Indeed, the year is starting with little signs of progress, as the late-year spread of omicron, along with the fading tailwind of fiscal stimulus, has experts across Wall Street lowering their GDP projections.
When you add in a Federal Reserve that has shifted from its most accommodative policy in history to hawkish inflation-fighters, the picture changes dramatically. The Atlanta Fed’s GDPNow indicator currently shows a 0.1 percent increase in first-quarter GDP.
“The economy is slowing and downshifting,” said Joseph LaVorgna, Natixis’ head economist for the Americas and former chief economist for President Donald Trump’s National Economic Council. “It isn’t a recession now, but it will be if the Fed becomes overly aggressive.”
GDP climbed by 6.9% in the fourth quarter of 2021, capping a year in which the total value of all goods and services produced in the United States increased by 5.7 percent on an annualized basis. That followed a 3.4 percent drop in 2020, the steepest but shortest recession in US history, caused by a pandemic.
In 2021, will the US economy be in a recession?
Last year, the US economy increased at its quickest rate since Ronald Reagan’s administration, coming back with tenacity from the coronavirus recession of 2020.
What is the situation of the American economy in 2020?
Following a 3.4 percent decline in 2020, the US GDP increased by 5.7 percent in 2021. In 2021, the economy added 6.7 million jobs, reversing a 9.3 million job loss in 2020. The average annual unemployment rate in 2021 was 5.4 percent, down 2.7 percentage points from 2020 but up 1.7 points from 2019.
What is the situation of the American economy in 2021?
In 2021, real GDP is expected to expand by 5.6 percent, before increasing by 3.7 percent in 2022 and 2.4 percent in 2023. Supply difficulties will gradually subside, allowing businesses to restore inventories and boost demand growth in the short run. Nominal wage growth will accelerate further as the labor market continues to improve. While price inflation is expected to lessen in some areas as supply disruptions subside, increased salaries, along with recent rises in housing rents and shipping rates, are expected to result in faster total consumer price growth than before the epidemic.
What is the state of the US economy in 2022?
According to the Conference Board, real GDP growth in the United States would drop to 1.7 percent (quarter-over-quarter, annualized rate) in Q1 2022, down from 7.0 percent in Q4 2021. In 2022, annual growth is expected to be 3.0%. (year-over-year).
In 2021, how fast did the US economy grow?
As the economy continues to recover from the ravages of the COVID-19 pandemic, US GDP growth surged in the fourth quarter, expanding at a 6.9% annual rate, up from the preceding four quarters’ rate of growth. Increased inventory investment and increased service consumption accounted for all of GDP growth in the fourth quarter. Real GDP increased by 5.5 percent in the first four quarters of 2021, the fastest rate since 1984.
In the fourth quarter, the economy was most likely producing at or near its full potential. The economy was still trending 1.4 percent below pre-pandemic levels. Even if the pandemic had not occurred, the economy is unlikely to have continued to develop at the same rate in 2020 and 2021 as it had in previous years. Prior to the pandemic, forecasters projected a slowdown since the economy was close to or at maximum employment, making it improbable that job gains would continue at the same rate. Furthermore, because of higher fatalities and limited immigration, which resulted in a smaller-than-expected labor force, and low investment, which resulted in a smaller-than-expected capital stock, the pandemic itself has certainly diminished potential.
Even while the economy was near to where it would have been had the epidemic and the government’s response not occurred, the economy’s makeup was drastically changed. On the supply side, employment remained low (because to low labor force participation), but this was compensated for by longer average hours and improved productivity. Final expenditures were biased towards commodities and residential investment, rather than services, business fixed investment, inventories, and net exports, on the demand side. In the fourth quarter, the demand side began to take on a more regular composition, but it remained highly skewed.
What is the foundation of America’s economy?
The economy of the United States is diversified. It operates on the basis of an economic system that combines elements of capitalism and socialism. A mixed economic system protects some private property and permits some economic freedom in the use of capital, but it also allows governments to participate in economic activities to promote social goals and the common good.
What is the most serious economic issue confronting the United States?
