Premium Essay

Analysis of the Recent Economic Downturn

In: Business and Management

Submitted By dorothyam
Words 2106
Pages 9
Page 1 Analysis of the Recent Economic Downturn

In 2007, strong growth in the third quarter lead most to believe that a recession had been avoided, however, this proved not to be the case. A decline in GDP growth is the cause of recessions. Typically, there will be a “goldilocks” economy or an irrational exuberance prior to a recession, followed by a market crash. Prior to the 2007 – 2009 recession, the housing market was going up. Everyone “knew” house values could only go up and behaved accordingly; banks lent too much money to consumers bought too much house. Once the market crashed, the stage was set for a recession. Many factors affecting the aggregate demand curve had declines. As mentioned, home equity declined, as well as the stock market. This decrease in wealth decreased consumption and consumer confidence leading to lower spending. As consumers cut back on spending, business confidence also fell with additional decreases in consumption and also investments. Additionally, foreign GDPs were also declining leading to a decrease in exports. The changes in these variables all caused a shift back in the aggregate demand curve, lowering the GDP. Attempting to counteract the recession, the Federal Reserve pumped money into the economy, increasing the nominal money supply. As the value of the dollar decreased, interest rates were kept low, allowing the exchange rate to remain favorable for exports. Additionally the government increased spending by way of stimulus packages for banks, automakers and tax rebates and incentives. These changes in variables caused the aggregate demand cure to shift out. However, the effect of the exchange rate, government spending and increases in the nominal money supply were small compared to the loss of wealth and confidence of both consumers and businesses. There were also changes in the aggregate supply curve; increased...

Similar Documents

Premium Essay

Bus Management 515 Dimco Supply Chain

...Analysis of the Business Cycle – The Beauty Salons By Jacqueline R. Jones Presented To Dr. Saad M. Khalil December 5, 2010 ECO550009016: Managerial Economics and Globalization Strayer University Abstract The scope of this paper is to investigate, prove or disprove the implications that due to our current economic status for the past twelve months our GDP (Gross Domestic Product) growth, inflation, unemployment, corporate profits and other data has played a relevant part on where our economy currently is in the business cycle today. It implies that these factors may play a significant part on our prospective for higher sales, labor cost and growth from a monopolistically competitive firm or industry. Various official U.S. sources on statistics have been complied and examined as well as information from numerous websites and articles and have been studied to see if these analysis are founded for today’s economy. Studies from the Labor Statics, the Bureau of Economic Analysis and the Federal Reserve Board have conducted, similar aspects on the business cycle pertaining to GDP growth, inflation, unemployment and corporate profits about the business cycle. We will also look at the of a monopolistically competitive firm (beauty salons) to see if they will experience growth when unemployment is low or what will happen when higher employment effect a downturn in the business cycle. According to the Burea of Economic Analysis the GDP (Gross Domestic......

Words: 1590 - Pages: 7

Premium Essay

Pest

...PEST analysis chart, you'll want to examine several external factors that may influence business operations and decision making, then classify these factors into four distinct buckets: policitcal, economic, social, and technical. Political factors are essentially how and to what degree a government's policy will impact a business's operations and decisions. Political factors include tax policy, labor law, environmental law, trade restrictions, regulations, tariffs, and political and economical stability. Governments have great influence on national infrastructure and the general education of the population as potential employees and customers. Economic factors are local, national, and international economic conditions that can influence a business's operations and decisions. Economic factors include economic growth, interest rates, taxes, consumer confidence, exchange and inflation rates. Social factors include lifestyle trends such as health consciousness, population growth rate, age distribution, career attitudes, and ethics. Trends in social factors also affect the demand for a business's products and how that business operates. Technological factors include R&D activity, licensing and acquiring patents, available research funding, communications, automation, technology incentives and the rate of technological innovation. Technological factors may determine barriers to entry, minimum efficient production level, and influence outsourcing decisions. PESTLE ANALYSIS......

