The Economy of the United States - Coursework Example

US Economy Introduction The economy of the United s in the past few years has gone through a major slump. This slump has been seen through their real estate crisis, rise in unemployment rates, and their reduced competitiveness in the global economic setting. This economic crisis was not helped by the matching economic crisis felt in other western nations as well, such as the United Kingdom, Australia, Japan, and similar developed nations. In so many ways, this crisis has been a result of the rise in oil prices which has affected the general prices of commodities and the transport of people and goods from one place to another. Much analysis is needed in order to fully comprehend the US economic crisis. This paper shall now analyze, compare, contrast the economic growth, unemployment, and inflation rates in the United States. This paper is being conducted in order to establish a dynamic and academic understanding of the topic, as well as its implications to the country’s progress. Discussion The US remains to be the world’s largest economy. Based on the CIA Factbook, their 2007 GDP was at $13.84 trillion which represents three times the size of the next largest economy which is Japan at $4.4 trillion (Economy Watch). With the creation of the European Union however, the dominance of the US was reduced with the European market presenting an equivalent of $13 trillion. The growth of the BRIC (Brazil, Russia, India, and China) has also threatened the US global dominance with China forecast to overtake the US in size in the next 30 years (Economy Watch). These are imposing threats on the US economy which have also been plagued by the housing crisis. The failure of the US housing and credit markets caused a major slowdown in the US economy with the 2007 GDP growth being 2.2%, plunging down to 0.9% in 2008. This represents a significant decrease in the GDP when the 10 year average was at 2.8% (Economy Watch). Similar to developed nations, services have been considered an important element of the US economy. In 2007, services comprised 78.5% of the GDP, the industry represented 20.5% and agriculture represented less than 1% (Economy Watch). About two thirds of the country’s total production has been dictated by personal consumption. And even as it is an economy which is considered free market, government regulations still protect some aspects of their economy like energy and agriculture (Economy Watch). In any case, it can instead be considered a consumer economy. As the largest economy in the world, the US consumer dictates about two thirds of the economy and is a major driver in the global market (Economy Watch). It is also driven by the basic interplay of supply and demand which dictates the prices of goods and services. The impact of the government in the US economy is important in terms of monetary decision making and fiscal policy conceptualization. The federal government considers all the possible initiatives in order to guarantee the growth of the US (Economy Watch). The US government considers all economic tools, including money supply, taxes, and credit control in order to make the corresponding adjustments in economic growth. During such considerations, the US federal government has also been tasked to regulate the operations of private business concerns in order to control monopolies (Economy Watch). The government provides different services by giving support for national defense, monetary aid for research and development programs (Economy Watch). The national debt is one of the most controversial issues in the US. In 2008, its federal debt was at $9.2 trillion. This represents 67% of GDP and is about $79,000 for each American taxpayer (Economy Watch). American consumers have also become dependent on debt and re-mortgaging to higher loans while using their extra cash to fund their high purchases. Their debt totals are one of the largest in the world; however in terms of GDP percentages, it is still less than Japan and other European countries. Moreover, much of the debt is supported by central banks and sovereign wealth funds from Asia, Europe, and the Middle East (Economy Watch). These debts are being adequately refinanced by the US banks and financial ventures. In the fourth quarter of 2010, the US economy grew as consumer spending increased to its highest in the past four years (Willis). The GDP increased by 3.2% based on Commerce Department figures and this was largely driven by the consumer markets. The dollar also exceeded expectations on demand, thereby, boosting company sales of General Electric and Apple, Inc. The report also manifested how Federal Reserve’s measure of inflation rose at the slowest pace, further supporting forecasts on the recovery of banks (Willis). Stocks in the US also dropped when concerns of unrest were seen in Egypt, especially when shares of Ford and Amazon retreated. The dollar gained against the euro for the first time in nine days in 2010 as it strengthened $1.361 per euro from $1.373 (Willis). For most of 2010, the US economy increased by 2.9 % which is the most it has grown in five years after plunging to 2.6 percent in 2009. The amount of all gods also increased by 13.38 trillion