Professional Documents
Culture Documents
Individual Assignment
Business Environment
Cohort FF1021 Date of Submission 24th March 2010 Instructor Shurmara Fernando
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Analysis of Economic Factor (5 8 factors) Analysis of Social Factor (5 8 factors) Critical Evaluation of Opportunities Critical Evaluation of Threats 2 L 3 4
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Students Parti culars ...............................................................................................2 1 2 2.1 2.2 3 4 4.1 Acknowledgement ..............................................................................................4 Introduction ........................................................................................................5 Introduction about USA .................................................................................. 5 The Economy of United States of America ...................................................... 6 The U.S Economic Downturn .............................................................................7 Factors that effected U.S Economic Downturn....................................................8 Economic Fact ors ........................................................................................... 9
4.1.1 Interest Rate ....................................................................................... 9 4.1. 2 Unemployment Rate ........................................................................... 10 4.1.3 Economic Gro wth Rate .................................................................... 11 4.1. 4 Business Cycle Stage .......................................................................... 13 4.1. 5 Exchange Rate .................................................................................... 14 4.1. 6 Inflation Rate ...................................................................................... 16 4.2 Social Factors .............................................................................................. 17 4.2. 1 Demographic ...................................................................................... 17 4.2. 2 Education ............................................................................................ 20 4.2. 3 Health Attitudes .................................................................................. 22 4.2. 4 Work Pattern ....................................................................................... 23 4.2. 5 Spending Habits .................................................................................. 24 4.2. 6 Class Structure .................................................................................... 25 Opportunity / Threat Table ............................................................................26
Social ...................................................................................................................... 26 Fact ors.................................................................................................................... 26 6 6.1 6.2 7 7.1 7.2 8 9 Discussion of Opportunities ..............................................................................27 Economic Fact ors ......................................................................................... 27 Social Factors .............................................................................................. 28 Discussion of Threats .......................................................................................30 Economic Fact ors ......................................................................................... 30 Social Factors .............................................................................................. 31 Conclusion .......................................................................................................32 Referencing ......................................................................................................33
10 BIBLIOGRAPHY ............................................................................................36
Ac nowledgement
Author owes a great many thanks to a great many people who helped and supported me during the writing of this project.
Authors deepest thanks to Lecturer, Miss Shumara Fernando our Business Environment lecturer the Guide of the project for guiding and correcting various documents of mine with attention and care. She has taken pain to go through the project and make necessary correction as and when needed.
Last but not the least; Author would like to thank authors parents who helped a lot in gathering different information and specially for their financial support. Despite of their busy schedules, they gave different ideas in making this project unique.
Introduction
This report discusses the U.S.A Economic downturn that affected many nations including developed as well as developing countries. This report will be focusing on main factors that affect in U.S.A Economy.
The United States of America located bordering both the North Atlantic Ocean and the North Pacific Ocean, between Canada and Mexico. According to CIA World Factbook (2010) the estimate US population is around 307,212,123 and USA geographic area is 9,826,675 sq km including land area of 9,161,966 sq km.
Many different peoples around the world form the United States of America. Millions of people from many different countries have immigrated to the United States and made the country as their new home.
Fi ure 1:
According to CIA World Factbook (2010) The Dollar ($) became the most acceptable international payment for goods and services and it became an exchange currency to do businesses around the world because of U.S.A is the world's largest trading nation.
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In mixed economy of the USA, corporations and other private firms make the vast majority of microeconomic decisions, and governments prefer to take a minimal role in the domestic economy. Because of this, the U.S. has a small social safety net, and business firms in the U.S. face Fi ure 2 Source: iranianmy corporate considerably less regulation than those in many other nations. website, (2010)
The first ingredient of a nation's economic system is its natural resources. The United States is rich in mineral resources and fertile farm soil, and it is fortunate to have a moderate climate. It also has extensive coastlines on both the Atlantic and Pacific Oceans, as well as on the Gulf of Mexico. Rivers flow from far within the continent and the Great Lakes - five large, inland lakes along the U.S. border with Cana da provide additional shipping access. These extensive waterways have helped shape the country's economic growth over the years and helped bind America's 50 individual states together in a single economic unit. (According to CIA World Factbook ,2010)
The United States of America has the worlds largest economy. According to the CIA World Factbook, (2009) GDP is believed to be $14.26 trillion.
