Economic

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The US Economy

Juanyan Zhu

Prof. Diana

Econ 1

12/03/2020

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The US Job Market

The United States job market was heavily hit by the Covid-19 pandemic at the beginning

of 2020. However, the economy seems to improve with the employment rate taking a rising

trend. According to Barr (2020), the rate of unemployment has been declining at an average of

1% in the last three months. Statistics show that the nonfarm payroll jobs in the country

increased by 638,000 in October alone. Job gains are mostly gained in the hospitality and leisure

industries, construction, trade, and professional services. However, government employment has

been on a decline through the same period. Currently, the United States rate of unemployment is

6.9%, a drop from approximately 7.2% in July 2020. The number of unemployed persons in the

US stands at 11.1 million. Despite the achievement, the rate of unemployment and the number of

unemployed persons are nearly twice their levels at the beginning of the year. However, some of

these people are on temporary lay-off. The number of people on temporary lay-off is

approximately 3 million, a rise from 800,000 at the beginning of 2020.

The rise in the unemployment level has also resulted from permanent job losses, with

over 1.3 million people losing their jobs permanently between January and October. The labor

force participation rate in the United States is 61.7%, a drop from 63.4% at the beginning of the

year, while the ratio of employment to total population stands at 57.4%. According to Lyu et al.

(2020), 123.6 million Americans work full-time, while 26.2 million people work part-time.

These statistics indicate that the Economy of the United States is stable and strong and on an

overall increasing trend.

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United States Economic Growth

The United States economy is growing rapidly despite drawbacks caused by the

coronavirus pandemic and political factors. The country recorded a stunning 33.1% annualized

GDP growth rate in the third quarter of 2020. The growth is the biggest rise that the country has

ever experienced in a span of three months. The US economy has recently been characterized by

an upsurge in housing and business investment. However, the upward revisions in the two

indicators have been offset by downward revisions in private investment and public and personal

consumption. Economic growth is majorly fueled by personal spending and promoted by the

government's unemployment benefits on a weekly basis under the federal CARES Act.

The year 2020 has experienced a change in consumption and spending patterns that have

had a significant bearing on the country's GDP. Personal expenditures on the consumption of

goods account for 23%, while expenditure on the consumption of services accounts for

approximately 45%. On the other hand, private investments stand at 16% of the national GDP

while investment by the government’s accounts for 18% of the GDP. In the last one year, the

United States recorded higher values for imports than exports, with imports accounting for

16.5% against exports at 13.5%. In spite of the relative stability of the US economy over the year

2020, it can be noted that it has been on a declining trend over the last ten years. The decline is

similar to that of the GDP of most other developed countries. However, the United States

remains the largest economy in the world. The GDP per capita in the US is the strongest,

standing at approximately 55000 US dollars. Besides, the US's GDP per capita is approximately

442 percent of the world's average figure.

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Price Levels

The consumer price index (CPI) is used to measure the changes in the level of prices that

consumers in the United States pay for a bundle of services and goods. Comparative consumer

price level indices measure the purchasing power to market exchange rates for consumers in the

United States. The comparative indices measure the difference between general price levels of

various countries in an indicator measured as an index. Generally, the consumer price index in

the US has been increasing. The CPI in the US recorded 260.33 points in October 2020. The

value was an increase from an average of 258.44 at the beginning of the year. The US's inflation

rate was 1.2% in October 2020, a drift from the projected 1.3% and a fall from 2.3% at the

beginning of the year (Benzon, 2020). The drop in the inflation rate was contributed by, among

other factors, a drop in medical care cost, a fall in transportation cost, and a decrease in the prices

of energy. However, the prices of food and shelter did not change much, leaving their inflation

rate steady. The annual core prices for volatile commodities such as energy and food also remain

steady throughout the year. Producer prices for final goods in the US rose by 0.3% in the month

of October, a value slightly above the market expected value of 0.2%. The cost of goods has

increased in the past few months, mainly contributed by a rise in foods cost. Generally, producer

prices in the US rose by 0.5% in October, compared to a 0.4% at the beginning of the year and a

0.4% prediction.

Current Threats to the US Economy

The biggest threat to the United States economy today is the coronavirus pandemic.

According to McKibbin and Fernando (2020), approximately 44% of the American people feel

that the Covid-19 pandemic has caused the worst effect on the economy in generations. Despite

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the discovery of coronavirus vaccines in the country, the pandemic is expected to continue its

effects over the next few years. As a result of the pandemic, many Americans are cutting down

their expenditures as a response to the recession caused by the novel coronavirus. The cutting

back of spending may be seen as a positive response to the pandemic. However, it eventually

becomes an impediment to economic recovery. The second threat to the US economy is the

political temperatures caused by the last presidential elections. Most Americans are living in fear

of an unpeaceful power transfer, and hence they are cutting back their spending, hindering

economic growth. However, a few Americans worry about overseas economic instability, a

sudden rise in interest rates, a decrease in the stock market, and terrorism as impending

economic growth.