Economic forecasting is one of life’s more perilous endeavors. The reason for this is actually rather straightforward: “As Karl Marx put it, “history is economics in action.”
Marx, who got almost everything else wrong but got this one right, linked economics to everyday life.
Will and Ariel Durant describe that economics in action is the competition for food, fuel, materials, and economic power among people, organizations, classes, and states in their classic book The Lessons of History. Economics is a highly dynamic system that changes rapidly owing to altering causes and orientations of individuals, making forecasting extremely challenging.
Most people are ignorant of current economic conditions that could severely damage their retirement plans and force them to change their investment strategies.
This article will not make predictions, but will instead examine what many people think to be a problem “The Top 10 Economic Issues to Watch in the United States.” They were chosen by the author and are not ranked in any particular order.
Number One: Government Expenditures and Deficits
The past demonstrates that, sooner or later, every economic system must rely on some type of profit motivation to motivate individuals and groups to productivity.
As a result, the American model of capitalism should be adopted. Indeed, almost all business retirement investment decisions are predicated on this assumption. A commitment to capitalism implies a significant investment of resources in individuals and constraints on government power and resources. The ever-increasing amount of government expenditure in the US Gross Domestic Product is one of the most concerning economic trends (GDP).
In a closed (no goods in or out) economy, GDP is the total of consumption (C), investment (I), and government (G) expenditures. GDP=C+I+G, in other words. The government in the United States is taking a larger percentage of resources, and this trend has been steeply upward since 1947. Federal defense spending is roughly 5% of GDP, federal non-defense spending is 7%, and state and local government spending is about 12% of GDP, for a total of 24% of GDP in the United States. This figure excludes transfer payments such as Social Security.
If current trends continue, the amount of government spending may have a significant negative influence on the country’s ability to consume goods and construct factories and equipment for future economic growth. Former US Federal Reserve Chairman Alan Greenspan issued a strong warning about the danger when he told Congress, “We shall be stuck in a condition of stagnation unless we do something major to improve it.”
Furthermore, the federal government’s debt has grown from $2.13 trillion in 1986 to $9 trillion now. The federal government ran a deficit of 1.8 percent in 2006, a figure that did not include the excess money spent from Social Security. Comptroller General David Walker’s official deficit figure is -3.3 percent. Even he claims that the official government figure is incorrect! This figure is just unacceptable and unsustainable, especially in view of the looming financing issues for Social Security and Medicare. The most important question is: “Are we getting value for all of our taxes as a society?”
Number Two: Social Security
There is no such thing as a savings account for Social Security. Today, Social Security collects enough money to keep it afloat until 2017. (depending on who you speak with and on what day). These funds, unfortunately, are not kept in a piggy bank. They’re put into government securities that aren’t available to the general public (IOUs). According to former Secretary of the Treasury Paul O’Neil and current Comptroller General David Walker of the Government Accountability Office (GAO), the borrower (the United States federal government) is in serious financial trouble that has to be handled promptly. Walker has stated that the budget must be balanced within the next five years, that a down payment on the $50 trillion deficit must be made, and that government programs must be reformed. “Time is working against us,” he remarked.
Many people fear that unless significant reforms are implemented quickly, Social Security and/or Medicare will provide little benefit. These modifications could include:
- Raising or removing the maximum Social Security and/or Medicare payroll ceiling;
- Investing some of Social Security’s funds in domestic and international bonds and stocks;
- Reducing retirement benefits in the not-too-distant future (perhaps affecting people in their 20s today); and
Individuals’ expected benefits from Social Security and Medicare are currently greater than their contributions. The graying of America (the expanding aged population of America and the industrial world) and the reality that American workers simply confront more taxes and lower wages add to the complexity of the problem. This does not account for the drop in consumption (outside of healthcare) that will occur as the American population ages. As a result, the average American’s standard of living continues to deteriorate.
Number Three: Concentration of Wealth
The Durants also made the following observations: “Because practical ability varies from person to person, the majority of such abilities are concentrated in a small group of men in practically all cultures. The concentration of wealth is a natural byproduct of the concentration of skill, and it has happened many times throughout history.”
