Economic Forecast for the US Economy
Gross Domestic Product
In the fourth quarter of 2015, the American economy could experience a strong growth. In the third quarter of the same year, the GDP had expanded by 3.9%, 0.2% of which had earlier been forecasted. With indicators showing increasing consumer spending, the growth is expected to continue until the end of the year. Since 2014, the consumer expenditure has averaged 3% with indications of performing better in the last two quarters of 2015 (Table 1.1.6. Real Gross Domestic Product, Chained Dollars, 2015). Retail sales have been seen to continue rising. The third quarter of 2015 recorded a spending of US $ 11,262.80 billion up from the second quarter’s $ 11,178.90 (see Appendix A).The trend is expected to continue owing to the rising incomes as well as improved employment rates.
Data indicates that the average gross private domestic investment for the four quarters in 2014 was US $ 2,717.70 billion. The investments have continued to increase although in a minimal amount. The growth will likely be propelled by the improvement in manufacturing as well as infrastructural development (Table 1.1.6. Real Gross Domestic Product, Chained Dollars, 2015). Besides, new innovations as well as research by business firms will lead to new investments by companies for the future revenue increment.
The federal government has been constantly increasing its expenditure on the other major sectors apart from the national defense. The spending by the federal, state, and local governments is directed at the key sectors such as health, finance, agriculture, pension, infrastructural development as well as education (See Appendix A). In return, the growth in these sectors will help improve manufacturing and production sectors of the economy as well as create employment opportunities. While the year 2014 averaged at US $2,838.3 billion, from 2015 up to the end of third quarter was $ 2,854.7 billion (Table 1.1.6. Real Gross Domestic Product, Chained Dollars, 2015). The likelihood of increasing the government expenditure will continue to the end of the current financial year.
The total exports for the country continue to decrease. The service segment has been seen to have expanded more in comparison with goods, whose exports for the third quarter of 2015 declined to $ 1,450.20 billion from $ 1,452 (Table 1.2.5. Gross Domestic Product by Major Type of Product, 2015). However, the exported services rose from $ 664.4 billion to $ 670.4 billion over the same period. On the other hand, the United States had more imports than exports for goods (Table 1.1.6. Real Gross Domestic Product, Chained Dollars, 2015). That could have been precipitated by emerging economies that are trying to enter the American market more aggressively than they previously did. Again, as more companies transfer their businesses outside America, this pattern would likely continue with no change in the near future.
The inflation rate in the United States for the year 2015 has reached 1.95 in October. Several baskets of goods including fuel and food have experienced volatile costs. In October, the consumer prices rose by 0.2% from what was experienced a year ago (Reserve, 2015). The constant increase of these prices is expected to continue at about the same rate per month. Food prices for the same month also rose by 0.1%, which is the lowest since May.
Regarding energy, its index rose by three percent in October after the decline by 4.7 % in September. The gasoline and electricity indices rose. For the year 2015, the oil prices have greatly decreased (see Appendix A). However, the index of the natural gas reduced. Food and energy sectors are key drivers of the economy. Their poor performance is an indication of low growth rates to be expected in the fourth quarter. On the other hand, the stock market performance shows recovery owing to new investments by business as well as currency stability. It is expected that the general market performance will continue to improve over time.
Unemployment and Underemployment
The American unemployment rate has seen little improvement and in most occasions remained unchanged in the period between January and October2015. Although in October the number of unemployed individuals and the unemployment rate remain unchanged, for the past 12 months, it recorded fall of about 1.1 million and 0.7% respectively. Despite that change, the number of the unemployed still remained close to 2.1 million. The unemployed labor force of 2014 accounted for about 6.2%. However, the general unemployment rate remained at 5.0% in October.
Further, the non-farm employment had seen increment of 271,000 by the same month. Regarding individuals who are part-time employed owing to economic reasons, their number reduced by 269,000 persons to 5.8 million in October. Among the reasons for part-time jobs are reduced working hours and the inability to get full-time jobs. This trend could continue in the fourth quarter of the year. Additionally, the marginally attached workforce underwent reduction by 276,000 people from what had been recorded earlier that year. 665,000 of them were indicated as discouraged workers with little change from what was shown in January 2015 (Employment status of the civilian noninstitutional population, 1944 to date, 2015).
