporations supplying technology (hardware, software, networking, and IT Services) usually have an Analyst Relations person or team (sometimes called industry relations). Their remit is to brief industry analysts about their company's strategy, products and services; help them with research requests; and generally try to persuade these influential third parties to represent them in the best possible light (to end user purchasers of IT products).

Analyst Relations often reports into the corporate communications function, although it can also report to marketing, investor relations, sales, or a number of other groups.

In June 2006, the Institute of Industry Analyst Relations was formed as a non-profit community of practice for Analyst Relations professionals.

Many ICT such as IBM, TCS, Oracle, SAP, BT, Tech Mahindra, Qualcomm, Epicor and Ericsson have analyst relations teams and/or officers who report into either corporate communications, corporate marketing and more rarely to the board or the head of sales.

It is important to note that in most cases Investor Relations is a separate department, though often also reporting to Corporate Communications, set up to handle relations with financial analysts as there are very specific rules pertaining to the disclosure of financial information.

Source: Wikipedia

Business term of the day - Term for July 4, 2013: «Agile manufacturing»

Keywords: agile manufacturing

Agile manufacturing is a term applied to an organization that has created the processes, tools, and training to enable it to respond quickly to customer needs and market changes while still controlling costs and quality.

An enabling factor in becoming an agile manufacturer has been the development of manufacturing support technology that allows the marketers, the designers and the production personnel to share a common database of parts and products, to share data on production capacities and problems — particularly where small initial problems may have larger downstream effects. It is a general proposition of manufacturing that the cost of correcting quality issues increases as the problem moves downstream, so that it is cheaper to correct quality problems at the earliest possible point in the process.

Agile manufacturing is seen as the next step after Lean manufacturing in the evolution of production methodology. The key difference between the two is like between a thin and an athletic person, agile being the latter. One can be neither, one or both. In manufacturing theory, being both is often referred to as leagile. According to Martin Christopher, when companies have to decide what to be, they have to look at the Customer Order Cycle (the time the customers are willing to wait) and the leadtime for getting supplies. If the supplier has a short lead time, lean production is possible. If the COC is short, agile production is beneficial.