The increasing concentration of wealth in America is one of the important issues that must be observed. This problem is accelerated by capitalism and democracy. This is evident in the graph below, which demonstrates entrepreneurship incentives as well as-unfortunately-an growth in wealth concentration.
The wealthiest 1% of the population now possess 34.3 percent of the country’s private wealth and 36.9% of all corporate equity. These figures are increasing. This group received 21.8 percent of all pre-tax income in 2005, but they only accounted for 8.9% of US income 30 years previously, in 1976. The Forbes 400’s total inflation-adjusted wealth increased from $470 billion in 1995 to $1.25 trillion in 2006.
As the Durants argue, this concentration may reach a tipping point “…where an unstable equilibrium results in wealth redistribution through taxation or poverty redistribution through revolt.” The United States has already selected taxes, such as from 1933 to 1952 and 1960 to 1965, but it is unknown whether the government will continue down this peaceful road.
Number Four: Median Family Income
The position of a population’s middle class is one of the most enlightening ways to examine any economic challenge. Since the French Revolution, the middle class has largely controlled the political outcomes of practically every contemporary nation. Many people believe that the middle class will decide America’s fate.
To talk about the middle class, one must first define a baseline. Many people believe that the middle class standard is best defined as an educated group (actually, upper middle) with upward economic mobility, which includes safe homes and workplaces, worthwhile jobs with compensation that rises faster than inflation and is commensurate with demonstrated increased productivity, adequate healthcare, comfortable retirements, and manageable debt. Since World War II, America has sought to attain this benchmark. Many individuals believe that if the number of persons in this category starts to fall, everything would be lost.
The middle class is under attack, according to median economic data. According to statistics, between 1947 and 1970, the median household income (inflation adjusted) climbed dramatically, owing in part to rapid gains in productivity. However, incomes have remained steady since then, with a 0.5 percent drop in median family income from 2000 to 2005. It’s also worth noting that these figures are calculated before, not after, taxes.
The notion that each generation will outperform their parents has been ingrained in what we refer to as the American Dream “The American Dream,” they say. According to a recent Brookings Institute report, “New evidence suggests that the once stable ground may be changing. This raises fascinating issues about all Americans’ potential to advance economically, and if the American economic meritocracy is still alive and strong.”
Number Five: The Savings Rate
The median family savings rate has dropped significantly, as previously mentioned. (It’s worth noting that under our GDP equation, all savings are treated as investment by definition.)
Personal savings rates in the United States ranged from 8% to 10% from 1960 to 1990. As family incomes have remained stagnant, this rate has fallen, and in 2006, the personal savings rate was negative for the first time since the Great Depression (when many people spent their last nickel on food). When this data is combined with the bleak outlook for Social Security, a disturbing image of the future of the United States emerges.
Given the state of Social Security/Medicare (described in Number Eight), the personal savings rate must rise to a more realistic positive levelnot only to provide for retirement, but also to generate capital for long-term investment.
Number Six: Consumption Binge
Individuals have gone on a consumption binge, despite stagnant salaries, which is one of the reasons for low personal savings. In a normal world, market forces would somewhat remedy this binge by raising the cost of consumable products. However, things have changed recently. There are entities ready to swap consumable items for America’s seed supplies by financing government budget deficits through the purchase of federal debt, allowing greater mortgages on consumer’s houses to be funded. One such group is China. As a result, the binge persists. It is, however, slowing as the value of the dollar falls and property prices fall.
Number Seven: No Retirement Funds
According to a recent Wall Street Journal article, most baby boomers under 65 have less than $150,000 in retirement savings, while those under 50 have less than $50,000. Low savings are certainly insufficient for a comfortable retirement, and may force retirees to return to work for the rest of their lives.
Investing money in the stock market is frequently viewed as a risky investment in an attempt to “catch up.” Most employees, it appears, do not understand the relationship between savings and the time worth of money. Individuals must fend for themselves on everything from early debt payback to life cycle decisions. In order to prepare for retirement, a long-term plan with enough contributions is required, especially given the current Social Security situation.
