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 Philidelphia Fed’s forecasting report runs consistent with the economic indicators that were previously analyzed in real-world applications 3. The economic forecasters spoke about high inflation as well as predicted unemployment rates which point to economic downturns. In the Fed report, forecasters pegged the Natural rate of unemployment increasing to 4.1 % and the inflation rate averaging at 6.7 %. Looking back at the six economic indicators we previously analyzed; high inflation along with increasing unemployment are historically trends of economic downturn and even recession. Over the last three major recessions, 2001, 2008, and 2020 the unemployment rates all sat around 4% before the recession hit - 3.9,4.4,3.5 respectively. All the while the Consumer price index which is known as a strong indicator for inflation rates, began to rise before an upcoming recession. The CPI rates were not nearly as high as the forecasted rate of the third quarter 2022 which is even more concerning. Bracing for an economic downturn is the smartest bet for companies to best prepare for a bumpy road to come. Comptus states they have light staffing and utilize outsourcing. Continuing this business model will be crucial. Having strong relationship between clients during downturns is crucial to keeping sales afloat. Outsourcing is seen as a strength for this small employed company, and continuing this trend will only allow them to better produce products that of of the highest quality which is one of their company motto. The Philadelphia Fed’s survey only further speaks to economic indicators pointing to a slowing economy and economic downturn. Every word being echoed aligned with the economic indicators, most importantly the CPI and Unemployment rates. Now is the time for businesses to closely watch for an economic downturn. Looking into other economic indicators such as the Consumer Sentiment Index will all businesses to understand that we are seeing rates unlike ever before. Consumer Sentiment is at a record low of -41.5 % which is well below the previous lows under past recessions. Using this data will only help prepare managers and companies for what is to come during this downturn.
| 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. |
| 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. |