The slow performance of the U.S economy was brought about by the turmoil in the housing sector which led to businesses cutting down on investments and employment with the end result being less consumption from consumers. According to Pretcher (2010, p.2), in 2007, economic growth was at 2%. In addition to these, there was less business spending at 2.4%.The U.S economy experienced some anemic growth in the year 2008 with unemployment trending up to 6.1%. In the year 2009 the economy shrank at 2.4% which was the worst since 1946 (Pretcher, 2010, p.2).
The outlook of the economy’s performance is outstanding. Since the problem manifested itself there has been some positive performance. Increase in consumer and business spending will be responsible for most of the growth that will be witnessed in the coming quarters. On the other hand, tight credit, high unemployment and high debt might be the undoing that might reduce this growth momentum. For the last three years, the GDP has been increasing and in the first quarter of 2010 it grew at 5.7% which exceeded the forecasts that had been projected (Whitney, 2010, p.1). Consumer spending has not picked up because of the 10% unemployment rate which has caused people to hold back on spending. The U.S nominal GDP growth forecast is projected to increase from 4.2% in June to 4.6% in the following months (Whitney, 2010, p.3).
On the other hand, the Federal Reserve has been trying to keep interest rates low while the government is determined to create more jobs. The economy has been projected to be on positive recovery. In addition, stocks have been rising to almost 1,094.90 while treasuries have been decreasing. This has pushed the yield to 3.68% (Digital Point, 2010, p.3).Generally the economy has generated increase in consumer confidence because companies have expanded and increased employment. Consumer spending rose by a margin of 2% but is projected to gain 1.8% in the coming three months. All this indicates that consumers will likely spend more in the coming months. This will in a long way increase the retail business that will eventually gain by 3%.Exports are also projected to increase because the major trading partners who are mostly in Asia and Latin America have been experiencing continued economic growth (Digital Point, 2010, p.3).
There was a boost in purchases that was driven up by the government auto incentive program. Purchases from individual households have not been positive as there was a drop of 0.6%. The economy has experienced an increase in production because of the stock piles that have dropped to stand at $33.5 billion (Wednesday- night, 2010, p.2). In recent months there has been a steady increase in purchases of software and equipment at 13% in the forth quarter which has had a long term effect of increased investments which rose by 2.9%. Generally the economy is expected to have a robust unit growth because the consumer segments of the market have not been shaken which will see resurgence in sales (Kiplinger, 2010, p.1).
As a sign of recovery most companies across the economy have been ordering more capital goods which are good indicators that investments are on the increase. In the job market there has not been a big rebound since payrolls only rose by 4% (Bank information security articles, 2010, p.3).The situation has been compounded by a rise in the number of depressed workers who have been leaving the labor market. The increased GDP growth will generally create I million jobs which is a relief after years of job loses. In addition to these the central bankers have kept the lending rates among banks to be near zero.
Inflation stood at 1.4% after a 1.2% increase in the prior quarter and this outlook is not bad at all (Knowledge W.P. Carey, 2009, p.2).This rate will only be maintained if there are no big oil disruptions. Inflation will continue being at its lowest because the economy has spare capacity and a vibrant price competition. On the other hand, residential construction has risen by 5.7% rate over the last quarter. The financial markets have not collapsed because there have been a lot of massive injections from the central bank liquidity. There have been some concerns by some economists over the government’s expansionary policies as they are likely to bring about increased inflation. Venture capital firms are picking up and they will help in aiding most of the start ups (Knowledge W.P. Carey, 2009, p.2).
The economy’s actual output has otherwise not been as expected as it is I trillion less of its potential. To reduce the overcapacity that has manifested itself factories will be required to limit production. In order to achieve these goals the Federal Reserve is supposed to maintain the momentum by ensuring that the rates are lower than zero. In most of 2010 the economy has seen a lot of fiscal restraints by state and the local sectors. Whenever the economy will have scarce credit, small companies will find it really hard to expand and grow (Whitney, 2010, p.3).
The prime loan interest rates are currently at 3.25% and they are projected to continue on this trend up to December. Low loan interest rates are expected to help jumpstart the other areas of the economy that had not picked up before. The Federal government is expected to shut down most of the emergency programs that had been instituted to help the economy recover. It is expected that there will be a lot of federal regulations and more increased oversight in hopes (Bank information security articles, 2010, p.4).
The economy is not expecting a V- shaped recovery. Generally from the above statistics the economy is set to bounce back in the year 2010.This is because the labor market is stabilizing and business spending has risen significantly. Policy makers are also creating good conditions for the financial markets. In addition to these the president has called for a $30 billion loan initiative for small businesses (Knowledge W.P. Carey, 2009, p.2).
Most of the growth will be achieved through stabilizing the banking sector. But this boost is likely to disappear in the second half of the year if the rate of unemployment continues. There is a need to ensure that consumers are not budget conscious. To curb the situation further the government is supposed to reduce the overcapacity in the housing and manufacturing sectors. There are some negative economic indicators like declines in light vehicle sales, stock prices and capital goods orders that need to be corrected. Economists are arguing that it will take 3% growth to create more jobs that will be coping with the increase in population (Kiplinger, 2010, p.1).
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Digital point. (2010). The US economy will boom in 2010.
Kiplinger. (2010). Economic Outlook 2010: Expect Decent, Not Vigorous, Growth in 2010.
Knowledge W.P. Carey. (2009). 2010 Economic Forecast: Don’t Hold Your Breath.
Pretcher, R. (2010). Stock market forecast 2010- 2016.
Wednesday- night. (2010). U.S. economy 2010.
Whitney, M. (2010).U.S. Economy Forecast 2010: The Year of Severe Economic Contraction.