P&G Head and Shoulders Review

Macroeconomic Policies The current monetary and fiscal policies in the United States are controlled and levered by the Federal Reserve which has recently announced that it will incrementally raise interest rates over the next course of the year by 25 basis points on a quarterly basis. However, with the economic tailspin being demonstrated on a global scale and the topic of negative interest rates being floated on the international level, the U.S.'s monetary policy is anything but established or set in stone.

Fed Chair Janet Yellen even announced that the Fed will consider negative interest rates. What this means for the U.S. economy is uncertain as rates have never in the history of the U.S. gone negative -- prior to this admission, it was thought that zero (ZIRP -- or zero interest rate policy) was the floor. That is no longer a given -- and the ramifications of going negative are unknown, though one could look to Japan for an indication of how the market would react.

Possible changes in monetary and/or fiscal policy may impact the supply and demand of Head & Shoulders beauty/hygiene products in either a negative or positive way. Considering, however, that belt tightening is evident in the collapse of consumer spending (Durden, 2015) and the fiscal outlook of the U.S. (deep in debt to the tune of trillions of dollars) and the recession-like symptoms appearing around the global economy and the outlook does not look good.

Consumer spending year over year lows is likely to have a negative impact on Head & Shoulders sales, though not in a tremendously significant way as it is a product that individuals will buy regardless of economic woes. One concern will be whether loyal customers make a shift to off-brand products that provide the same kind of dandruff assistance. Maintaining brand loyalty at junctures such as these is important to do, as cheaper knock-offs might appeal to some buyers looking to save money in touch fiscal times.

If the Fed does see fit to go negative as far as interest rates are concerned, there could be a heavy backlash in the consumer spending cycles, with households choosing to save money or store it in traditional safe havens such as gold bullion. This will likely weigh on the economy and on P&G's sales.

If the Fed decides to raise rates as planned, the outlook is no less grim, as already the market has plummeted in response to the earlier rate increase and show no signs of springing back to life. Consumer confidence is a at a low, according to all the latest economic data (Durden, 2016). In the near-term future, recession seems to be the forecast.

P&G has weathered recessions before and while sales will dip, it is not to be assumed that the dip will be financially ruinous for the company, as beauty/hygiene products such as Head & Shoulders, so long as they continue to maintain brand loyalty with consumers, can remain relatively stable in comparison to less "needed" products that do not address consumer health/beauty issues. IV.

Macroeconomic Conditions and Company Performance The trends of the two previously selected company performance variables sales and stock pricing of P&G have been in a sideways trend over the past three years (2013-2015), with the stock price fluctuating between $65 and $90 (the peak price, occurring at the end of 2014, as the Fed was wrapping up its final QE intervention); the price saw a sharp reversal throughout 2015, bouncing at $65 and regaining strength with upward movement to $81 where it currently trades today.

Sales of Head & Shoulders has continued to be steady, contributing to 20% of market share globally (P&G Investor, 2015). This puts sales at around $100 million per annum year over year (the other portion of this market going to P&G's other beauty/health product lines), marking a steady clip for the shampoo product.

The relationship between the two company performance variables and the three selected macroeconomic variables (GDP, unemployment and inflation) is more to be reflected in the stock price of the company than in the sales of Head & Shoulders which is relatively stable in comparison to overall market movements, due to brand loyalty and consumer necessity. This correlation can be seen in the graph included below in the Appendix portion of this paper.

Current monetary policy and fiscal policy in the United States may impact P&G's financial performance in the short-term (six months to one year) in terms of cutting into P&G's non-core, non-necessity products, though it is not deemed that Head & Shoulders is one of these. P&G has in fact been divesting itself of its non-core brands in order to cut costs associated with dead weight and focus attention more on the driving brands of the company, such as Head & Shoulders.

The monetary policy of the Fed in the U.S. is uncertain at this time as Chair Yellen gives mixed signals depending on the latest economic data (whether it is strong or weak) but the possibility of raising or lowering rates sub-zero is.