Words: 852 - Pages: 4

Free Essay

Wal-Mart: Strategic Initiatives in a Changing Market

...Changing Market Local, state, and national economic trends play a large part in the success and failure of businesses. When the economy experiences a downturn, consumers spend less and seek more for the money they do choose to spend; this puts companies in a unique situation. Many companies must choose between increasing prices and letting employees go in order to keep themselves in business. The United States recession of 2008 put employers in the same situation; in fact, this recession put employers in an even more difficult position. The recession saw a decrease in employment of over 6 percent—double that of all previous postwar recessions (Auguste, Lund, & Manyika, 2011). The retail sector lost 1 million jobs during the most recent economic recession. Since then the industry has added over 90,000 jobs, but this still results in job losses offsetting job gains due to this rough economic time (McCall, 2011). Wal-Mart, like any other retail business, feels the effects of recent economic trends. Unfortunately, Wal-Mart has had to resort to eliminating health insurance coverage for part-time employees and increasing premiums for other workers in an effort to cut costs (Wright, 2011). This strategy, though unfortunate, allowed the company to cut costs during the recession without eliminating positions or increasing prices. Wal-Mart also implemented strategies to increase profits even before the economic downturn. In 2005, the company implemented......

Words: 1233 - Pages: 5

Premium Essay

Alcoa

...value of greater than 1 reflects that the volatility in the stock’s price is greater than the broad-based index. While this may be unappealing for risk adverse investors, many companies have a beta greater than 1 and this paper will examine and analyze the strengths and weaknesses of Alcoa’s beta analysis. To calculate Alcoa’s historical beta, we used weekly adjusted stock prices for dividends and splits posted on Yahoo Finance and weekly S&P 500 index value for the same period. The beta calculated using this data was 2.06. As shown on table 1 the correlation with the S&P market is significant, that is also evident if we plot the values together in the same graph, figure 1 shows a positive relationship between the market and Alcoa stock price. Table [ 1 ]: Regression Output AA and S&P Similar to other market indicators, it’s crucial to recognize that the economic downturn of 2008, as well as the recent recovery, resulted in Alcoa’s stock price and the broad-based index in general returning numbers that were disproportionately high. In several instances, variations over 5% occurred. Especially when Alcoa rebounded as the market remained flat. A three year analysis provides results which may not be indicative of the actual beta relationship that Alcoa maintains with the index today, therefore, several steps were also taken to obtain a more short term view of Alcoa’s relationship to the market. Figure 1: Scatter plot AA and S&P500 Calculating......

Words: 927 - Pages: 4

Premium Essay

Hershey's

...to create a smile for all candy lovers. The company has a large product line of candy. The core brands consist of the Hershey’s Bar, Hershey’s Kiss, and Reese’s. Hershey’s products are found in over 80 countries and Hershey’s strategically focused to increase international global market share. Currently, its business strategy is to focus on innovation of new products, core brands, and recent business acquisitions to maintain its stable revenue. Hershey’s 5-year compound growth rate is 6.8%, and the company experienced positive growth during the economic downturn. Overall, Hershey’s main competitors are Mars, Mondelez, and Nestle. RISKS As the economy continues to recover from the economic downturn, increased prices in the cost of sales will occur, especially as Hershey’s moves towards certified cocoa. Cocoa beans, sugar, and dairy show trends of increased prices; however, Hershey’s uses hedging instruments to minimize the impact of higher cost of sales. Therefore, the company is able to maintain the average cost of sale of 56%. Also, Hershey’s has lost international market share, but recent acquisitions Brookside and Shanghai Golden Monkey Food have recently shown improvement in international presence. Also, consumers demand for healthier chocolate candy is causing Hershey’s to invest in innovated candy. The company has kept up with customer feedback throughout the years. Figure 1 shows the net profit of Hershey’s compared to its major competitors and concludes its......

