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The Economy of the United States

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    The Economy of the United States

    Introduction

    The economy of the United States no doubt is still the world’s biggest economy despite of the looming economic depression. The country still enjoys economic hegemony and with its macro economic programs in place the country will definitely hurdle the current economic challenges the country is facing.

    In his speech before the Japan for Economic Research in Tokyo in March 2000, William J. McDonough, President of the New York Federal Reserve Bank, pointed out that the United States has experienced economic expansion since 1990s and maintained this expansion for eight consecutive years that created millions of Jobs, stabilized prices, and lowered the unemployment problems.

                In the paper presented by the U.S. Department of State entitled Basic Ingredients of the US Economy, it identifies basic ingredients of the US economic growth, which paved the way for its economic expansion, such as rich mineral resources, particularly the coastlines, and the lakes providing shipping access to economic growth as these waterways helps bind the fifty States together in a united economic unit, and the labor productivity, which determines the economic growth. However, it slowed down in 2000 and even entered a recession in the first quarter of 2001. The terrorist attacks of September 11, 2001 added further uncertainties, and as war with Iraq was looming. With more blows that hit the US economy in 2004, such as the war against Iraq, the surge in oil price, and the damage brought by Hurricanes Katrina and, the United States, according to John Garen and Robert R. Reed experienced “adverse shocks” which made it hard to establish financial assessment precisely reflecting the loss of life and emotional damages. Nevertheless, Garen and Reeds pointed out that based on the forecast of 2006 as reflected by 2004 and 2005, the US economy will continue to grow but at a slower rate.

    Analysis of its Indicators of Macro Economic Performance over the Last four Years (2003-2007)

    The major economic challenges that rocked the US economy during the last four years, was the damaged caused by hurricanes Katrina and Rita, which estimate; suggest that the government expenditures may rise up to thirty billion dollars in the wake of the consequences. However, macro indicator reflects that the US economy was on its way to recovery from the economic recession. The unemployment was steadily rising during this recession years, which finds its peak in June 2003 at 6.3 %. The unemployment rate steadily declined in 2004 until 2005, which has stabilized at 5.0 percent. Garen and Reed pointed out unemployment as an indicator of macro performance confirms economic trends rather than predicts it. Thus when unemployment rate is worse, it confirms the worsening economic condition. Unemployment can either be a loss of job and the time spent for looking a new one, or seeking job after a period of being out in the labor force. With its current rising unemployment rate in the US, it confirms that the US economy is in worsening condition.

    According to Robert Hall (2005), unemployment is high during the recession period because jobs are hard to find, as employers do not raise hiring rates during periods of unemployment. According to an internet article entitled US Posts Weakest Growth in Four Years dated April 27, 2007, during the first quarter of the year, was the weakest in four years due to rambling housing market and worsening international trade. Although the economy was up at 5.6 percent rate in the first quarter of 2006, but it slowed down in the recent months because of the impact of the deteriorating housing sector. Another indicator of the macro performance of the US economy is the country’s GDP. According to Kimberly Amadeo, GDP is the statistic used to measure the economy. GDP growth rates are indicator of the soundness of the economy for investment. In 2004, Amadeo pointed out that the US GDP has increased from 2.5 in 2003 to 3.6 in 2004, but it fell to 3.1 in 2005 due to the effects of Hurricane Katrina. However, in 2006, the economy recovers from the impact of Katrina and registered a GDP growth rate of 4.8 percent, but it again slowed down during the rest of 2006 and was worse in 2007 at .6% due to the decline of the housing market. Amadeo noted that analyst forecast GDP growth rate for the rest of 2007 and beyond to be between 2 and 3 percent a year citing the Congressional Budget Office (CBO) forecasts growth to be 2.2 percent in 2007 and 1.7 percent in 2008, and 2.8 percent in 2009. Over all, the cause of GDP decline as we can see is the deterioration of the housing market pulled down by relatively low consumer spending. In other words when GDP is continuously low then the economy is heading towards a recession, in the case of the US economy, the recent GDP forecast shows the US is heading towards recession.

    Labor productivity as an economic measure refers to the contribution of capital and labor inputs and is defined as an increase in output per labor hour or laborer.  Productivity relates an increase in output to the rise of inputs. According to the paper published by the United States Department of Labor entitled Productivity and Costs, Fourth Quarter and Annual Averages, 2007 the fourth quarter productivity of 2007 yielded an increased of 1.0 percent as output increased 0.2 percent as compared to 2006 output per hour which increased at 3.0 percent. The increased in productivity brings economic benefits not only to the workers though it may mean additional working hours, but to the macro performance of the economy. In other words, the more productive the labor sectors are means the more inputs it generates which translate to more economic blessings.