Number Eight: High Family Debt
There has never been a time when the average household has had so much debt. Obtaining house and personal credit, particularly through credit cards, has been far too easy. Total liabilities as a percentage of total assets is perhaps the simplest way to represent it. In 1999, the average (not median) for a median family was 19.7%. In 2004, that figure had risen to 29.3%. Almost everyone today feels the percentage is far higher. These figures are “mark to market,” which means they are based on current market prices for both real estate and stocks. (Keep in mind that debt is fixed, but asset prices are not.) If the home market and/or the stock market both fall in value, these total liabilities percentages will skyrocket. In addition to the possibility of unemployment, a strong recession would wreck havoc on these asset classes.
Number Nine: Healthcare
Most economists are at a loss for words when it comes to this critical and imminent issue. As the baby boomer generation ages, the healthcare system is already under strain. In addition, America is home to a growing immigrant population that has received little or no medical treatment in the past and will be more expensive to care for in the future. This implies that healthcare expenses will continue to rise at a rate substantially above the rate of inflation.
For most employees, the only practical option is to fund any and all healthcare savings plans as quickly as possible. Assume that Medicare does not exist. If one obtains it, one’s retirement years will be even more enjoyable.
Number Ten: The Current Account Deficit
There have already been references to groups eager to lend to us so that we can continue our consumption spree. This conundrum introduces a new economic term into the equation. Imports and exports (NE) can now be included in our economy, so GDP=C+I+G+NE. When one considers the federal government’s borrowing of funds to operate, which also falls under the current account category, things get a little more complicated.
Our current account deficit is around 7% of GDP, which is more than double the previous modern high of 3.4 percent set in the mid-1980s. As a result, the value of the US dollar fell by 50% against other major currencies over a three-year period between 1985 and 1987. From its early 2008 low of US$1.47, the Euro might rise to as high as US$2.00.
Many people, including our current Federal Reserve Chairman Ben Bernanke, believe that the current account deficit will not be as severe as many people believe, owing to the capital account deficit (see explanation below). The capital account is more interesting than the current account in economic terms because it is the account that brings economies down. Because trade deficits (current accounts) are usually balanced by surplus capital accounts, if the capital account collapses, the scales will swing against everyone. This is much more difficult to predict because capital markets are driven by expectations rather than reality.
Nonetheless, the majority of people feel that the current level of deficit is unsustainable. Furthermore, analysts agree that the current account deficit may be the single greatest threat to the United States’ and world economies’ continued prosperity and stability.
China’s Chief Investment Officer, Lou Jiwei, is arguably the most powerful figure in the American economy today. He is in charge of a $1.250 trillion Chinese investment fund, which is primarily made up of US Treasury bonds. We have relatively low interest rates since he invests extensively in the US government (about two-thirds of the fund). This is beneficial to the United States as long as the positive economic trend continues. But what if the music stops playing?
Many people do not anticipate the Chinese will cause substantial financial market disruptions. The author does not expect much from them until after the 2007 Olympic Games in Beijing. Many expect changes after the Olympics, in accordance with their recent $3 billion investment in the Blackstone Group, which buys and privatizes public corporations in the United States. Given the xenophobic reaction in America when the Chinese attempted to buy Union Oil Company of California directly, the Chinese regard this as a logical first step.
It’s probable that the Chinese will put economic pressure on the United States. However, if China is economically smart, it will press the point over time until America loses relevance in the globe while China rises. “When China awakens, the entire world will quake,” Napoleon Bonaparte said two centuries ago.
Epilogue
Civilization was defined by the Durants as “A social order that encourages cultural innovation.” Nonetheless, the ruins of civilizations can be seen throughout history. These looming economic challenges appear to be indicating that America is nearing the end of its life. Most Americans will refuse to think that our country must face the fate of Shelley’s Ozymandias, in which everyone dies. Unfortunately, nations do die, which is a sobering reality. All of this has happened before, as can be shown by looking back to the early years of the Great Depression.
