Write one key takeaway per chapter. Write at least 100 words for each chapter summary.
Chapter one focuses on how business managers should make certain decisions for their respective companies. Business decisions are and should be about the future and using economics to form a more well-rounded vision about the future is a better method when forecasting for your company. Business managers should focus on the broader spectrum of changes compared to specific numbers because that can really narrow ones decision making if its too focused on certain numbers. So much of this book speaks to predicting and preparing for the economic cycle, but the biggest takeaway this chapter gives us is how you can better prepare if you use broadened economics to better gauge where the economy is going so your business is better prepared.
Consumer spending was a big topic of conversation in chapter two. A big takeaway is how consumer services are the most stable part of the economy while consumer spending on durable goods are more cyclical compared to that of non-durable goods which is considered well more stable than that of the overall economy, though not recession-proof. This can be important to dive deeper into depending on your companies sector in the economy. Services tend to be more stable as they are needs rather than wants and desires so they tend to whether storms greater than that of discretionary items and the automobile industry. Having an understanding of how consumers spend on your sector of the industry can help business managers better predict future sales wwhen looking at the economic cycle for their businesses.
Monetary Policy was a key takeaway from this chapter. They are the actions taken by a countries monetary authorities to control and create economic growth. Actions can include raising or lowering interest rates to stabilize inflation. Monetary policies are able to effect employment rates as well as GDP rates.Gauging monetary policy changes can made simple. Low unemployment and rising inflation will cause the Fed policy to go at or above neutral. The chapter speaks to the importance of rate hikes and their commonality when inflation is considered high. Changes in monetary policy usually come when the unemployment numbers along with the inflation numbers change.
Chapter four speaks to the fact that businesses must be aware that the basic driver of Fed Policy comes down to two things: Low inflation and the matter that inflation comes with a time-lag which means the Fed will fight inflation once it anticipates the matter, not when inflation begins to increase. Businesses vulnerable to cost swings can use this trend as a key part of their early warning system by putting in price indicators to help gauge future trends. Depending on business sectors, managers can use certain methods to lock in prices to protect against inflation, but preparing for this is only protecting company finances when inflation increases and a recession is around the corner.
The importance of building flexibility into a business is crucial when good times turn bad. “Relationships between vendors and customers need to be managed in the good times with an eye to survival in the bad.” The author William Conerly proves business decisions of the most basic principle can limit or increase flexibility during tough times. The chapter speaks to how Capital spending is a great example where companies plan for booms while also protecting against recessions. This usually is a judgement call, but it creates more flexibility when you consider all judgement before making the final decision on spending or minimizing spending. Looking for any and all options to create more flexibility only strengthens ones business during economic downturns.
The major takeaway from this chapter is that people must accept that things don’t always go as planned. Holding onto previous viewpoints and opinions that are unaligned with real time data and evidence contrary to those views is a huge mistake. Successful managers are willing and able to accept evidence of changing conditions which will only further protect the companies outlook. Being able to separate the signal of change from the overall noise is what can determine if businesses and their managers are properly prepared when downturns come - this is the key to the early warning system. Not only does this step create better communication throughout the business, it allows greater flexibility in preparing for an eventual economic downturn.
Taking advantage of both recessions and booms can separate good businesses from great businesses. Obviously, Recessions are bad for business, but some businesses can use this as an advantage to their company. Using major companies financial and economic struggles as a purchasing opportunity can help small operating expense companies. Different companies have different opportunity, but firms who prepare for recession will have a better opportunity to take advantage of a recession. This leads into the importance of managing through the boom. Companies should use a boom to get their finances in order along with creating more credit lines. Comparing the least profitable sale price to the cost of the last few percentage points of production is important to protect costs form soaring. To best prepare for a downturn during the boom, manager’s should review their business contingency plan..
A major takeaway from this chapter is the importance of understanding that underdeveloped countries differ in monetary policy compared to the United States. For example treasury officials can determine policy in other countries whereas the United States treasury has independence from the president and other branches of government. Understanding this is crucial if your company does business overseas. This is especially important to understand if a country you do business with are prone to commodity risks. Countries whose economy that’s dependent on one or two commodities can be prone to boom-bust cycles caused by price fluctuation of those commodities. Countries with less to offer tend to be a area of risk for business. Being prone to bust cycles can cause greater issue in supply lines for these products. Many underdeveloped countries suffer from this trend and businesses must be aware of monetary policy that can shift the cost of goods and prices when importing/exporting.
Changes in a regions population growth are the main factor in causing a states economy to grow or shrink. This chapter speaks to two answers: The Arizona and Alaska answer. The Alaska answer theorizes that jobs attract people to a region or area. The Arizona answer states that people move for quality of living and jobs will follow. This is seen as the most common trend for regional growth across the United States. A change in a regions population growth is seen as a main factor in causing states economies to grow or slow down. Businesses must be aware of this trend especially if they are struggling with sales and hiring.
Chapter ten speaks to how captial intensive industries are different than other sectors of the economy. These industries are prone to cycles of over-investment in capacity which can cause lengthy periods of unprofitable business operations. These business cycle can be worsened by extended lead times for capacity additions along with low rates of depreciation. Low depreciation damages the industry way more than the overall economic cycle. In preparation, capital intensive industries must include indicators of new capacity being added to their early warning system. These businesses face additional issues that other companies do not. They’re more vulnerable to profit-killing cycles of over-building. Attention to adding systems of monitoring industry-level capital investment is important.