Forecasting and Business Analysis

The purpose of the paper is to present a feasibility study into the business scenario of the Adelaide market to Vinamit a retail company that wish to expand into this market. For the feasibility study data was collected from the Australian Bureau of Statistics (ABS). The data consists of the unemployment rate (UR), the average weekly earnings (AWE) per person in Adelaide and data on Adelaide’s RGRT from April 1982 through December 2011. In order to perform analysis of the data it was reorganised since AWE is quarterly series the RGRT and UR were converted to also become quarterly series from their original monthly series. Afterward, test for the unit root for each variable was done and later an econometric analysis performed to determine the findings, discussion, conclusion and recommendation.

Introduction to the Problem

Adelaide is fifth-largest city in Australia and is also the capital of South Australia. The economy of Adelaide is mainly driven by manufacturing, wholesale, retail and health care and social assistance (Anderson & O’Neil, 2009).  In 2006/2007 health care and social assistance was the largest employer exceeding manufacturing as the largest employee in the region. Health care and social assistance during that year accounted for approximately 13% of the average annual employment while the retail sector was the second largest employer account for approximately 12% of the average annual workforce (Anderson & O’Neil, 2009).  Manufacturing, defence, electronic systems, export and other services also play a role in Adelaide economy (Rawlings-Way et al, 2009).     

Adelaide has the lowest income wage and highest unemployment rate in any of the major cities in Australia. In addition, Adelaide faces a hurdle of the tendency of skilled workforce and young people moving to other better paying cities like Sydney, Melbourne and Brisbane (Frommer's ShortCuts, 2011). Therefore, unemployment and wage rate is major problem in Adelaide.

Going forward, the South Australian economy faces a number of challenges a sluggish manufacturing sector due to a decline in the demand for commercial construction and decline in sale in the retail sector. Unemployment figures in the region have lagged behind the national average and the unemployment in February 2011 reached a high of 5.8 % (The University of Adelaide,  2012). Overall, it expected that Adelaide economy will continue to experience volatility as result of the dependence on the performance of the global economy. Therefore, the debt crisis in Southern Europe, the recovery in United States and an inflating Chinese economy will play a role in determining the performance of Adelaide economy (Frommer's ShortCuts, 2011). On the other hand, factors such as rate on interest rate are likely to have the greatest impact over the short and long term. The cash rate will determine the rate of inflation therefore having a direct impact to the purchasing of residents in the region. This will have a direct impact on the retail sector.

Methodology

The data was collected from the Australian Bureau of Statistics (ABS), it consists of the unemployment rate (UR), the average weekly earnings (AWE) per person in Adelaide and data on Adelaide’s RGRT from April 1982 through December 2011 (Spoehr, 2009). To perform analysis the data it was reorganised since AWE is quarterly series the RGRT and UR were converted to also become quarterly series from their original monthly series. Later, various econometric analysis techniques were performed to gain understanding to the data collected.

Table 1: Correlation Summary

Descriptive correlation among the three variables showed a positive relationship between unemployment rate (UR), the average weekly earnings (AWE) per person and RGRT. However, for the correlation we were able to establish that they were a strong correlation between AWE and RGRT of 0.958 which was a strong indicator that the Adelaide’s economy is driven by average weekly earnings (AWE) mostly. Therefore, volatility in the average weekly earnings will greatly affect RGRT (Smitz,2005). On the other hand, unemployment rate (UR) and RGRT were strongly correlated but to a less extent as compared with average weekly earnings (AWE) per person of 0.621. Consequently, its impact through strong was as influential as average weekly earnings (AWE).

Regression analysis was performed to determine the collective relation between the output determinants and the output (RGRT). All variables were fed into a single regression and the results were as follows Table 2.)The regression obtain a goodness of fit (R2 = 0.918, R= 0.958)

Table 2: Regression Summary

Discussion

From the analysis provided has been subdued sales activity in the period 2010/2011 in Adelaide. It can be attributed that investors are taking cautious as look at the business environment to unfold before investing. From the Table 3 showing Output Volumes vs Year clear shows a decline in RGRT but a steady increase AWE over the years.  The RGRT line graph shows volatility and unique pattern every sharp decline give arise to a sharp rise in RGRT. Therefore, an investor should invest when the RGRT is at the bottom. Another phenomenon is that both RGRT and AWE steady rise over the years. Therefore, it is expected that an investor in the retail would benefit with an increase in RGRT and AWE translating to increase in purchases in the retail sector (Rawlings-Way et al, 2009).
Conclusion

Adelaide has been through tough economic times in the past and has managed. With well-built mining and defence expansion the short-term outlook for Adelaide remains positive. With indicators such as UR, AWE and RGRT showing positive signs that the market is ready for investment in the retail sector. Therefore, I would recommend that Vinamit a retail company to expand into this Adelaide.