Words: 548 - Pages: 3

Premium Essay

Whole Foods Market Case Study

...Work list and recognition in health magazines. The vision is encompassed by the company motto “Whole Foods, Whole People, Whole Planet.” These principles are of the utmost importance to the company. By supporting the whole foods industry, healthier people from healthy food, and a healthier planet through green movement in agriculture and operations, this company is essentially promoting the way of life that best suits their ideal target market. By promoting the benefits of this way of life the company is promoting the products and lifestyle that it sells. Literally, the company is promoting its whole way of doing business and setting itself apart as the leader in green, organic, natural foods, and as a business entity. According to my recent...

Words: 1085 - Pages: 5

Premium Essay

Indian Bpo’s – Walking Up to the Philippines Opportunity

...Q 1 How has the global economic down turn, Discussing in opening profile and throughout this chapter, impacted jobs outsourcing in the BPO industry? Ans: The global economic downturn has impacted jobs outsourcing in the BPO industry as it has helped to be one of the largest job creators in India. Due to this, many companies had to increase their operations output and therefore employ more and more people to keep up with the expanding trend. Job outsourcing seemed to be the only viable option as global economic downturn had created many problems when it came to funding and financial institutions. There needed to be cut backs in order to keep things afloat and most companies would see that job outsourcing would solve at least one of the many problems involved in the economic downturn. The global economic downturn provided merges and many acquisitions for the BPO industry and helped to create certain flexibilities for some companies which helped with resource management. The main reason why the economic downturn has impacted on job outsourcing in a major way is because it is cost effective and helps companies concentrate on core areas. It also contributes to improvement in productivity. Referringto chapter, The International Institute for labor has discussed in the opening profile “The reason behind the global economic downturn is the financial crisis which is hitting the world of work”. The credit crunch and collapse of stock markets are starting to effect......

Words: 1545 - Pages: 7

Premium Essay

Business Proposal - Future Growth Inc

...key strategic business position, possessing a significant portion of the equipment finance market, and made the decision to improve upon their position by purchasing an equipment manufacturing company, which they accomplished in 1951. Because of this single managerial decision, the company was able to grow and be profitable for the next 55 years. The company stock has risen from $5 per share to $85.60 per share. The company has witnessed six stock-splits over the decades, and the current stock price is $35 per share. With the global market downturn beginning in the late 2000s, the once stable and profitable company found itself facing declining revenues, increased competition, environmental catastrophes, and political obstacles. The company was forced to lay off one-third of its labor, and watched its profits decline 30% in a year. Neither of these two events had ever before occurred in the company’s lengthy history. Objective Recent historical data indicates that FGI’s current managerial...

Words: 1668 - Pages: 7

Premium Essay

Rosetta Stone Case Study

...I. What are the advantages and disadvantages of Rosetta Stone going public? II. Conduct your own analyses to estimate the value of Rosetta Stone. How do these values compare with the current range? III. If you were part of the underwriting syndicate, what price would you recommend for the offering? IV. Should Mark invest in the IPO? V. What alternatives to the IPO might be available to the company? I. Advantages & Disadvantages of Going Public The main advantages of Rosetta Stone going public are that an IPO would allow them the capital to expand their business into new markets as well as build on the Rosetta Stone brand. The IPO would also help them establish business credibility as a public firm. As a public company, Rosetta could enhance their image and reputation with newfound capital. It may also be advantageous to proceed with an IPO as the market has shown encouraging signs after the crisis of 2008. Changyou.com, a video game developer recently went public at 6.5 times EBITDA. Likewise, Bridgeport Education has recently considered going public and estimates that they could do so at a range of 10-12 times EBITDA. This may indicate that an IPO would behoove Rosetta Stone as it would be a successful business decision. Furthermore, the language learning industry largely consists of self-study learning as it counts for $32 billion of the $82 billion industry. Going public would allow Rosetta to be a major market presence in a booming industry.......

