Analysis of usa qaem zaidi

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Analysis of usa qaem zaidi

  1. 1. 2012ECONOMIC ENVIRONMENT OF U.S.A QAEM ZAIDI JAIPURIA INSTITUTE OF MANAGEMENT,LUCKNOW 4/5/2012
  2. 2. AbstractThis project examines the evolving structure of the American economy,specifically, the trends in economic environment of U.S.A from 19XX to 2011.These trends are closely connected with complementary trends in the size andstructure of the global economy. Employing historical time series data from theBureau of Labor Statistics and the Bureau of Economic Analysis & doing businessin U.S.A. Executive Summary1. The economy of the United States is the worlds largest economy. Its nominal GDP is estimated to be over $15 trillion in 2011, approximately a quarter of nominal global GDP. The European Union has a larger collective economy, but is not a single nation. Its GDP at purchasing is the largest in the world, approximately a fifth of global GDP at purchasing power parity.2. The U.S. economy maintains a very high level of output. In 2011, it was estimated to have a per capita GDP (PPP) of $48,147, the 7th highest in the world, thus making U.S. one of the worlds wealthiest nations.3. The U.S. is the largest trading nation in the world. Its three largest trading partners as of 2010 are Canada, China and Mexico.4. A central feature of the U.S. economy is the economic freedom afforded to the private sector by allowing the private sector to make the majority of economic decisions in determining the direction and scale of what the U.S. economy produces. This is enhanced by relatively low levels of regulation and government involvement, as well as a court system that generally protects property rights and enforces contracts.5. Value of currency is very high, about 60% of the global currency reserves have been invested in the United States dollar, while 24% have been invested in the euro. 2
  3. 3. 6. The country is one of the world’s largest and most influential financial markets. Foreign investments made in the United States total almost $2.4 trillion, which is more than twice that of any other country. American investments in foreign countries total over $3.3 trillion, which is almost twice that of any other country.7. Total public and private debt was $50.2 trillion at the end of the first quarter of 2010, or 3.5 times GDP. The proportion of public debt was about 0.9 times the GDP. Domestic financial assets total are $131 trillion and domestic financial liabilities total $106 trillion.8. The United States is home to 29.6 million small businesses, 30% of the worlds millionaires, 40% of the worlds billionaires, as well as 139 of the worlds 500 largest companies. From its emergence as an independent nation, the United States has encouraged science and innovation. 3
  4. 4. IntroductionIn the post crisis environment, issues of sustainability in the trajectory of the U.S.economy have come to the fore. Among the problems pointed to be a large currentaccount deficit, the paucity of household savings, overleveraging in the financialand household sectors, and stagnation of middleclass incomes. However, whatappears missing is a detailed look at the structural shifts in the economy overlonger periods, and the way in which the emerging economies’ growth is affectingthe pattern of industry employment and value added in the United States economicstructure over the past twenty years and exploring the implications of such shifts.The American economy does not exist in vacuum; some of its most strikingevolving characteristics are tied to long-term trends in the developing world andespecially the large emerging economies.The project report includes with Employment, Research development, andentrepreneurship, Income and wealth, financial position, Composition Currencyand central bank, employment, interest rates, business spending, inflation, Tradeexecutive summary and the evolving structure of the U.S economy. 4
  5. 5. Structural Evolution of the U.S. EconomyThe structure of the American economy is evolving. Technology is one of thedriving forces, both domestically and in integrating the U.S. economy with theglobal economy. The domestic economy does not operate in a vacuum. Inrelatively open global economy, structural change in emerging economies causesstructural change in advanced countries. When a certain kind of activity declines inu.s economy, normally it does not just disappear from the global economy, butinstead moves to another location. These powerful market forces operate directlyon the tradable sector, and indirectly on the no tradable portion through wage andprice effects and shifting opportunities in labor markets to divide the economy andits component industries into the tradable and non tradable parts. United States GDP Growth RateThe Gross Domestic Product (GDP) in the United States expanded 3 percent in thefourth quarter of 2011 over the previous quarter. Historically, from 1947 until 2011the United States average quarterly GDP Growth was 3.28 percent reaching anhistorical high of 17.20 percent in March of 1950 and a record low of -10.40percent in March of 1958. The United States is a market-oriented economy whereprivate individuals and business firms make most of the decisions. The federal andstate governments buy needed goods and services predominantly in the privatemarketplace. 5
