Economic Final Analysis

4070 words - 16 pages

Our final economic analysis is composed of the six major economic indicators that play an important role for the housing industry. These are Capacity Utilization, Income, Price, Inflation, Unemployment, and Gross Domestic Product. Furthermore, we will conduct an in-depth analysis based on the forecasts acquired in week 4 to determine future strategic initiatives. We will also discuss the SWOTT analysis (Strengths, Weaknesses, Opportunities, Threats, and Trends) conducted during week one in conjunction with the definitions of the six economic factors already mentioned. It is also important to point out that other factors could alter the future of the housing industry; such is the case of the "bubble burst", location, technology, and rising interest rates in correlation to supply and demand of housing.Capacity Utilization Rate(CU)A measure that economists can employ in union to the Unemployment rate is the Capacity Utilization rate. This percentage measure is used to determine "the rate at which factories and machines are operating compared to the maximum sustainable rate at which they could be used…" (Colander, 2004, p. 504). Using this measure tells us that apart from labor, there are other assets or capital that are on hand to promote economic growth. These two figures used jointly assists in identifying the Potential Output. This "is the output that would materialize at the target rate of unemployment and the rate of capacity utilization" (Colander 2005, p. 504). Economists use this percentage to assess the pace of the economy. An 80% CU rate with a 5% Unemployment rate is an acceptable pace economists are willing to accept. The theory stipulates that increasing this CU rate would result in inflation and a low CU rate may indicate a recession. Figure 1 below illustrates a 4-year history of this measure.(Figure 1)However, some are theorizing that the economy can function reasonably safe eluding inflation with a CU rate above 80%. The differentiating factor responsible for phenomenon is new technology. James Mehring, a writer for Business Week, confirms that before "a utilization rate above 83% has typically triggered concerns of budding inflation." (2004). Nevertheless, Mr. Mehring continues, "technology has lowered the utilization rates at which factories can operate without facing production pressures, according to a discussion paper released by the Federal Reserve". Thus, technology has improved efficiency thereby shifting potential output further to the right. This, in turn, has provided more flexibility for companies to function at a higher CU rate with minimum risk to inflation.A high CU rate is beneficial to the housing market. Increased efficiency will eliminate waste and provide companies with capital to increase production and promote growth. More people will be employed and have disposable income. Aggregate demand for goods and services will increase. Suppliers will increase production taking opportunity costs into...

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