Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
You cannot and will not be able to exactly calculate how the economy will go over time. Sometimes a forecast is good, sometimes it isn’t, because anything can happen in the time of a snap. Knowing how the economy affects a business helps in many ways. Economics can help you understand how cost increases/ decreases in times of upturn and downturn. Business decisions are about the future. Another thing to keep in mind is the percentage changes, a slight change in percent from the original forecast isn’t wrong per say but there should be some changes in your future forecasts when looking at your previous history and numbers.
Managers need to know when downturns and upturned sales are occurring and coming they also need to know when the economy accelerates or slows down. Business owners and managers should know how deep declines will be and how steep growth will be. They should also know when sales are in depression versus how long booms will last. Recessions happen occasionally but not on fixed schedules, and can range between months to years. Costs don’t fall as much as sales fall which means that profits decline. Housing, government spending, imports and exports are all affected within the cycles of the economy.
Chapter 3 talks about anticipation and recession in downturns, managers need to understand what actually causes recession. The signals of impending recession and downturn and the economy help businesses prepare. Monetary policy is the most common cause of recession what’s sudden increases in prices of key Goods. Business Leaders tend to move in waves of optimism or pessimism causing boom or bust cycles. Monetary policy has to do with the Federal Reserve influences with how money supply and short-term interest rates are affecting consumers. The errors and monetary policy is the most common cause of recession and works with long time lags. A wide variety of factors can hurt the economy; most are not strong enough on their own to cause recession but multiple added together can trigger downtown.
Three types of inflation rates are commonly discussed: the consumer price index, producer price Index, and wage inflation are focused on ways to read how inflation is affecting people. Crude material prices are highly volatile and have low average growth rates which is important for crops oil and steel scraps; wild price fluctuations happen on a regular basis. Labor costs are responsible for the higher Trend growth of the Consumer Price Index. The economic theory of long-term growth and inflation has two conclusions; the Federal Reserve cannot reduce unemployment except for the temporary time and that low inflation is preferable to high inflation for both consumers and producers. Inflation occurs with a long time lag. The Federal Reserve policy starts the fight against inflation when it anticipates inflation.
The key steps to managing a business cycle include assessing the company’s vulnerability to recession, sketching out a contingency plan for dealing with recession, building flexibility into day to day operation, and developing an early warning system for identifying downturns in the future. Industry data is often the best way to gauge your business’s vulnerability. Planning to develop a contingency plan helps with dealing with the economic downturn. Another important thing to do during a downturn is to keep relationships with your vendors and customers in order to survive in bad times. Limiting decisions made and increasing flexibility in the future can help a business during an economic downturn.
Sales will speed up or slow down and sometimes their temporary slips in the system but this could lead to recession and an early warning system should be in place. Monitoring system should have these four parts: macroeconomic warning signals, end user information, customer sales forecasts, and critical costs. An early warning report should be prepared consistently and regularly. Current sales report should include a drill down of major surprises, and the sales forecast should also be developed in consultation with customers for ongoing sales. You should have costs in the early warning system if your company’s expenses rely on one or a few major items that are potential to cause price swings. Business owners should also realize that things do not always go as expected.
Companies will all have different steps when managing in the business cycle and recession depending on the company, the size of the company, what the company does. Some of the considerations for managing in an economic downturn include the capital spending, the employment, inventory, accounts receivable, lines of credit and relationships with customers and the banks. This means limiting new hires, reducing money spent on things that aren’t needed, and monitoring inventories closely. When companies find themselves in a survival situation in terms of the business they should consider bringing in a turnaround specialist. Opportunities during recession include putting products in favorable pricing through the long-term contract and purchasing additional capacity from competitors, and looking at competitors who have cut back on sales and service. Managing a recovery begins with ensuring capacity to expand production. And when managing in a boom you should get the finances in order including the credit lines as well as reviewing the contingency plan for the next downturn.
Companies that operate in foreign markets need to be concerned about business Cycles in multiple countries, not just their own. Oftentimes Business Leaders need to do more preparation to achieve flexibility in multiple countries to ensure their business stays afloat. Monetary policy is big around the world but it has other names. The policy is usually determined by treasury officials in outside countries other than the United States. In many countries monetary policy serves short-run political interest, politicians use this in order to gain popularity and votes. Countries are also susceptible to supply demands changing and short supplies are a risk. War, exchanging money, and financial crisis have all had an effect on the way that imports and exports work around the world. Plans for an alternative supply chain should be in place including utility service.
The national economy will almost be the largest single driver of the regional economy, every region does have swings that are distinctive relative to their state or metropolitan area. Sometimes states also face their own economic cycles associated with their Construction swings. And usually the overall National economy has a greater effect on a region than any other factor.changes in a Region’s population growth or decline can cause states economy to accelerate or decelerate. On the state or local level economic policy has little effect in the short run. For an early warning system, regional companies should track the data on the major industries in that region as well as the unemployment data. Finally an executive needs to know if the local conditions match the conditions in the nation and other nearby regions.
All industries go through cyclical fluctuation. In industries that are not Capital intensive new capacity can be added quickly, and imports and exports also have effect on this. Capital-intensive Industries are very prone to cycles of overbuilding because of the capital intensity itself, long lead times to put new capacity in place, and low rates of depreciation. The result of these three elements is that industry is prone to severe swings of overcapacity and under capacity. Pricing swings in the opposite direction with huge profits when the industry underestimated its future need for capacity and large losses when too much capacity is in place. A capital-intensive company’s early warning system must include indicators of new capacity being added into the industry. Finally capital-intensive businesses face additional problems other companies don’t have to face as they are vulnerable to profit killing cycles of overbuilding and must add additional layers to their early warning system.