Economic Indicator Projections, Research Paper Example

The Real GDP growth for the US is forecasted to be 2.9% by the World Bank (The World Bank). This is a reasonable estimation given the Real GDP growth of 2.4% in 2010. As the US economy will have rebounded to a reasonable extent and unemployment rate will most probably have fallen below 8%, the higher levels of production and services should help the US enjoy near 3% Real GDP growth rate. The unemployment rate will be at most 8% in 2012 if one places his trust on Warren Buffet’s judgment though Buffet expects the actual rate to be well below 8% (Ovide, Shira). Warren Buffet believes that some of the biggest industries in terms of labor count such as the construction sector will help boost the employment rate by a considerable margin.

I project the personal savings rate to be 3% in 2012. The savings rate was 5.7% in 2010. In weak economy with high unemployment rates and greater uncertainty, people become more careful with spending which helps boost the personal savings rate. In addition, credit availability also becomes scarce. But by 2012, economy and employment rates will have significantly recovered and credit will once again become easy to obtain, it should result in consumers becoming more generous with their wallet and less focused on savings. Normally, the US personal savings rate has varied between 1% and 3% since the 1990s (Jones).

As far as Net Exports are concerned, Chicago Fed estimates 2012 figure at negative $400 billion (Federal Reserve Bank of Chicago). Due to higher production and service levels, US may be able to slightly increase its exports or reduce some of the imports but the improvement in net exports levels will be quite negligible. Prime interest rate was 3.25% in 2010 and may have reached 4% in 2012. This is because Fed Fund Rate will also have risen by 2012 thus, a change in Prime interest rate will be a natural consequence of that. The Fed Fund Rate was only 0.18% in 2010 because the government was trying to stimulate the economy by keeping borrowing cheap. But it may reach 1.5% or more in 2012. The recent financial crisis has been blamed by some on cheap supply of money earlier in the decade. The low Fed Fund Rate forced businesses to take excessive risk in search of higher returns. The Fed will not want to make the same mistake thus, as soon as it feels that the economy has started recovering and low Fed Fund Rate has accomplished its take, it will raise the Fed Fund Rate in order to prevent inflation as well as risky investments.

IMF expects US productivity to increase by 2.75% in 2012 (Kuwait News Agency (KUNA)). The productivity rate may be lower than 2010 levels because the businesses were left with excess supply during the crisis thus, they will be more careful in resuming investments and aggressive expansion plans. The consumer confidence was 54.5 on a scale of 100 in 2010 and may have reached a level of at least 60 in 2012. This is because they will observe that the recovery has begun and hiring is once again strong which will make them more optimistic about the prospects of US economy as well as their own future and should boost up their confidence level.

The US total debt is estimated to be $18.094 trillion by the end of the current year. Thus, at least $19 trillion seems a likely figure for 2012. The debt was $13 trillion in 2010 but the government has engaged in aggressive spending to support the struggling economy. The government has also extended unemployment benefits and has extended Bush era tax cuts which would likely have negative impact on tax receipts despite the fact that the government spending sees no signs of slowing down. The CPI was 0.1% in 2010 but may grow to 0.3%. As unemployment rate falls, people will have more disposable income which means they will once again increase their demand for goods and services. An increase in demand will put upward pressure on price levels.

References

Federal Reserve Bank of Chicago. Solid Economic Growth Expected in 2011 and 2012, According to Chicago Fed Atomotive Outlook Symposium Participants. 10 July 2011 <http://www.chicagofed.org/webpages/events/2011/automotive_outlook_symposium/aos_press_release.cfm>.

Jones, Daryl G. Personal savings rate: worse than we thought. 30 June 2010. 10 July 2011 <http://money.cnn.com/2010/06/30/news/economy/personal_savings_decline.fortune/index.htm>.

Kuwait News Agency (KUNA). IMF expects US GDP growth to remain “relatively modest” in 2012. 29 June 2011. 10 July 2011 <http://www.kuna.net.kw/NewsAgenciesPublicSite/ArticleDetails.aspx?id=2177180&Language=en>.

Ovide, Shira. Warren Buffett’s Wager on Unemployment. 7 July 2011. 10 July 2011 <http://blogs.wsj.com/deals/2011/07/07/warren-buffetts-wager-on-unemployment/?mod=e2tfb>.

The World Bank. The global outlook in summary, 2009-2013. 10 July 2011 <http://web.worldbank.org/external/default/main?theSitePK=659149&pagePK=2470434&contentMDK=20370107&menuPK=659160&piPK=2470429>.