Fi ure 3
Real estate plays an important role in the U.S. economy. In 2007 the American economy began to slow significantly because of a real estate slump and related credit markets financial problems. December 2007 the U.S economy entered a recession stage. This recession continued into early 2009 This . affected around the world, stock markets have fallen, large financial institutions have collapsed or been bought out, and governments in even the wealthiest nations have had to come up
Fi ure 4
The subprime mortgage crisis started because banks and mortgage companies packaged risky loans and resold them on the secondary market which was created by the legislation that created Fannie Mae and Freddie Mac. They became the responsible mortgage firms to U.S Economic Downturn.
For the better understand Figure5 refers U.S economic growth rate by Gross Domestic Product details by 2006 to 2009 quarter to quarter.
Fi ure 5
According to BEA Graph (2010) real gross domestic product the output of goods and services produced by labour and property located in the United States -- decreased up to 6.2 percent in the first quarter of 2009. This decrease started from the first quarte r of 2008. As discuss earlier this U.S economy downturn started December 2007 this stage clearly shown in the above graph.
Fi ure 6
Fi ure 7
When refers to U.S economy interest rates increase, banks slowly lend less and businesses slowly put off spreading ou This happens to consumers too slowly t. realize they aren't as wealthy as they once were and put out of purchases. So people dont have money to save they spend their money to recover their mortgage. This means home mortgage loan payments will be greater when the rates are high. The reaction of this is home value will not rise further.
The opportunity in high interest is control price increases. This means the price of other goods like food and gasoline will stay low, and the paychecks will go further. If
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people were smart enough to follow a fixed interest loan at a low rate your income will become even more. At the most basic level the goal of all businesses is to make profit. A business makes must be thoroughly analyzed for its ultimate forecast at bring in ing profit and how those forecast compare to other possible sources of returns. Since saving capital at current interest rates is a possible source of profits higher interest rates tend to make new ventures less attractive.
When focusing about the of 2007 to 2009 period of U.S economy downturn unemployment will continue to rise even after the economy has started to recover. Employers are keen to lay people off when the economy turns bad. For large companies it can take months to put together a clear plan. Comp anies are even more doubtful to hire new workers when the economy improves.
Fi ure 8
Above Chart shows Unemployment peaked at 7.2% in 2009. It rose steadily from its low of 4.8 % in March 2007. It did not really become a concern until a year later when it broke above 5% in March 2008. By then, the economy had contracted over 7%.
The main affect from this is unemployment rate will tell, if more people are looking for work, less people will be buying, and the retail sector will decline. If this rate reaches 6 or 7% government occupy and create new jobs through rousing the economy. This may help to unemployed.
4. .3 Eco omic G ow h
The sum of all goods and services produced in a country during a year (Hirt, 1996: 15)
Economic growth rate measure by Gross Domestic Product (GDP). This calculates by the changes in rate in GDP by time to time. Economic growth can be either positive or negative. Positive growth can refer as inflation and the negative growth can refer as recession or a downturn. According to economywatch corporate website, (2010) a growth rate of 2-3 percent is considered ideal for any economy. Before the mortgage and financial crisis in U.S GDP annual rate was between 2-3% in 2003 to 2007. To get idea Figure9 analyse about this.
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Fi ure 9
The annual growth rate for 2006 looks great but after that the effect of the housing boom had hit its peak. In 2007 economy look steady. In late 2007 mortgage crisis began to start so peoples productivity reduced dramatically from late 2007 to 2009.
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Figure 10
The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations. But today business cycles are widely known to be irregular varying in frequency magnitude and duration.
When refer to U.S economy there are times when the economy is brisk and everyone feels confident about his or her prospects for the future. As a result people spend money to buy houses. When a recession during such a time, fewer people are buying homes. Even so, some homeowners find themselves in a situation where they must sell. Some may even find themselves unable to make their mortgage payment perhaps because of a layoff in the family.
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Figure 11
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U.S exchange rate is determined by the foreign exchange market, known as forex. For this reason, exchange rates vary daily, depending on what traders think the currency is worth.
According to Federal Reserve Foreign Exchange Rates (2010) during the credit crisis the dollar strengthened 22% as businesses hoarded dollars since credit wasn't available. Before that (2002 - 2007), the dollar lost 40% of its value while the debt increased by 60%. In the current economy the dollar is relatively strong compared to other currencies. This makes imports cheap, which reduces inflation. This allows to buy a house or easily can pay the mortgage. And foreign investors invest their money in reality businesses. When the dollar declines, it makes U.S. produced goods cheaper and more competitive when compared to foreign produced goods. This could help increase U.S. exports, boosting economic growth. A strong dollar also means that U.S. companies can export less since their products cost more relative to foreign products. This also effect companies to source jobs overseas because of the hight cost of labour.