The Current Fiscal Policy Pursued in US

The debt level in the US is rising and has hit a record 980 billion dollars, which is close

enough to the 1 trillion-dollar limit per year, which is considered to be on the horizon even when

the economy remains strong. The federal receipts in the US GDP are lower than what is required

to cater to the Americans' spending needs. The government envisages using message bills for

value-driven issues, including increased work-based credits on taxes and Medicare programs for

all citizens. Such programs are funded through taxes on corporations and organizations with the

highest incomes. The United States is currently experiencing a heightened debt-to-GDP ratio and

hence requires to move away from the deficit-financed fiscal policy and consider the actual fiscal

space, which can help solve any demand contractions from economic recessions (Berstein,

2020).

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The current fiscal policy is helping reduce people's expenditure burdens on medical care

and other basic services. It also helps facilitate Medicare and Medicaid programs while taking

care not to place burdens on people in low-income groups or reduce access to healthcare

services. However, the fiscal policy’s achievement is highly unpredictable due to the constantly

changing economic environment. The future of the pandemic is still not known, and the political

environment remains volatile. While the government plans to deal with those unforeseen

occurrences, consumers are also making readjustments in their consumption and spending

patterns that the government may not be aware of.

The Current Monetary Policy

The monetary policy details the way a country’s Federal Reserve manages the amount of

money circulating in the economy. The US monetary policy seeks to moderate interest rates,

stabilize prices, and maximize employment for the people​ ​(Keightly and Weinstock, 2020). The

federal reserve uses three tools in controlling money in circulation; the OMO, rates of discount

and reserve requirements. The US policy makers have currently developed an expansionary

monetary policy which lowers rates of interest, increases the supply of lending cash, and

increasing expenditure. Besides, the government is trying to encourage businesses to employ and

retain their labor force by offering them an incentive to help them pay the employees.

The US projects to maintain a rate of federal funds of between 0 and 0.25 through the

year 2021. The US economy is projected to grow by approximately 3.5% in 2021. Besides,

economics envisage a decline in the unemployment rate to about 5.7% in the same period.

However, inflation is expected to increase to about 1.8% in 2021. The current monetary policy

has attempted to improve access to capital and stabilize markets, particularly for small and

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medium business enterprises, as a response to the devastation caused by Covid-19. The monetary

policy is highly dependent on the direction the coronavirus pandemic will take. Therefore, the

prospects and predictions with the current monetary policy are highly uncertain. For this reason,

the policymakers should remain flexible on rates as the economic situation changes in the US

and globally.

My Forecast of the Future

The current coronavirus pandemic is likely to continue affecting the economic path of the

United States. With changing consumer behavior and spending patterns, economic growth, and

recovery are likely to slow down. However, with a new physical and monetary policy, the US

government is likely to balance the rates, maintain the GDP growth, and reduce deficits and debt

financing. Economic policymakers must remain aware of the flexibility required to manage

changes caused by evolving economic conditions in the US and globally.

Conclusion

Despite remarkable economic growth in the past decade, the United States continues

struggling with unemployment and borrowing issues. The situation has worsened further as a

result of the current coronavirus pandemic and the political temperatures associated with the

recent presidential general elections. The country's economic growth is expected to bring about

productivity, capital investments, and innovations to support it in times of recession. Although

the economy has been able to bounce back from the contraction caused by the coronavirus

pandemic, it is yet to recover all its losses. The rate of unemployment is still higher than it was

before the pandemic. The rate of increase in GDP is currently lower than that projected before

the Covid-19 pandemic hit the country.

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The United States remains the strongest economy in the world, having a GDP per capita

stronger than that of any other developed country. The Covid-19 pandemic heavily hit the United

States job market at the beginning of 2020, but the country is recovering with improvement in

employment in hospitality and leisure industries, construction, trade, and professional services.

The US economy has recently been characterized by an upsurge in housing and business

investment. However, the upward revisions in the two indicators have been offset by downward

revisions in private investment and public and personal consumption.

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References

Barr, C. (2020). A Post Covid-19 Agenda for Nonprofit & Social Economy Research. ​Canadian

Journal Of Nonprofit And Social Economy Research​, 11(1), 4.

https://doi.org/10.29173/cjnser.2020v11n1a373

Benzon, W. (2020). What Economic Growth and Statistical Semantics Tell Us About the

Structure of the World. ​SSRN Electronic Journal​. ​https://doi.org/10.2139/ssrn.3680119

Bernstein, J. (2020). Deficits and Debt in Contemporary US Fiscal Policy: Updating Our Priors.

Centre for Budget and Policy Priorities.

Keightly, M., and Weinstock, L. (2020). Introduction to the US Economy: GDP and Economic

Growth. ​Congressional Research Service​. https://fas.org/sgp/crs/misc/IF10408

Lyu, Y., Nie, J., & Yang, S. (2020). Forecasting US economic growth in downturns using

cross-country data. ​Economics Letters​, 109668.

https://doi.org/10.1016/j.econlet.2020.109668

McKibbin, W., and Fernando, R. (2020). The Global Macroeconomic Impacts of COVID-19:

Seven Scenarios. ​OECD​.

https://www.brookings.edu/wp-content/uploads/2020/03/20200302_COVID19.pdf