Economic Analysis and Forecast, Research Paper Example

The economic indicators which will be reviewed are:  the differential in the investment bonds which are emitted by corporations (Aaa- Baa differential), the interest rate yield on bonds, the increase in the rates of commercial loans, the index of household debt service payments in comparison to disposable income, the bid cover ratios and the M2 which is the rate of increase in the perception of the money supply and the actual rate of increase in the money supply. These economic indicators will be reviewed and discussed. The perspective of the Federal Reserve Board will be examined with regards to the implications of these seven economic indicators.

The economic situation in the United States appears to be on an elevated growth path which is demonstrated by the evaluation of the seven principal forecasting tools. The initial indicator is the differential between the Aaa and the Baa corporation bonds. The bonds which are categorized Baa are the investment category of bonds. The bonds which are labeled Aaa are the most elevated quality. The greater the differential is between these two indicators, the higher the likelihood that the United States economy will enter into a recession.

The information which is indicated on the chart demonstrates that the differential is decreasing; it continues to remain beneath the historical mean of 10%. Consequently, the differential demonstrates that the United States economy continues in a bullish condition.

The yield curve shows the direction of the interest rates.  Figure 2 shows the yield curve for April 14, 2014. Figure 2 infers that the curve is elevated which implies that the actors are anticipating that the interest rates increase substantially. This characteristic has the implication that the economy is rebounding and headed towards economic prosperity.

The characteristic of borrowing is a significant indicator of the amplification of credit in the financial system. As the financial institutions augment the accessibility to credit, commercial activity increases. Figure 3 shows the yearly rate of increase in the issuance of commercial loans.

Today it can be observed that the growth rate in the issuance of business loans is increasing. This infers that the economic outlook is positive.  The increase in the capacity of household debt service to disposable income is an indicator of the direction of the economy and inflation. Normally, an elevated capacity of household debt service to disposable income leads to increased economic growth. Lower amounts of disposable income which must be applied toward debt service payments means lower indexes of household debt.

The bid cover ratio infers that the investor confidence in Treasury based securities is declining. The lack of investor confidence in the treasury based securities could lead to elevated interest rates. Figure 5 demonstrates the bid cover ratio.

The increase in the money supply demonstrates the direction that inflation and the economic perspective are being directed toward. Normally, an elevated rate of money supply leads to increased economic production and more elevated rates of inflation. Figure 6 demonstrates the M2:

Discussion

The employment market demonstrates a continued improvement with regards to the latter parts of 2013. The increases in employment have averaged approximately 175,000 new employment positions over the past nine months. The index of unemployment decreased from 7.55 to 6.6% in the beginning of 2014. Inflation has not increased and the consumer price index demonstrated a yearly one percent increase for the second half of 2013. The growth in economic engagement has increased since the latter part of 2013. The real GDP (gross domestic product) has augmented at a yearly rate of 3.75%. The net worth of the household in the United States continued to rise. The housing construction markets took a decline as a result of increased interest rates (FRB, 2014). Notwithstanding, the seven economic indicators demonstrate a comprehensive assertive outlook for the United States economy in 2014.

References

FRB (2014) Monetary policy report Part 1: Recent economic and financial developments. Board of Governors of the Federal Reserve System.