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. Go to the Federal Reserve Bank of Philadelphia and open the latest forecast report by clicking this link to Survey of Professional Forecasters. What is your reading? Is it time to watch the economy closely for an incoming downturn? Is the Philadelphia Fed’s forecast consistent with the six economic indicators we analyzed in the real-world applications three assignment?
Write your answer below this line. When writing, keep the following in mind.
“The Economy looks weaker now than it did three months ago” Says the federal Reserve Bank of Philadelphia. The annual growth rate is predicted to fall over the next few months. The federal unemployment rate is predicted to rise as well. The unemployment rate is currently 3.6 but predicted to rise to 3.8 by 2025. Inflation rates are said to increase as well as their risk of contraction of GDP which is now 33.9%. To Grappone my clients company I would recommend they slow down on their input of vehicles because there may be a potential downturn in the future. For now they should take inventory of all vehicles on the lot and then watch the treasury short-term and long-term interest rates. Imports is also volatile to their well being so even if our country has an economic downturn others may be seeing an economic boom. Because car companies see a downturn before the overall economy the housing market is also a great indicator of when a recession might occur. When Short-term interest rate become higher than long-term interest rates that’s when you can almost be certain the economy will see a downturn epesilly in the car industry.
| Question | Response from the company |
|---|---|
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. |
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. In order to develop an early warning system you need to first watch short-term and long-term interest rates. Secondly the housing market is the first to drop before car sales so it’s a great indicator of when you’ll see a decline. Watching other car companies sales is also important. The types of vehicles being sold and customer interest may change from year to year. Because the company is small employees aren’t a major factor when there is an economic downturn due to the limited number of employees. Even when the economy return they out source their jobs to get more work accomplished. |
| Question | Response from the company |
|---|---|
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. |
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. |
| Question | Response from the company |
|---|---|
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. |
Our staffing is very light, and we utilize outsourcing when we are busy. In a downturn we can return to in house production. |