  6. 6. INCOME AND WEALTHAccording to the United States Census Bureau, the pretax median householdincome in 2007 was $50,233. The median ranged from $68,080 in Maryland to$36,338 in Mississippi. In 2007, the median real annual household income rose1.3% to $50,233, according to the Census Bureau. The real median earnings ofmen who worked full time, year-round climbed between 2006 and 2007, from$43,460 to $45,113. For women, the corresponding increase was from $33,437 to$35,102. The median income per household member (including all working andnon-working members above the age of 14) was $26,036 in 2006. The averagehome in the United States has more than 700 square feet per person, which is 50%-100% more than the average in other high-income countries. Even in the lowestincome percentiles people enjoy more space - average 400 square feet per person -than middle classes in Europe do. Likewise, ownership rates of gadgets andamenities are exceptionally high compared to other countries. The recentlyreleased US Income Mobility Study showed economic growth resulted in risingincomes for most taxpayers over the period from 1996 to 2005. Median incomes ofall taxpayers increased by 24 percent after adjusting for inflation. The real incomesof two-thirds of all taxpayers increased over this period. Income mobility ofindividuals was considerable in the U.S. economy during the 1996 through 2004period with roughly half of taxpayers who began in the bottom quintile moving upto a higher income group within 10 years. In addition, the median incomes of thoseinitially in the lower income groups increased more than the median incomes ofthose initially in the higher income groups. Between June 2007 and November2008 the global recession led to falling asset prices around the world. Assetsowned by Americans lost about a quarter of their value. Since peaking in thesecond quarter of 2007, household wealth is down $14 trillion. The Fed said that atthe end of 2008, the debt owed by nonfinancial sectors was $33.5 trillion,including household debt valued at $13.8 trillion. About 30% of the entire worldsmillionaire population resides in the United States (in 2009). The EconomistIntelligence Unit estimated in 2008 that there were 16,600,000 millionaires in theUSA. Furthermore, 34% of the worlds billionaires are American (in 2011). 6
  7. 7. FINANCIAL POSITIONThe overall financial position of the United States as of 2009 includes$50.7 trillion of debt owed by US households, businesses, and governments,representing more than 3.5 times the annual gross domestic product of the UnitedStates. As of the first quarter of 2010, domestic financial assets A totaled$131 trillion and domestic financial liabilities $106 trillion. Tangible assets in 2008(such as real estate and equipment) for selected sectors B totaled an additional$56.3 trillion. US Industry SectorsAgriculture and the industrial sector made up 1.2 percent and 19.6 percent of US’sGDP in 2010 respectively. This percentage can be relatively deceiving. The US isnot only the third largest agricultural producer in the world behind China andIndia, but is also the leading industrial power in the world.Agriculture is a vital part of US economy and society. According to the last censusof agriculture in 2007, there were 2.2 million farms in the US - covering an area of922 million acres. Farmers are also one of the major political lobbyists in the US asthey are primarily responsible for the country’s food demands. Among USagricultural products include wheat, corn, other grains, fruits, vegetables, cotton,beef, pork, poultry, dairy products, fish, and forest products. US Population and Labor ForceThe US population for 2010 was 310.282 million. Although the US population issignificantly lower compared to India and China, the US has the highest laborforce participation rate in the world with 139.396 million employed.The majority (35.5 percent) of the labor force’s occupations are managerial,professional or technical in nature. A further 24.8 percent hold sales or office jobs, 7
  8. 8. 22.6 percent are in manufacturing, extraction, transportation and crafts, 0.6 percentare in arming, forestry or fishing and 16.5 percent have jobs in other services.Unfortunately, the labor force has yet to recover fully from the 2008 financialcrisis. Unemployment rates in the US nearly doubled in 2009 from 5.817 percent to9.275 percent while 2010 saw a further increase to 9.73 percent. EMPLOYMENTThe job market is strengthening but the turnaround in 2012 won’t bedramatic, with barely enough job creation to lower the unemployment rate - 8.3%in February to around 8% by year-end and not enough oomph to spur mucheconomic growth.The U.S. economy created an average of 245,000 jobs a month from Decemberthrough February, the best three months since 2006. But that pace will slow ashigher gasoline prices crimp consumer spending on other goods and services andrecent gains in manufacturing employment flatten out with slower export growth,due to the cooling global economy.Barring a major energy shock that stalls economic growth, we expect job creationto average about 185,000 a month or 2.2 million for the year. Private sectoremployers will actually add about 2.4 million jobs, but that will be partially offsetby continued paring by cash-starved local governments. Look for them to eliminateroughly 200,000 jobs this year.Paradoxically, the recent pickup in hiring may nudge the unemployment rate up abit in coming months, as some folks who gave up looking for work decide to rejointhe job hunt. That effect will wear off by the second half of the year, however, andthe jobless rate will decline.Despite the recent acceleration in hiring, it is still a tough market for jobseekers. More than two years after the end of the Great Recession, the number ofworkers unemployed for more than 27 weeks is 5.4 million, near its all-time high 8
