Words such as stimulus packages, bills, bailout, Chapter 11, bankruptcy, fall, layoffs, credit crunch, liquidity concerns, economic woes, and most important—recession—(the list is endless) seem to have been making headlines since the economic downturn started during the summer of 2007. These words might also be termed as the ‘most used words’ during 2007-2008.
As mentioned in the ‘Summary of Commentary on Current Economic Conditions by Federal Reserve District’, the various reports prepared on the basis of anecdotal information collected through bank reports and interviews of market experts and economists, the economy had started to see a financial crisis in the summer of 2007, itself. A slowdown, broadly speaking, is when an economy grows, but at a pace slower than at what it had been growing previously. According to reports from August 2008 to now, all the twelve Federal Districts have reflected weak or slow business activity.
There was a considerable dip in consumer spending and purchases were concentrated on necessities, as mentioned in the August report. As a result, there was significant decline in auto sales, retail sales, housing and also investment. This could also be the result of a credit crunch caused because of lower bank lending. The banks have become overly cautious in lending for homes, auto and even for business purposes. 2 Current Economic Conditions 3 Since demand is low, there is also a dip in the manufacturing, services and non-banking sectors. The services sector generally reported negative on or before January 5, 2009, as
mentioned in the report. Even the holiday season reported negative retail sales. Although there were discounts and price cuts in retail and housing respectively, the sales remained down. The credit crunch and the liquidity concerns that faced the industries, forced them to bring down costs and then the world, particularly, the U. S. , witnessed massive layoffs, which brought about a surge in new jobless claims, as well. Now, coming to the organization that I work for, it’s a media company and is very much impacted by the global financial crisis.
There are predictable performance cycles for such companies, as well. For instance, the main source of revenue for any media house is the revenue from advertisements. When the economy is in a boom period and companies do not have to worry, too much about expenses such as advertising and mass marketing, then my organization performs well, too. Contrary to this, when the economy is in a slow down mode, which it has been since 2007, then the services sector normally is equally hit as companies are forced to enter a cost-cutting mode.
Since consumer spending decreases during slowdown, the company’s manufacturing is hit and sales are also low. At such a time, they, as part of their cost-cutting plan, cut down on such expenses as advertisements, which is why my organization’s performance wanes. In order to adjust to lower demand, in my opinion, my company will also try to cut down on costs. 3 Current Economic Conditions 4 Business cycles are not something unexpected or unheard of. These are a part of life and do happen.
So, all companies, no matter how big or small, have certain strategies in place to deal with such situations. My organization too has certain strategies. It looks towards economization of certain activities within the organization and also bringing down the price of services it offers. In fact, the top level management has chosen to take a voluntary pay-cut, for as long as the situation remains critical and each person, on his part, is trying to bring down cost at his or her own level. Also hiring has been frozen until the times are better to add on new members to the company.
The organization is working with emphasis on more productivity, enhanced efficiency and the need to do away with the flab that the company might have developed during prosperous times and be a lean, fit organization. The economic conditions that impact my organization, I feel, are mainly low consumer spending and in turn dip in manufacturing or industrial production. From a macroeconomic view, I feel that the indicators—consumer spending and industrial production—must be assessed closely over the next six months.
Both these indicators are procyclical and coincident in nature, i. e. they move in the same direction and at the same time as the business cycle. Consumer spending impacts many other factors such as demand, sales, prices, profit margins and also manufacturing. If consumer spending is low and purchases are restricted to necessities only, then demand for many goods and services decreases and inventory piles up. The companies are forced to bring prices down in order to do away with the inventories and profit margins are affected, too. 4
Current Economic Conditions 5 Since new orders are soft and demand remains low, the manufacturers cut down on output and real GDP is affected. This is just in a very broad perspective. However, there are minutes of this whole issue of the financial crisis and current economic condition. 5 Reference Citations 1. http://federalreserve. gov/FOMC/BeigeBook/2007 2. http://federalreserve. gov/monetarypolicy/bst. htm 3. http://www. carthagepress. com/news/x108123949/Economist-details-federal-package 4. http://getyourecon. com/macro/macro-cycles. pdf