State of the US Economy
If food and energy prices are excluded from the estimate, the price index increased 1.5 in the last quarter, 1 up in the third quarter. Aggregate consumption (C) grew by 1.6 in the last quarter. In the third quarter, aggregate consumption increase by 2.8. Fixed investments increased by 5.3, significantly higher than the 2008 figure. Equipment purchases grew by 19 - a 1.8 increase in spending. In general, aggregate consumption increased from 3.8 to 5.6 (2008 to 2009).
Exports of goods and services also grew by 22.8 in the last quarter comparatively higher by 5 in the third quarter. Imports also grew by 15.8 representing a decrease in aggregate national output (income). In general, net exports grew by about 7, higher than the deflated 2008 figure.
Government expenditure remained unchanged in the fourth quarter. Expenditures on national defense grew by 3.8 in the fourth quarter. Nondefense expenditure fell by 8.3. State government expenditure also fell by 2.3. In general, government expenditure grew by 5.1.
Relationship among Y, C, I, X and G
National Income (GDP) is equal to aggregate consumption (C), investment (private) (I), net exports (X), and government expenditure (G). Consumption is equal to total personal income minus tax. In general, as consumption increases, GDP increases by the amount equal to the income multiplier, ceteris paribus. Investment is dependent on prevailing interest rates. As interest rate increases, real investment falls. An increase in investment levels leads to an increase in national income, ceteris paribus. Net export (X) has two components export and import. An import represents a subtraction in the national income equation while an export represents an addition. Government expenditure is an addition to national income. A fall in government spending represents a fall in aggregate output, ceteris paribus.
2009 US GDP
In 2009, real GDP fell by 2.4, compared to a 0.4 in 2008. The fall in GDP represented a fall in nonresidential fixed investments, net export, private investment, residential fixed investment, and aggregate consumption. Government spending though registered positive growth. Overall imports fell.
The PI (price index) for domestic purchases remained unchanged in 2009, in contrast to a 3.2 in 2008. Current-dollar GDP fell by 185 billion in 2009, compared to a 363.8 billion increase in 2008. In 2009, real GDP registered a 0.1 increase, compared to a 1.9 increase in 2008. Price index for domestic purchases grew by 0.6 in 2009 in 2008, it registered a 1.9 increase.
Aggregate Personal Income and Saving
Disposable income is equal to personal income minus tax. It is income used to purchase goods and services. In general, real disposable personal income (adjusted) increase 2.1 in the fourth quarter, compared to a 1.4 fall in the third quarter. In contrast, personal saving rate increase to 4.6 from 4.5.
Employment Situation
According to the 2009 census, the number of regular employed individuals increased by 412 000 in the last quarter of 2009. About 44.1 of unemployed individuals were jobless for more than 10 months. The civilian labor force participation rate was about 64.9 while the employment population ratio was about 58.6.
Part-time working individuals increased to 9 million in the last quarter of 2009. About 2.3 million individuals were attached to the labor force in 2009. These persons were not part of the labor force but available for work. There are also about 1 million discouraged workers last year (about 401 00 individuals in the last quarter). Discouraged individuals are persons who do not look for work because they believe that there are no appropriate jobs available for them.
In March 2009, nonfarm employment grew by 162 000. This was due to positive growth in help and healthcare services. Government employment grew due to increased hiring of temporary workers for the last quarter of 2009. About 40 000 jobs were added to the labor force in 2009.
Manufacturing employment continued to rise in the last quarter of 2009. About 34 000 jobs were added in the last 4 months of 2009. Job increases were concentrated in metal products and capital products. Construction employment remained unchanged for three quarters. Employment associated to financial institutions (banks and other financial intermediaries) fell by 7. In the first quarter of 2010, overall employment grew by 3. Unemployment remained at 9.7.
Inflation and Earnings Summary
Consumer price index remained unchanged since March 2009. Core index though grew by 0.1, the smallest gain since September 2004. Retailers focused on price cutting to increase sales (due to the fact that unemployment was about 10, the highest over the last 10 years). In the last quarter of 2009, prices rose by 2.1, despite a fall in real GDP (which should represent a fall in aggregate price levels).
The Federal Reserve decreased prevailing interest rate to 1.3 to reduce the likelihood of an extended inflation. Boosting the economy would depend on increasing levels of capacity use, decreasing unemployment, taming inflation, and promoting stable monetary expectations. The Federal Reserve expected a general increase in consumer spending and investment level.
Energy costs fell by 0.5 in November 2009, compared to a 1.5 increase in the third quarter. Aggregate earnings grew by 3.9, 1.2 percentage points higher in 2008. Trade deficit grew by almost 57. The United States continued to face increasing trade deficits with China.
Conclusion
In general, the US economy was experiencing an economic downturn in the last quarter of 2009. This was probably due to the recent global recession that rocked financial institutions. The fall in stock prices generated a fall in employment and income prospectus. This led to a general decline in aggregate national output.
However, in January 2010, stock prices increased reflecting a steady rise in both employment and income initiative. Inflation was at its lowest in January 2010 but expected to increase in the second quarter of the current year.