US Economic Recovery (Essay Sample)

US Economic Recovery Name Institution Contents TOC \o "1-3" \h \z \u US Economic Recovery PAGEREF _Toc449887513 \h 3Introduction PAGEREF _Toc449887514 \h 3Economic Analysis PAGEREF _Toc449887515 \h 3Conclusion PAGEREF _Toc449887516 \h 6References PAGEREF _Toc449887517 \h 7 US Economic Recovery Introduction The 2008/2009 economic recession heralded the beginning of a tough economic environment for global economies. This recession is thought to have emanated from the market crisis in the US financial markets mainly due to the toxic subprime market debt situation where a number of major financial firms were holding significant portfolios of securities backed by subprime market lending. This resulted in the collapse of large US financial giants notably the demise of Lehman Brothers which resulted in market jitters causing panic selloff of securities at various financial markets. Global financial markets are interlinked and the saying ‘when the US economy sneezes the world catches a cold’ was proven right because other leading financial markets across Europe and Asia also followed suit and short selling of securities was the global norm. The outcome was the bankruptcy of many companies and eventually virtually all economic indicators portrayed that the global economy was in a recession. Fast forward to the end of the year 2016, all indicators indicated that the US economy had bounced back and was in fact in a boom position. This paper attempts to demonstrate that an economic recovery of the US economy has been achieved. Economic Analysis There are two types of economic indicators and they are referred to as leading indicators and lagging indicators. Leading indicators are used to predict economic changes prior to an economic adjustment whereas lagging indicators are used after an economic change or trend has already been established. This paper uses the lagging indicators because the phenomenon under study has already passed. Some of the lagging indicators of an economy’s health are the changes in the Gross Domestic Product, Unemployment Rate, Consumer Price Index, Income and Wages, Currency strength, Interest rates, Corporate Profits, and Balance of Trade (Smith, 2011). The Gross Domestic Product (GDP) growth is a significant measurement of the health of an economy. According to analysis from Statista (2016) the first quarter of the year 2009 had a 5.4% decline in the GDP figure indicating a declining position and the second quarter showed a further 0.5% decline in GDP from the previous quarter’s position. Clearly all was not rosy during these two quarters. The third quarter in 2009 had a 1.3% positive growth from the previous quarter. The fourth quarter in 2009 had a 3.9% positive GDP growth. In 2010 the first quarter had a 1.7% GDP growth and the second quarter had a 3.9% growth. By this time the negative growths in the first two quarters of 2009 had been reversed. Encouraging back to back GDP growth figures have been seen all through to the year 2016 except in the first quarter of 2011 and in the first quarter of 2014 where there was a small marginal decline in GDP growth of 1.5% and 0.9% respectively. This shows that the GDP position has significantly improved over the years from the negative growth in the recession period to the current positive growth being experienced. According the Bureau of Labor Statistics [BLS] (2012), towards the end of the 2008/2009 recession in the month of June 2009, the unemployment rate stood at 9.5%. In the month of December 2007 prior to the recession the unemployment rate was 5%. There was therefore a notable increase in the unemployment rate during the recession. As of the month of December 2015 BLS (2016) indicated that the unemployment rate was 5.0%. This was the unemployment rate before the beginning of the recession. In the months of January and February 2016 the unemployment rate was notably below the 5% mark at 4.9% in both months. This is a clear sign that from the unemployment perspective, economic recovery has been achieved. The Consumer Price Index for Urban Consumers (CPI-U) increased by a seasonally adjusted rate of 3.3% in the second quarter of 2009 and this was after a 2.2% increase in the first quarter of 2009 making the effective CPI-U increment for the first half ending June 2009 be 2.7%. This was a significant increase in inflation given that in the year 2008, there was a 0.1% increase in the CPI-U in the entire year (BLS, 2009). The CPI-U increased by 0.1% in March 2016 and the over the last one year the index rose by 0.9% before seasonal adjustment. This paints a picture of an improved inflation growth in the US economy in the last 12 months and a definite improvement from the 2009 position (BLS, 2016). According to BLS (2016) the quarterly seasonally adjusted percentage change in compensation in private industry against that in state and local government depicts that during the recession period in 2009 changes in government employment costs remained fairly stable fluctuating between 1% and 0.7 %. However changes in the private industry compensation cost indicated a dip from 0.9% growth in compensation to 0.2% growth. In March 2016 the growth in compensation by the government sectors had a 0.5% growth while in the private sector there was a 0.6% growth in employment compensation. Throughout the post-recession period the growth in compensation in both sectors has been showing an upward trend contrary to the downward trend witnessed during the recession period. According to the US Dollar index published by the Federal Reserve Bank of New York (2016) showing the strength of the US Dollar over time, the Dollar strength has peaked in the recent period. During the 2008/2009 recession the US Dollar had an index ranging between 87.93 and 91.05. In January 2016 the US Dollar peaked at a strength index of 101.23 and in March 2016 the strength index retraced to 97.81. All in all, the picture painted by this index indicates that the US Dollar has been strengthening over the post-recession period by a significant margin. This increment in the US Dollar value is however in part due to circumstances affecting other currencies traded against the Dollar such as the Euro Zone Debt crisis and the recent Chinese Markets upheavals affecting the Euro and the Chinese Yuan respectively. A look at the 5 year historical nominal interest rates published by the US Treasury Department (2016) indicates that interest rates are on the increasing trajectory. The Federal Reserve’s action of increasing the interest rates in 2009 in order to combat the recession resulted in a reversal of this policy after the recession and a very low interest regime between 2012 and 2014. However recent increases in the US Interest rates are showing a reversal in these trends and an indication of confidence in the US economy. The Historical Treasury rates graph depicts an increasing interest rate picture. According to Economic Research from the Federal Reserve Bank of St. Louis (2016), during the 2008/9 economic recession corporate profits after tax dipped to a low of 671.4 billion dollars in the fourth quarter of 2008. The picture is very different in the fourth quarter of 2015 where the corporate profits after tax were 1639.6 billion dollars. This is a remarkable recovery in corporate profits which indicates that the business conditions in the US economy have tremendously improved after the recession period. The recent periodic peaks in corporate profits after tax figures are the highest in the history of Corporate America. According to data from the Bureau of Economic Analysis [BEA] (2016) the US overall Balance of Trade is in deficit. The Balance of Trade data indicates that in 2008 the trade deficit was ranging below ...