The United States Economy Today, Essay Example

Introduction

The US Economy today is making a slow measured recovery but the situation remains fragile because of the banking situation in Europe.  The uncertainty with the survival of the ‘Euro’ currency creates pressure on the US dollar.  There remains hope, however, that the Euro Zone will sustain a slow recovery and as such not impair the US recovery.

Productivity

The real gross domestic product (GDP) was shown to increase by 1.8% in the third quarter of 2011.  In the second quarter GDP increased only by 1.3%; in accordance with statistics provided by the US Bureau of Economic Analysis.  These figures illustrate the output of goods and services in the USA as a direct result of labor and property.  The overall growth trend is down on the 2010 figures, primarily as a result in the global slowdown in trade and growth, but this does not depict the awful decline situation as demonstrated in the third and fourth quarter of 2008 and the first quarter of 2009.  Fig 1 refers.

GDP_PRICE = Price index indicating the overall level of prices in the economy, normalized to set the value.[1]

CONS= Value of Expenditures on Consumption

INVEST Value of Expenditures on Investment

GOV= Value of Government Purchases of Goods and Services

EXPORTS= Value of Exports of Goods and Services

IMPORTS= Value of Imports of Goods and Services

Balance of Trade

The US Balance of Trade is currently the equivalent of a trade deficit of some $43.5 billion, as of October 2011.  For many decades the US has been one of the world’s largest importers of goods and equally been seen as a tope exporter of goods in world trade statistics.  The main trading partners of the US are that of Canada, Mexico, Europe, China and Japan.  As illustrated in Fig 2 above there has been a steady decrease in the deficit from July 2011 and as such illustrates a gradual improvement in the US economy.  The Balance of Trade is determined by that value of goods sold abroad (Exports) and less those goods bought from abroad (imports).  The difference provides either a trade surplus or trade deficit.  The large US deficit therefore indicates that we are exporting less goods than what we are consuming. Equally the US $ has been devaluing against other currencies further weakening the deficit situation.  The US has now had a trade deficit for over ten years but this has increased and decreased in the deficit side during this period.  It has been indicated that the trade deficit is on the increase again and this makes investors nervous and equally has an impact on the valuation of the US$.   The US has been in the deficit for 10 years and it is hoped that stimulated growth will change this trend. Government policies will have a considerable impact on foreign investors and equally the US$ as a currency.

The Recovery

The recovery has been criticised for how the money or wealth is not being translated into more job opportunities.  This being the result of businesses resorting to more aspects of automation and business streamlining their operations and costs in order to become more profitable, often at the expense of job creation.  Equally the Public Sector shed nearly 600,000 jobs providing an added dampener to the job creation program in the recovery.

Many feel that the lack of job creation is a direct result of a lack of incoming investment in the US economy and the worry / uncertainty that investors feel in US business and the influence of the global financial system.  Republicans have stated that the Obama administration has become too obsessive with temporary fixes like that of tax cuts as opposed to addressing the real issue of stimulating investment in the US economy.  Others have included the Republicans of stalling democratic initiatives and as such this has created a cauldron of political issues that fail to address the important issue of job creation.

The economist Peter Drucker stated that the real situation is not being made visible enough.  The old smoke stack industries are dying and killing off these industries but the US is replacing jobs in newer industries at an unprecedented rate.  The problem is that it takes time to make this conversion and in the short term it looks worse because most of the change hits the poorer working class areas.  Drucker said that the main engine of growth was in the mid-size companies and these are accelerating job opportunities.  Drucker did warn of the mismatch between available skills and labour supply and that insufficient time was being spent on the training and education of the labor force to meet the new technology requirements.

Status of Inflation

The National Inflation Association (NIA) in the USA has warned that the US is entering a period of Hyper Inflation and this will become more visible by 2013.  The warning signs are already showing themselves. An indication that the US Federal Reserve has been acquiring US Treasury debt, whereas in previous periods they have exported the inflation to other world economies.  This has resulted in the hoarding of huge amounts of US Dollars owing to the status of the $ in the world currency market.  China has also been pushing to make the Yuan the new world reserve currency and has been buying huge stocks of gold that it will use to support the purchasing power of the Yuan.  This represents a significant threat to the US $ in the longer term. Equally Japan is dumping US Treasury bonds and using this source of funds to help rebuild their country from the earthquake damage.  This has happened at the worst time for the US economy that needs to see Japan to increase its supply of US Treasury bonds.

The current inflation rate in the US, as of November 2011, was reported as being 3.4% and has dropped from 3.8% which is a move in the right direction. The Inflation rates are an indicator as to a  general rise in prices versus a  standard level of purchasing power. The most well-known measure being the Consumer Price Index (CPI).

[1] Source http://www.anderson.ucla.edu/faculty/edward.leamer/documents/Hw%20Components%20of%20GDP%20Eviews%20Version.pdf