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Workers in this category rarely look for jobs as they assume that no job opportunities are available for them. The other group in this category mentioned school and family responsibilities, which served as the main reasons why they did not look for jobs. The fact that numerous people are getting dismissed may lead to slowing down of the economy for the last quarter of the year. Despite the drawbacks, some sectors did record increased employment rates. For instance, the business services and professional sector added 78,000 more jobs in October, which was higher than 52,000 that had been averaged for the 12 months prior to October.
The health care sector created 45,000 jobs over the same month through ambulatory services with 27,000 and hospitals 18,000. In general, the last year has seen health sector create additional 450,000 employment opportunities. On the retail trade, a total of 44,000 were added beating the monthly average of a year before. Foods and construction sectors made an additional of 42,000 and 31,000 workplaces respectively. However, the mining segment registered decline of 5000 in October. It had been recorded that jobs were reduced for the entire year shedding about 109,000 jobs over that period.
Asset prices highly contribute to the trends in the economic growth of the country. The prices of bonds, stocks as well as their derivatives were making good performance. Since the economic meltdown of 2008, most companies were experiencing difficulties, but now recovery seems to have taken cause. Again, the US dollar has regained its value against the world currencies, thus reclaiming its power as the world top most trading currency. It is estimated that the dollar has appreciated 13% for the last 12 months. That has been rapid and entailed cynical growth divergences. Further, there have been diverse trajectories relating to monetary policies amid the US assets portfolio shifts as well as systematic economies. However, the dollar seems to be currently overvalued, which may contribute to deficit in the current accounts, thus moving away from fundamentals of medium-term to above 3% of the GDP over this period. Now the adjustment of exchange rates globally has caused necessity in demand shift to the world economic parts that were under the threat of stagnation and deflation.
A stronger US dollar has notable impact for both job creation and growth of American economy. Furthermore, data from Nasdaq, indicates tremendous growth in companies’ stocks as well as treasury bonds. Moreover, S&P 500 has seen growth depicting good returns from the stocks of the biggest companies in the United States (Indices by Asset Class). As the stock market continues to improve, the GDP will be expected to make small positive changes. That would mean the noted market growth for bonds and shares would be experienced to the fourth quarter of the year. Additionally, the fourth quarter would more likely record enhanced growth rate that was the case in the third quarter in regard to stocks, bonds, and their trajectories.
In September 2015, the trade balance was in disfavor of the United States standing at -$40.8. That means that the county’s import had exceeded its exports, and hence the production could get lower. Again, while the exports for both services and goods had risen by $ 0.1 billion to $ 187.00 billion for September, the import growth was much higher for the same month by $1.4 billion to $ 230.80 billion. For the entire year to September, the reduction in goods and services demonstrated that deficiency rose by close to $14.90 billion, which was a 3.9% from what had been recorded in 2014 over the same period.
Exports indicated decline of 3.8 percent or $66.30 billion, while the imports were 2.4 percent decrease or $51.3 billion. Moreover, the net balance payments lowered to less than $ 0.1 billion (U.S. International Trade Data, 2015). However, the US was recording reduction in deficit in trade with the huge markets such as Europe and China, where in both cases the country was closing the trade gap that caused imbalance that disfavored it.
Nevertheless, the United States was making recovery changing the tide of the trade balance to its favor. Over the last six months to October, the country has indicated constant reduction of trade balance from -52,163 billion to $ -40,812 billion (U.S. International Trade Data, 2015). The change would definitely mean potential improvements as industries get back to full productivity creating job opportunities as well as raising their revenues. Thus, the Gross Domestic Product is expected to benefit during the fourth quarter of the year. In addition for the country’s most profitable sectors, there are indications that they either improved or retained the same amount of growth in comparison to the year 2014.
The key sectors of the economy seem to continue registering growth with the chances of GDP improving. This has been supported by the continued increase in the consumer spending. As the incomes of the households increase, spending rates have grown, thus improving markets for firms. There has been growing government spending meant to offer support to key sectors of the economy such as manufacturing, agriculture, finance, insurance, transport, education as well as telecommunication sectors (see Appendix A). The more money spent by the government will help boost business growth and thus the economy in general.
Further, the businesses have spent large sums of money on investments and research works. This means there will be new innovations in the market to propel the needed growth in the market. As the companies enhance their growth, their stocks could start performing, hence stabilizing the financial markets even further. Furthermore, as the US dollar continues to gain against the other currencies, it would help American businesses get competitive in the world market. However, the rate of unemployment could still be a challenge and may limit the growth as more people become temporary workers or unemployed. Additionally, the balance of trade is against the change of something that may as well delay growth rate.