Words: 1463 - Pages: 6

Premium Essay

Tata Group

...Tata Group is following policy of growth strategy based on Mergers & Acquisitions. So, Corus takeover is a part of a whole series of mega acquisitions in diverse areas since 2000. Tata Steel's acquisition of Corus of the UK clearly reinforces the strategic logic dictating `consolidation' in the highly fragmented steel industry. The historic merger of Arcelor and Mittal Steel laid the foundation for this deal. For Tata Steel, which has been pursuing inorganic growth in the Asian region for a while, the move into Europe appears to go well with its strategy of global growth. Tata steel chose the equity mode to enter the European market. Equity mode or Foreign Direct Investment is the principle way in which firms enter and compete in the modern global economy. Acquisition is the part of FDI. The acquirer inherits the company’s strategic assets (managerial, technological, and marketing resources), without having to build them from scratch, as would be the case when setting up overseas operations through Greenfield investment. Increasingly, acquiring strategic assets have become a motivation for OFDI from emerging economies Tata have chosen Acquisition for many reasons. Some of these reasons can be explained by theory, while others not. Now we will discuss the prime motives that encourage Tata to adopt aggressive Acquisition policy while entering European Steel Market. The main advantages to Tata by choosing Acquisition are as follows: Economy of scale: This......

Words: 860 - Pages: 4

Premium Essay

Robert Mondavi Swot Analysis

...Executive Summary & SWOT Analysis of Robert Mondavi and Wine Industry By Bilal Quadri Brad Ufkes Katie Leeb Shane Miller Saswat Tripathy George Brown College HOST – 4113 International Culinary Strategies Professor James Smith Thursday, March 31, 2011 Executive Summary Since 1966 Robert Mondavi has been creating innovative wines and today is one of the world’s finest brands valued at $600 million. Due to the recent economic downturn, Mondavi and general wine sales have slowed forcing the global wine industry to consolidate. Industry consolidations began to occur to New World producers by premium wineries purchasing or merging with rivals, jug wine producers’ acquiring premium wineries in order to keep pace with changing consumer tastes, and lastly alcoholic beverage firms diversifying into the premium wine market. Despite these types of consolidations Mondavi remained an independent company relying on the U.S. market for sales. While competitors spent money pursuing acquisition strategies, Mondavi chose to focus on the organic growth of its popular premier brands. Today the global wine industry reports retail sales ranging from $130 to $180 billion in the classifications of: jug or commodity, popular premium, super premium, ultra, and luxury wines. In the United States, jug wine sales had declined approximately 3% per year over the last 10 years, while premium wines increased 8% to10% annually. A shift toward high quality premium wines is......

Words: 907 - Pages: 4

Premium Essay

Fiscal Policy

...report is to give some insight into recent, current and forthcoming changes and adjustments in the monetary and fiscal policies of the EU member countries and the accession countries, particularly from the viewpoint of challenges of the enlargement of the euro zone. This report summarizes a more detailed analysis from the regional inputs to monetary and fiscal policy work output/input, where project’s research partners from both the EU and other countries provided their country-specific views on most challenging issues of monetary and fiscal policies for individual countries and/or groups of countries in their process of Eastward enlargement of the euro zone. In relation to the Eastward Enlargement of the Euro zone, it is crucial to take into account the experiences of current EMU Member States, the fiscal stances in candidate countries, together with their development possibilities, as well as the Community influence on shaping national fiscal policies. Fiscal situation and middle-term perspectives in EMU Member Fiscal situation and its development over the recent years in current EMU Member States was closely related with the requirements of Economic and Monetary Union. Therefore, it is important to elaborate on the fiscal criteria in order to understand the factors which were influencing shaping of fiscal policy in these countries, as well as challenges which await states eager to join the EMU in the future. 2) An explication of the economic principles. One of the......

