By Mel Duvall  |  Posted 2005-04-06 Print this article Print

How does Federal Reserve chairman Alan Greenspan decide to raise rates a quarter point? By analyzing a potent mixture of raw pecuniary data and computerized economic intelligence against first-hand reports from key hubs of U.S. financial activity and five

-Mart's Christmas Brainstorm">

Wal-Mart's Christmas Brainstorm

One of the few companies that's close is Wal-Mart, says Simchi-Levi. The retailer's near-instant reporting system helped save its Christmas.

On Black Friday, the critical shopping day after Thanksgiving that retailers use to confirm that their bottom line for the year will indeed be black, Wal-Mart was worried.

Hourly sales figures from its 3,618 U.S. stores were being beamed to the BlackBerry communication devices of the chain's top executives, including U.S. stores president Michael Duke. No one liked what they saw—virtually no increase in sales from Black Friday the year before.

By 2 p.m. that day, Duke, who was in the field at an Atlanta Wal-Mart, issued orders to mark down prices on key items, such as toys and electronics. Regional managers and other senior executives were called into the company's Bentonville, Ark., headquarters for an emergency strategy session. On Saturday, a meeting was held with 500 front-line employees in the company's auditorium to ask for their suggestions. One that was accepted, says Wal-Mart spokeswoman Mona Williams, was a recommendation to have Wal-Mart employees shop at competitors' stores and report back to managers on what seemed to be moving and at what price.

By the following Friday, a national advertising campaign promoting hundreds of marked-down items was launched. The result: a 3% gain in sales over the Christmas period instead of an apology to shareholders.

Like Greenspan and the Fed, Wal-Mart relies on electronic data feeds, software-driven analysis and the findings of eyes, ears and feet on the ground.

Wal-Mart may be the U.S. economy's largest single corporate entity. But it is just one company. The stakes for the Fed, specifically for Greenspan, are much larger: Since the U.S. dollar is no longer tied to the price of gold (that ended in 1971), the only thing that gives the dollar value is the confidence other countries have in the U.S and the Federal Reserve chairman who regulates its monetary policy.

Greenspan is the Fed's gold standard, now. But not for long.

On Jan. 31, 2006, Greenspan, 79, plans to retire. That day will mark the end of his 14-year term as a Fed governor and the midpoint of his fifth four-year term as chairman. Soon after President Reagan nominated him in August 1987, the stock market suffered a 508-point drop in a single day. It was the worst one-day fall since the crash that led to the Great Depression in 1929.

Fed watchers say Greenspan's savvy engineering of interest rates and the money supply limited the damage caused by the crisis. He went on to preside over the longest modern-day surge in the U.S. economy, which lasted most of the 1990s.

But some critics complain that Greenspan failed to prevent the "irrational exuberance," in his famous words, that led to the dot-com bubble and its collapse in March 2000.

With the GDP barreling ahead at 4% in the first quarter of 2005, and Greenspan raising the Funds Rate by just another .25% on March 22, some Fed watchers are questioning whether Greenspan is once again letting the economy grow too fast. And last month, Senate Minority Leader Harry Reid (D-Nev.) called Greenspan "one of the biggest political hacks" for backing President Bush's recent economic initiatives such as the privatization of Social Security.

The next Fed chairman, nonetheless, will be judged against Greenspan's insights and instincts. Though the successor won't share Greenspan's brain, he or she will have the same intelligence system: a network of some 500 economists at the Fed and its 12 reserve districts who will continue to analyze more than 1.5 million points of economic data via Sun Microsystems Solaris and Red Hat Linux servers.

It's a hard-to-replicate knowledge management system involving both humans and computers. Corporate leaders can only dream of having such an asset at their disposal.

Contributing Editor
Mel Duvall is a veteran business and technology journalist, having written for a variety of daily newspapers and magazines for 17 years. Most recently he was the Business Commerce Editor for Interactive Week, and previously served as a senior business writer for The Financial Post.


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