Investing
Investment is a primary component of an economy. Most firms are highly dependent injected by local and foreign firms. In making sound investments, there are several aspects being assessed. But the primary goal of investors is to gain substantial profitability. Although the bottom line of most firms concern profits, the capacity of ethical investment is highly valued. Firms spend significant portion of their budget to improve their reputation. In addition, companies have become more socially involved. This trend is expected to continue as investor perception balance on all aspect of investment.
Discussing ethical investment is important in the current financial markets. In particular, investing in a particular firm requires an understanding that goes beyond financial status. After the Enron debacle, investors have become more aware of firm dynamics. The reputation of companies as socially involved is being valued. The current uncertainties in the financial market are a hinder to promote investment. Despite the negative performance outlook that some firms have, their appeal to investors remain high because of their social contributions. There are instance when ethics overcomes profitability.
An article from Motley Fool discussed the prevalence of responsible investing in the U.S. stock market. The article discussed a survey conducted by Forbes Magazine involving the 30 most admired U.S. firms. The results showed that only Johnson & Johnson and Intel managed to obtain high scores. There are some firms that got high scores in one area but low in another. For instance, Home Depot had A in environment but D for diversity.
The author, Selena Maranjian (2005) noted that such results have minimal impact to the existence of socially responsible investing. Some firms may have a low score in one criterion, but their capacity to emphasize on the social area they thrive is highlighted. The criteria used for the survey is general and at some point vague. The differing perception of respondents can have an impact in the score. Most of these firms are considered as blue chips in the stock market. Such distinction defines the likeliness of investors to put their money of these firms.
An article from The Monthly, however, argued on the validity of ethical investing in the current financial markets. Kirby (2007), cited firms in the Australian Stock Exchange as examples for stated observation. Australian ratings firm Morningstar mentioned that mainstream funds have outperformed ethical funds. Some studies conducted by analysts point out that most “ethical investments” are neutral in nature. Hence investors are advised to seek for better options in the market. The author further stated that investment versatility is more valuable that reputation.
The article published in the monthly have the numbers to prove its claim. Investors in general appear to be more concerned with the fundamentals. But it is hard to discount the impact of ethics in investing. Several media are enhanced to promote socially responsible investment. Some companies involved with lawsuits and violations are likely dreaded by new breed of investments. Before Enron fell, it was perceived as a valuable investment opportunity. The performance of Enron suggests that it will remain stable in the long run. The end result, however, revealed the effect of unethical investment to a strong company.
Consumption
In computing for economic performance, consumption is an important indicator. Consumption is usually considered as the nearest method to quantify demand of goods and services in the market. In Economics, consumption is the act of using any commodity in an activity. The definition of consumption extends beyond physically consuming a good or service. Most economists study patterns on consumption. This will allow near precise estimates of future demand and resource abundance in the world.
When it comes to consumption, there is no other country that can compete with China. The vast population of the country is a major boost to consumption. China has been using this advantage to up its economy. As the Economist (2008) reported, analysts have shifted their gears and further increased the economic growth of China because of consumption. The possible expansion of industries in China is backed by increasing consumption tendencies. The Economist has provided views on this trend. The influx of investments to China has improved the income of Chinese households.
In previous studies, analysts have listed high levels of exports, investment, and industrialization as key to improving consumption. These three elements were observed to be present in China at present. Aside from these aspects, China will remain as the most populated country for the next century. There are existing policies that prevents population in China to grow exponentially. But the country is huge enough to accommodate future Chinese. It is also obvious that the growth of China is pushed by capital instead of labor.
China’s consumption capacity is hyped in the world. But New York Times correspondent Eduardo Porter (2007) pointed out that China’s economic value is below market perception. The previous World Bank survey on China used prices during 1980s. When adjusted to current prices, the economy is reduced by a significant amount. Moreover, the World Bank is about to publish its latest results on the China survey. This will reveal the exact value of the Chinese economy. Another important part of this revaluation is the contribution of the consumers in the economy. The current numbers appear to be great although changes will provide different perspectives.
Aside from the currency change, the current inflation in China is a major concern. At present, the inflation rate in the country is moving towards all time high. Given that most households in China earn measly, consumption is poised to hit a downgrade. The increase in price of goods and service will limit the buying power of Chinese. Labor cost in China will remain regulated by the government. Increasing the wages of Chinese workers will worsen the inflation rate. Most important, China has no plans of shifting its reputation as a low cost hub for business expansions.
China is on the verge of overtaking the U.S. as the top economy in the world. But these setbacks are unwanted. The consumption of trends in China is being used to pad its economy. China is more concerned with the entire economy instead of the per capita. Inflation, however, is the biggest threat to China’s goal of upping consumption. High price of goods and services will negatively impact the capacity of households to consume.
Spending
Spending in economic sense means using any monetary consideration to acquire a good or service. The capacity of households to spend is usually dependent on several aspects. Income is considered as a primary spending determinant. Preference is also part of the discussion when making spending decision. In addition, necessity is valued when spending for a commodity. Current news reveals the value of consumer spending in an economy. In the U.S., for example, low spending has worsened the current recession.
The discussion of spending is important because of various economic reasons. High rate of spending means that consumer response of products in the market is high. Moreover, an increase in spending can be attributed to high income for households. When there is active consumer participation in the market, the economy is good. If the income of households continue to increase, then the economy is better. Understanding the value of spending in an economy is similarly approached as other key economic indicators.
Recent figures from the U.S. Census Bureau state that consumption during the month of February 2008 was down by.6%. This result, however, was an increase to the previous year’s figure. The agency has used aggregate commodities in the survey. Retail consumption has also decreased by a reasonable rate. Compared with the February 2007 figures, retail sales are lower during February 2008 numbers. There are some clarifications that were discussed in the survey. The agency used nominal values instead of the real values used in most surveys.
The article on Paper Money (2008) provides a different perspective to the results published by the U.S. Census Bureau. The author stated that adjustments are needed to reveal the accurate figures. The nominal figures used are not adjusted to inflation. Hence change is price will have an inexistent effect to the values obtained. Using inflation adjusted numbers; it appears that retail sales have gained ground during the last 7 month. Despite claims that spending has been down, actual figures maintain positive outlook for the industry.
The current financial instability and declining house prices in the U.S. will affect spending negatively. The U.S. government has been active is making a positive start. The Federal Reserve System has been cutting interest to boost spending. In addition, the government has been doing measures to maintain the confidence of the investors in the financial market. The Bear Stearns rescue was a prime example of saving a sinking ship. But the government is in danger of exposing other firms disguising as Bear Stearns. In addition, low house prices will still affect spending (Mortgage Guide, 2008).
The current economic upheaval in the U.S. is making spending a headline. Low spending means low turnover for existing firms. In addition, jobs will be affected because companies have to cut cost. The U.S. government’s current effort to inject liquidity is important. Much like during the “great depression” government spending was vital in revitalizing the U.S. economy. In truth, the spending capacity of households is not the only aspect that needs a boost. It is important for the U.S. government to continue on spending to ensure that equilibrium is still targeted.
References
Kirby, J., (2007), “The myth of ethical investment,” Web.
Maranjian, S., (2005), “Is socially responsible investing possible?” Web.
Porter, E., (2007), “China shrinks,” Web.
Mortgage Guide UK, (2008), “Recession like in UK and US,” Web.
Paper Money, (2008), “Conspicuous correlation: Retail sales February 2008,” Web.
The Economist, (2008), “The perils xof abundance,” Web.