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.
Managers should use macro economic forecasts to help them predict what the future will have in store for them. Based on the Fed’s report we see that the Real GDP Forecasters expect a less growth in the GDP from the last report going from 2.5% to 1.4% in Q3 of 2022. We also had a 1 in 5 chance of having negative quarter now it’s up to a 1 in 3 chance.
Also they now predict unemployment to increase from there predictions from last quarter. Also the monthly rate of job gains from 2022 to 2023 is predicted to drop from 487,500 to 167,600.
Now looking at the data from Real World Applications 3 data when in past recessions there has never not been a decrease in Consumer Sentiment Index and right now the Consumer Sentiment Index has dropped like a rock. Looking at the unemployment rate percentage whenever that rate has risen their has been a recession and history likes to repeat itself. With that being said according the Fed’s report on how it expects unemployment to rise I would expect us to be headed towards a recession if those predictions are correct.
If I was leading Grappone I would expect for their to be recession on our way, I’d make sure that all new car orders could be filled. I understand that the whole car market is still hot. Especially with the chip issue, but with that said once the supply chain finally sorts itself totally out I would hold on carrying a lot of excess inventory. Also you might want to hold off on doing any large expansions or big projects unless necessary for the business to survive or grow. Like what I mean by that I understand Ford wants it’s Dealers to pay $1.2 Million if they want to sell their electric vehicles if I was them I would make that investment. However I wouldn’t go buy a knew dealership or expand the size of one at the moment. I would wait and see what the next year brings especially with how our economy is headed.
Sources: Week 4: Real World Applications 3
Third Quarter 2022 Survey of Professional Forecasters (philadelphiafed.org)
| 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. |