The United States is facing many challenges both at domestic level and in international perspective as the global dynamics are changing at a rapid pace. The U.S economy holds the highest significance in the world as it constitutes to about 20% of the world output, and is still more significant than that of China (World Bank). According to a report by IMF, U.S is the sixth-ranked country in per capita GDP (PPP). There is a highly advanced technology-based service sector in the U.S which contributes to almost 80% of the country’s output. Service-oriented companies in the U.S dominate financial industry, health care services, and retail industry.
The big U.S corporations play a vital role globally as almost 20% of U.S companies become part of Fortune Global 500. Although the service sector is the central pillar of U.S economy, the U.S has a vital manufacturing infrastructure, which gives approximately 15% of total output (U.S Bureau of Economic Analysis). The U.S holds the second position in the world in manufacturing. The U.S is no. 1 in automobile, aircraft, chemicals and telecommunication industries. Also, 2% of output is based on agriculture. Whereas, the sizeable arable area with sophisticated farming techniques and technology alongside government subsidies make the US the largest agricultural exporter. The U.S is a net exporter of food as a result of its farming technologies and significant infrastructure. The U.S has a productive workforce that contributes to economy efficiently. The country is in access to natural resources along with large physical bases. Further, the penetration of physical and human capital in free-market and business industry. The government and people of United States both contribute to the economy. The role of government is to provide political stability while ensuring legal system and a fair system that keep the economy in good shape. The diverse population of immigrants also form strong work ethics. The economics of U.S is growing through an innovative approach, entrepreneurs (who are working for the overall progress of the country), research and development (R&D), also with the capital investment.
The U.S economy has made a recovery from turmoil. In 2008, U.S economy was hit by recession and number of factors were included in this such as low-interest rates, risk in financial sectors, high mortgage lending, relaxed government regulations, consumer debts are the major factors that caused the recession in the country. This overall situation affected housing and banking sector badly. The economic situation remained unfavorable by the end of the year 2009. The U.S economy faced the sharp decline since the time of Great Depression. Following points address financial situation of U.S in detail:
Current Business Cycle
The strict labour market policies and gradual increase in wages are showing maturity in overall U.S business cycle. High salaries had started to affect corporate profits, which urged Federal Reserve to adopt the strict monetary policy. The gains and credit trends are to show the declining pattern that takes places in the late-cycle stage, in pieces, because wage rate and broader inflation pressures have been softened. Therefore, the U.S. is going through mid and late cycle stage. The strong global backdrop indicates that full transition to late-cycle phase will prolong.
The global expansion will continue to remain at a certain level and will be aligned with the major economies of the world. Generally speaking, developed economies are positioned between mid to late stages at large. The Eurozone is not away from the U.S in this business cycle pattern as it is taking advantage out of better approach and credit conditions. China’s economic activity has bounced back at high levels, but the policy restrictions, slow industrial and housing activities are the downward indicators. Currently, global expansion has a solid base, but the top rates of growth have already been achieved.
According to the figures, in the fourth quarter of 2017 GDP was 2.9 percent and in the 3rd quarter of 2017, it was 3.2 percent. There was an increase of 2.9 percent in the fourth quarter of 2017, as per “third” estimate published by BEA. In the third quarter, growth in real GDP was recorded at 3.2 percent (Bureau Of Statistics). The GDP growth in the fourth quarter indicates that consumers have increased consumptions, investments in business and growth, government policies and investment in housing projects. All these contributions were partially offset by the downward movement in private inventory investment. The upward trend in real GDP came as a result of consumer spending in the service sector as well as private inventory investment.
Prices of goods and services purchased by U.S government raised by 2.5 percent in the fourth quarter of 2017 after an increase of 1.7 percent in third quarter. Apart from food and energy, overall prices increased by 2 percent after a rise of 1.6 percent.
Since 2013, there has been variation regarding GDP. According to US Economy data.
Per capita GDP in US dollars in the year 2013, was 52, 705, in 2014, it was 54,502, in 2015 it was recorded as 56,175, and in 2016, it was 57, 436. These figures indicate that each per capita GDP increased in the United States, which is a positive trend. Also, in 2013, the GDP in US billion dollar was 16,692, in 2014, it was 17,393, in 2015, it was 18,037, and in 2016, it was 18,569. This is also a clear indication that there has been a rise in GDP every single year since 2013. Further, in 2013, the economic growth in GDP annual variation in percentage was 1.7, in 2014, it was 2.4, in 2015 and in the year 2016, it was 1.6.
The rate of unemployment has come down since 2013. In 2013, the unemployment rate was 7.4, in the year 2014, it was 6.2, in 2015, it was 5.3, in 2016 rate was 4.9 which was same in 2017. As a result of active policies rate of unemployment has dropped significantly since 2013(Bureau of Statistics. From 6.2 to 4.9 means more opportunities are available for the people of U.S. The university graduates and civilians are willing to work; students are happy to take part-time work to meet their expenses. The payroll employment is slightly up by 103,000 in March. The rate of unemployment remained at 4.1% (Bureau of Labor Statistics).
Economists Prediction for Current Year
The Economists forecast reasonably positive for the current year. Things may not move in the right direction concerning consumer spending, housing, business and capital spending. There are chances of recession, but it’s not certain. According to the economist’s survey by Wall Street Journal, the risk of recession is 14 percent in the current year. The consumers may cut spending if rates of interest increase. Overall attitudes, might get negative in this regard. Housing construction in this year is not very strong. Similarly, exports may drop this year against the pattern of last two years. The federal reserve policy of tightening things during the previous month and over the period of 2018 may prove wrong. Blocking interest-based investment and overall strict policies during the period of last thirteen months were not very good economic indicators. The monetary system did not appear to be very strong. The economy could go downwards because of the geopolitical situation. In case a war takes place in North Korea, it will severely hit American economy. The major crisis in the middle east can impact U.S economy. However, a small crisis that is currently going on in that region will not affect significantly. Also, Russia’s dispute with its neighbours could attract NATO response, and the US will see a recession (Fratzscher,et al.).
Fratzscher, M., Lo Duca, M., & Straub, R. (2018). On the international spillovers of US quantitative easing. The Economic Journal, 128(608), 330-377.