Words: 1719 - Pages: 7

Premium Essay

Situational Analysis Rim Canada

...Principles of Marketing Essay Assignment #1 Situational Analysis Report Research in Motion Table of Contents Research in Motion Competitive Analysis OEM Market Share In September, 20.1 million Canadians ages 13 and older used mobile devices. Device manufacturer Samsung ranked as the top OEM with 25.2 percent of mobile subscribers in Canada, followed by LG with 20.0 percent share and RIM with 14.3 percent share. Apple ranked fourth with 12.0 percent share of subscribers, while Nokia rounded out the top five at 10.1 percent. Top Mobile OEMs September 2011 Total Canada Mobile Subscribers (Smartphone & Non-Smartphone) Ages 13+ Source: comScore MobiLens | | Share (%) of Mobile Subscribers | Total Mobile Subscribers | 100.0% | Samsung | 25.2% | LG | 20.0% | RIM | 14.3% | Apple | 12.0% | Nokia | 10.1% | Smartphone Platform Market Share 8 million people in Canada owned smartphones in September 2011, representing 40 percent of the mobile market in Canada, a gain of 7 percentage points in the past six months. RIM ranked as the top platform with 35.8 percent of the smartphone market, followed by Apple at 30.1 percent. Google Android gained ground among the competition by doubling its market share to 25.0 over the past six months. Symbian ranked fourth with 4.2 percent share, followed by Microsoft with 3.2 percent. Top Smartphone Platforms September 2011 Total Canada Smartphone Subscribers Ages 13+ Source: comScore MobiLens | |......

Words: 1579 - Pages: 7

Premium Essay

Jubilee Group Industry Analysis

...Contents Introduction 3 External Situation 3 Internal Situation 4 Five Forces Analysis 6 Introduction Jubilee Group Inc. (JUBILEE) competes in the higher education consulting industry. JUBILEE has provided strategic consulting and marketing services to almost every college and university in Canada. Jubilee’s vision is to be the world’s leading education marketing consultants, bringing innovation in research, strategy, marketing and technology to the higher education sector. JUBILEE’s mission is: 1. To provide expertise in market research, branding, strategic planning, and emerging web applications to educational institutions. 2. To help PSE institutions chart their future course, define distinctive positions, and achieve success, individually and collectively. 3. To help government better understand and meet the needs of academic institutions, potential students, employers and society. 4. To help young people find the right course in higher education, and in their careers. (Jubilee Group Inc., 2010) Jubilee has 26 employees and several frequent subcontractors. JUBILEE has offices in London, Toronto, and Boston. The higher education consulting industry has dozens of competitors but JUBILEE completes more closely with Noel-Levitz, STAMATS, Higher Education Statistics Agency, EduVentures, and Strategic Counsel. All of JUBILEE’s closest competitors are private companies which do not release financial information. Based on......

Words: 1594 - Pages: 7

Premium Essay

Fluor Corp Swot

...unning head: Fluor Corporation SWOT Analysis Fluor Corporation SWOT Analysis DeVry University MGMT303   Fluor History The Fluor Corporation was founded in 1912 from the Fluor Construction Company. The company was originally founded in Oshkosh Wisconsin by three Swiss Brothers, Ralph, Casper, and Simon Fluor in 1869. The company began as a construction contracting business. In its early years, the company built lumber mills and worked to shore the riverbanks with concrete retaining walls that still stand today. Simon Fluor moved his portion of the company to California in 1911 and in 1912 his company became the Fluor Corporation. The Fluor Corporation is now one of the world’s largest construction firms with involvement in over 25 industries on six continents. Fluor is responsible for the construction of the Buddha Tower in the 1920’s to the Alaskan Pipeline in the 1970’s and the largest polysilicon facility in the world in 2008. (Fluor Corporation, 2008) Today Fluor employs 28,000 employees and has revenue of over 16 billion dollars. Mission Statement As Fluor employees, our mission is to assist clients in attaining a competitive advantage by delivering quality services of unmatched value. (Fluor Corporation, 2008) Fluor Corporation Organizational Strengths Market diversity is a major strength of the Fluor Corporation. Fluor serves multiple markets across a broad spectrum of industries. Market diversification allows Fluor......

Words: 1416 - Pages: 6