    Discussion of its Main Economic Strengths and Weakness

                The strength of the economy of the United States lies in its capability to register seven percent growth during the last fiscal year in which it would attract domestic and foreign investments and improve investment to GDP to a high 23 percent. According to M Sharif, this high GDP ratio has become the actual basis of economic growth, which registered increase in the national savings. This high economic growth, which was achieved over the last five years, has affected some of the socio-economic indicator such as the poverty alleviation, increase in per capita income, and some sub-sectors, among them being the construction, telecommunications, small and medium enterprises, and the banking sector. Sharif contends that growth in these sub-sectors has contributed in producing jobs for skilled and unskilled workforce, as well for educated young people.

                The weakness of the US economy on the other hand, is represented by the deteriorating Housing market, which is causing the economy to slow down. The housing slump, which fell to its lowest drop since 1991, according to some analysts, is contributing towards the looming economic recession of the United States economy. Dean Baker, Co- Director at the Center for Economic and Policy Research in Washington, DC pointed out that the main grounds pushing the economy into recession is the weakness of the housing market (p.1). This sector had suffered dropped off by almost 20 percent in contrast to a year ago, with its prices now going down. Baker explained that this slump in the housing will have a domino effect on the consumption growth as consumer borrowings against home equity will plummet due to lack of further equity to burrow against.  Other economic sub sectors related to the consumption, will result be pulled down by this dropped and economist sees it will likely push the economy into recession.

    Evaluation of Current Government Policy

                Since 2001, the Bush Administration implemented a government policy of tax reduction arguing that this policy will promote a stronger, more affluent economy for everyone. However, after five years of its implementation, it was quite apparent that the government policy was a failure and waste as according to John Irons and Lee Price the tax cuts was aimed at business owners and richest Americans rather than the average end user or consumer whose augmented demand and spending would have made it rational for businesses to invest (p. 3). From 2002 to 2005, this tax cuts according to many observers have failed to produce economic explosion, which the President has promised, registering only 13.8 percent since the tax cut was implemented.

    Because of this government policy, the Bush administration has accumulated $1.3 trillion in debt over the last five years from 2002 to 2005. The failure of the current government policy of the Bush administration has put the economy into heavy debt as the government is embarking on a $1.6 trillion additional budget for the next six years (2006-2011). However, despite of the apparent failure of the economic policy, Irons and Price noted that the administration continues to justify the tax cut claiming the government is on track, but in the eyes of many economists, the economy is shrinking due to large and persistent deficits this economic policy has incurred.

    Conclusion

                Despite of the looming economic recession, the US economy remains strong and capable to survive the economic challenge ahead as the US economic history since the Second World War is concern. However, the stubborn assertion of the Bush administration that the government is on track despite of ballooning economic debt and the looming recession might lead the economy to a worse scenario. The Bush administration must wake up and come up with a better economic policy along with strong economic measure in place; the US economy can overcome the economic recession that is now gripping the country.

    Reference

    Amadeo, Kimberly

    http://useconomy.about.com/od/grossdomesticproduct/p/GDP.htm

    Baker, D. (2006) Recession Looms for the US economy in 2007

    http://www.cepr.net/documents/publications/forecast_2006_11.pdf

    Basic Ingredients of the U.S. Economy

    http://economics.about.com/od/howtheuseconomyworks/a/ingredients.htm

    Hall, R. (2005) Job Loss, Job Finding, and Unemployment in the U.S. Economy over the Past Fifty Years

    http://www.stanford.edu/~rehall/MA-9-15-05.pdf

    Garen, J. & Reed, R. Recent Economic Developments in the United States and Kentucky: Implications for 2006

    http://gatton.uky.edu/Faculty/reed/CBERArticle2006.pdf

    Mr McDonough Comments on the Implications for the Strong US growth for the World Economy

    http://www.bis.org/review/r000403b.pdf

    Sharif, M. Strength and Weaknesses

    http://www.thenews.com.pk/print1.asp?id=78896

    The Economy of the United States. (2016, Jun 21). Retrieved from https://graduateway.com/the-economy-of-the-united-states/

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