  9. 9. and unchanged in February. Likewise, the number of workers forced to take a part-time job is 8.1 million, little changed from January.Wages are likely to continue to creep higher, with the pace accelerating withstronger economic growth in the second half of the year. Wage hikes remain wellbelow the rate of inflation for now, rising just 1.9% in the last 12 months,compared to a nearly 3% gain in the Consumer Price Index. Faster wage growthlater this year could trigger new concerns about inflation. United States Inflation RateThe inflation rate in United States was last reported at 2.9 percent in February of2012. The Labor Department said the consumer price index rose 0.4 percent inFebruary, the largest increase in 10 months, largely because of higher gasolineprices. From 1914 until 2010, the average inflation rate in United States was 3.38percent reaching an historical high of 23.70 percent in June of 1920 and a recordlow of -15.80 percent in June of 1921. Inflation rate refers to a general rise inprices measured against a standard level of purchasing power. The most wellknown measures of Inflation are the CPI which measures consumer prices, and theGDP deflator, which measures inflation in the whole of the domestic economy. 9
  10. 10. Monetary & Fiscal PolicyThe role of government in the American economy extends far beyond its activitiesas a regulator of specific industries. The government also manages the overall paceof economic activity, seeking to maintain high levels of employment and stableprices. It has two main tools for achieving these objectives: fiscal policy, throughwhich it determines the appropriate level of taxes and spending; and monetarypolicy, through which it manages the supply of money. The Federal Reserve, theindependent U.S. central bank, manages the money supply and use of credit(monetary policy), while the president and Congress adjust federal spending andtaxes (fiscal policy).Since the inflation of the 1970s, Federal Reserve monetary policy has emphasizedpreventing rapid escalation of general price levels. When the general price level israising too fast, the Federal Reserve acts to slow economic expansion by reducingthe money supply, thus raising short-term interest rates. When the economy isslowing down too fast, or contracting, the Federal Reserve increases the moneysupply, thus lowering short-term interest rates. The most common way it effectsthese changes in interest rates, called open-market operations, is by buying andselling government securities among a small group of major banks and bonddealers. A particularly tricky situation for monetary policy makers, calledstagflation, occurs when the economy is slowing down and inflation is rising toofast.In 2006 real wages rose 1.7 Percent. This means an extra $1,030 for the typicalfamily of four with two wage earners. Real median household income in theUnited States climbed between 2005 and 2006, reaching $48,200. The wagegrowth translates into an extra $585 for the average full-time worker and an extra$1,030 in 2006 for a typical family of four with two workers. The Presidents TaxRelief enabled more than 5 Million taxpayers, including 4 Million taxpayers withchildren, to have their income tax liability completely eliminated in 2006. As aresult of the Presidents tax relief, a family with two children now begins to payincome taxes when their income reaches $41,867. Without tax relief, the samefamily would have begun to pay income taxes when their income reached$33,070. The Presidents Tax Relief is helping Americans keep more of what theyearn. 10
  11. 11. United States Interest RateThe benchmark interest rate in the United States was last reported at 0.25 percent.In the United States, authority for interest rate decisions is divided between theBoard of Governors of the Federal Reserve (Board) and the Federal Open MarketCommittee (FOMC). The Board decides on changes in discount rates afterrecommendations submitted by one or more of the regional Federal ReserveBanks. The FOMC decides on open market operations, including the desired levelsof central bank money or the desired federal funds market rate. From 1971 until2010 the United States average interest rate was 6.45 percent reaching an historicalhigh of 20.00 percent in March of 1980 and a record low of 0.25 percent inDecember of 2008. This page includes: United States Interest Rate chart, historicaldata and news. 11
