Michael Murawski
Assignment 5
Condition of the United States Economy
Virtually all economists would agree that there are at least four key figures that indicate the health
and direction of an economy: gross domestic product growth, unemployment rate, inflation rate, and the
stock market. While there are certainly many more, specified, unique, statistics and numerical methods to
help assess the direction of an economy, the aforementioned four are perhaps the first mentioned
indicators and are some of the strongest statistics of an economy’s health. When accumulated, these four
factors give a well-rounded approximation, but not exact, assessment of an economy at a specified point
in time.
Thus we can use these numbers and their meaning to assess the current condition of the United
States economy, which has been experiencing, what I would label “chronic anemic growth.” Since the
collapse of the United States’ economy in late 2007, the economic climate has improved and all economic
indicators indicate a relatively better economy. To put this into perspective, the month President Obama
was elected president, the United States economy lost over 800,000 jobs (Employment). The latest data
from the Bureau of Labor Statistics indicates that in August the economy added 169,000 jobs, meaning
that the economy has added jobs for 25 consecutive months (Employment). Nevertheless, the number of
jobs added per month is relatively low when compared with past recessions. This is primarily why I
would label our current economic period as one of weak growth. However, an examination of the
abovementioned economic factors will help to gain even more insight as to the condition of the economy.
Real Gross Domestic Product
GDP is the most powerful statistic
to analyze the size and direction of
an economy. During the Great
Recession growth in real GDP
stagnated and fell, wiping out
approximately 700 billion dollars in
real GDP; real GDP fell from its
highest of 14.996 trillion dollars to
14.356 trillion dollars. Since then
real GDP has increased to 15.679
trillion dollars (FRED). Therefore it
is evident that the economy has in
fact been growing.
Unemployment
One of the most damaging problems with the United States economy over the last four years has
been chronically high unemployment. The unemployment rate was at, or above, nine percent for 23
consecutive months from April 2009 through February 2011. Moreover, from early 2009 to late 2011
unemployment was at, or above, nine percent for 29 out of 30 consecutive months (Unemployment rate).
Currently, as of August 2013,
unemployment was at 7.3 percent,
working its way down from 7.9
percent
since
January
2013
(Unemployment
rate).
While
unemployment is falling and
showing promising numbers, it is
partly due to a historic drop in the
labor force participation rate, making
the unemployment rate deceptively
lower than what it otherwise would
be (Labor force statistics).
Inflation
Despite three separate cases of quantitative easing by the Federal Reserve the United States
economy has not experienced any large increase inflation. Three years after the first round of quantitative
easing has been completed, increases in the price level have not been anywhere near identical to the
amount of money infused in the
economy. In fact, 2009 saw deflation
or net decreases in the price level,
despite the $1.25 trillion dollar QE
that took place over that year
(Current US Inflation). In fact, the
last 15 consecutive months have all
seen core inflation at a level below
two percent, a number relatively
lower than the United States’
historical monthly average and, as of
August 2013 the inflation rate was a
healthy 1.5 percent (Current US
Inflation).
Stock Market
The stock market has been perhaps one of the brightest points of the economic recovery. For
example the Dow Jones industrial average is currently above 15,000, at one of the highest points it has
ever been. Prior to the Great Recession, the Dow Jones reached as high as 14,093 before falling 6,000
points; since then it has steadily climbed back up ("Dow jones industrial," 2012). Not only the Dow, but
the NASDEQ and the S&P500 have also recovered past 2009 levels. While the stock market is not the
most powerful indicator, it reflects the markets optimism and levels of investment.
Conclusion
In all, the United States economy has drastically improved since the Great Recession. Over the
past three years the economy has grown in size and jobs have been added. Inflation is lower now than it
has ever been in decades. The stock market has rallied from its losses, and has bounced back to a point
stronger than before the recession. Unemployment, still relatively high when compared to the last couple
of decades, is, nevertheless, falling, and has been headed in the right direction for about three years now.
In conclusion, the United States is relatively healthy and is experiencing weak growth.
Predictions
I predict that the United States economy will continue its current trend—that is, anemic growth—
into the near future. Real GDP will continue to rise, unemployment will continue to creep down month to
month and inflation will remain relatively low. This, however, is based on certain assumptions; first, that
Congress will raise the debt ceiling by October 17, 2013 and will not default on the United States debt;
and second, the Federal Reserve will not abruptly nor drastically change monetary policy.
If congress refuses to raise the debt ceiling and internal politics outweigh smart public policy, I
predict, at worst, a new recession and, at best, an even more sluggish economy. Not raising the debt
ceiling would have plethora of effects: a plunge in consumer economic confidence and
public confidence in our political system; a falling stock market, wiping out a majority of the gains made
since the great recession; raising interest rates; and massive austerity, which would be necessary to pay
off the debt.
Thus, I would advise this policy step: President Obama should sign an executive order to raise the
debt ceiling based on the 14th amendment. Specifically, the constitution states: “The validity of the public
debt of the United States, authorized by law, including debts incurred for payment of pensions and
bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Thus I would
advise the President to use the language of the constitution to make the debt ceiling unconstitutional and
to avoid a possible economic slowdown.
Furthermore, the economy will continue its current trajectory as long as no unexpected
or exceptionally outlandish policy is announced by the Federal Reserve. Financial markets, businesses,
and investors want consistency, which provides them with a reasonable assumption for the future,
encouraging economic activity and investment. A major announcement by the fed to, for instance,
quadruple the price of the federal funds rate from .25 to 1 would certainly throw off many economic and
financial entities and players (Fed funds rate). Financial entities are already sensitive enough and an
arbitrary announcement by the Fed could be counterproductive.
References
Dow jones industrial average (djia) history. (2012). Retrieved from http://www.fedprimerate.com/dowjones-industrial-average-history-djia.htm
Fed funds rate. (n.d.). Retrieved from http://www.bankrate.com/rates/interest-rates/federal-fundsrate.aspx
FRED. (n.d.). Real gross domestic product, billions of chained 2009 dollars, quarterly . Retrieved from
http://research.stlouisfed.org/fred2/graph/?utm_source=research&utm_medium=website&ut_
campaign=data-tools
United States Department of Labor , Bureau of Labor Statistics. (n.d.). Labor force statistics from the
current population survey. Retrieved from website: http://data.bls.gov/timeseries/LNS11300000
United States Department of Labor , Bureau of Labor Statistics. (n.d.). Employment, hours, and earnings
from the current employment statistics survey (national). Retrieved from website:
http://data.bls.gov/timeseries/CES0000000001?output_view=net_1mth
United States Department of Labor , Bureau of Labor Statistics. (n.d.). Unemployment rate, labor force
statistics from the current population survey. Retrieved from website:
http://data.bls.gov/timeseries/LNS14000000
US inflation calculator. (n.d.). Current us inflation rates: 2003-2013. Retrieved from
http://www.usinflationcalculator.com/inflation/current-inflation-rates/
(2013). Real Gross Domestic Product [Web Graphic]. Retrieved from
http://research.stlouisfed.org/fredgraph.png?g=mUK
(2013). Consumer Price Index for all Urban Consumers: All Items [Web Graphic]. Retrieved from
http://research.stlouisfed.org/fredgraph.png?g=mUJ
(2013). Civillian Unemployment Rate [Print Photo]. Retrieved from
http://research.stlouisfed.org/fredgraph.png?g=mUI