The Analysis of The United States Economy - Essay Example

Major Economic Statistics and the US Economy The United States economy is the strongest in the world but in all its dynamism it is not free from fluctuations. By examining in detail the statistics and various indices relating to the economy it is possible to determine what the short term prospects are. Of course, any number of unpredictable scenarios can upset what one might have determined from merely examining the statistics but this does not mean that experts need not try to find out whether the economy is headed north or south. There has been a slowdown in the growth of the economy after the second quarter which grew at “2.5% annual rate from April through June” (Oil falls after report on slowing economy signals likely drop in demand 8). The high oil prices have weakened demand as Americans begin to look for other ways of satisfying their energy use. As the article cited above notes, “There is no more bearish fundamental indicator than slower growth because of what that will mean for demand” (Oil falls after report on slowing economy signals likely drop in demand 8). This cuts both ways. While the United States is a major oil importer it is also an oil producer which means that if there is a fall in the demand for oil it can impact negatively on the overall growth of the economy for which every little contribution counts. In the second quarter the GDP indicated that there was a slowdown. As James P. Miller writes in the article “Economy slowed down markedly in 2nd quarter,” “GDP, which measures the value of all goods and services produced in the U.S., is considered the broadest and best measure of the economy. As recent quarters, have shown, the indicator can be affected by short term dynamics such as changes in international trade, the timing of major government expenditures, auto-industry developments or even the weather” (Miller 1). According to the Bureau of Economic Analysis, the deceleration in real GDP growth reflected such changes as the following: Consumer spending decelerated, increasing 2.5 percent after increasing 4.8 percent. The slowdown in consumer spending accounted for more than half of the slowdown in real GDP growth. Business investment in equipment and software turned down, decreasing 1.0 percent, following a 15.6 percent increase. Exports decelerated, increasing 3.3 percent after increasing 14.0 percent. (Economy Slows in the Second Quarter 1). Consumers, who are strapped for cash, are not purchasing big ticket items. But it is not only consumers who have held on tightly to their wallets. Also, from businesses “equipment and software spending, which measures corporate spending, fell 1.0 percent in the second quarter, compared to a whopping 15.6 percent jump in the year’s first quarter” (Miller 1). As one analyst, economist David Rosenberg of Merrill Lynch noted, “The 1 percent drop is a key result…because the Fed has been anticipating that “business spending growth was going to be a catalyst in terms of providing an antidote to the downturn in the housing sector” (Miller 1). Not all the news, however, is bleak with respect to the United States economy. The manufacturing index issued by the Institute for Supply Management indicated that in July 2006 industrial activity moved slightly up 0.2 points to 54. In fact, “any level above 50 implies growth” (Wang 1). The July figures on monthly job growth issues by the Labor Department also gave reason for a small dose of optimism. Its economist indicated that about 135,000 jobs had been added to the economy in July up from 121,000 in June (Wang 1). Growth of wages, however, slipped 0.3 percent after going up 0.5 percent in June, 2006 (Wang 1). GPO Access is a unit of the United States printing office that provides information on many areas on the economy to Americans and indeed the world. According to GPO Access, “Personal income rose $38.3 billion (annual rate) in May following an increase of $76.2 billion in April. Wages and salaries rose $1.8 billion in May following an increase of $49.4 billion in April” (GPO Access http://www.gpoaccess.gov/about/index.html). In terms of disposal of personal income however, “According to revised estimates, per capita disposable personal income in chained (2000) dollars rose at an annual rate of 0.7 percent in the first quarter of 2006”(GPO Access http://www.gpoaccess.gov/about/index.html). This may not be so surprising though the figures for disposable income may look low when one takes into consideration the increase in corporate profits which GPO Access reports as follows: “In the first quarter of 2006, according to revised estimates, corporate profits before tax rose $137.7 billion (annual rate) and profits after tax rose $107.1 billion”(GPO Access http://www.gpoaccess.gov/about/index.html). With regards to employment which has seen a rebound in July the