Economic Assessment for the US Economy - Essay Example

Economic Assessment for the US economy in and al Affiliation Introduction Consumption has over the years been driving the United States economy. In fact it has been referred to as the engine of the US economic growth. The recent recession that hit the world was caused by a financial crunch in the US mortgage sector. The resulting decrease in wealth had a compounding effect on consumption as it declined sharply. The economy strengthened after the dip in the 200 to mid 2009 period. An outlook, by the Federal Reserve, in the year 2011 for the year 2012 showed that the economy would grow by 2.5%. The growth was predicted amidst federal spending cuts, weak pay rises, wary consumers and the threat of a European recession. This paper assess a year by year economic indicators from the year 2012 to the year 2014 GDP and other Economic Indicators Explained Economic growth is the measure of the change in gross domestic product, abbreviated as GDP. On the other hand, GDP is defined as the market value of the goods and services attributable to labour and property located in the economy. The gross domestic product measures the national income (sum of factor incomes) and output for a given country’s economy. It is equal to the total expenditures for all the final goods and services produced within the economy for a given time frame. The United States GDP in the year 2012 was worth 16, 244.60 Billion dollars1 and this value it was the worlds highest and over 25 % of the total value of the world’s economy. This was a growth from 15, 533.80 Billion dollars recorded in the previous year. This signaled a growth of 2.8% on the GDP recorded in the year 2011. Economic theory asserts that an economy’s GDP consists of total consumption, total investments and net exports; the latter is the difference between the total value of exports and imports. The estimated value of the decomposed components of the GDP were as follow; household consumption -70.9%, government consumption-19.5%, investment in fixed capital-12.8 %, investment in inventories-0.4%, net exports of goods and services negative 3.6 %.2 At the estimated percentage of more than 70%, indeed consumers are the engine of the US economy. Consumer Spending in 2012 Consumers spending have grown rapidly out of confidence in the 2011 economic growth. In the United States, the country has grown to be an imported consumer oriented goods and services shown by the negative value of the net exports, which means that the value of imports exceeded the value of exports. Consumer spending at percentage of 70.9 out of the GDP is the single largest piece of spending. During the period that transverse the dip and the recovery, consumption spending has kept a high pace than the overall GDP. Data from the World Bank3 Year Consumer spending in Billion of US dollars GDP in Billions of US dollars 2000 6, 801. 6 10, 289.7 2001 7, 106.9 10, 625.3 2002 7, 385. 3 10, 980.2 2003 7, 764.3 11, 512.2 2004 8, 257.8 12, 277.0 2005 8790.4 13, 095.4 2006 9297.5 13, 857.9 2007 9744.5 14, 480.3 2008 10, 005.5 14, 720.3 2009 9, 842.9 14, 417.9 2010 10, 201.9 14, 958.3 2011 10,711.8 15, 533.8 2012 11, 149. 6 16, 244.6 A table comparing the movements of the consumer spending and GDP from the onset of the recession to the recovery period A graph showing movements in GDP and savings from the onset of the recession o the recovery period From the graph, it is clear that consumer spending did not fall as much as the contraction of the GDP during the recession period, yet even the growth did not match that of the GDP during the recovery period. It was just steady. Throughout, personal consumption still provides a glimmer of strong growth, a sign of continued burgeoning confidence in the market and the economy. Investment spending 2012 Investment spending in the year 2012 accounted for a combined 13.2 % in both inventories and those in fixed capital of the GDP. The pre-recovery investment spending had been volatile than even the GDP. The viewpoints for investment spending traditionally depend on the type of investment. In the year 2012, the business fixed investment had been confronted by numerous close term difficulties from the manufacturing sector. Productions from the manufacturing sector have not hit the heights recorded during the pre-recession period. The purchasing managers’ index for the year 2012 still remained consistently below 50 just like during the recession period4. In contradiction, the private service producing employment is generally healthy, and a combination of these factors clear shows the growth in business fixed investment spending. In the year 2012, the S&P 500 gained a 13.4 %5, signaling a strong economic performance by the economy. Towards the end of 2011, industry experts in the housing market predicted a great rebound of the sector, evidence of the strengthening residential investment. Sales of houses, permits and prices have in that year showed a general trend of upward rise in prices. The year reports on the sector showed expansion in construction, a need for newer construction, and this is the hallmark of an increasingly healthy residential investment6. Government Spending 2012 Federal, state and local government purchases of goods and services are grouped into this category and constituted 19.5 percent f the GDP. This translated to about $ 6.2 trillion and split in the following levels of government; $ 3.5 trillion, $1.5trillion, $1.7 trillion $0.5 trillion being for the spending for the federal, state, local and intergovernmental respectively7. The expenditures covered pensions, healthcare, and education, defense welfare absorbing $1.1 trillion, $1.2 trillion, $0.9 trillion, $0.9 and $0.6 trillion respectively8. However, the general trend has been of a falling of the government spending, perhaps, due to the low budgets meant for the austerity measures, which majorly borne by the federal government. In economic theory, this is referred to as the fiscal policy, the manipulation of the taxes and government spending so as to determine certain economic conditions. Unlike the wide pool of revenues that are attributable to the federal government, the local governments rely on property taxes for revenue generation. Since the recession periods, these have fallen behind and as such the pressure on revenue has been high and the remedy has been the fiscal austerity. Net Exports National imports of goods and services stood at an inflation-adjusted rate of 13. 