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in depth…
Summary
In this slideshow we look at how the
economy (production, employment,
sentiment, spending) vary throughout the
8 business cycle stages.
We then present our unique 8-stage
economy, asset, firm and personal cycles.
Enjoy and share!!
The economy
Commodities
Private Debt
Consumer
Spending
Interest
Rates
Business
Private Wealth Inventory
Consumer Ind. Production
Sentiment & Serv. Activity
Business
Real Income Investment
Employment
11 factors define our simplified economy. The most important are consumer
sentiment, consumer spending; business production/activity, and employment.
The Production Function…
… shows how inputs (labour, capital, materials,
and land) are turned into economic outputs
(goods & services) through firm processes and
technology.
Technology
Employment
Capital ($) Firm
Economic outputs
Processes &
Materials (Goods & Services)
Management
Land
The Production Function…
Output = Productivity x Employment0.7 x Capital0.3
(Productivity is a function of technology, processes, management)
Output ~= Employment0.7
Technology
Employment
Capital ($) Firm
Economic outputs
Processes &
Materials (Goods & Services)
Management
Land
Measuring the economy…
… Gross Domestic Product (GDP) is the total market value of all final
goods & services produced within a country in a given period of time.
Yearly
employment
growth (%)
3
4 3
2
4
5 5
1
8
6
7
Slowdown Downturn Recovery Expansion Slowdown Downturn
This gives us the 8-stage business cycle as shown below.
Expansion – Slowdown – Downturn – Recovery
3
2 4 Downturn
(winter)
Recovery
1 early late early late 5 (spring) 1
early late early late
Expansion
(summer)
Slowdown
(fall/autumn)
6 8
Consumer
Spending
Employment
The business-cycle
With rising employment, real incomes and wealth rise, debt expands,
sentiment and spending increase, leading to rising production,
employment, commodity prices, inventories and business investment.
Commodities
Private Debt
Consumer
Spending
Interest
Rates
Business
Private Wealth Inventory
Consumer Ind. Production
Sentiment & Serv. Activity
Business
Real Income Investment
Employment
The business-cycle
Looking at the major elements in turn.
Consumer
Spending
Employment
The business-cycle via consumer sentiment
Dark area
indicates recession
The business-cycle via real private consumption growth
Dark area
indicates recession
The business-cycle via industrial production growth
Dark area
indicates recession
The business-cycle via industrial production level
Dark area
indicates recession
The business-cycle via Total Capacity Utilisation
Dark area
indicates recession
The business-cycle via PMI Composite Index
Dark area
indicates recession
The business-cycle via private employment growth
3
4 3
2
4
5 5
1
8
6
7
Slowdown Downturn Recovery Expansion Slowdown Downturn
The business-cycle via private employment level
5 1 5
6 8
7
Dark area
indicates recession
The business-cycle via the unemployment rate
Dark area
indicates recession
The business-cycle
Looking at the secondary elements in turn.
Commodities
Private Debt
Consumer
Spending
Interest
Rates
Business
Private Wealth Inventory
Consumer Ind. Production
Sentiment & Serv. Activity
Business
Real Income Investment
Employment
The business-cycle via commodities price change (oil)
Dark area
indicates recession
The business-cycle via business inventory
Dark area
indicates recession
The business-cycle via fixed private investment growth
Dark area
indicates recession
The business-cycle via new capital goods order growth
Dark area
indicates recession
The business-cycle via real earnings
Dark area
indicates recession
The business-cycle via consumer debt growth
Dark area
indicates recession
Commodities
Private Debt
Consumer
Spending
Interest
Rates
Business
Private Wealth Inventory
Consumer Ind. Production
Sentiment & Serv. Activity
Business
Real Income Investment
Employment
The business-cycle via Fed/central bank funds rate
Dark area
indicates recession
The business-cycle via 10yr Treasury yield
Dark area
indicates recession
The business-cycle overview
Expansion Slowdown Downturn Recovery
Employment
Positive and increasing Positive and decreasing Negative and decreasing Negative and increasing
Growth
Employment Rising more slowly to Falling quickly from peak Falling slowly to bottom
Rising strongly
Level peak then initial fall then more slowly then rising slowly
Unemployment Slow decrease to cycle Rapid rise initially, then Continued slow rise to
Decreasing steadily
Rate low then rising slower steady rise peak then steady decline
Consumer Rises and stabilises at Begins to fall from cycle Stagnates at low before Continues rising towards
Sentiment cycle high high to cycle low beginning recovery cycle high
Durable Goods Slowly rising from Decreasing quickly from Rapid rise to near cycle
Rising from bottom
New Orders strength to cycle peak cycle peak high
OECD Composite CLI steady (rising perhaps) Falling steadily to below Continued fall into cycle Continued rise from
Leading Indicator above 100, with late fall 100 low, then late rise below to above 100
Key Point Summary
Key point #1: Output is proportional to employment
…the business-cycle
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