The change in the United States Real Gross Domestic Product (GDP) ratings has shown both ups and downs in the U.S. economy over the last two years. In the most recent quarter, the first quarter of 2011, the U.S. GDP increased over 2%. While the GDP has increased every quarter since mid-2009, the quarterly increase in each of the last four reported periods was weaker than the quarterly increase between mid-2009 and early 2010. Overall, however, the recent increases suggest the U.S. economy is recovering from the recent recession.
In 2008, as the United States was entering a period of recession, the real GDP decreased in three of the four quarters of the year, and increased only slightly in the fourth. The GDP trended downward from the beginning of the year, where the real GDP decreased by around 1% in the first quarter, to the end, when the real GDP decreased by about 7%. Fortunately, the 7% decrease in the fourth quarter of 2008 was the worse decrease in the GDP since 2008. In 2009, the GDP initially decreased, by nearly 5% in the first quarter and then by only about 1% in the second, and then began to rise again. Indeed, the nearly 5% increase in the GDP in the third quarter of 2009 is the highest increase since 2008, and while the GDP has maintained an increase every quarter since the second quarter of 2009, subsequent increases have varied between about 2.5% and about 4%. The recent trend of increasing GDPs in each quarter would suggest that, barring disaster, the GDP will likely continue to increase in future quarters.
The United States Consumer Price Index shows that prices for consumer goods tracked by the index have increased month-over-month for the last 9 months. The change in the CPI has not been extraordinary, but modest in each month. Along with the increase in GDP, the numbers suggest that the United States is experiencing economic growth. While the CPI has grown most months over the last three years, it did experience large drops as recession set in at the end of 2008, and stabilizing prices and small drops at the beginning of 2010. In between the end of 2008 and early 2010, prices increased in most quarters but often by only very small amounts. As long as the U.S. GDP continues to increase, one would expect that the CPI would also maintain its .
Industrial Production in the United States has shown increases in all but one month since the middle of 2009. In many months, increases have been tiny, while in others, production has increased over 1%. Industrial production for the last year has shown fewer increases than it did in the prior year. The growth of industrial production in the United States since mid-2009 has been in step with the growth of the Consumer Price Index and the GDP. Prior to that, between the beginning of 2008 and mid-2009, industrial production shrank in every month except one, showing the effects of the recession sharply curtailed production in the United States. This may be in part because automobile production fell sharply as the major American auto manufacturers were close to failing completely during the recession (FOXnews.com, 2008, paras 1-9) and as the textbook stated, durable goods like cars are very sensitive to economic change. The dramatic drop in industrial production between 2008 and mid-2009 was a sharp reflection of the poor health of the economy as a whole. Fortunately, industrial production is mirroring other indexes and appears to be gaining strength as the economy recovers, and will probably continue to gain as long as the rest of the economy does well.
Changes in non-farm payrolls have been growing steadily in recent months, but in 2008, the non-farm payroll calculations shows a drastic drop in the number of people employed in non-farm positions. Beginning in early 2008, non-farm payroll numbers dropped every month, with the worst drops coming at the end of 2008 and beginning of 2009. Non-farm payrolls continued dropping month-over-month through the beginning of 2010, when payrolls began to gain numbers again. In the last 7 months shown, which include the last half of 2010 and first month of 2011, non-farm payrolls rose steadily, whereas the prior year showed both ups and downs. Like other measures, the non-farm payroll data suggests that the economy is growing stronger, as shown through the numbers of non-farm jobs being added.
The unemployment rate in the United States remains high and was close to 9% at the beginning of 2011. The rate has not changed much since rising above 9% for the first time in recent history in the middle of 2009. At the start of 2008, the unemployment rate was below 5%, but it rose steadily for over a year, and finally peaked at above 10% in the last half of 2009. Despite growth in from early 2010 onward, the unemployment rate has fallen by only about 1% in the last 18 months. Unemployment is a problem which harms the economy as a whole, since unemployed people have less money to spend on goods and services that would contribute to making profits and paying salaries for other people (King, 2011, paras 1-4). The unemployment rate may not show an accurate picture of the number of people actually unemployed, since some have been unemployed long enough that they no longer qualify for unemployment benefits (Whitehouse, 2011, paras 1-7) and thus may not be counted as official unemployed people for the purpose of the unemployment rate. In order for the economy to recover, the unemployment rate must go down, but the current trend does not suggest that unemployment will drop drastically in the near future.
Interest rates on treasury bonds are determined on the market by investors seeking to buy the bonds, and are one indication of how investors feel about the strength of the economy. While 10-year rates have risen and fallen over the last three years, they were at about 3.5% for the last period calculated by the treasury, which is similar to their rate in early 2008, before the recession took hold. The overall steady trend of the 10-year rates suggests that investors feel that the recent recession is a temporary situation which will be resolved well before 10 years pass.
According to most measures, the economy of the United States is current in a period of growth. Critical measures of the real gross domestic products, consumer price index, and industrial production agree that the economy is growing, and has been since the middle of 2010.
Due to the recent decline in the economy during the economic recession that began in 2008, several challenges remain which have the potential to harm the potential for economic growth in the short-term. The largest challenge is high unemployment. More Americans must be employed in order to stimulate the economy toward better growth. Non-farm payroll data shows that jobs have been added to the economy every month since the last quarter of 2010, however, unless job production increases, it may take some time before the unemployment level decreases to a more reasonable level.
Assuming the economy continues with the current trends, it will strengthen over 2011. The unemployment rate will fall steadily, albeit slowly, as non-farm payroll jobs are added. Higher employment will support existing growth in economic sectors like industrial production and the consumer price index. This growth will also be reflected in the real GDP. The 10-year Treasury bond rates are likely to remain at similar rates, but may rise slightly as the economy strengthens.
FOXNews.com. (December 4, 2008.) “Detroit’s Big Three Consider Bailout With Strings Attached.” Retrieved May 11, 2011 from http://www.foxnews.com/politics/2008/12/04/detroits-big-consider-bailout-strings-attached/
King, Danny. (January 26, 2011.) “Gallup Poll: How Underemployment Hurts the Economy.” Retrieved May 11, 2011 from Daily Finance at http://www.dailyfinance.com/2011/01/26/gallup-poll-how-underemployment-hurts-the-economy/
Whitehouse, Mark. (April 30, 2011.) “Number of the Week: Millions Set to Lose Unemployment Benefits.” Retrieved May 11, 2011 from the Wall Street Journal at http://blogs.wsj.com/economics/2011/04/30/number-of-the-week-millions-set-to-lose-unemployment-benefits/