REACTION PAPER
As we reflect back on 2010 and ponder what lies ahead for the U.S. economy in 2011. There is no shortage of optimism by Wallstreet analyst and economist that the U.S. economy will continue to expand and recover in 2011. This optimism comes along with improving economic indicators that have been on the upswing for a number of months. As a result of better economic news, the Dow Jones Industrial Average recently closed at the highest levels since June 25, 2008. Some of the positive economic news includes; increasing bank lending, lower "initial" unemployment insurance claims, increasing durable goods orders, increasing U.S. exports, and increased retail and auto sales. One of the most encouraging and important pieces of good news is the increase in consumer spending.
The importance of Consumer Spending:
The economy is measured by GDP (Gross Domestic Product). GDP is defined as the total market value of all final goods and services produced in a country (in a given year) equal to the total consumer, investment and government spending, plus the value of exports minus the value of imports. The United States has the largest GDP of any country at about $14.75 trillion dollars. Historically, the GDP growth rate has been at about 2.5-3% per year. Some analyst speculate that U.S. GDP could grow by as much as 3-3.5% in 2011. The increased projections in 2011 U.S. GDP growth is partially a result of renewed spending by consumers. Consumer spending accounts for about 65-70% of GDP. In December 2008, consumer spending went down to $9.9 trillion dollars from over $10.2 trillion dollars (6 months prior). A report issued last month (12/23/10) put consumer spending at $10.52 trillion dollars. This is very good news for the stock market as well as the economy! Simultaneously, while consumers were curtailing spending in 2008, they began paying down debt. Total consumer debt (revolving and non-revolving) decreased from $2.6 trillion in 2008 to about $2.4 trillion in December 2010. The federal government realizes how important consumer spending is to economic growth. So much that in December 2010, the President and Congress agreed to reduce the employee portion of FICA (payroll tax) for 2011 from 6.2% to 4.2%. Employees should immediately see a bottom line increase in their paychecks. The government hopes the pay increase will be spent in the economy, rather than paying down consumer debt. As a result of increased consumer spending came increases in retail store sales, auto sales, sales tax receipts (for states that have sales taxes). The Commerce Department reported in December 2010 that retail sales at stores ranging from car dealers to grocers rose 7.9% from a year ago and overall sales surpassed their pre-recession peak. While most economist are downplaying the likelihood of a double-dip recession, no one would deny there are some "headwinds" in front of U.S. economic growth. Those pitfalls include the European debt crisis, high oil prices, stagnant real estate market, and high unemployment.
Current unemployment situation:
The current unemployment rate stands at 9.4%, reduced from 9.8% in December 2010. Prior to the recession unemployment stood at about 4.2%. While reductions in the unemployment rate are generally good, the recent reduction occurred because people became discouraged and stopped looking for work. When this happens those individuals aren't counted in the unemployment rate. There are currently about 14.4 million people officially unemployed, but the actual unemployednumber is closer to 25.6 million people. High unemployment is obviously an anchor on the economy. There are currently about 311 million people in the U.S. In order to keep up with population growth and reduce unemployment to pre-recession levels the economy needs to create about 200,000 jobs per month. In 2010, the economy created on average about 94,000 jobs per month. Obviously, this is better than losing jobs each month but it is not good enough to promote a healthy and vibrant economy. Economists are expecting accelerated job growth at some point in 2011. While time will tell whether or not 2011 lives up to all of the optimism, there is no doubt that the U.S. economy has survived the brink of disaster. But let us be mindful that once the economy is back on "firm footing," the U.S. needs to address the growing National Debt, which is in excess of $14 trillion dollars
| Jerry D. Murphy is a Certified Financial Planner (CFP™) with JDM Financial & Investments in Bowie Maryland. He has been advising clients for over 15 years. Questions can be email to jmurphy@jdminvest.com Article Source: http://EzineArticles.com/?expert=Jerry_D._Murphy |
Donguines, Marco Antonio G. AB Political Science
The article I found came from the internet and it’s about the United States of America and it’s views on the past, onward to their future. The article explained how GDP or Gross Domestic Product in their country worked. In the past years, we’ve been struck of what the United States of America, which is one of the big countries in the world, had suffered. They’ve undergone recession and this sort of process, for a country to go through is no joke. Recession by the way is a period of general economic decline; typically defined as a decline in GDP for two or more consecutive quarters. It’s typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. A recession is generally considered less severe than a depression, and if this continues long enough, it is often then classified as a depression. There is no obvious cause of a recession, although the overall blame generally falls on the federal leadership, often either the President himself, the head of the Federal Reserve, or the entire administration. The sad part here is that the people in the country blame those in position for such tragedy where in fact, they too played part of what had bloomed in their Motherland. If it’s blame we would talk about, they should be included. They serve as the consumers of goods, and others are the producers of them, that contribute to the empowerment of the market, the firms, their products, and the GDP of the country. The problem is, if these players don’t do their parts properly, obviously the result would be something like what happened to USA. It’s good they only got to the point of recession because a depression is just, so, depressing. The article showed that America, this year is aiming for their focus on their National Debt which goes up to $14 trillion dollars. This aim has proved a development in their country because they’re finally rising up again because they’re getting their economy back on its feet. They’ve seen how the devastating recession they had gone through and sure enough, they succeeded in standing up again.
This article made me aware of our country and the problems it’s facing right now. Yes we’ve got economic problems, but it’s not as bad as having a recession. My fear is that, if these problems keep going higher and higher, there’s a big possibility that we too can suffer recession. And based on how I see it, I don’t think we can easily rise up and regain our feet back to the firm footing as what the article mentioned, and aim to pay our National Debt, because honestly, our country’s got “bajillions” worth of cash we borrowed from other countries. It’s tough for our President Noy-Noy at the moment because all these debts are now his problem. I believe he can never succeed in solving this problem by himself. And if we’d all just sit down and do things the way we want to, our economy will soon turn out straight to depression. I mean, we’ve got low maintenance in our stocks, that thing, I’m sure of because I like buying a few books, and I end up reserving for them which don’t come till the next year. Another fact is that many are unemployed. We’ve got many Filipinos here roaming around all day. If we had jobs for all of them, we can help increase the rate of our progress, and in no time, we’d be saying good bye to the third world. But the reason behind these unemployments is fear. Fear of having the difficulty in giving off salaries to the workers because they might not be able to do it. Well, they’ve never tried at all. More man power mean more products. This’ll help them in the long run. Progress is a process and process takes time. If we all see things in our economy this way, there’s a chance for us to succeed. And if ever we’d really get to the point of recession, we can rise up too, just like America, and maybe, just maybe, even do better.
