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.
| 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. |
The banks economic recession usually occurs after the general economics take the hit, this would lead to the banks having a little more time to act upon incoming recession. Though, they still have to be reliable for their customers so they have the ability to recover from the recession. This means that they would still have to use their early warning system to be prepared. These system would be changes unemployment rate, Consumer Price Index, and Gross Domestic Product. Negative changes in these indicators might not always indicate a recession but usually always lead to hard times for our business.
Looking at the forecast from Fed it looks like we will have a harder quarter than the last one. We will still have a growth of the GDP but it will be 1.1 percent units lower than what was first predicted. It was also predicted that this slow growth will continue for the next three quarters. As far as the unemployment rate, it is also predicted to grow on an annual-average basis. Even though they expected the next quarter to show signs of job growth they said that the two after will be a downturn.
Looking at this information, I would recommend Bank of New Hampshire to prepare for a downturn/recession. I would evaluate the strengths and weaknesses of the bank, develop automatic protection in case of a recession, And consider quantitative easing policies as a last resort. I would also lower short-term interest rate and buy assets, as these actions will directly affect the economy and signal the bank’s intent to keep monetary policy accommodate for longer.
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| 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. |