Week 10: Best Practices 9

Ch9 Regional Economic Cycles: Your Local Economy

Chapter Opening Questions

A business manager, to assess the risk of a regional recession, needs to monitor…

• The national economic cycle

• National cycle of the most important industries in the region/state

• Internal growth cycle of the region

Summary

Although a regional economic cycle is not perfectly synchronized with its national counterpart, it tends to move up and down with the national economy. In addition to the broader national economy, two other factors influence a regional economy: the national cycle of its most important industries and its internal growth cycle associated with construction swings.

There are two different perspectives to consider in analyzing a regional economy: when a company sells into a distinct local market and when a company primarily produces in a local market and sells into a national or global market.

Regional production structure

• You should determine how closely your regions economy mimics the national economy. This will help determine how affected your region is by the national economy fluctuations. States with large similarity will more closely follow the pattern of the national economy. You also must determine your regions key industries. If there is an economic downturn how will it affect those industries.

Internal regional cycles

• The biggest driver of internal cycles within the region is population changes. When there is an influx of people to the region there needs to be more housing built and commodities to support the current population. Slower growth of population causes there to be a decline in the number of houses being built.

* What drives long-term regional growth?

• When people move for a better quality of life the jobs tend to also follow. Sometimes the opposite happens where a region is known for having good jobs so they move there in hopes of getting one.

Economic policy

• Even when governors announce they will do something for states it often has very little impact on their overall economy. Watching the similarity index will show how closely your region follows the overall economy and how much state policies could affect you. Even when tax cuts are implements often other regions benefit instead of yours.

* Economic Policy for Growth

• Long-term policy won’t affect recessions as much as they’ll effect the regions long-terms prospects. People are moving to states that don’t have state income taxes. There tends to be faster economic growth in states with lower state income tax rates. There also should be a set fo state regulations for jobs sectors so people can be hired easily and changes can be made uniformly.

Production in a regional economy

• A business selling in region that’s in recession will suffer. Every company competes against each other, and labor and availability suffers when workers have many job opportunists available to them. It’s very hard to combat the national economy within the state or region.

A regional early warning system

• Indicate which industries are most important to your region then you can monitor those industries as one would monitor any other. A regional a local warning system should also be developed. Making a 12 month average of state revenue and drive-license population flow can help determine moving populations in and out of the state.

Action/Term	indicators
national economy
national cycles of the industry	national automobile sales for car dealers
local economy	nonfarm payroll employment available for states, metropolitan areas, and counties, personal income is more appropriate for historical research for its time lag and frequent and radical revisions, state income tax, especially withholding
population and migration	housing permits, drivers licenses
consumer spending	state sales tax: drill down to exclude construction materials

Managing in the regional business cycle

Dealing with a regional downturn

	the local economy is similar to the national economy	the local economy is different from the national economy
a company selling into the local market	Follow the pattern described in chapter 7 with no additional local considerations.	Sell outside the region
a company only producing in the local market	Follow the pattern described in chapter 7 with no additional local considerations.	Lock in long-term lease rates Buy the real estate the company has been leasing Enter into long-term contracts with local vendors

Economic terms

Explain 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

Explain the terms in your own words briefly.

Location Quotient (page 205)

• A statistic that measures the regions most important industries relative to the national economy

Leakages (page 212)

• When the regions money, materials, and jobs are being produced/utalized to people and other places outside your regional economy

Marginal Cost (page 219)

• The added cost by producing one additional product or service

Economic events

Describe the characteristics of the following events briefly.

the case of Idaho in 1986 (page 211)

• The population grew rapidly by 3% and a year later it began to decline again. Construction employment fell from 19,000 to just 13,000. Construction activity declined by 1/3 this pulled one of their most important industries down construction and they greatly suffered.

the case of Hawaii in the mid-1990s (page 215)

• Hawaii suffered from an employment decline even thought the national economy was doing great. The problem was that Japan a country who often visits Hawaii entered into a recession which reduced tourist spending. With less people visiting the state the less money they had in which they needed less employees.