The World Economy in Spring 2020

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Assignment Chapter 1.docx If you were the owner of a small business with about 40 employees, what specific personnel-related steps would you be taking now, in terms of “more aggressively controlling costs, and…managing workforce issues with a heightened sense of urgency”?

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Chapter 1, Introduction to Human Resource Management

The World Economy in Spring 2020

2019 was a good year for the United States economy. Real gross domestic product (GDP, the inflation- adjusted value of all goods and services produced by labor and property in the United States) rose fairly steadily through 2018 and 2019, albeit at a decreasing rate. For example, based on data from the Federal Reserve Bank of St. Louis, on a year-to-year basis GDP in the US rose about 3.3% early in 2018, by about 3% later in 2018, and then by about 2.5% toward the end of 2019. (However, as we’ll see in a moment, many experts believe that the US economy early in 2020 may have slowed considerably, although as of March 2020 it’s too early to know for sure).

Similarly, the period from February 2018 to February 2020 was excellent in terms of employment. Data from the US Bureau of Labor Statistics shows that from February 2018 until roughly August 2019 the unemployment rate trended down from just over 4% to about 3.5%; it then remained at a low of about 3.5% until February 2020. During this time, the US economy produced hundreds of thousands of new jobs every month, for instance about 200,000 new jobs in August 2019, and about 273,000 in February 2020. During this period, US inflation as measured by the consumer price index was subdued, rising about 0.1% in January 2020 and 0.1% in February 2020. Productivity (output per hour of nonfarm business sector workers) rose at a 1.9% annual rate early in 2019, and 1.2% in late 2019, both up somewhat from the previous few years.

According to data from the United Nations (“World Economic Situation and Prospects”) world gross product grew at 2.3% in 2019, which was somewhat slower than in 2010-2018. The slowing growth rate reflected diminishing global investment and exports, primarily due to international economic disputes that manifested themselves in tariffs and trade tensions. In 2019, for instance, bilateral trade between the United States and China dropped dramatically.

However, as of spring 2020, it probably wasn’t trade wars but the COVID-19 coronavirus that captured economists’ attention (see also our update for Chapter 16). For example in February 2020, the president of America’s St. Louis Federal Reserve Bank said he expected the coronavirus to slow economic growth. That prediction was becoming more certain by March 2020, as businesses from airlines to cruises, hotels, restaurants, and retail stores drastically curtailed their opening hours, often due to mandatory restrictions. For example in March 2020 president Trump temporarily suspended all incoming passenger flights from Europe to the US, and France closed all its restaurants and cafés. And, while global warming probably didn’t grab as much attention as COVID-19, “January 2020 was the warmest January on record for the Globe” according to America’s National Oceanic and Atmospheric Administration (NOAA).

If the economy does slow or go into recession in 2020 some experts believe it may be harder than in the past for central bankers to boost their economies. Central bankers usually try first to reduce interest rates, but rates are so low (as of spring 2020), that central bankers have little wiggle room. Instead, governments will have to step in by taking steps like lowering tax rates. So, to the extent that anyone can predict such things, it seems (as of spring 2020) that 2020 may be a challenging year economically. That means that business managers may well have to turn their attention to more aggressively controlling costs, and to managing workforce issues with a heightened sense of urgency.

Discussion question If you were the owner of a small business with about 40 employees, what specific personnel-related steps would you be taking now, in terms of “more aggressively controlling costs, and…managing workforce issues with a heightened sense of urgency”?

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