Economic Downturn and the Effect on P&G

Proctor and Gamble is a global company that produces various products sold around the world. It is a Fortune 500 company and ranks consistently among the top 10 companies in the U.S. in terms of sales. The product chosen for this study is Head and Shoulders, a dandruff shampoo that constitutes 23% of net earnings in the beauty care segment for P&G per annum (P&G Investor, 2015). With sales of more than $80,000,000 for the company, Head and Shoulders is a significant product mover.

MacroEconomic Variables

GDP growth in the U.S. has been stagnant over recent years and therefore P&G has had to look overseas in order to grow its market. However, with global recession likely to occur in the coming months and years, the predicament of P&G does not look positive unless it can penetrate and maintain market share in developing nations.

Unemployment in the U.S. is also higher than reported according to reports from independent sources and suggests that the U.S. economy is not as recovered as pundits might have investors to believe. There is a false sense of security surging among investors but consumer confidence is at an all time low and faith in central banking is crumbling as the price of gold (which is an indicator of consumer confidence) surges in recent weeks (Durden, 2016).

Inflation is also a problem as it does not appear to be happening in the U.S. Instead, deflation is setting in with the price of oil dropping to decade-lows with no sign of coming back up in the foreseeable future. With oil down the entire economy is dragged back into recession mode and while deflation may put more money in the pockets of the average buyer, it does not help with boosting sales or with profit margins, as the vast majority of consumers are in saving-mode as a result of an awareness of an impending market crisis (Durden, 2016).

The trends for these variables is bad in every way, with each souring the outlook of the U.S. economy. GDP is down, unemployment is up and inflation is low. These trends are likely to continue. They will impact supply and demand negatively because all of them combined contribute to a saving mentality in the consumer and so purchasing is reduced.

Macroeconomic Policies

The current monetary and fiscal policies in the United States have been to perform Quantitative Easing (QE) in which the Federal Reserve injects stimulus money into the economy. This has served to boost the stock market but it may simply be a bubble as the Fed has recently announced it will cease QE intervention. Since then the market has fallen significantly. Also interest rates were raised a mere 25 basis points and the market has reacted poorly. Now the Fed Chairwoman Janet Yellen is discussing adopting a strategy of negative interest rates, which may have the effect of further weakening the market.