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The Effect of Economic Cycles

The Effect of Economic Cycles. Who is Particularly Impacted?. While the economy as a whole is negatively impacted by economic cycles, certain companies and industries are particularly sensitive to overall changes.

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The Effect of Economic Cycles

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  1. The Effect of Economic Cycles

  2. Who is Particularly Impacted? • While the economy as a whole is negatively impacted by economic cycles, certain companies and industries are particularly sensitive to overall changes. • Manufacturers of durable goods like cars, appliances, and electronics are among the most impacted. People tend to cut back on the purchase of durables, as the ones they already have can last through the recession. • Durables usually benefit the most from booms. As disposable income increases, consumers are likely to go out and buy that new car or iPod. • Financial institutions are also susceptible to declining demand for financial services and an overall decrease in the amount of money flowing through the economy.

  3. Transportation • GM, Ford, Chrysler and other car companies are significantly impacted by recessions. • Consumers put off buying new cars or purchase less expensive models. • United Airlines & British Airways are leading airlines that suffer in recessions. • FedEx & UPS experience less volume in mailed packages during recessions.

  4. Manufacturing • Whirlpool and Sears are home appliance manufacturers subject to decline in demand during recessions. • Demand for appliances is tightly linked to new home sales, which slow during recessions.

  5. Construction • Home Depot & Lowe’s are home improvement retailers. • Performance is correlated to the house market, which declines during recessions.

  6. Other Industries • Investment Services • Merrill Lynch • Morgan Stanley • Goldman Sachs Group • JP Morgan Chase • Hotels • Home Security • Luxury Commodities (jewelry like Zales) • Advertising Firms

  7. Who is Less Impacted? • Certain goods are relatively protected from the impact of economic cycles. Goods that have a relatively inelastic demand with respect to income are generally shielded. • For example, no matter how bad the economy gets, people have to eat and will continue to purchase food. This is particular true for staple foods like bread. • In addition, when the economy improves, people rarely eat more or buy more necessities.

  8. Who is Less Impacted? • Food Manufacturers & Retailers • Safeway • Wal-Mart • Pepsi • Kraft • Addictive Substances (tobacco) • Medicine & Medical Equipment • Utilities

  9. REVIEW • What are durable goods? • Which industries are most significantly impacted by economic downturns? • What is inelastic demand? • Which industries are relatively unaffected by economic rises or falls?

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