ECONOMICS PAPER

Economics Paper



Economics - Analysis

Section 1

One factor that directly contributes to the industry's disproportionate impact on economic activity is its cyclical nature. Detailed information on the automotive industry illustrates its disproportionate impact on regional and national economic activity. For example, the U.S. automotive sector directly contributes approximately 4 percent of total output as measured by gross domestic product (GDP). However, on a quarterly basis the sector can account for more than 40 percent of the change in GDP. The frequent changes in the industry affect many downstream industries and can influence national manufacturing, sometimes to an overwhelming extent. For example, in the U.S. during the 1993 summer slowdown, almost the entire weakness could be attributed to the sector.

In the case of the third quarter of that year, production and sales for the industry slumped, and the impact on the manufacturing sector and the overall economy was rather startling. The declines in shipments and industrial production of the motor vehicles and parts component of manufacturing were several times larger than the overall declines in manufacturing. Shipments of autos and parts were down 15.5 percent in July from the March peak -- over five times the decline in total manufacturing shipments. (http//www.bea.gov) Even though the auto industry accounts for slightly less than 10 percent of total shipments, the industry's decline accounted (on a share-weighted basis) for half of the total decline in manufacturing shipments and for about 85 percent of the decline in durable goods manufacturing. In industrial production, the decline in the autos and parts component from April to July (-0.8 percent) was nearly three times greater than the decline in total manufacturing. In addition, the slump in auto production impacted supplier industries, such as rubber, glass and steel that generated additional weakness in the durable goods sector of manufacturing. (Mcfeatters, 2010)

As the U.S. economy picked up momentum in subsequent quarters, the auto industry also provided a large share of the boost. Motor vehicle activity increased well above overall production gains, especially in the fourth quarter. This pickup translated into a large contribution to GDP during the fourth quarter of 1993 and the first quarter of 1994. The auto contribution for the fourth quarter was in excess of 2 percentage points, while the first quarter was above 1.6 percentage points (or almost half of the GDP increase of 3.4 percent).

The turn of the century witnessed a surge in U.S. property market performance, with personal investors, developers and fund managers alike 'rediscovering' the property market after the economic recession. While some of the attention may be attributed to portfolio reallocation associated with the prolonged equity bear market and the subsequent redirection of capital, it is clear that US economic conditions have combined together to provide an environment favorable to property investment. Low and stable interest and inflation rates, strong and sustained growth in residential and commercial property prices, long-lasting trends towards inner-city, high-density and coastal living, financial deregulation combined with intense competition and the development of new loan products with tax advantages ...