A business manager, to assess the risk of a regional recession, needs
to monitor: Business managers need to know certain regions of the
country go up and down differently to the national economy. In order for
manager to assess the risk of a regional recession they must focus on
the local economy. Managers should focus primarily on production instead
of sales to watch for the severity of an incoming recession. Other ways
to look for a recession include tracking the local swings and it
affects. Managers need to pay attention to this since it can greatly
affect a companies local labor rate and real estate market.
## 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.
First when looking at a regions production structure you must look at how similar your region is to the natural economy. This is done by looking at a regions similarity index, closer the index is to 100 the more similar your company is to the national economy. Overall the economy is the biggest national driver but it is important to recognize the differences in region could be catastrophic for a business. For example when energy prices start to boom Wyoming also sees a boom. But when the opposite happened and prices started to fall Wyoming also fell with it. This points out one of the many difference that can seriously affect a regional economy. Next we need to find the state key industries. One of the methods in finding a key industries is use a location quotient, a formula used to measure dependency of a region on a specific industry. Next you should determine how much bigger an industry is in terms of dollars by using Dollar difference.
Sometimes in a region they can have there own business cycles specific to them. Factors in these regions business cycles include monetary policy, oil shocks, and waves of pessimism and optimism. Local cycles are caused by variations in regional growth. Increases in population can be a big influence in the local economy. Increases in population can will affect everyone since it creates new needs for housing, stores, and offices. Overall one of the biggest signs of growth in a regional economy is lots of new construction.
Regional growth is told to be driven by one of two options. Alaskan thesis is saying according to them jobs attract people to new locations. While in Arizona the thesis is that people leave for quality of life, and the jobs follow. Overall it is said that the Arizona method is more accurate cause it can be seen that people are willing to take a pay cut to live in nicer areas. When people move to your regional area new jobs and business are bound to follow since business see the opportunity after people see opportunity. This explains why most states that that are fast growing see more stable growth rates.
When looking for local economic policy you should look to the governor statements on how he will get the economy going again. Unfortunately this plan usually affects the local economy very little. Plans can be ruined since the policy is usually made to late to have an affect. Tax cuts can also be used but these usually aren’t very effective. Overall in a local economy you should be resisting the governments help efforts to raise the economy.
Managers need to know that policy is less important for Short-term growth but very important for long-term growth. What this means is the effects that policy has only adds to growth rates and will not reverse recession. Good economic policy for growth involves little to no state income tax. Economic growth is seen at a much faster pace than areas with no income tax. Good economic policy for growth offers an easy-to-navigate regulatory system. This makes it easier for business to grow because they will be working against less rules and regulations. Many times tax credits are given for companies at this time for companies moving in to encourage more business. During a regional downturn local vendors offer companies a much better deal. But, while the regional economies are strong local vendors offer worsened pricing.
Production in a regional economy is affected since during a regional downturn local vendors offer companies a much better deal. But, while the regional economies are strong local vendors offer worsened pricing. This is not the same for business selling in the region
Managers should first identify key industries for region for there early warning system. Then key industries should be monitored my management to look for downturns. It is important to understand and track theses industries even if you aren’t involved since subsequently if that business goes down in earnings so will your company. This is because the main industry is what most of that region is dependent on. Meaning if they go down everyone goes down with the ship. Personal income is a good method to measure state economies, but it is published with a 3 month time lag. Essentially this makes it more useful for historical research +———————————+———————————————————————————————————————-+ | | indicators | +=================================+======================================================================================================================+ | national economy | | +———————————+———————————————————————————————————————-+ | national cycles of the industry | national automobile sales for car dealers | +———————————+———————————————————————————————————————-+ | local economy | 1. nonfarm payroll employment available for states, metropolitan areas, and counties, | | | 2. personal income is more appropriate for historical research for its time lag and frequent and radical revisions, | | | 3. state income tax, especially withholding | +———————————+———————————————————————————————————————-+ | population and migration | housing permits, drivers licenses | +———————————+———————————————————————————————————————-+ | consumer spending | state sales tax: drill down to exclude construction materials | +———————————+———————————————————————————————————————-+ | | | +———————————+———————————————————————————————————————-+
Dealing with a regional business cycle starts by seeing if your region is moving the same direction as other regions. As the differences from the national economy add up it makes your region more in danger. In order to deal with a recession in a regional business cycle a company can attempt to use extra space in production facility to sell outside there traditional market. It is also important to take advantage of the fact that producers get good deals on labor during recessions. Managers should insist on locking in long-term lease rates buy real estate that you have been leasing.
| 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. |
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| a company only producing in the local market | Follow the pattern described in chapter 7 with no additional local considerations. |
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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:
Explain the terms in your own words briefly.
states the amount a state or regional area relative relies on a industry
Money taken out of economy not used for consumption but elsewhere examples: savings, taxes, and imports
How much money a company would have to spend to produce one unit of a companies product.
Describe the characteristics of the following events briefly.
In Idaho the state saw a rise in population of 3% a year in 1970. But during the 1980s growth began to decline. This caused construction to see a loss of 6,000, jobs dropping the unemployment rate down 2%. An economy that see’s high population growth is shown to have more risk if the population declines like it did in Idaho.
During this time Hawaii was in a 4 year streak of declining employment but, the US was economy was shown growing steadily. Reason for the difference was because Japan was going through a recession reducing tourist spending. Overall this is a perfect example of why we need to pay attention to the regional economy. Since different regions are reliant on different industries there are bound to be difference and these difference can make or break your company.