Macroeconomics Project on the US economy.
Over the past ten years (2003 to 2013) the US economy underwent various changes. The paper summarizes such major changes in the US economy by observing various economic indicators and makes proper forecasts.
The US GDP or the gross domestic product that is calculated by summing up consumption, government spending, investments, export and subtracting imports is calculated by the BEA (bureau of economic analysis) and available at http://www.bea.gov/national/index.htm#gdp.
The nominal GDP increased from 11.5 trillion in 2003 to over 16.79 trillion. At the same time the real GDP exhibited more modest growth from 13.2 to over 15.7 trillion, the current rate.
From the website one finds out that the GDP rate of change increased on average by 5.06% per annum. It means on average the GDP rate of change increased over the previous period by 5%, not that the GDP grew by that rate.
For the Consumer Price index (CPI) it is better to consult the Fed, and at http://www.minneapolisfed.org/community_education/teacher/calc/hist1913.cfm or at http://www.inflationdata.com/inflation/consumer_price_index/historicalcpi.aspx?reloaded=true one can see historical data from 2003 to 2013. From the summary table available in the appendix section one can see that on average the rate of inflation was about 2.29% although in some years (2004 to 2006) one could see the rate to be over 3% and in 2009 there even was a deflation (-0.4%). In 2013 the inflation rate was around 1.5%.
The unemployment rate is found on the Bureau of Labor Statistics http://data.bls.gov/pdq/SurveyOutputServlet and briefly summarized on an per annum basis in the appendix section. The current (2013) unemployment rate is 7.35% although the average unemployment rate for 2003-2013 is 6.8%
The M1 money stock is found at the Fed’s website at http://research.stlouisfed.org =
M1 equals cash and checking account deposits. In other words it shows the most liquid cash that there is on hand in the nation. M1 changed from 1227 billion in 2003 to 2672 billion in 2013, which is more than doubled.
M2 equals M1 + savings accounts & money market accounts. M2 changed from 5773 billion in 2003 to 11023 in 2013.
Analysis of the US economy
From the information presented in earlier in the paper one can make some important conclusions and observations about the status quo of the US economy and its prospects. The real GDP as noted earlier did not show such dramatic increase as the nominal GDP meaning that the US government relied heavily on inflation in its monetary policy to regulate the economy, its growth and development. The overall US economy changed positively over the chosen time period it grew most of the time except for 2009 when both the real and the nominal GDP declined. Following that time period the US economy quickly recovered and in 2011 already surpassed the 2008 figures. One should note that the real GDP fell in 2008 (which nominal GDP did not) meaning that in 2008 when the US economy started to slow down the government-led monetary policies and inflation means to stimulate the economy had effect only on nominal GDP. Given the fact that the nominal GDP changes (grows) must faster than the real GDP one can also make a note that the government is using inflation to show higher GDP growth figures to perhaps stimulate consumer spending and to increase consumer sentiments, which again positively affect spending/consumption and increase the GDP. The most recent 8% GDP growth figure in 2013 hints that the US economy is on the run to recovery.
Consumer price index showed some other interesting information. It shows the inflation or the way prices change (usually increase). On average it was around 3% yet in 2008 it showed record high 3.8% which may hint that the consumers started to worry about the value of their money (inflation) and increased spending to save things for the future, expecting prices to increase. Subsequently, in 2009 when the economic crisis hit the USA and the GDP (both real and nominal) fell the companies in order to make at least some profit started to lower prices which contributed to deflation (CPI minus -0.4%) when the prices fell by 0.4%. The current CPI of around 1.5% which against started to slow down since 2011 indicates that the companies are facing difficulties on the market and cannot really increase prices and make more profits as they did, for instance in 2004-2005.
The Unemployment rate shows the amount of the unemployed Americans yet in reality is also shows how well the economy functions and what amount of consumption one can expect. The unemployment is better understood in relationship to other economic indicators. In the years 2003 to 2007 the rate fell from 5.99% to 4.61% yet in 2008 showed a sharp increase to 5.8% again. It hinted that the companies were having difficulty making profits so they started laying off people. In 2008 the unemployment rate increased to 9.28% together with the falling GDP and deflation (companies started to lower prices because the unemployed people are no good consumers, so they needed to be lured to consume with sales/discounts/rebates.etc). Since 2009 till 2013 the unemployment rate was gradually falling to 7.35 which is still higher than what is said to be the ‘normal’ or “natural rate of unemployment” of around 5.0%-5.5%. High unemployment always means weak economy, low consumption, low investments and low GDP. The unemployment rate helps control the inflation, since it makes no sense to rise prices if the unemployed still cannot buy anything and that’s precisely why the CPI is around 1.5% down from the pre-crisis 3.8%.
The M1 and M2 did not change much prior to 2008 after which the US government started to pump cash into the US economy. M1 and M2 almost doubled over the past 10 years yet this increased was actually taking place from 2008 (and especially from 2009) to 2013 as reflected in the graphs in the appendix section or seen in the numeric data in the attached Excel spreadsheet.
The chosen economic indicators demonstrate the business cycle that the US economy experienced over the past 10 years. Strong and healthy in the early 2000s the economy started to accumulate problems which got reflected in slowing down real GDP in 2007 and its decrease in 2008. The real GDP did not show that in 2008 yet the companies already started to lay off people which was reflected in the growing unemployment rate. The CPI showed decline in 2007 to raise again in 2008 probably influenced by various government-led spending and money injections reflected in the M1 and M2 growth. The money injection did not help much although did help to stimulate the economy good enough to show positive nominal GDP while the real GDP fell. Following the decline in 2009 the US economy started to gradually recover, against mostly because of the government spending (which is a part of the GDP). The government pumping of the money into the economy, saving banks, buying out various corporate assets, etc did contribute to the growth of the GDP (both real and nominal) ever since. Nonetheless, companies and businesses were making proper changes and restructuring to stem the crisis which resulted in their downsizing and laying off people, which again contributed to the growing unemployment rate and halting of the inflation (CPI) which otherwise would surely take place given the fact that the government pumped cash in the economy. Nowadays, the status of the US economy is still uncertain, although the GDP is on the rise, and the unemployment is gradually falling. The CPI still appears to be too low in comparison to previous years, and the M1 and M2 figures indicate that the government is still dumping money in the economy to stimulate consumption, and spending which partially explains the current GDP growth. It also starts to show that while a few decades ago it was the consumer spending that drove and controlled the GDP, nowadays, the role of the US government in the economy becomes more prominent and more apparent and that may have adverse effect on the economy and the society. The nation should rely mostly on the consumption for the GDP growth not government spending, although, certainly, at a time of the economic crisis government spending can provide jobs, money and support to the people who were laid off by businesses. The question is what can happen after the US government can no longer spend as much given its already high debt (not discussed in this essay). Nonetheless, given the extremely competitive environment, the US businesses could make extra profits by being directed to the war-stricken regions (like Iraq, Afghanistan) where due to regulations international competition is limited. A new war which could subsequently allow US oil, construction, and military companies effectively operate where other businesses are not allowed, is thus desirable for the US economy, especially given a high unemployment rate.
Economic Report of the President (most recent)
Bureau of Labor Statistics
Bureau of Economic Analysis
Federal Reserve Bank
GDP rate of change 2003-2013
|Year||GDP Change %|
Nominal and Real GDP (billion USD)
|Year||real GDP||Nominal GDP|
Consumer Price index 2003-2013.
|Year||Annual Average||Annual Percent Change|
|(rate of inflation)|
Unemployment rate 2003-2013.
M1 Money supply 2003-2013.