Current Economy (USA) Essay
Current economic conditions and a company’s ability to deliver quality products and services: As a result of the recession in the economy individuals and business are experiencing shortage of money for discretionary spending. Costs of material and energy will be higher and at the same time stock prices will fall sharply. (Walt Custer, January, 2009: Global electronics industry outlook) . Company’s ability to implement cost saving measures are very important in an economy affected with recession. It must be carried out within the stipulated time.
Along with this the company must be able to limit the associated costs. For maintaining the capacity to deliver quality product and services, the companies must be able to generate at least 90% of the sales of the previous year. Despite the fluctuation in commodity prices, the companies operating in an economy affected by recession must be able to sustain prices. Within the competitive market companies will be facing several changes and pricing pressures. (Press Release, update: Stanley Works, December, 11, 2008).
The credit crunch experienced by the financial sector of the economy and the reduced disposable income in the hands of the consumers will automatically result in significant reduction in demand. Reduced sales volume and increased
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It is also important to note that during the period of severe recession the overall economic activities will have a slow down and their dynamic atmosphere will be adversely affected and in turn the quality of the product and services will be hampered in the absence of motivating level of profits. Condition of severe recession in US economy: It is now accepted by everybody that the US economy is undergoing the condition of recession. The current recession is expected to last much longer than the previous such recessions in the US economy, during 1990-91, and 2001 which were of eight months duration .
It is very important to note that the US economy is facing the worst housing recession since the great depression. Falling home prices are causing major problem. Consumers are facing the problem of less saving and the burden of increased debt. Weak labor market and reduced level of income generation are the some of the problems associated with recession in the current US economy. High debt and increasing debt servicing ratios will be accompanied with credit crunch of severe nature. All spectrums of credit and financial market are affected by the severe financial crisis in the economy.
(Nouriel Roubini, February, 2008). The US economy is undergoing the worst housing recession in its history and there is no indication of quick recovery. As a result the household wealth of trillions of dollars will get wiped out. Smaller and larger home builders will go bankrupt and will lead to the free fall of stock their prices. Financial system will be troubled with huge credit crunch. Cases of defaults in consumer debt categories will increase, and thereby the banks and other financial institutions will incur huge losses.
Like the subprime loan sector, the commercial real estate market will also will enter into a meltdown. Even the national banks can go bankrupt if they are exposed to increased level of mortgages. Severe recession will be accompanied by a massive wave of corporate default. Shadow banking system such as money market funds and investment banks will get into serious trouble as they are not supported by the central bank, under the provision of the lender of at resort. Then the stock market will be affected by severe recession. Increasing rate of credit crunch will result in dry up of liquidity in entire financial markets.
Finally a cascading effect will be created by the combined action of the factors such as the reduction in capital, credit contraction, forced liquidation, and the sale of assets at below fundamental prices (Nourie l Roubini, February, 2008). There was a steep fall in job growth, during the last three months of 2006. A record rate of fall in the consumer spending was also a great problem for the economy as a whole. Due to the weakness experienced in the Consumer spending, resulting in the busting of the spending bubbles on consumer durables.
This steep fall in the consumer spending is closely associated with the fall in the growth of disposable incomes of individuals. According to central bank chairman the US economy is undergoing a stage of severe contraction. (Merle David Kellerhals Jr. , February, 2009). To overcome such an adverse income condition the possible solution suggested is the combined action of the president, congress, and the government along with the strong and appropriate financial measures taken by the central bank.
If the measures are timely and also implemented effectively, it is predicted that the economy will begin to recover from recession next year. References: 1. (Walt Custer, January, 2009: Global electronics industry outlook) Retrieved March09, 2009, from the World Wide Web: http://www. emasiamag. com/article-5024-globalelectronicsindustryoutlook-Asia. html 2. (Press Release, update: Stanley Works, December, 11, 2008) Retrieved March09,, 2009, from the World Wide Web: http://www. marketwatch. com/news/story/stanley-works-provides-update-business/story.
aspx? guid=%7B69D8A347-B8C0-4A62-A840-B122D08D8895%7D 3. (Nouriel Roubini, February, 2008: The Current U. S. Recession and the Risks of a Systemic Financial Crisis) Retrieved March08, 2009, from the World Wide Web: http://financialservices. house. gov/hearing110/roubini022608. pdf 4. (Merle David Kellerhals Jr. , February,2009: Central Bank Chairman Says U. S. Economy in Severe Contraction) Retrieved March08, 2009, from the World Wide Web: http://www. america. gov/st/econ-english/2009/February/20090224115534dmslahrellek0. 4058344. html