Bureau of Economic Analysis, Essay Example

Abstract

The years 2008-2009 turned out to be the years of recession the United States had not known before. The rapid decline of the value of the U.S. dollar, skyrocketing unemployment, the housing crisis, and the failure of the largest companies – all those created a picture of total economic collapse. Unfortunately, in its current state the American economy does not show any signs of improvement. The real GDP keeps falling. The levels of unemployment are still high. Deflation has already become the distinctive feature of the economic processes in the U.S. However, the detailed analysis of primary economic data gives some hope for an improvement, and although this improvement will be slow and painful, large companies like Wal-Mart and General Motors can use the current economic indicators to redirect their strategic efforts toward better sales and labor opportunities.

Introduction

The years 2008-2009 turned out to be the years of recession the United States had not known before. The rapid decline of the value of the U.S. dollar, skyrocketing unemployment, the housing crisis, and the failure of the largest companies – all those created a picture of total economic collapse. Unfortunately, in its current state the American economy does not show any signs of improvement. The real GDP keeps falling. The levels of unemployment are still high. Deflation has already become the distinctive feature of the economic processes in the U.S. However, the detailed analysis of primary economic data gives some hope for an improvement, and although this improvement will be slow and painful, large companies like Wal-Mart and General Motors can use the current economic indicators to redirect their strategic efforts toward better sales and labor opportunities.

GDP, unemployment, and inflation: real situation

When trying to evaluate the real situation in the American economy, GDP, inflation, and unemployment seem the most reliable and comprehensible indices of economic development in the U.S. The Bureau of Labor Statistics and Bureau of Economic Analysis provide regular updates, giving users a unique chance to look deeper into what is currently happening in the U.S. economy. Te overall situation does not look promising at first. The second quarter 2009 was characterized by -1.0 percent change in real GDP (BEA, 2009). “Nonfarm payroll employment continued to decline in July and the unemployment rate was little changed at 9.4 percent” (BLS, 2009b). To measure the rates of inflation, Bureau of Labor Statistics (2009a) provides the detailed analysis of CPI changes, which show continuous decrease (-0.2 percent in July). The growing unemployment, the falling GDP and CPI confirm that the United States finds itself in the state of a deep recession – the state that has far-reaching implications for economy as a whole and specific enterprises (especially, large enterprises), in particular. To determine the specific position of the U.S. in the business cycle, it is important to compare the current economic data to that in the previous economic periods.

Speaking about GDP, it is obvious that the rates of decline are no longer as dramatic as they used to be before: compared to -6.4 percent decline in the 1^st quarter 2009, the GDP shows promising growth trends (BEA, 2009). The rates of unemployment as compared to previous months did not change significantly, and there can be two reasons for that. On the one hand, it is possible that the economy has achieved the bottom point of recession; in other words, the U.S. economy no longer possesses any potential for unemployment growth, and there are no more workers than can be laid off. On the other hand, it is possible that relative stability of unemployment predict further recovery and possible reduction of unemployment rates in the short and long-run. The levels of CPI between June and July were unchanged, which also implies possible improvement and growth (BLS, 2009a). Based on this information, it is obvious that the United States is in the recession stage of the business cycle. However, that the changes in the basic economic indicators are either zero or positive also imply that the American economy is gradually moving to the point of expansion, which will also produce specific economic effects on labor cost, prices, and sales for all business players. It seems that the American economy has finally reached a trough and will soon experience slow but positive improvement.

It should be noted, that “the business cycle is the ups and downs of the general level of economic activity. All modern, industrialized countries have fluctuations in their rates of economic activity, leading to the observation that one nation’s economy is booming while another economy is in a recession” (Diebold & Rudebusch, 1999). The latter is exactly the case of the United States: high rates of unemployment, GDP decline, and deflation create a controversial economic environment, in which companies also experience sales decline, seek means to reduce their costs, and have to cope with the emerging economic issues and challenges. Certainly, such fluctuations are natural for all economies. Since the middle of the 20^th century, economists have been increasingly interested in researching the causes and implications of business cycles and their impacts on the value and effectiveness of economic activity. Nevertheless, many enterprises are still unable to overcome recession barriers and to preserve the levels of their economic activity unchanged.

