Student "Economics-in-the-NEWS" Journals

These have been extracted by Dr. Kay Strong from her students' work and are provided as an appendix to her case study, "Use of Portfolios for Assessment in Introductory Economics".


From the portfolio of AMF:

Economic Journal #1

November Retail Sales Slump
USAToday, Section B7, Column 3
Friday, December 6, 2003

Many factors affect aggregate demand, but the leading factor is household consumers. This article discusses how the lack on consumer confidence is affecting retail sales that are normally higher for the holiday season. Lack of consumer confidence and lack of "must-have" products on the market are all added to the lack of spending that occurred this November. Many consumers also are worried about their jobs not being there in the next few months or weeks. This provides low expectations for their future income, which also causes cautious spending by consumers. Therefore, nearly every single factor that affects how much an average shopper spends is having a negative affect on the economy this holiday season. . Many people blame it on Thanksgiving being so late in the month. Retail stores are feeling the pinch and may be having more after season sales then normal in order to get rid of the extra stock.

This lack of spending has already brought revenue for November down considerably from last year. For example companies such as Sears is down 10.9% compared to last November. This lack of income could be factored out to find out how much income could be lost do to lack of spending, Change in consumer spending can be calculated in order to find the marginal propensity to consume or MPC. This is done by dividing the change in consumer spending by the change in consumer income. The MPC can then be used in another equation to figure out how much income could be produced for every dollar spent. One divided by one minus the MPC or [1/ (1 - MPC)] will equal how much money will be turned into income with every one dollar spent.

After every holiday season there is bound to be seasonal hiring that will be let go. However, it may be possible that will such a poor November profit, a few of the long-standing employees will be headed out as well. This could lead to a higher unemployment rate then what we usually see in January. It also sounds like the better deals will be after Christmas in order to sell their inventory to make room for the new season of clothes.

Economic Journal #2

Job Hunt Gets Harder for African-Americans
USAToday, Section B1, Column 1
December 9, 2003

Unemployment is again creeping higher then we have seen it in eight years. As usual it continues to hit African-Americans and youths the hardest due to discrimination, industry changes and educational backgrounds. The rates of unemployment grew unevenly across the board in November. The Hispanic rate was unchanged at 7.8%, whites went from 5.1% to 5.2% and for blacks it raced from 9.8% to 11%.

African-Americans seem to be the alpha and the omega when it comes to hiring - the last to be hired and the first to be let go. Much of this has to do with discrimination and some of it has to do with experience and educational backgrounds. Only 77% of blacks have a high school diploma compared to 88% of whites!

Many companies are downsizing, not only factories but retailers as well. These retailers have not only stopped hiring but have also started slashing jobs in order to cut back their budgets. This has an affect on the whole country raising our unemployment even higher.

When people lose their jobs they stop spending money at the retail stores in order to pay for the things they need. This causes a downward spiral of cutting more jobs sending more people out to fend for themselves. This circular flow of resources and supplies will continue to dwindle until nothing is left We are already producing well below the production possibility curve for our nation. By downsizing and putting even more people on unemployment we are greatly reducing the GDP of our whole nation. Stores will begin going out of business because no one will have enough money to shop there anymore. . At some point the government will need to step in or the cost of unemployment will greatly cripple our economy.

Economic Journal #3

Jobless Rate Ties Record, but Wall Street Rallies
Sandusky Register, Section B6, Column 1 
December 7, 2003

What was thought of as, as bad as it's going to get, has just gotten worse. The unemployment rate shot up from October's 5.7% to 6% plus two Treasury Secretary Paul O'Neil and chief economic adviser Larry Lindsey. The two were let go by the White House after the numbers were released. Many are saying like father like son, and are preparing for another recession. Many feel that the jobless rate has still not hit its high.

Many companies are blaming the high cost of employee health care and pensions for their downsizing and lack of hiring. Worse yet, nearly one million people will start running out of unemployment benefits three days after Christmas because Congress did not pass the extension prior to adjourning in November.

Many businesses do not see a profitable future ahead with people spending less it will be less money coming in. Therefore in order to keep some of that money in their pockets they begin to downsize so that their expenditures are less. The investments that they have in the people that work for them has become more costly then the return of work that they get from employing that number of people. Therefore, it is more money smart to let some go then to keep paying their health benefits.

This could affect us by someday seeing less and less benefit packages being offered. Many will become uninsured due to the loss of health benefits, and some will see the loss of pension plans being offered, therefore causing them to have to save for their own future.

