Respond to at least three of your fellow students’ and to your instructor’s posts in a substantive manner and provide information or concepts that they may not have considered. Each response should have a minimum of 100 words.
Please provide responses to the below posts and ask the student one question for each post.
Response needed for post #1 below:
The index of leading indicators is a statistics based on 10 key variables. These indicators generally turn down prior to a recession and rebound positively during an expansion.
The Phillips curve indicates the relationship between the rates of inflation and unemployment. Understanding the modern curve is actually a rate of inflation relative to the expected rate, rather the inflation is greater or less than the expected unemployment rate.
As a business person, I think you can use these indicators to form better business decisions. Specially, when indicators are turning down you should think about a stock buy back, or raise more capital. Your stock value may become less valuable and cheaper to buy. This will help strengthen the balance sheet and make it easier to get better lines of credit. Conversely, if we are in an expansionary period we can expand the business. This is not full proof of course since even the index of leading indicators forecasted four recession that did not occur. But eight that did. That is a 50-50 ratio not very good. However, if the indicators are not favorable it may be time to raise money and not expand. If the data is favorable it would be time to expand. This is how I would use the leading indicators for forward looking policies. The Philips curve would be more of a check to make sure our forecasts where accurate.
Response needed for post #2 below:
The index of leading indicators are ten variables of economic forecasting that tend to turn down prior to a recession and turn up prior to expansion (Gwartney et al., 2018). These ten variables chart trends in length of workweek, weekly claims for unemployment, manufacturer’s new orders, slower supplier deliveries, contracts and orders for capital equipment, new housing permits, interest rate spread, consumer expectations, change in 500 common stock price indexes, and change in money supply (Gwartney et al., 2018).
The Phillips curve, developed by A.W. Phillips, depicts the relationship between inflation and unemployment, specifically that when inflation rises, unemployment drops and vice versa (Gwartney et al., 2018). The flattening of the Phillips curve after 1970, has divided economist over whether or not it’s still a valid concept (Reinbold & Yi, 2020). Additionally, according to Reinbold & Yi (2020), the Phillips curve is still useful today but only when reviewed over a longer period of time as short-term changes in the inflation rate will not lead to immediate unemployment rate changes.
I currently work for a manufacturer, the key indicators for me and ones that I know we do track is new customer orders and supplier deliveries. We are also working with a data analysis company which compares our data to other industry data. The data shows trends over times and when overlaying our data, we can see which indicators are leading and could be helpful with predictive analytics.
Response needed for post #3 below:
The index of leading indicators is a tool used by many economists to help predict or forecast what direction the economy will look like in the near future. The top 10 indicators have been established due to their “tendency to lead (or predict) turns in the business cycle and because they are available frequently and promptly” (Gwartney, 2018, 15-3a).
The Phillips curve is the relationship between rate of inflation and the rate of unemployment (Gwartney, 2018, 15-6). This theory only took into consideration the years 1954-1968 in the United Kingdom where there does seem to be a correlation. Recall, correlation is not causation. However, as we experienced in the 1970s United States economy, this was not the case as it was characterized by both high rates of inflation and unemployment (Gwartney, 2018, 15-6). Once you introduce the expectations hypothesis’ the curve will no longer trend down, but up to the right. This is because people will eventually begin to anticipate a higher rate of inflation and adjust for that leading unemployment to return to its natural state in the long run. Because this curve is not fixed, it isn’t a very good predictor of inflation versus unemployment.
Being in the poultry vaccine manufacturing industry, key indicators I would use to make a business decision would be trending the new orders placed, delivery times from suppliers, and average workweek in hours data points within our company. When the COVID outbreak initially hit the US economy hard, we saw a slight reduction in sales and a lot of our suppliers had items on backorder, an indication that they were slowing down or possibly supplying huge orders from other industries.