and this surpassed the pre-recession levels during the fourth quarter of 2007 (Willis). General Electric also manifested third straight quarter of profit growth; this was assisted by the strength of its finance unit, health care, and transportation branches. Consumer confidence also fell less than was expected; and this is said to be a major gain in the economy. Based on the Thomson Reuters/University of Michigan survey, the final index of consumer perspectives decreased to 74.5 in December 2010. A 10% gain in the fourth quarter also increased household wealth and confidence and through the government’s continued implementation of tax cuts, renewal of jobless benefits and cuts in payroll taxes prompted economists to make better forecasts for 2011 (Willis). Household purchases also saw a 4.4% increase and such increase added 3% points to the country’s economic growth. Holiday sales also increased to 5.5%, representing best figures in five years when customers purchased jewelry and clothing from Macy’s and Tiffany’s. Mobile sales also increased with Apple, Inc. registering 7.33 million iPad tablet computer sales in the first holiday season for the gadget (Epstein). Based on increase spending, some companies, like Ford have increased their payrolls – leading to major gains in employment. However, Ford European sales still registered losses as their profits fell by 79%. Still, Ford is still planning to hire more than 7,000 engineers and battery-powered experts in the next two years (Willis). Economic growth is still not progressing well since unemployment rates are not going down fast enough in the US and plans to re-inject about $600 billion into the financial system by June are still underway. The concern for many CEOs is that the main issues in the US economy have not been sufficiently addressed. They point out that the recovery in the GDP does not mean recovery from the recession. Concerns in unemployment are still very much apparent (Kennedy and Randow). Based on the Fed’s price gauge, gains in consumer spending are still the smallest gains since 1959. Export deals with China worth about $45 billion also increased purchases in GE vehicles. Tax measures which gave corporations a chance to depreciate 100 percent for capital expenditures through 2011 are also set to assist in sustaining demands for equipment – increasing factory recoveries seen since June 2009 (Willis). The inventories in the last quarter paced at $7.2 billion, which was lower than the third quarter inventories. This reduced the economic growth to 3.7 points – the most decrease in growth since 1988. However, these lower inventories may help set forth faster growth rates in the first quarter of 2011 (Willis). Growth in the fourth quarter was encouraging with strong showing among consumers; however inventories were low. Nevertheless, productions are set to increase and go forward (Nazareth and Hwang). Early this year, Federal Reserve reported that economic activities gained strength with manufacturers and retailers having success in increasing their prices (Sommerville). Reports by 12 Federal Reserve districts set forth that economic activities expanded at a moderate pace early this year. However, even as the economy is said to be gaining strength, such growth was not seen across the country and it was not at a strong a pace as the previous reporting period. Growth in wages is still considered weak; nevertheless, businesses have been trying to increase their prices in order to make up for the high cost of raw materials in the production process (Sommerville). Manufacturers in various territories have expressed that they were passing to their customers the cost of high input. So far, retailers have already increased or have planned to increase their prices. In general, job prospects have already been seen in different parts of the country; however some companies have taken to hiring only temporary workers, and have not created permanent positions (Sommerville). Real estate has still been a troublesome spot with several areas reporting slight increases in the level of real estate activity. However, overall home sales and construction still stayed low. Still, it has been encouraging to see some areas like Boston, Richmond, Kansas City, and San Francisco registering higher commercial real estate sales and leasing activities (Sommerville). The Federal Reserve also reported that all 12 of its regions manifested promising growth at a modest to moderate pace with employment rates also manifesting promising numbers (Rugaber). Retail sales increased in 10 out of these 12 regions; falling in Richmond and the Atlanta areas. Factory activities also increased in all regions, except St Louis. Concerns on inflation were seen with rising costs suffered by manufacturers and retailers. These manufacturers have passed on these high costs to consumers resulting to higher inflation trends in the US (Rugaber). Economists have seen how wages have remained stagnant and this has not been encouraging for consumers faced with higher prices. Lawmakers have recognized the fact that the $600 billion bond-purchase program may eventually lead to higher prices of commodities and these concerns have been exacerbated by increases in the price