figures for June are revealing, as follows: “In June, the percentages of the unemployed who had been out of work for less than 5 weeks and for 15-26 weeks rose; the percentages for 5-14 weeks and for 27 weeks and over fell. The mean duration of unemployment fell to 16.2 weeks and the median duration fell to 7.5 weeks”(GPO Access http://www.gpoaccess.gov/about/index.html). Also, in June employment in the non-agricultural sector rose by 121,000. It seems that the manufacturing sector, which has been mentioned earlier has been able to hold up fairly well. As GPO Access reports, “In April, according to preliminary estimates, manufacturing and trade sales rose 0.6 percent and inventories rose $6.9 billion. According to advance estimates, retail sales rose 0.1 percent in May. Retail and food services sales also rose 0.1 percent” (GPO Access http://www.gpoaccess.gov/ about/index.html). In the banking sector there was a 1.4 percent rise in total commercial bank loans and leases while commercial and industrial loans rose 1.8 percent. With regards to issues of U.S. trade deficit with other countries the following report from GPO Access may seem to offer a bit of relief: “In the first quarter of 2006, the goods deficit fell to $208.0 billion, from $212.5 billion in the fourth quarter of 2005. The current account deficit fell to $208.7 billion in the first quarter, from $223.1 billion in the fourth quarter” (GPO Access http://www.gpoaccess.gov/ about/index.html). This still falls far short of figures for which Americans should begin to celebrate but it is more encouraging than some of the bleak figures reported in past years. In terms of the outlook over the next few months, the Financial Forecast centre has provided some figures which are quite interesting to consider. This forecast of the month on month growth in the GNP is optimistic, with a trend line that indicates growth but the growth is not significant but a steady minimal rise over the next few months. This is not surprising from the other indicators that have been considered up to this point. U.S. Real GNP Gross National Product Forecast Billions Chained 2000 Dollars. Annual Rate, Seasonally Adjusted.   Jul 2006 Aug 2006 Sep 2006 Oct 2006 Nov 2006 Dec 2006 Forecast Value 13,120 13,138 13,157 13,287 13,318 13,352 50% Correct 274 315 343 366 384 399 90% Correct 603 694 754 806 845 879 Updated Wednesday, July 19, 2006 U.S. Real GNP Gross National Product (The Financial Forecast Center http://www.forecasts.org/gnp.htm) Though there are misgivings about the possible growth of the U.S. economy over the next few months and years, the government is wasting no time in taking credit for any evidence of growth. In an August 4th, 2006 release by the Commerce Department, U.S. Commerce Secretary Carlos M. Gutierrez, touring the site of a power tools company known as Stihl, touted the company’s addition of three hundred jobs to the area as just one example of how the economy is growing. He stressed the July Employment Report that had been released earlier in the day which shoed that 113,000 jobs had been created and that the unemployment rate was a measly 4.8%. As Gutierrez pointed out, “With the addition of 113,000 jobs and increasing wages, today’s employment report shows President Bush’s economic policies are working for American workers. Since 2004, the U.S. has created more jobs than the rest of the G-7 countries combined. Our economy has grown a strong 4.0 percent this year,” said Gutierrez. “America will continue to move forward with the President’s agenda of lowering taxes and opening markets for American exporters like STIHL” (“Commerce Secretary Gutierrez Highlights Strength of the U.S. Economy at Stihl, Inc.” http://www.commerce.gov/). Bibliography “Association of Equipment Manufacturers.” http://www.aem.org/Trends/Econ/ (August 7, 2006). “Commerce Secretary Gutierrez Highlights Strength of the U.S. Economy at Stihl, Inc.” http://www.commerce.gov/ (August 9, 2006) EconEdLink. http://www.econedlink.org/datalinks/index.cfm (August 9, 2006) “Economic Statistics Briefing Room.” The White House http://www.whitehouse.gov/fsbr/print/transportation.html )2006/08/06). “Economy Simmers as Mother Nature Heats up Inflation.” US Fed News Service (Aug 1, 2006). “Economy slows in the Second Quarter: Advance Estimates of GDP.” Bureau of Economic Analysis – U.S. Department of Commerce (Friday, July 28, 2006). GPO Access http://www.gpoaccess.gov/about/index.html (August 7, 2006) Miller, James P. “Economy slowed down markedly in 2nd quarter.” Knight Ridder Tribune News Service (Jul 28, 2006):1. “Oil falls after report on slowing economy signals likely drop in demand.” National Post Jul 29, 2006):FP8. The Financial Forecast Center http://www.forecasts.org/gnp.htm (August 7, 2006) Wang, Christopher. “Wall Street’s mood is riding a wave of economic news.” Deseret News (Jul 31, 2006). Read More