However, as a substantial body of economic literature shows, the consequences of high unemployment, falling incomes, and reduced economic activity can have lasting consequences. For example, job loss and falling incomes can force families to delay or forgo a college education for their children. Frozen credit markets and depressed consumer spending can stop the creation of otherwise vibrant small businesses.
Some economists have jokingly defined a recession like this: Economists officially define a recession as two consecutive quarters of negative growth in gross domestic product GDP. The National Bureau of Economic Research cites "a significant decline in economic activity spread across the economy, lasting more than a few months" as the hallmark of a recession.
Both definitions are accurate because they indicate the same economic results: Some businesses may be affected only moderately, or not at all, if the recession is mild and brief. If the recession lingers and the downturn is widespread, all big businesses - firms publicly traded on major stock exchanges - may ultimately be hurt.
What happens to this firm will likely happen to other big businesses as the recession runs its course. As sales revenues and profits decline, the manufacturer will cut back on hiring new employees, or freeze hiring entirely.
In an effort to cut costs and improve the bottom linethe manufacturer may stop buying new How is the economic downturn affecting, curtail research and development and stop new product rollouts a factor in the growth of revenue and market share.
Expenditures for marketing and advertising may also be reduced. These cost-cutting efforts will impact other businesses, both big and small, which provide the goods and services used by the big manufacturer.
Dividends may also slump, or disappear entirely. Shareholders may become upset.
The internal advertising and marketing departments may also face a personnel shakeup. Learn how understanding the business cycle and your own investment style can help you cope with an economic decline in Recession: The sell-off and business decline will also impact employer contributions to profit-sharing plans or k plans if the company has such programs in place.
The customers of the company that owe it money may pay slowly, late, partially or not at all. Then, with reduced revenues, the affected company will pay its own bills more slowly, late, or in smaller increments than the original credit agreement required. The company will then be protected from its creditors as it undergoes reorganizationor it may go out of business completely.
Employee Lay-offs and Benefit Reductions The business may cut employees, and more work will have to be done by fewer people. Productivity per employee may increase, but morale may suffer as hours become longer, work becomes harder, wage increases are stopped and fear of further layoffs persists. Read about how employment statistics influence corporate confidence in Surveying The Employment Report.
As the recession increases in severity and length, management and labor may meet and agree to mutual concessionsboth to save the company and to save jobs. The concessions may include wage reductions and reduced benefits.
If the company is a manufacturer, it may be forced to close plants and discontinue poorly performing brands. Automobile manufacturers, for example, have done this in previous recessions. Cuts to Quality of Goods and Services Secondary aspects of the goods and services produced by the recession-impacted manufacturer may also suffer.
In an attempt to further cut costs to improve its bottom line, the company may compromise the quality, and thus the desirability, of its products.
This may manifest itself in a variety of ways and is a common reaction of many big businesses in a steep recession. Learn about the importance of production levels in Understanding Supply-Side Economics. Airlines, for example, may lower maintenance standards.Vincy Mas 09] Economic downturn not affecting St.
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Merged airlines will produce a combined cash balance of $7 billion upon consummation, the best cost structure and debt-to-income ratio in the industry, and access to financial markets.
Clearly their customers don't appear to be too affected by the economic downturn. Galling aspects But these local developments are also linked to . Nov 13, · Anders Borg, Sweden’s former Finance Minister, gives his perspective on what to look out for in the economic year ahead, from reforms in China to the threat of Brexit.
will be a challenging and difficult year for the global economy. Global growth is picking up somewhat after a number of weak. In each of these cases, an economic recession can lead to “scarring”—that is, long-lasting damage to individuals’ economic situations and the economy more broadly.
The following sections detail some of what is known about how . The National Bureau of Economic Research cites "a significant decline in economic activity spread across the economy, lasting more than a few months" as the hallmark of a recession.