  12. 12. United States Government Debt to GDPThe Government Debt in the United States was last reported at 93.2 percent of thecountry´s GDP. From 1940 until 2010, the United States average GovernmentDebt to GDP was 59.40 percent reaching an historical high of 121.70 percent inSeptember of 1946 and a record low of 32.50 percent in September of 1981.Generally, Government debt as a percent of GDP is used by investors to measurethe United States ability to make future payments on its debt, thus affecting theUnited States borrowing costs and government bond yields. This page includes achart with historical data for the United States General Government Gross Debt asa percent of GDP. 12
  13. 13. TRADE The U.S. trade deficit to grow in coming months as rising oil prices push importshigher. In January, the deficit climbed 4.3% over the previous month, a sign ofincreased consumer confidence and more spending here in the U.S. It was thehighest monthly deficit since October 2008. Add the impact of oil prices above a$100 a barrel, as we saw last month and the value of imports will skyrocket.Expect an annual trade deficit of $620 billion in 2012, up 11% over last year.Exports will grow at a slower pace this year than last, with a recession in Europeand slower growth in emerging markets. Still, exports increased almost 8% inJanuary over the same month a year ago. If that pace continues, exports will total$2.25 trillion this year.Look for import gains to more than offset export growth as U.S. consumers keepsnatching up foreign cars, electronics and other consumer goods. Imports climbed2.1% in January, compared to a 1.4% gain in exports. For the year, expect importsto rise about 8%, possibly more if oil prices stay high for an extended period oftime.The trade deficit with China will hit another record this year as demand forconsumer goods rises here and China’s breakneck growth slows. In 2011, U.S.exports to the Asian giant hit nearly $104 billion, while imports climbed to almost$400 billion. The deficit with the European Union is also likely to rise this year.Imports from the 27 European countries fell 8.7% in January, offsetting a drop inexports, but the trade gap is expected to widen again as austerity measures therezap consumer demand for U.S. exports. 13
  14. 14. ConclusionThe U.S. economy continues to be a leading competitor and innovator in the globaleconomy as measured by its overall performance, market position in Science andTechnology industries, and trends in patenting of new technologies at home andabroad. The U.S. economy has grown relatively rapidly and become moreproductive while sustaining a high and rising per capita income. The U.S. gap withAsia on many of these measures is narrowing, however, because of rapid progressby China and several other countries. Although the EU’s economic position isrelatively strong, its market position in Science and Technology industries haseither flattened out or slipped.The strong competitive position of the U.S. economy is tied to continued U.S.global leadership in many industries that have extensive tiesto Science&Technoloogy. With the service sector increasingly dominating globaleconomic activity, the United States continues to hold the dominant marketposition in service industries that rely on Science & Technology. The U.S. tradingposition in technology-oriented services remains strong, as evidenced by thecontinued U.S. surplus in trade of computer software and manufacturing know-how.The U.S. position in high-technology manufacturing industries, however, is notquite as strong as in services. The United States continues to be a leading innovatorand producer in many high-technology manufacturing industries, but thehistorically strong U.S. trade position has decreased. Although in surplus for theprior two decades, the U.S. trade balance moved to a deficit during the late 1990sbecause of faster growth of imports, primarily in computer and communicationsequipment. The U.S. trade balance in advanced-technology goods has similarlymoved from surplus to deficit during this period.Led by China, South Korea, and Taiwan, Asia is challenging the U.S. marketposition in Science & Technology industries and reducing the gap on technologicalinnovation. China has rapidly risen to become a leading producer and exporter ofhigh-technology manufacturing goods, as measured by world market share. Thisrapid ascent shows signs of continuing. South Korea, Taiwan, and other Asianeconomies have also become leading producers and exporters in S&T-intensiveindustries. 14
  15. 15. Various patenting indicators suggest that the United States will remain a leader intechnological development within its domestic and foreign markets. The leadingsource of economically valuable patents known as triadic patents, the United Statesalso leads in U.S. patent applications and is the leading foreign source of Europeanpatent applications. Asia shows a strengthening of technological development,however; its share of U.S. and European patents has risen markedly, led by Japan,South Korea, and Taiwan.In sum, the United States continues to be a world-class competitive andtechnologically innovative country with a leading position in most high-technologyindustries. Several Asian economies, however, including China, South Korea,Taiwan, and India, have become global players in some high-technologyindustries, and their technological capabilities are strengthening. The EU, on theother hand, has lost market share in high-technology industry. 15

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