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Figure 12
Inflation can affect different parts of the economy at different times. When refer to realty businesses mainly housing prices increase. This was happen in 2006 when according to above chart it shows that Inflation rate is high because of assets inflation has been affected mainly in 2006. So consumers full fill their mai basic needs n because of the prices of most goods and services are high. And people cant pay their mortgage due to inflation in a Economy.
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Figure 13
4.2.1 Demographic
Demographic is the study of population in term of their size and characteris. Among the topics of interest to demong to demographic are the age structure of a country, the geyraphic distribution of its population, the balance between males an females, and d the likely future size size of the population and its characterstics. (Palmet and Hartley, 2009: 438)
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Figure 14
Above Chart shows how tremendous the population growth in U.S.A from 2003 to 2009. When referring the above chart to retail businesses. The sectors will face in the next decade and beyond is the continued renewal of existing urban areas and the creation of new ones where expanding population will cluster. Undeveloped land and s managing growth through increasing suburban spread out is not a viable option. We cannot afford the necessary infrastructure and environmental costs .
As the country's ethnic population rapidly expands, ethnic or cultur l demands will a impact the retail experience. Retailers will have to learn to address their concerns, fears and misconceptions about minorities, the inner city and other urban markets. The need for growth will necessitate this change.
In addition to filling the traditional retail role of providing basic goods and services, mixed-use developments must also provide places for people to interact, entertain and be entertained. The trend toward building and opening more restaurants, community facilities and movie theaters in or near these developments will expand. Because of all of these offerings, the average length of shoppers' stays at these complexes will
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increase and they will spend more money. How much they interact with each other the economy depends on that.
Figure 15
This gives proper information about population according to age. In U.S more population is belongs to age 15 to 64 years. This is good opportunity to realty firms because more people were employed during this age limit so people expand their land needs but when it become high more land needed so environment issues will affect the reality firms.
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4.2.2 Education
Education in the United States is mainly provided by the public sector. According to CIA (2009) net enrolment ratio in primary education is nearly 96.5%.
Figure 16
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Above chart show the entire education system in U.S. U.S.A has placed greater weight on developing an education system that can produce workers able to function in new industries such as in technology and science fields. This is partly because older industries in developed economies like U.S were becoming less competitive, and thus were less likely to be able to continue dominating the industrial landscape. U.S economy becomes more productive as the proportion of educated workers increases, since educated workers are able to more efficiently carry out tasks that require literacy and critical thinking. Better-educated workers tend to be more productive than less educated ones; however, obtaining a higher level of education also carries a cost. Owners of all types of real properties, especially owners and occupants of big city downtown properties have a high investment in the educational quality of the local labor force and should encourage improvement even if it results in increased property taxes. The long-term prosperity, and market value, of every property depends on the long-run economic viability of the general area in which it is located. A key ingredient in the area's long-run viability is the quality of the labor force available to firms located there. If the quality of the area's labor force is low, the area's overall ability to attract new firms and retain existing ones will deteriorate. The change will weaken the demand for whatever real property is located there. Moreover, the importance of the quality of the labor force as a locational factor is increasing because of rising demand for high technology worker skills. The deterioration of educational quality is especially debilitating in large cities. Property owners should take an active role in ensuring that local schools use resources effectively to improve educational performance.
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Figure 17
Source: indexmundi, Life expectancy at birth (2009) Above chart shows Life
expectancy at birth from 2003 to 2009. This shows a stability of life expectancy because of from past to present U.S focus on health and spent lot of money to improve and to keep it as unchanged every year. United States spends much more on health care than any other countries
Figure 18
(World
Health
According to aspe.hhs (2009) since the late 1990s health care spending has increased at a faster rate of growth than has gross domestic product (GDP), inflation, and population.
Increased health care spending improving access to new health care technologies and treatments.
0)
The economy is much more stabilized from the costs of health care. People in the work force can get health care any time they require it. There is no concern about insurance coverage or added expenses for the house hold. People can get better and get back to work quicker without financial concerns holding up the healing process. This in turn feeds the economy, more people working, more people spending money, more people paying income tax and thus keeping the money flowing. So when people healthy they life become luxurious, so people spend their money for a luxurious life. They buy new houses so the mortgage companies having a opportunity to serve there costumers.
At present in U.S there is growth of numbers of employees working part-time and on temporary contracts jobs. Many large companies have left their core workforces from jobs in order to cut costs and to become more competitive.