of oil, corn, wheat and other basic commodities (Rugaber). Concerned authorities have sought to justify this trend to the members of Congress explaining that the inflation caused by the $600 billion bond-purchase program would only cause a temporary and mild increase in inflation. This explanation has yet to be supported by the US congress. The US economy has not yet fully recovered; and although it has been slowly growing in the past 18 months, such growth has not sufficiently decreased the unemployment rates (Rugaber). Harsh snowstorms in different parts of the country have also decreased store sales and factory activities. This bad weather has affected manufacturing activities in Cleveland, Atlanta, and Minneapolis areas, consequently pushing down retail sales in these areas (Rugaber). It is important and encouraging to note however that tourism has picked up in the Richmond, Atlanta and San Francisco regions. Such trends have yet to manifest in wider areas covered under the Fed’s regions. The private sector was able to add about 200,000 jobs in February and exceeded analysts’ expectations (Schnurr). Economists surveyed by Reuters set forth an expected rise of 175,000 jobs by February, and higher figures were actually seen. The report, done with Macroeconomic Advisers LLC was seen ahead of the government’s comprehensive labor market report which would include both the private and the public sector (Schnurr). Such report is said to indicate a rise in overall nonfarm payrolls of 185,000 and an increase in 190,000 in private payrolls. Such encouraging reports are to be used by economists in order to predict better economic outcomes for the country (Schnurr). In terms of its debt, the US will most likely hit its highest total debt come April with $14.29 trillion. By then, it would also hit its debt limit, and hit it a lot sooner than expected. According to the Treasury Department, the US will reach the debt limit sometime between April 15, 2011 and May 31, 2011 (AFP). If such point is reached, then the US would only have several weeks before it then runs out of cash to cover its bills. The issue of extending the debt ceiling and keeping the government funded has not been linked to each other; however these concerns has been very much linked to Washington political deal making (AFP). President Obama’s critics have linked the raising debt limit to the fierce spending cuts which have been seen as too extreme by some democrats (AFP). These concerns have yet to be settled among the parties. In the meantime, April and that debt ceiling is looming over Washington and over the government critics. Political issues have also threatened pending US trade deals. The Obama administration has considered international trade to be an important means of gaining economic growth and creating jobs; however, its efforts to move forward in this regard has been hindered by partisan politics (Pace). In a report by US Trade Representative Ron Kirk, the Obama administration indicated that trading overseas would likely create 6,000 jobs in the US for every $1 billion in goods exported; and about 4,500 jobs in every $1 billion of service exports (Pace). The White House was hoping to gain bipartisan support for its plans. Traditionally, Republicans were in favor of free trade agreements, especially when the South Korean agreement in December was set to create tens of thousands of jobs (Pace). However, the White House and Republican congressmen are now at odds on how to proceed with the deal, including pending deals with Colombia and Panama. The US signed accords with Panama, Colombia, and South Korea; however these agreements do not proceed without approval of the House and the Senate (Pace). The US administration is seeking approval of the South Korean agreement quickly while working through the issues with Panama and Colombia; however, some Republicans are arguing that smaller deals with Colombia and Panama are ready for approval now. In other words, they want the White House to send all three deals to Capitol Hill at the same time (Pace). Some of the Republican congressmen have gone to Colombia and Panama and they believe that the time is right to push through with the three deals. However, the White House does not seem to want to compromise in its position. It still believes that it needs to resolve issues on the Colombia and Panama deals first before sending the deals up to Congress for approval (Pace). As yet, no clear resolution to this issue is apparent for both parties. Conclusion The US economy is largely currently unstable. Since the advent of the US economic and global economic crisis, it has mostly gone through various issues like high inflation and high unemployment rates. Its housing and credit market crisis has also caused major problems in its economy. As a result, many homeowners who lost their houses were driven deeper into debt. In the past few years, the US economy has slowly been recovering with better employment rates and higher consumer spending. Its inflation rates still leave much to be desired however, its gains in the past few months are seen as encouraging signs of eventual economic recovery. Works Cited Economy Watch. 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