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

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

• the overall national economy usually has a greater effect on a region than any other factor. The composition of a regions output, in conjunction with the composition if national economic growth, is the next greatest factor on a regions economic performance.

Internal regional cycles

• The factors that cause business cycle usually operate across all of the regions of a country. The largest driver of internal cycles is population growth.

* What drives long-term regional growth?

• Changes in a regions population growth rate can cause the states economy to accelerate or decelerate. A state that is growing rapidly has risk that other states don’t have, due to a potential decline in population growth.

Economic policy

• State or local economic policy has little effect in the short run.

* Economic Policy for Growth

• Regional producers benefit from weak local conditions, and they are hurt by local economic strength. Every company competes against every other business, nonprofit organization, and government agency for labor, land, and other productive resources.

Production in a regional economy

• A business selling goods in a particular region will suffer when the area goes into recession. The business that only produces goods in the region will benefit from a local recession.

A regional early warning system

	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

Explan 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)

• is a measure that shows the importance of an industry to a state or metropolitan area relative to that industry’s importance to the national economy.

Leakages (page 212)

• Money being taken out of the economy, and not being used elsewhere in the economy.

Marginal Cost (page 219)

• the change in the total cost that arises when the quantity produced is incremented the cost of producing additional quantity.

Economic events

Describe the characteristics of the following events briefly.

the case of Idaho in 1986 (page 211)

• Construction activity fell by one third as population growth slowed. This pulled total employment down by 2%, just from construction alone, before any ripple effects were considered.

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

• Hawaii suffered 4 years of declining employment in the mid 1990s even though national economy grew steadily. The problem was that Japan has entered a severe recession, which reduced tourist spending in Hawaii.