Economics the Impact of Three Economic Indicators

Economics

The Impact of Three Economic Indicators on Amazon

The way any organization performs will reflect a number of factors; one of the major factors will be the macro environment. Amazon.com, a major online retailer, can be considered in the context of the macro-economic by looking at the way that firm is impacted by different economic patterns. Three macro-economic indicators; personal income and outlay, producer prices index and the retail sales report will all be considered and discussed with reference the way that Amazons' performance may be impacted.

Personal Income and Outlay

An important, but lesser quoted, economic indicator is the personal income and outlays measure, which is published monthly. The figures for January 2012, which were published at the beginning of March, demonstrated that there was a 0.3% increase in total income and disposable income increased by 0.1% (BEA, 2012). Increases in the income measures are positive for Amazon.

This is important as Amazon is a retailer and their main markets are consumers rather than businesses. When the level of personal income, and more importantly the level of personal disposable income, increases this is likely to have a positive impact on Amazon; increasing their sales. This occurs because of the type of products sold by Amazon. Although the firm started out as a book store, product range has diversified, but the majority of goods remain those which are not essential. This makes them more sensitive to changes in income and disposable income. When the consumers have an increasingly level of disposable income that is free to be spent on discretionary items, Amazon is well placed to benefit as it is offering a wide range of items that may appeal to large sectors of the consumer population. An increase in sales also leads to increased profit levels with all other influences remaining equal.

Producer Price Index

The producer price index is also an important measure for Amazon and will influence the way costs are incurred, so will have a direct impact on the profitability of the firm. The Producer Price index also referred to as the PPI, looks at the price changes in the wholesale markets using a weighted index of measures. Amazon do not manufacture anything for them, instead they sell goods that are produced by others. If the price of the goods they buy in raise this will impact directly on their cost structure. In January 2012, the PPI for finished goods increased by 0.1% indicating a cost increase for Amazon (BEA, 2012). However, as Amazon are an online retailer using a system of dynamic pricing which allows them, to change prices easily and rapidly, often by small amounts, this increase is can often be passed on subtly top the consumers. Therefore, the PPI indicates not only the cost increases but also the way Amazon are likely to response with small, price increases.

The cost reflected in the PPI for commodities has the potential to impact on the firm, especially with the delivery costs. This includes goods such as oil and energy. In January 2012 this increased by 1.5%. As Amazon sends out goods using carriers, the underlying costs associated with transportation will have an impact. Carriers may increase prices where their fuel costs are increasing. This is a cost that Amazon may have to swallow, as they offer free delivery on goods over a certain value, as well as the 'prime' option for rapid delivery to customers who pay an annual subscription. Increases in the crude PPI indicate the underlying delivery costs will increase.