According to wfnetwork (2009) In U.S the new concept called (family friendly employment practices) has encouraged the increasing feminisation of the workplace e.g. job sharing, home working, and the development of creche facilities in the workplace. While some employers emphasise the importance of developing a good work and life balance others demand extremely long hours from full-time employees.
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From the work pattern get tight people need easy way full fill their daily work and save their time so people live eligible to live where they work so people buy their hoses near to the work places so mortgage firms should forces to full fill their needs as well as their family essential needs like schools, railway stations, and super markets malls.
Figure 19
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According to above chart the largest expenditure of the average household is housing. This takes up an average 34.1 percent of the yearly budget of households. This is an average of $16,920 spent on housing. This shows people give main habbit to spend their money to pay their mortgage.
Today In America even in other countries class define wealth. The main three classes are Rich, Middle class and Poor. People who graduate from universities tend to get better jobs and make more money. Richer people afford better health care and tend to live longer and healthier lives. Service jobs like McDonalds countries with lower wages are a larger percentage of new jobs and they pay much less than the jobs that are going away. Many International Student who live in U.S work for lower wages becuse they need money to pay their rent. Realty businesses providing lower cost apartments and houses for student and economic classes. The more people in U.S belong to middle class so reality firms considering their needs and providing them beget full mortgage that suet to them.
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E ternal Factors
Sub Factors
Importance -5) 1 3 1 4 3 1 1 1 2 1 1 3 2 1 5 1 3 1 4 1 1 2 3 2
Economic Factors
Economic Growth Rate Business Cycle Stage Exchange Rate Inflation Rate Demographic Education
Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity Threat Opportunity
Social Factors
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Discussion of Opportunities
6.1.2 Unemployment j If there is higher unemployment companies can recruit unemoply people for small vages.
j The overall productivity become high and cost of production will become less
because of that the companies can sell their product profitable price.
j Unemployment decreases so the GDP increases and companies output become
high.
6.1.3 Economic Growth Rate j When the Economy Growth Rate is high the realty businesses boost their sales and also their business.
j Business moderation translates into an increase in output. j Businesses increased their investment so the economy will expand.
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Cycle.
j Expansion and contraction in the level of inventories of goods kept by
businesses.
j Investment decisions can be taken based on the Business Cycle.
need while ensuring not lose out in case interest rates were to rise.
j More people will buy houses because the property values will rice.
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6.2.2 Education
j When its higher education means more skilled so they give a proper out come
to the economy.
j Educated employees have the ability to understand the customer needs so they
minded.
j Unemploye people can contribute to the economy by working part-time and on
6.2.6 Class Structure j By indentifying each and every Class Structure companies can produce product that suite for every society level.
j Service jobs produce larger percentage of new jobs and they pay much less
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Discussion of Threats
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7.2.1 Demographic
j The population would pose huge implications for hospitals, care homes, the housing stock, pensions and benefit systems. j Countries are running out of agricultural space countries attempting to own land in other countries to feed populations back home.
7.2.2 Education
j When more people were educated they requesting blue collar jobs so there will be a race for jobs.
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Conclusion
In this project Author discussed about U.S economy downturn by referring to economic and social factors and the how that affects on realty businesses by describing the opportunities and threats.
The United States of America has the largest and still the most important market in the world. According to the CIA World Factbook, (2007) GDP is believed to be $13.84 trillion. The United States economy produced roughly $15 trillion worth of goods and services in 2008. (CIA World Factbook, 2007) The American economy began to slow significantly, the recent failure in the U.S housing and credit markets as resulted in a downturn in the U.S economy. According to the CIA World Factbook, (2007) In 2007 GDP growth was estimated at 2.2% but in 2008 it is projected to be just 0.9%, down from the 10 year average of 2.8%. The US consumer is also a big driver of global economic activity. The US government makes full use of economic tools such as money supply, tax rates, and credit control, among other things, to adjust the rate of economic growth. American consumers are also increasingly dependent on debt and have been remortgaging their houses to higher loan amounts. Between 2007 to 2009 American consumers and Businesses faced to a crisis. Many workers lost their jobs and realty businesses crashed because of people not paying their mortgages back due to inflation. Many Businesses were bankrupt and collapse of large financial institutions. Credit rating agencies and investors failed to accurately price the risk involved with realty businesses. During the economy downturn after people spend their money to full fill their essential goods and services they didnt got enough money to pay their mortgage, because of that entire realty business worstly affected.
Over the last few decades recessions have become less common than they once were. Ben S. Bernanke, the Federal Reserve chairman, and others have described this development as the "great moderation."While the economy used to swing between expansion and contraction every few years.
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Referencing
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10 BIBLIOGRAPHY
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