Business Environment Analysis

1
Business Environment Analysis

• Industrial Management Institute
• By
• Morteza Imanirad
• 1388
• Slides No. 2

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Definition of business cycle

• The term business cycle or economic cycle refers
  to economy-wide fluctuations in production or
  economic activity over several months or years,
  around a long-term growth trend.

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A business cycle is identified as a sequence of
four phases

• Contraction (A slowdown in the pace of economic
  activity)
• Trough (The lower turning point of a business
  cycle, where a contraction turns into an
  expansion)
• Expansion (A speedup in the pace of economic
  activity)
• Peak (The upper turning of a business cycle)

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• the Kitchin inventory cycle of 35 years (after
  Joseph Kitchin)
• the Juglar fixed investment cycle of 711 years
  (after Clement Juglar)
• the Kuznets infrastructural investment cycle of
  1525 years (after Simon Kuznets)
• the Kondratieff wave or long technological cycle
  of 4560 years (after Nikolai Kondratieff).

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Definition of Recession

• In economics, the term recession generally
  describes the reduction of a country's gross
  domestic product (GDP) for at least two
  quarters.12 The usual dictionary definition
  is "a period of reduced economic activity", a
  business cycle contraction

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• AD is composed of CIGX-M, therefore a fall in
  any of these components could cause a recession.
  For example, if the MPC increased interest rates
  sharply this would cause the cost of borrowing to
  increase and make saving more attractive. This
  would have the effect of reducing consumer
  spending. AD could also fall due to deflationary
  fiscal policy, for example higher taxes and lower
  government spending would also cause a fall in AD.

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Given below are 10 signs that usually indicate
that a recession is knocking.

• The Rate Of Joblessness Assumes Disturbing
  Proportions.
• Large Companies Start Giving Depressing Profit
  Figures.
• Borrowers Start Defaulting.
• Credit Card Purchases Shoot Up.
• Prices Of Essential Commodities Shoots Up.
• Companies Stop Filling Vacancies.
• Prices Of Property And Stocks Come Down
  Drastically, But Nobody Buys Them.
• The Country's GDP Goes Down.
• Savings Are Used For Day-To-Day Expenses.
• You Start Worrying About All Of The Above.

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Monetary cause of recession

• In an inflationary environment, people tend
  to cut out leisure spending, reduce overall
  spending and begin to save more. But as
  individuals and businesses curtail expenditures
  in an effort to trim costs, this causes GDP to
  decline. Unemployment rates rise because
  companies lay off workers to cut costs. It is
  these combined factors that cause the economy to
  fall into a recession.

12
Recession in US
13
Stagnation

• period of no or slow economic growth or of
  economic decline, in real (inflation-adjusted)
  terms. Economic growth of 3 or less per year-as
  was the case in the late 1970s, measured
  according to increases in the U.S. Gross national
  product-generally is taken to constitute
  stagnation.

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Definition of Stagnation

• Economic stagnation, often called simply
  stagnation, is a prolonged period of slow
  economic growth (traditionally measured in terms
  of the GDP growth). Under some definitions,
  "slow" means significantly slower than potential
  growth as estimated by experts in macroeconomics.
  Under other definitions, growth less than 2-3
  per year is a sign of stagnation.

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US Definition of Recession

• The United States-based National Bureau of
  Economic Research (NBER) defines economic
  recession as "a significant decline in the
  economic activity spread across the country,
  lasting more than a few months, normally visible
  in real GDP growth, real personal income,
  employment (non-farm payrolls), industrial
  production, and wholesale-retail sales.

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General definition of Depression

• A proposed definition for depression is a
  sustained recessionary period in which the
  population is forced to dispose of tangible
  assets to fund every day living, as was seen in
  the US and in Germany in the 1930s.

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Definition of Depression

• Often, in Canada and the United States, the word
  "depression" is used interchangeably with
  "recession", often to simply indicate a deeper or
  more serious recession. Some economists require a
  drop in GDP of 10 percent or more before a
  recession would be referred to as a depression.

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US Leading Indicators

• The Index of Leading Indicators is an American
  economic index intended to estimate future
  economic activity. It is calculated by The
  Conference Board, a non-governmental
  organization, which determines the value of the
  index from the values of ten key variables. These
  variables have historically turned downward
  before a recession and upward before an expansion

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21
The 10 components of the Index

• Average number of initial applications for
  unemployment insurance
• Number of manufacturers' new orders for consumer
  goods and materials
• Speed of delivery of new merchandise to vendors
  from suppliers
• Amount of new orders for capital goods unrelated
  to defense
• Amount of new building permits for residential
  buildings
• The SP 500 stock index
• Inflation-adjusted money supply (M2)
• Spread between long and short interest rates (the
  yield curve)
• Consumer sentiment
• Average weekly hours worked by manufacturing
  workers

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• ??? ???? ???? - ??? Fear

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26
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????? ??? ????? ???? ??????? Recession

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????? ??? ????? ????? ??????? Depression

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????? ??? ????? ???? ??????? Boom or Expansion

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????? ??? ????? ??????? ??????? Stagnation

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????? ??? ????? ???? ????? Stagflation

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