The state of recession (or the period of business cycle contractions) shows through the continuous decline of real Gross Domestic Product. That means that (a) customers do not purchase as many products as they used to during expansion, and that (b) these customers also lose a sense of confidence in products they used to buy in more favorable economic conditions. The decline in demand and purchasing activity directly results in reduced manufacturing. The lesser the demand is, the fewer goods companies tend to produce. Trying to survive the recession, companies will do everything possible to reduce their costs. These will mainly imply the need for laying off employees. Also, companies will be more likely to develop and implement internal systems of cost controls, to reduce manufacturing, and to provide discounts for their products to at least secure their sales from decrease (Diebold & Rudebusch, 1999). Recession not only leads to the growing unemployment and the decline of the purchasing activity, but it also generates negative economic expectations – probably, the worst consequence of a continuous recession. Consumers no longer expect improvement, while companies cannot change their purchasing perceptions. Thus, no room for economic and manufacturing improvement is left.

The real economic situation in the U.S. is somewhat different. After a long period of crisis, real GDP has slightly moved toward zero decline (which is positive by itself), and deflation and unemployment no longer display negative trends. For both Wal-Mart and General Motors, this information has several important implications. First of all, the rates of real GDP growth show slight improvements. Customers are growing more confident in their purchasing preferences. Moreover, they have better financial opportunities and will try to expand the range of products and services beyond those, which they critically need every day. During recessions, customers change their behaviors and limit their purchases to those, without which they cannot function. In this context, Wal-Mart has better chances to survive the crisis, because it offers critical goods and services combined with significant discounts. For General Motors, the situation is much more difficult, taking into account that at times of economic crises cars become a luxury and customers will hardly choose to buy a new car instead of satisfying their primary needs. When the economy is gradually moving to recovery, Wal-Mart will be the first to feel positive changes: customers will buy more food and related products. Later, some of them will also face the need for replacing their cars with the new ones. At that point, General Motors will finally have a chance to increase its sales.

Another important implication of a business cycle is in that both Wal-Mart and General Motors should get themselves prepared to hiring employees. It is very probable that those laid off during recession will have a unique opportunity to be rehired by their companies. The more customers are prepared to buy, the more employees will companies need to guarantee high level of customer satisfaction. However, both Wal-Mart and General Motors will be more than cautious and selective in their hiring decisions. Both companies should also decide how many employees they need to provide high quality products and services to their customers.

Third, possible expansion and economic recovery will have their impact on prices. As sales grow and as companies hire more employees, they will also have to raise their prices to compensate for these additional expenses (hiring employees, paying salary, etc). Some of them will probably pay for additional advertising, to attract the customers they have lost during recession. However, and again, in the current state of economy, companies will need to take into account the cost of labor. It appears that where individuals search for prospective employment and where recession causes the growing unemployment rates, the cost of labor falls. Thus, companies will have a chance to hire more employees with lower salaries, but as the American economy grows, companies will also have to change their attitudes to employees and to raise their salaries.

Generally, the concept of the business cycle is good in that contractions always give place to expansions. In other words, no recession lasts forever. That means that at a certain moment of economic development, the United States will finally be able to distance itself from its economic difficulties and to enter a new, more promising, stage of economic growth. From the abovementioned analysis, this stage of economic growth is not as far as it may seem. The United States must prepare itself to positive changes, and global companies similar to Wal-Mart and GM should realize and use their growing economic and business potential.

Conclusion

The United States finds itself at the recession stage of business cycle. For the U.S. economy, recession means continuous real GDP decline, high levels of unemployment, and deflation. However, when comparing economic data for the two consecutive periods, it is clear that the rates of decline are not as tragic as they used to be earlier. The American economy is gradually moving to the period of economic expansion and growth. For global companies like Wal-Mart and General Motors, such expansion means that the sales will grow, unemployment will decline, and prices will gradually move up. Both companies should be prepared to hire additional personnel in order to provide high quality service. Both companies should be prepared to increase the level of production to satisfy the growing customer needs. At the same time, both should realize that with time, the cost of labor will grow, which will require General Motors and Wal-Mart to reconsider the structure of their costs and expenses.

References

BEA. (2009). Overview of the U.S. economy: Perspective from the BEA accounts. Bureau of Economic Analysis. Retrieved September 4, 2009 from http://www.bea.gov/newsreleases/glance.htm

BLS. (2009a). Consumer price index summary. Bureau of Labor Statistics. Retrieved September 4, 2009 from http://www.bls.gov/news.release/cpi.nr0.htm

BLS. (2009b). Employment situation summary. Bureau of Labor Statistics. Retrieved September 4, 2009 from http://www.bls.gov/news.release/empsit.nr0.htm

Diebold, F.X. & Rudebusch, G.D. (1999). Business cycles: Durations, dynamics, and forecasting. Princeton University Press.