Research Paper: Economics: State of the US Economy

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[. . .] 9% by 2017 (Levine, 2013). Households' net worth fell as a result of the recession; in an attempt to regain their pre-recession wealth statuses, households will be more willing to sacrifice their leisure time, which would imply a larger supply of labor in the near future (Levine, 2013). This is one reason for the reduction in the size of the output gap.

Table 3: Unemployment Level between 2000 and 2014

Year

Unemployment rate (%)

2000

4.0

2001

4.2

2002

5.7

2003

5.8

2004

5.7

2005

5.3

2006

4.0

2007

4.6

2008

5.0

2009

7.7

2010

9.7

2011

9.0

2012

8.3

2013

7.9

May 2014

6.3

(Source: Multpl.com, 2014c)

Fig 3: Level of Unemployment (2000-2014)

2.7 International Trade

The 2008 financial crisis "caused the U.S. trade deficit to decrease, or lessen from August 2008 through May 2009" as imports recorded faster drops that exports (Williams & Donnelly, 2012). However, since the commencement of recovery, the trade deficit has been on the rise, with the country quickly recovering its demand for imports (Williams & Donnelly, 2012). The trade deficit hit $738 billion on a BoP basis in 2011, having improved from $645 billion in 2010 (Williams & Donnelly, 2012). Although the measure is lower than the $836 billion reported in 2006, it is significantly greater than the deficits reported in 2009 and 2010 ($506 and $645 billion respectively) (Williams & Donnelly, 2012).

An improvement is further noted in the 2010 and 2011 current account balances. In 2011, the current account deficit was $466 billion, having risen from $442 billion in 2010 (Williams & Donnelly, 2012). This "reflects an increase in the U.S. surplus in both services trade and investment income" (Williams & Donnelly, 2012). Figure 4 clearly demonstrates that the economy is gaining significant ground in terms of international trade.

Although rising trade deficits often generate trade frictions; they are a favorable gauging tool for potential local investors because they pressure the government into doing more to either assist the local "industries to become more competitive," or to shield local producers from external competition (Williams & Donnelly, 2012). Local producers would benefit from these kinds of intervention, as locally produced goods would become cheaper than imports (Williams & Donnelly, 2012).

Table 4: Annual Growth in U.S. Merchandise Exports and Imports

Year

Export growth (%)

Import growth (%)

1998

-1

5

1999

2

12.5

2000

12.5

18.5

2001

-7

-6

2002

-5

2

2003

4.5

8

2004

13

17

2005

11

14

2006

14

11

2007

12

5.5

2008

12

7.5

2009

-17.5

-26

2010

21

22.5

2011

16

15.5

(Source: Williams & Donnelly, 2012, p. 15)

Fig 4: Annual Growth in U.S. Merchandise Exports and Imports

2.8 Population Centers and Demographics

The changing demographics of the U.S. population will obviously cause changes in the demand patterns for natural gas (NaturalGas.org, 2014). Recent trends depict an increased population movement towards the warm western and southern states. This implies that "there will be an increase in demand for cooling, and less of a demand for heating" (NaturalGas.org, 2014). Currently, electricity supplies most of the energy required for space cooling, whereas natural gas supplies most of the heating requirements - which implies that the population movement could significantly decrease the demand for natural gas (NaturalGas.org, 2014). However, there also is the chance that demand could go up, especially if the advancement in gas cooling technologies makes it possible for residential consumers to use the same to supply their needs for electricity (NaturalGas.org, 2014).

On another note, the aging of the vast Baby Boomer population implies increased cooling and heating energy requirements, which could boost demand to significantly high levels (NaturalGas.org, 2014).

3 Recommendations and Economic Justification

Business investment expenditure has been significantly strong since 2010, outpacing consumer spending, which is yet to pick from the effects of the recession. The weak economic growth currently being experienced in Europe and the fading effect of fiscal interventions have obviously had an impact on the recovery of the U.S. economy, but all the same, there has been a notable improvement. Economic activity is picking up at a slow, but steady pace, and cousin Edgar should go on to execute his business idea.

Credit conditions have significantly improved; the persistently low interest rates imply that businesses and consumers alike can easily access loan facilities for the financing of credit-supported expenditures. Moreover, financial institutions have higher lending capacities, thanks to the monetary injections occasioned by the TARP.

Manufacturing activity has been relatively strong throughout the recovery process, increasing output by a healthy 4% on average between 2010 and 2014. Capacity utilization has gone up from 64% in 2009 to 78.3% in 2013, indicating that the economy has potential to close the gap between itself and potential GDP, and achieve the ideal 80-85% capacity utilization rate.

A growth rate of between 2 and 4% signifies a healthy economy, and very minimal chances of recession in the near future.

The level of unemployment has fallen significantly from 9.7% in 2010 to 6.3% in 2014, with non-farm payroll employment increasing by approximately four million jobs. A consistently positive trend is evident from the monthly employment gain figures, which depict an increase of approximately 160,000 jobs. Falling unemployment levels, ceteris paribus, signify increasing levels of disposable income and personal consumption expenditure.

The energy sector, whose fate is tied closely to raw material and basic need prices, would most likely perform well over the next few years. As the recovery efforts mature, inflationary pressures build, but the economic expansion helps the industry maintain solid demand.

A switch to contractionary monetary and fiscal policy is nowhere in the offing, given the lessons learnt from 1933, when the premature withdrawal of expansionary fiscal and monetary policy caused an already-fragile economy to dip into a second recession. This only indicates a stream of high disposable income and consumer spending, translating to a stream of high corporate profits for players, particularly in the price-inelastic energy sector.

The government's protection of local industries would make imports relatively expensive, and drive the local U.S. consumer, who is striving to return to their pre-recession net worth, to prefer the cheaper, locally-produced commodities.

However, there is no doubt that "growth is well below the historical norm for U.S. economic recoveries as persistent sources of economic weakness continue" to stall progress (Elwell, 2013, p. 7).

The stimulus is financed by federal debt, and the government will have to borrow funds from the public to service the increasing debt, in which case it would be competing for capital with the private sector in the crowding-out effect.

Changing demographic patterns show that more and more aging Baby Boomers, who use natural gas mainly for heating purposes, are moving to the warm western and central states. This could see the demand for natural gas fall significantly in the near future. However, cousin Edgar seems to have devised a way to cushion… [END OF PREVIEW]

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