Week 3: Best Practices 2

Ch2 Cycles in Your Sector of the Economy

## # A tibble: 1,096 × 5
## # Groups:   symbol [8]
##    symbol date       price   change text                
##    <chr>  <date>     <dbl>    <dbl> <glue>              
##  1 GDPC1  1947-01-01 2034. NA       1947.1,
## Growth: NA   
##  2 GDPC1  1947-04-01 2029. -0.00267 1947.2,
## Growth: -0.3%
##  3 GDPC1  1947-07-01 2025. -0.00207 1947.3,
## Growth: -0.2%
##  4 GDPC1  1947-10-01 2057.  0.0156  1947.4,
## Growth: 1.6% 
##  5 GDPC1  1948-01-01 2087.  0.0150  1948.1,
## Growth: 1.5% 
##  6 GDPC1  1948-04-01 2122.  0.0165  1948.2,
## Growth: 1.7% 
##  7 GDPC1  1948-07-01 2134.  0.00573 1948.3,
## Growth: 0.6% 
##  8 GDPC1  1948-10-01 2136.  0.00112 1948.4,
## Growth: 0.1% 
##  9 GDPC1  1949-01-01 2107. -0.0138  1949.1,
## Growth: -1.4%
## 10 GDPC1  1949-04-01 2100. -0.00341 1949.2,
## Growth: -0.3%
## # … with 1,086 more rows

Chater Openning Questions

Managers need to know:

• the managers need to know about fluctuations in his or her business. Downturns, and upturns in sales. as well as the economy accelerates or slows down, how steep the incline or decline of the sales will be. how long the sales will be depressed or how long the booms lasts, and if we can raise the process to much in sales. the managers need to know when the prices will rise or fall, the economy plays a major role in finding out this information.

Solution

your customers/products	magnitude of spending changes	timing of spending changes
consumer services	very stable	coincident with GDP
consumer nondurables	stable	coincident with GDP
consumer durables	volatile	coincident with GDP
housing construction	very volatile	leads fluctuations in GDP
capital spending	very volatile	lags fluctuations in GDP
govt. spending, federal	moderate	not always corr. with GDP
govt. spending, state & local	stable	lags fluctuations in GDP
exports	volatile	not corr. with GDP
imports	volatile	varies depending on product

Historical Experience

Gross Domestic Product

the data used in the graph are adujested for inflation and they represent actual quanities instead of actual amount of sales. not every decline in dp resluts in a recession. Declines in economic growth of .1-.2 percent are usually felt by the business but don’t threaten survial. recessions help business managers help externial wins that helps you pick and choose what you need to do to help your business.

Profits across the Economic Cycle

profits include specific episodes from one to another, profits are more volatile than a normal recession. instead of getting caught up in the argument about recession or not the business managers, need to understand that this process might weaken their business and this is especially important because, the manager has just brought a large sum to build extra capacity to serve what is explicitly growing to rapid demands, which could backfire.

Consumer Spending

GDP vs Consumer Spending

GDP vs Consumer Services

GDP vs Consumer Durables

GDP vs Consumer Non-Durables

Consumer spending on durable goods, especially big-ticket discretionary purchases, is a highly cyclical sector. Consumer spending on nondurable goods is more stable than the overall economy, but not enough to be considered recession-proof # Housing

GDP vs Nonresidential Construction

Housing construction is one of the most volatile sectors of the economy. Housing construction tends to lead the rest of the economy, in both expansions and contractions. # Capital Spending Business capital spending is very volatile. It lags behind the overall economic cycle, with especially long lags for large, big-ticket items with long lead times, such as office buildings and airplanes.

Government Spending

Federal government spending is usually not correlated with economic cycles.State and local government spending is strongly affected by the economy, with larger effects in states dependent on income taxes. Spending changes are lagged relative to the overall economic cycle.

Exports

Exports display large swings, but they are not strongly correlated with the American economic cycle.

Imports

Demand for imports varies with the underlying domestic demand for that type of good or service.

Economic terms

Explan each of the following terms in your own words. The author explains the terms in the textbook. If necessary, you may also Google the term on the Web. Good resources include:

• The Economist
• Fun economic videos

Gross Domestic Product (GDP)

market value of the goods and services produced in the U.S.

Real versus nominal GDP

Real gdp is inflation adjustment and nominal is data not adjusted for inflation

Gross National Product (GNP)

the total value of the goods and services produced in a nation

Recession

Recessions happen occasionally, and usually lasts averagely less than a year. Also no recession is inevitable, but the occurrence of some recession in the next 10-20 years is inevitable.

Leading Indicators

Used to forecast changes before the rest of the exonomy begins to move in a particular direction, Also help market observers and policy makers predict significant changes in the economy.

Economic events

An economic event is an event that is consequential to a business entity, resultantly comprising transactions that are measurable in terms of monetary units. ## 2007 Great recession The Great Recession, one of the worst economic declines in US history, officially lasted for two years, from December 2007 to June 2009. the housing market dropped which fueled by low interest rates, easy credit, insufficient regulation, and toxic sub prime mortgages, led to the economic crisis, known as the great recession.