In the years following World War II, America’s standard of life rose dramatically. The question is whether it will persist in the face of new world circumstances. It won’t, according to the author, unless there’s a shift in social and economic conduct. America and the rest of the world are undergoing significant social and economic changes. Perhaps not since the pre-dawn morning of July 16, 1945, in the desert near Alamogordo, New Mexico, has the world witnessed such a tremendous upheaval. Because of globalization’s personal influence on so many people, this new change and the rise of the age of globalization is much more scary than the rise of the nuclear age.
Hedrick Smith put it this way: “If America is to maintain a high quality of life into the twenty-first century and to prevail as a global economic power in the long run, it will need a new mindset above all.” This mindset, which aims to make America work better for more people, must shift, or our retirement funds will be jeopardized.
What is the economic stability of the United States?
The United States’ economic freedom score is 72.1, making it the 25th freest economy in the Index for 2022. The United States is placed third in the Americas area out of 32 countries, and its total score is higher than the regional and global norms.
What will the US GDP be in 2021?
In addition to updated fourth-quarter projections, today’s announcement includes revised third-quarter 2021 wages and salaries, personal taxes, and government social insurance contributions, all based on new data from the Bureau of Labor Statistics Quarterly Census of Employment and Wages program. Wages and wages climbed by $306.8 billion in the third quarter, up $27.7 billion from the previous estimate. With the addition of this new statistics, real gross domestic income is now anticipated to have climbed 6.4 percent in the third quarter, a 0.6 percentage point gain over the prior estimate.
GDP for 2021
In 2021, real GDP climbed by 5.7 percent, unchanged from the previous estimate (from the 2020 annual level to the 2021 annual level), compared to a 3.4 percent fall in 2020. (table 1). In 2021, all major components of real GDP increased, led by PCE, nonresidential fixed investment, exports, residential fixed investment, and private inventory investment. Imports have risen (table 2).
PCE increased as both products and services increased in value. “Other” nondurable items (including games and toys as well as medications), apparel and footwear, and recreational goods and automobiles were the major contributors within goods. Food services and accommodations, as well as health care, were the most significant contributors to services. Increases in equipment (dominated by information processing equipment) and intellectual property items (driven by software as well as research and development) partially offset a reduction in structures in nonresidential fixed investment (widespread across most categories). The rise in exports was due to an increase in products (mostly non-automotive capital goods), which was somewhat offset by a drop in services (led by travel as well as royalties and license fees). The increase in residential fixed investment was primarily due to the development of new single-family homes. An increase in wholesale commerce led to an increase in private inventory investment (mainly in durable goods industries).
In 2021, current-dollar GDP climbed by 10.1 percent (revised), or $2.10 trillion, to $23.00 trillion, compared to 2.2 percent, or $478.9 billion, in 2020. (tables 1 and 3).
In 2021, the price index for gross domestic purchases climbed 3.9 percent, which was unchanged from the previous forecast, compared to 1.2 percent in 2020. (table 4). Similarly, the PCE price index grew 3.9 percent, which was unchanged from the previous estimate, compared to a 1.2 percent gain. With food and energy prices excluded, the PCE price index grew 3.3 percent, unchanged from the previous estimate, compared to 1.4 percent.
Real GDP grew 5.6 (revised) percent from the fourth quarter of 2020 to the fourth quarter of 2021 (table 6), compared to a fall of 2.3 percent from the fourth quarter of 2019 to the fourth quarter of 2020.
From the fourth quarter of 2020 to the fourth quarter of 2021, the price index for gross domestic purchases climbed 5.6 percent (revised), compared to 1.4 percent from the fourth quarter of 2019 to the fourth quarter of 2020. The PCE price index grew 5.5 percent, unchanged from the previous estimate, versus a 1.2 percent increase. The PCE price index grew 4.6 percent excluding food and energy, which was unchanged from the previous estimate, compared to 1.4 percent.
What is the current rate of unemployment in the United States?
The national unemployment rate, which was 3.8 percent in February 2021, fell 0.2 percentage point in the month and was 2.4 points lower. In February 2022, nonfarm payroll employment increased in 27 states while remaining virtually steady in 23 states and the District of Columbia.