Economic Journal #4

Incentives Encourage Car Buyers to Move Upmarket
Plain Dealer, Automotive News, Column 1
December 5, 2003

This article deals specifically with how the producers lower prices to accommodate for surplus stock. Car producers blame the surplus of cars on heightened technologies and the very competitive car market. These lower prices usually account for a loss in profit, but not so in the auto industry in the last few years. This is because, due to dealer incentives, consumers are opting to buy larger vehicles with more perks. This has caused the automotive industry to thrive even in this economic downturn. In fact the average price for vehicles bought is over $24,500 in March up from almost $19,000 in 1996! Incentives have not only been given to consumers, but also to dealers as well.

This article exemplifies the cyclical movement of the economy. As suppliers have too much stock, they lower the price. Consumers have to spend less to get the things they need and want and therefore can afford to buy more things that they need and want. Giving the suppliers more money to buy more resources to produce more product at reasonable prices.

This affects all of us because we are getting more car for the buck! Who wouldn't be happy with that? It also makes the dealerships happy because they are able to sell more cars, and the auto producers are happy because they continue to turn profits even in the slow economy that we are currently in.

Economic Journal #5

Productivity, Service Sector Show Vitality
USA Today, Section B4, Column 1
December 5, 2003

Productivity is higher than it has been in nearly three decades due to companies trying to make do with the resources that they had. Productivity measures the amount of goods and services produced for each hour of work. However, due to employers making due with what they had, very few new jobs have been created, and some were even lost. This article exemplifies one of the factors affecting aggregate supply. The producer is very interested in productivity because it equals lower costs to them and therefore higher profits. They are working at a higher level on the production possibility curve and that makes them money.

For the consumer this could mean more products and services for us to buy, which could lead to lower prices. However, for the worker in that business it means a higher workload, more stress, overtime, all without any more pay then before. For the person on unemployment it means another door closed.

Higher productivity is, for the most part, a good thing, and very good for the economy, as long as the company continues to grow and build upon it's new productivity levels.

From the portfolio of DMK:

Economic Journal #1

“White House plan could give boost to outsourcing”
USA Today:
http://www.usatoday.com/money/economy/employment/2002-11-17-outsourcing_x.htm
12/3/2002

Concept:

Combating unemployment: what can Government do in policy?

Summary:

In the article “White House plan”, Stephanie Armour and Del Jones of USA Toady report the Bush administration’s plan to outsource as many as 850,000 government jobs, seeking to push them into private companies and corporations. This is apparently done through outsourcing firms, who themselves need an economic boost. Only positive effects are given, some of which are cost savings, as the outsourcing firms look for good and efficient practices; economic boosts to those companies that already work with the federal government; lastly, the article states that most workers keep their jobs, their only change is which employer they are with.

How might I be affected?:

The number one effect here is cost-efficiency in government, which can equate to a number of possibilities: less taxes (doubtful), more funds given to the Defense Department (very probable), or more services, such as road repair, higher education spending, or Social Service programs. While kudos can be given to the White House for looking to save money, I think the larger question is where will the savings be spent?

Other comments:

If this is as cost-efficient move as the article deems it to be, why has outsourcing not been used more frequently? Government should be the purchaser of services, instead of supplying its own, which will allow the market for these services to find its equilibrium.

Economic Journal #2

“Employers assist workers with funding for homes”
USA Today
http://usatoday.com/money/perfi/housing/2002-12-01-househelp_x.htm
12/3/2002

Concept:

Employers opt for housing assistance as an incentive to bring in qualified workers.

Summary:

Even though the unemployment rate is high and companies are curtailing many benefits, there appears to be some businesses that need qualified employees, so much so that they are offering assistance in purchasing homes in the form of down payments and forgivable loans. Fannie Mae has helped 270 companies with housing programs this year, up considerably from the past.

USA Today is reporting that affordable housing is critical to employees and employers, for housing costs are extremely high in many larger cities. In addition to help with buying homes, companies are also aiding in relocation costs and cost-of –living differences between geographical areas.

How might I be affected?

If potential buyers are receiving assistance in getting loans, interest rates are likely to increase as a result of the increased demand. However, I don’t think the volume of aid being doled out is sufficient to be a contending factor on interest rates. Perhaps the greatest good of this article is that it gives a bit of hope to a failing economy, and lets those who are searching for work know where it may be found and assurance that, with such help as housing assistance, moving to a new locale where jobs are available is possible. All in all, I should think that the information given in this article would increase consumer confidence, a notion that would help all.

