This essay shall discuss the most current U.S. GDP figures and the current state of the economy. It will also discuss how the current state of the economy will or will not impact my organizational profitability, using the Timken Company. The most current figures available for GDP are in reference to 2014.
GDP is the measure of all final goods and services made in a year, and made in the United States. This does include foreign country operations that are located in the U.S., however it excludes U.S. plants in foreign countries. The GDP numbers are important because it represents how well the economy is doing. An economy doing poorly will have lower profits for businesses, which effects stock price. This is significant to investors that look at GDP growth, and if it is negative it could suggest that the economy is in a recession. The real GDP is the most looked at figure in discussion with the economy. Real GDP is comparing one year to the other taking out the effects of inflation calculated by the Bureau of Economic Analysis (BEA).
According to the BEA, the U.S. GDP increased 2.4 percent in 2014 from the figures found in 2013. The results I will also look at is the latest fourth quarter of 2014, because GDP is reported quarterly as well. The GDP is a very in depth and comprehensive report, therefore I will concentrate on the most important numbers that the report contains. The extras that the report contains breaks down personal consumption expenditures, gross private domestic investment, net exports of goods and services, government consumption expenditures and gross investment. What is important to investors is the fact that GDP is growing around 3%. According to Investopidia, “The general consensus is that 2.5-3.5% per year growth in real GDP is the range of best overall benefit; enough to provide for corporate profit and jobs growth yet moderate enough not to incite inflationary concerns.” (Barnes, 2003). One thing GDP does is help us understand the state of unemployment. This has been termed as Okun’s law, economist Arthur Okun stated that if unemployment falls 1%, then GDP raises by 3%. This is something economists use in their forecasting. Unemployment currently in the U.S. is at 5.6% currently, and dropping since a rise after a rise in 2008. This fluctuation down has a relationship with GDP, and as we can see it is growing. According to Interpreting Deviations from Okun's Law, “When the unemployment rate was falling, GDP growth was above the average. This path for Okun’s law is an enduring feature of the U.S. business cycle.” (Daly, Fernald, Jorda, & Nechio, 2014). Currently the state of the U.S. economy is on an upturn, with challenges. According to Forbes, “With the stock market at an all-time high, with unemployment at 5.8 percent, last quarter economic growth at 5 percent, relative mild consumer price-inflation, and the bonanza of cheap gas, there is increased optimism about the U.S. economy. Yet challenges abound, both coming from the inside and from abroad.” (Chafuen, 2015). The challenges are the quantitative easing could harm stabilization. Monetary policies should be revised and a balanced budget is in order. Politics also take play in the economy with the Affordable Healthcare Act and immigration policies. The reason the Affordable Healthcare Act is causing issues according to Forbes magazine, “People with low income qualify for Medicaid and thus avoid health care insurance costs. Rather than seeking full employment many might want to stay at their current job and work extra hours in the informal economy.” (Chafuen, 2015). In this last section, this essay will discuss how the US economy will or will not affect the Timken Company’s profitability. The Timken Company is the third largest manufacturer of steel tapered roller bearings and steel. Their major competitors are SKF, a Swedish Company and FAG, in Germany. The Timken Company has many plants. Steel plants being located inside the US, and Bearing that are inside and outside the U.S. GDP and the economy has an effect on the Timken Company. When the economy is doing well, the more likely the demand will go up for roller bearings and steel. However it does not automatically depend on it. There was a time during a recession when war was prevalent and the need for steel and bearings for wartime was up. The company was doing very well at the time, even though the economy was going down. Stock prices went up. The need for roller bearings is known throughout the world, as well as steel. So this is more of a constant, and Timken is known for their quality of bearings and steel and it is much sought after. Customers will wait exceeding lead times for their bearings knowing this about the product, and pay high dollar for them. Some products only Timken makes, so the competition is not there for those products. Therefore the economy only affects it if demand goes down. Demand is not necessarily affected by GDP. In conclusion, after a recession and the housing market crash in 2008, the economy started to pick up. Currently the state of the economy is doing fairly well, with GDP at a steady growing rate. Economist forecast that this will still go up but face challenges political and otherwise. However overall the economy is doing well and will continue to do so in the forthcoming years. The Timken Company is almost like a monopoly in some ways in the roller bearing and steel business. They will continue to do well and not be as affected by GDP, and how the U.S. economy is going but more so how the world economy is going. That is because demand for bearings and steel is both inside and outside of the United States.

References

Barnes, R. (2003, December 03). Economic Indicators: Gross Domestic Product (GDP) | Investopedia. Retrieved March 20, 2015, from http://www.investopedia.com/university/releases/gdp.asp
Chafuen, A. (2015, January 1). The U.S. Economy In 2015: Challenges And Opportunities. Retrieved March 21, 2015, from http://www.forbes.com/sites/alejandrochafuen/2015/01/01/the-u-s-economy-in-2015-challenges-and-opportunities/
Daly, M. C., Fernald, J., Jorda, O., & Nechio, F. (2014, April 21). Interpreting Deviations from Okun's Law. Retrieved March 21, 2015, from http://www.frbsf.org/economic-research/publications/economic-letter/2014/april/okun-law-deviation-unemployment-recession/