Research Paper on "U.S. Macro-Economy: The United States"

Research Paper 5 pages (1600 words) Sources: 3

[EXCERPT] . . . .

U.S. Macro-Economy:

The United States economy is expected to grow by approximately 2% in the coming year, which is roughly the same level of growth it has experienced this year. America's economy experienced a faster growth in the second quarter of 2011 that rescued the country from an economic downturn. However, this growth isn't accelerating and is unlikely to increase in the fourth quarter than it did in the third quarter of the year. The rapid growth in the second quarter of the year was characterized by increased consumer demand and business confidence enabling the country to overcome stock market gyrations in the summer season. Regardless of the economic growth in the second and third quarters of the year with a huge boost of the labor market, signs of a sustained recovery are far from reach.

Following at annual growth rate of approximately 0.9% in the first half of this year, the GDP grew at 2.5% rate between July and September. The expected 2% growth of America's economy in 2012 is due to its vulnerability to possible shocks like natural disasters, terrorism, oil price, and war. Given that the country's economy is still struggling to recover from the 2008 downturn, any of the stated shocks could result in another economic recession.

Gross Domestic Product:

America's recovery from the impact of the financial crisis in mid-2009 has been very disappointing because of the growth of country's gross domestic product by a mere 2% in actual terms ("Economic Outlook" par, 3). While the main reason for this disappointing growth is constantly attributed to the high unemployment rate, the rate of GDP growth is inadequate to dent the massive pool of long-term unemployed individuals. The U.S. GDP growth rate is also attributed to the European financial crisis, stock market gyrations, and the debt limit drama in Washington. When the GDP grew at a rate of 2% in the third quarter of this year, it was coupled by an increase in business investment at a 16% rate.

Consumer Spending:

In addition to comprising of approximately 70% of the Gross Domestic Product, consumer spending increased at an annual rate of 2.4%. While this is a positive indication, it's inadequate to sustain economic recovery from the recent financial crisis. The growth in consumer spending was twice as fast in the third quarter as compared to the first half of 2011. This increase in consumer spending was regardless of the decline in consumer confidence in mid-October to lower levels than those of the Great Recession. Consumers are borrowing more to spend because of the falling income and increasing unemployment rate. One of the most notable areas that have experienced an increase in consumer spending is on car sales.

Unemployment Rate:

The current unemployment rate in the United States is estimated at around 9% and expected to drop by 0.5% in the next twelve months. While this unemployment rate has continued to drop significantly since the end of the 2009 financial crisis, the country still has a massive pool of long-term unemployed people. Despite this huge number of long-term unemployed people, America's economy created approximately 1.5 million jobs this year and is expected to create a further 1.8 million jobs in 2012. However, government employment continues to decline even as the growth of private-sector jobs continue.

The United States economy has also been characterized by losses of public-sector jobs through federal job cuts. The slow decline of America's unemployment rate is due to the minimal average monthly job growth of approximately 90,000. Moreover, the net job creation in October was a minimal 80,000 resulting in various concerns to the Labor Department. The high unemployment rate is also due to the failure by both local and State governments to add jobs as usual during recovery from recession.

Inflation:

United States economy is characterized by a current inflation rate of an estimated 3.3% because of its slow growth. However, the slow-growing economy has already started to slow down the inflation rate because of its tight control on energy prices and is expected to ease to around 2% in 2012. After increasing by 0.1% respectively in each of the three previous months, Consumer Price Index dropped with a similar percentage in October. This decline was due to the series of seasonally adjusted increases that resulted in decline of both gasoline and household indexes ("Consumer Price Index Summary" par, 2). The persistent increase of the core Consumer Price Index that excludes gasoline and food is distressing and could result in higher inflation rates. If Washington does not control the federal debt, there is a likelihood of higher inflation rates because of the prowling inflationary pressures.

Interest Rates:

The existing borrowing costs have a huge impact on America's economy regardless of the promise and efforts by the Federal Reserve to lower short-term interest rates to almost zero. Currently, the prime lending rates for commercial banks is 3.25% with mortgage rates and corporate bonds at a rate of 2%. The Federal Reserve main way of lowering the long-term interest rates is the plan to sell short-term debt worth $400 billion and purchase new Treasury bonds and notes containing maturities of between 6 and 30 years. Through this method, the Federal Reserve expects that the number of consumers willing to refinance and buy houses will increase resulting increased growth of the economy. The latest move by this department is letting inflation to increase towards an annual rate of around 5% with the expectation that it would stimulate buying, investing, and hiring. The growth of lower interest rates has remained sluggish but has shown signs of slight increase in the second half of the year.

Retail Rates:

Retail sales in the current state of the United States economy have grown by 8% this year with October recording the largest monthly increase in the past two years. While retail sales experienced a decline in both June and July, it's expected that these sales will rise by 5% in the last two months of the year to offset the decline in mid-2011. The increase in retail sales in October was largely because of the 3.7% rise in electronics sales. Notably, unpredictable events like the European sovereign debt crisis that could keep markets volatile haven't affected consumers in the United States. This is evident from the increase to 8.2% in October despite of the decline in consumer confidence to the lowest depth since 2009.

Trade Deficit:

The U.S. trade deficit fell to its lowest level in nine months in September 2011 but is expected to rise as imports continue to rise and exports slow slightly. Actually, it's expected that the country's trade deficit will increase to an estimated $550 billion by the end of the year. While the country's trade deficit with China reduced by $900 million in September, the Congress is expected to continue criticizing Chinese currency policy.

Policy Responses to the U.S. Economy:

President Obama has responded to the current state of the U.S. economy by introducing a stimulus plan bill that will enhance hiring and improve the growth of the economy if enacted into law. Through this plan, the President is aiming to jolt various parts of the economy since it focuses on various places. First, the President wants the Congress to expand and extend tax cuts for payroll for employees to nearly 3.1% from the normal 6.2%. This payroll tax cuts will also include businesses and provide tax credits for companies that hire workers who have been unemployed in the past six months.

As part of the democrats focus on investments in infrastructure, President Obama wants infrastructure bank to provide loans to jolt the money of private-sector projects. The interest paid on such loans should ultimately enable the infrastructure bank to be self-sufficient. Moreover, the stimulus plan bill also seeks to extend unemployment… READ MORE

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