9% against the value of trade exports which stood at 17.5%9. The corresponding trade deficit recorded by the economy was offset by the inflow of foreign capital into the economy, which according to experts financed the trade deficit. Professional and business services in finance, insurance, real estate, and manufacturing had a leading contribution to the growth in economy in the year 2012. The continued decline of the European economy and that of the Asian economic giants can prove to be bad news for the trade of the United States, as the economy’s export growth would be further weakened. The price of oil has in years been a dominant factor in the value of the net exports, and a weak global economy can reduce the cost of US petroleum imports. GDP 2013 The level of the country’s GDP in the year 2013 stood at $ 16, 707.0 billion, and a growth of 1.9 percent from the 2012 value. 10 The increase was buoyed majorly by important contributions from consumer spending, exports, residential fixed investment, business fixed investment, private inventory investment that were partially offset by insignificant lags by the federal spending and the imports. Consumer Spending 2013 Consumer spending in the year 2013 marked an increase over a similar period in the previous year, and across the income groups. The increase of the consumer spending over a similar period in the previous period was 2.2 %11. Though relative to the GDP, consumer spending was 71% of the GDP. In the US, household incomes of at least $ 90, 000 increased consumption levels from $26 to $153 and those with the lower incomes increased their spending by $16 to a daily average of $7612. The similar fairy tale continues to describe the increased level of consumer spending amongst the American; in fact the confidence level fell by 4 percent from the previous period. In part, the rising level of the US economy has lead to increases in employment rates and this has increased the consumer expenditure levels. A graph tracking Jon creation in the United States Adapted from http://www.gallup.com/poll/166784/economic-indicators-improve-2013.aspx Investment Spending 2013 The gross private domestic investment in the year 2013 rose by 4.9 %13 compared to the level of the similar period in the previous year. The growth is reeling from the aggressive development s adopted by the Federal Reserve in mid 2012 by keeping the interest rates low, through majorly the bond purchasing initiatives. Then in January 2013, the Federal Reserve began the program of narrowing monthly purchases. These twin actions plus other underlying factors pushed the level of investment spending from the 2012 level. These actions could have driven the level of interest down, and in economic theory, interest rates and the level of investment have an inverse relationship. A low borrowing cost is the right incentive for business owners and home buyers t increase their investments. Government Spending 2013 Total government spending in the year 2013 was $6.1 trillion, a marked difference $0.1 from the 2012 figures14. The figures were $3.5 trillion, $1.5 trillion, $1.7 trillion and -0.5 trillion for the federal, state, local and intergovernmental spending respectively. The difference was majorly borne by the decreasing federal government spending; a fiscal policy move intended to spur the economy to even greater heights in growth. Net Exports 2013 Imports and exports experienced growth with the latter’s growth being recorded at 4.9 % and the formers at 7.1%15. Specifically over the period, the trade deficit narrowed from the previous periods 3.5% to minus 2.6%. The purchasing managers’ index in the year 2013 settled at 56.5 after averaging 53.0 throughout the year, a clear sign of an economy whose products face an increasing demand in the overseas market16. GDP 2014 This is the second quarter of the year and therefore the data for the GDP of the year remains, fundamentally forecasts. The economic growth rate for the year 2014 has been predicted to be 2.6 %17. The level of GDP for the year would stand at $16, 960 billion. Consumers spending over a similar period would be $11, 080 billion buoyed by a further fall in the confidence level predicted to be 80.22. The romantic rise in the confidence level amongst the nation’s consumer has been predicted to dip in 2014, but it is does not affect the rise in the level of consumer spending as it stays over the 70 % level to the GDP. Arise in the level of consumption on services has been recorded over the past quarter of the year; nonetheless, and the trend is likely to continue throughout the year18. Government spending for the year 2014 would rise by $0.2 trillion to stand at $6.3 trillion from the 2013 figure. The change would mark a change in the fiscal policy referred to as the fiscal cliff. Actually the term came into play in December 2012, when certain fiscal policies were to be initiated to jumpstart the economy forward and included a myriad of tax cuts and reduction in an increase in government spending. The value of net exports would still rise marginally widening over the entire period. Conclusion The macroeconomic outlook for the United States economy over the period from 2012 to 2014 shows the improving economic health of the country. Largely driven by a huge consumer spending the economy’s fiscal as well as monetary policies continue to dictate the directions that the economy will take. The vast improvements in export and a slight reduction in the level of government spending might have catapulted the economy to about 2% growth rates in the years. Read More