A business manager, to assess the risk of a regional recession, needs to monitor the national economy in each of their regions.
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.
The regional production structure is when the manager is assessing the risk of a regional recession. The first step that they should take is by looking at the national economy, and then look at the regions economy and see how similar they are to each other. The closer the similarity index is to 100 is how close the region is to the national economy.
There are many different factors that go into the internal regional cycle for example monetary policy, oil shocks, waves of optimism, and pessimism. These are all different things that may impact the country or worlds cycles. With these being pivotal factors in the internal regional cycle there other factors that can play into it such as if there is migration into a region then there is a demand for new things causing construction booms and that a construction boom is very important for our understanding of an internal regional cycle.
There are two areas of long-term regional growth and that is Alaska and Arizona. For Alaska what drives long-term growth is that there are a lot of job opportunities with-in the state, its broad history, the population. There was a lot of opportunities to profit long-term with jobs such as mining gold, construction oil pipelines, and also building defense facilities, but afterwards when done with projects they would end up leaving the state and move elsewhere until a new project came along. The Arizona answer can follow the same principles however in Arizona jobs that are done there are also capable to be done elsewhere therefore the reason for what drives long-term growth is that the state is very big in financial services for places like banks, they also have a lot of facilities that are not tied to their resources. People did not come to Arizona for big jobs they wanted to just live there which is why the business expansion moved over to Arizona to focus on taking advantage of the location.
One issue that usually is ignored is regional economic policy. Whenever there is a downturn the government announces a plan to get our economy back on track. States or local economies are not able to change any of the factors behind business cycles but they are able to provide other types of financial compensation.
Economic policy cannot help a region but it still is very important to long-term growth. And a good policy will not reverse a recession. Good tax policies involves no state tax or at least a taxing at a low rate overall. Another strong policy direction is having a regulatory system. This makes it easier for businesses to reform if needed.
Sellers and producers have a different economic cycle from each other. When a business is selling goods if they are are in specific regions they will end up suffering later on when that region goes into a recession.
Regional and national warning systems are very similar to each other. But information from the regional data has to be applied.
| indicators | |
|---|---|
| national economy | |
| national cycles of the industry | national automobile sales for car dealers |
| local economy |
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| population and migration | housing permits, drivers licenses |
| consumer spending | state sales tax: drill down to exclude construction materials |
Dealing with a regional downturn begins by checking to see if your region is following in the same path of other regions, if this is the case you will want to look at the national economy and see if they are similar or are if they are different. If there are more differences than similarities you are more likely to be in danger of falling into 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. |
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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.
The location quotient reflects the measurement of importance to a region
Leakages are what keeps cash flow continuing
Marginal cost is when you have excess capacity and you have to pay to produce more.
Describe the characteristics of the following events briefly.
In the 1970’s in Idaho the population was growing at a rapid pace around 3% each year. By the 1980’s the growth had started to finally decline. Construction had fell 31% from 19,000 to 13,000 which ended up caused the employment rate to dip down 2%. This ended up having population start slowing even more.
Hawaii had ended up suffering for four years with employment declining even though their economy was growing steadily. The reason for this was because Japan had ended up entering a recession and the ripple effect that it had was that tourists spending had dipped down.