A business manager, to assess the risk of a regional recession, needs to monitor the national economic cycle, the national cycle of the most important industries in the state/region, and the internal growth cycle/the regional economic cycle of the state.
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.
A business manager needs to know how similar the state economy is to the national economy. To do this you can compare the cycles of GDP. It’s also crucial that a business manager knows the most important industries in the state, the major drivers of the local economy. You find the most important industries using the metric, location quotient; the industry is equally important in the state to the national economy.
Population growth is the most significant factor driving internal regional cycles. Population growth leads to construction boom which is a significant driver of the states economy. This is why it’s crucial as a business manager to watch regional cycles by monitoring construction cycles.
State and local economic policies have very little effect on the economic cycle in the short run.
In the long run, good economic policy matters. Example; no state income tax
A business manager does not have to consider local aspects if the states economy is similar to the national economy. If the states economy is different from the national economy a business manager must consider local aspects.
| indicators | |
|---|---|
| national economy | |
| national cycles of the industry | national automobile sales for car dealers Depends on the industries. Find the most important industries in the state and look at the national cycles of these industries. |
| 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
| 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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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:
Explain the terms in your own words briefly.
measurement of how important an industry is relative to the reference bigger economy
location quotient of one means the industry is equally important in the state to the national economy
greater than one means the is industry is more important to the state than to the national economy
less than one the industry is less important to the state than to the national economy
Some state and local economic policy that is not effective has little impact on the local economy because of various leakages.
when money leaves the economy, loss of funds
Increase in total cost when produce additional unit of output. This is significant in profit maximization because the marginal cost is 0 or close to 0 usually increasing production means higher profit.
Describe the characteristics of the following events briefly.
Idaho in 1986 experienced significant population growth which lead to a construction boom. When the population growth slowed, it had a significant negative impact on the states economy, resulting in construction activity falling by 1/3. This lead to a decline in employment by 2%.
Hawaii in the mid 1990s suffered years of decreasing employment when the national economy was very strong. This was caused by Japan suffering from a severe recession which lowered tourists coming to visit Hawaii.