The author writes on page 31:
"At the beginning of 2001, the economy was not in recession. The fourth quarter of 2000 data had not been released but would, in time, show that the economy had grown by 2.2 percent in twelve months. Forecasters were nervous, however. The consensus forecast published by the Federal Reserve Bank of Philadelphia in February 2001 predicted a mere 0.8 percent growth in the first quarter. Also of significance, the forecasters had revised their numbers down from 3.3. percent growth in the prior survey three months earlier. That should have been a tip-off that the economy needed watching... However, executives who saw the lowered forecast in early 2001 and thereafter watched the economy closely were in a far superior position to those managers who chugged forward as if nothing were amiss."It shows how a business manager should use macroeconomic forecasts.
1. Access the Forecast Report: Go to the Survey of Professional Forecasters and open the latest forecast report.
2. Analyze the Forecast:
- What is your interpretation of the report?
- Where do you think the economy is heading based on the forecast?
- What is the likely next move by the Federal Reserve (e.g., raising or lowering interest rates)?
3. Discussion and Recommendations:
- Cite the Fed’s Report: Incorporate key points from the report to support your analysis.
- Comparison: Compare the Fed’s forecast with the economic indicators you analyzed in the Real World Applications 3 assignment.
- Business Recommendations: Based on your analysis, should your client company start monitoring the economy closely?
Make sure to use evidence from both the Fed’s report and your previous work when discussing the economic outlook and advising your client.
Question to the businesses Sales can swing wildly. If the company’s too slow in responding to a sudden drop in sales, it could go bankrupt. If it is too slow in responding to a large upswing, it could lose its market share. It could even develop a reputation of an unreliable vendor.
Please, discuss your early warning system, if you have one.
| Business | Response from Business |
|---|---|
| Grappone | The level of our car inventories which we watch closely is a great early warning indicator. In the car business, we get to see what our competitors are selling daily so we have perspective on not just what we are selling, but how our competitors are fairing as well. Certainly, we pay close attention to what our manufacturing partners are telling us as well as the National Auto Dealers Association, our industry trade group. |
| Bank of New Hampshire | The bank builds up loss reserves, conducts expense reviews, tries to maximize yield on assets, looks to sell less profitable assets, e.g. low yielding loans. The bank also conducts various annual stress tests and scenario analyses to identify potential problems that could arise during an adverse economic event. Corrective action is taken to mitigate these risks if the exposure is outside of acceptable ranges. |
| Comptus | Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production. |
| GDS Link | Our sales are not that wild. To sell one of our systems, it usually takes the sales team 4 to 6 months from the first contact to get to a contract. There is a pipeline of “prospects” (finance companies actively engaged with the sales team) that are moving through the sales cycle. If 10 go into the pipeline, usually 2 end up signing a deal several months down the line. GDS monitors that pipeline to insure we have enough qualified leads (engaged prospects) coming into the pipeline each month. If we see that diminish, we know we will have growth shortfalls in the near future. This is our main leading indicator. Since our business is subscription based (companies paying us monthly to use our software), revenues are fairly stable. They don’t fluctuation much. Our greatest danger of reduced revenue comes from attrition. This is when companies cancel their subscription and stop using the software. This is not very common, but something we have to monitor. GDS contracts bind clients fairly tightly to our system. Big penalties for cancelling early. GDS systems are deeply embedded in their businesses. It’s hard to change GDS for someone else without spending a lot of money and risking business interruption. To monitor attrition, we look at Change Orders. Change Orders are current clients asking us to enhance their system with some new service. If clients stop asking for Change Orders, GDS wants to engage with them to ensure they are not having second thoughts or engaging competitors. Nothing worse than a early cancellation. Since it is infrequent, we watch for it carefully. |