Other comments:

Housing programs are great for the Nation’s youth, who may consider them when deciding on a chosen field of study or where to find secure employment, but this is a small part of our population: would those with families and hardy community ties be very likely to up and move, or change occupation, because of a housing program? Perhaps better pension plans or reliable health insurance would be a better incentive to some in society.

Economic Journal #3

“Unemployment ties an eight-year high”
by Leigh Strope
The Morning Journal: Erie-Huron County Edition
Front Page (A1)
12/7/2002

Concept:

The state of the nation currently in regards to unemployment, decreased demand in spending and borrowing, and job types that are being lost and gained.

Summary:

This lengthy article included several concepts, tied together so the reader can better understand why the unemployment rate is high.

First of all, the article gives November’s unemployment rates, 6.0%– the highest in eight years. Economists were only predicting a slight increase, up to 5.8% from October’s 5.7%, and obviously underestimated the time needed to recover from the last recession. 40,000 American jobs were lost in November, most of them in factory work and retail, as well as in communication areas; while available jobs increased in service industries, namely in health care.

Secondly, the high unemployment rate and worries about job security for those who are employed runs parallel to decreased demand in buying and borrowing: November’s Christmas sales were modest, at a time when economists were hoping that sales would give the retail industry a much needed boost; in addition, demand for non-revolving credit, such as car loans, has decreased, which certainly doesn’t bode well for many factories.

It appears that businesses and households are a bit unsure of where the economy is heading, and prefer to keep a tight rein on spending.

How might I be affected?:

While I am not directly affected by the lag in these markets, as I am neither gainfully employed nor does my chosen field of study involve factory or retail work, I understand that I will always be indirectly affected by unemployment in the Nation. When people aren’t working, less taxes overall are being paid, which means less money for schools, roads and other services. However, the lack of demand in borrowing might equate to lower interest rates available to me, which would be a boon. Unfortunately I find this last possibility doubtful, as interest rates cannot get any lower than they currently are.

Other comments:

We, as a Nation, seem to be very concerned with the unemployment rate as it is now. However, aren’t these fluctuations, from high to low and back again, seen every few years? Perhaps the peaks in the unemployment rate are natural occurrences, and we shouldn’t be as alarmed as we seem to be.

Economic Journal #4

“Consumer confidence climbs in December”
USA Today
Section B, page 1
Monday, December 16, 2002

Concept:

Consumer confidence up, wholesale inventories and wholesale sales increase.

Summary:

According to USA Today’s Moneyline, the University of Michigan is reporting a December increase in consumer sentiment. In other words, consumers are slightly more optimistic about the state and future of the economy, and thus spending should increase slightly as households feel more secure in their own economic status. Spending has increased 0.4% in wholesale sales. However, wholesale inventories increased as well, although the article only gives October’s stats, shown as a 0.2% increase.

How might I be affected?:

If companies are still overstocking, then I should be able to find some great post-Christmas deals. Hopefully inventories stay high until January. On the other hand, company surpluses could mean lay-offs of employees until those overstocks are gone, equating to less tax receipts and less money spent on government services.

Other comments:

Perhaps consumer confidence is increasing because people believe that the unemployment rate cannot get any worse, thus they are safe from layoffs.

Economic Journal #5

“Economists not sure tax cut’s boost will come in time”
USA Today
Section B, Page 7
Monday, December 16, 2002

Concept:

The Federal Government using tax cuts to boost the economy

Summary:

President Bush is introducing a new round of tax cuts, worth about $300 billion dispersed over ten years. It is hoped that the cuts will aid businesses in providing more jobs, give consumers more spending power, and incite investments. However, economists from the Federal Reserve and elsewhere believe that the tax cuts will not positively affect the economy in time to provide the added spending power consumers and businesses need now to booster the economy.

Furthermore, it is believed that any tax cuts provided by the Federal Government will be offset by tax increases or spending decreases in State Government, as Thirty-one states are declaring budget shortfalls.

On another note, President Bush has restructured his staff in the White House economics arena. Treasury Secretary Paul O’Neill and top economics adviser Larry Lindsey both disagreed with further tax cuts, and their posts have been replaced with John Snow and Stephan Friedman, respectively.

How might I be affected?:

Of course tax cuts would seem nice initially, but the cuts to services may not be worth the immediate spending money. On the other hand, if taxes are cut but spending does not decrease we will be faced with a higher National debt, a problem we’d like to get rid of, not make worse.

Other comments:

President Bush doesn’t appear to be listening to his own economic advisors, the people who we rely on for the strength and growth of the economy.

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