THE CURRENT STATE OF THE U.S.

ECONOMY IN A NUTSHELL

In general, the U.S. economy is viewed as strong and prosperous from

internal and external perspectives. It is known that the economy is
intensively damaged and that it needs to be restructured.1 Recent
economic slumps and the great recession have led many to conclude
that the U.S. economy is either stuck or recovering very slowly. The
possibility that this is true today has prompted a widely held skepticism
for fast and full recovery.
The steps taken by policy makers and the government will be discussed.
From the Bureau of Economic Analysis (BEA), the advanced, second,
and third quarterly reports are used for a summary of current GDP
statistics. New developments and policies related to the subject matter
will be discussed. For example, the financial controls on key industry
will be discussed and also, their affect on the state of the economy. The
focuses are on the issues that are the prominent trouble makers for the
current government and policy makers.
The topics discussed in this essay include the following:
1. The pressures on inflation
2. The status of the labor market
A primary cause of the current recession and economic crisis is largely
in part due to the huge increase in the issuance of sub-prime adjustablerate mortgages and the collateralized debt obligations that they made
up. The amount of sub-prime mortgages issued in 2005 and 2006
increased drastically, while the issuance of prime mortgages actually
decreased. Basically, banks loaned money to people who would
obviously default on those loans. People bought houses with these
loans expecting housing prices to increase, but that didnt
happen. Although, this was the route because it is not the only reason
we continue we to be in a poor state.
1

3. The strength of consumption

4. State of investment and net export spending
5. The current status of monetary and fiscal policy
Thesis: The current state of the U.S. Economy is......
The great recession, banks riddled with capital loses from negligent
investing activities rather than cash; a substantial number of companies
across all industries bite the dust. In light of the current circumstances,
we must all ask ourselves; have we learned anything from this disaster?
Unfortunately, people are prone to pushing this advice to the side and
continue going on with their busy world. If one would take a step back
and compare the economy of the early 20th century to the economy of
today, one would see striking resemblances. The hyper- bureaucratic,
disneyfication of American institutions perpetuates the core issues in
question. The causes of the financial crisis are structural and cultural
defects are deeply imbedded and mingle amongst a labyrinth of roots
and interdependent elements that our modern economic system is built
on and subsequently perpetuates.

Part 1: Inflation
Part 2: The Labor Market and Consumption
A. The Labor Market
The Current Population Survey (CPS) provides the data used for analysis
of the current conditions of the U.S. labor market.

Employment Situation
November
04,
2011
Nonfarm payroll employment continued to trend up in October (+80,000). The
unemployment rate was little changed (9.0%). Employment in the private sector rose,
with modest job growth continuing in professional and businesses services, leisure and
hospitality, health care, and mining. Government employment continued to trend
down.

The heighten severity of the most recent recession, when compared to

the tech slump of the early 2000s, meaning that, recovery (return to
natural rate of unemployment and potential level of output) is expected
to last much longer. Also, the depreciation of housing values directly
harms the expectations of wealth of consumers causing further
hesitation and slow increases in hiring of new employees by firms
because they are considered sticky.
Figure 19 shows that consumption will steadily increase in the long-run,
after the recession (and its resulting effects on the economy). The
2

negative effects include unemployment. Evidence of this is found in the

data collected surrounding all past recessions in U.S. history post- great
depression ear. The tech slump that the U.S. experienced in 2001;
and other historical economic slumps suggest that history repeats itself.
Thus, we should expect for consumption to increase gradually in the
final quarter of 2011 through 2012. However, this drop in consumption
is rapid compared to that of past recessions.
B. Consumption
The most recent CE news release on September 27, 2010 shows:
Consumer Expenditures
September
27,
2011
Average annual expenditures per consumer unit fell 2.0 percent in 2010 following a
decrease of 2.8 percent in 2009. Spending on food and housing fell 3.8 percent and 2.0
percent, respectively, contributing to the overall drop in spending in 2010.

The escalating financial disaster, meltdown in housing sector, increased

joblessness and Wall Street turmoil together with longer-term
confrontations like defense expenditures, soaring health care expenses
and offshore energy reliance are creating difficulties for the residents of
the United States.
Part 3: Investment and Net Export Spending
Liquidity and security within the banking system will continue to
recapitalize slowly or equalize because of the financial crisis. Also,
banks will have to pay back the money that they borrowed from the Fed
because of the bad investments they made.
Part 4: Monetary and Fiscal Policy

The current fiscal policy that are in place are good, but measures must
be taken to avoid a crash of the market, get the unemployment rate
down, and stimulate the economy in the hopes of increasing the gross
domestic product and bringing about a surge in the aggregate demand.
Although it may take some time for all of these events to take place,
this is what needs to be done to get the economy to rise. The
consumers and government must also do their parts in order for this
economy to rise above the recession it is in now.
As we approach the fourth quarter of the 2011 fiscal year, the growth of
the U.S. economy continues to lag. The GDP has increased from May
2011 to October 2011 but unemployment rates remain relatively
unchanged. According to the Bureau of Labor Statistics, the CPI and PPI
have been on an incline from May to October as well. The FED or the
3

Central Bank has pledged to keep interest rates low (period of time
specifics) and had its hands full with the GDP sending mixed signals.
Although GDP is increasing, the Feds primary concern of inflation
remains. Ben Bernanke has reduced interest rates, raised taxes, and
raised the money supply though his fiscal and monetary policies.

APPENDIX

FIGURE 1......................................................................................................................................6
FIGURE 2......................................................................................................................................6
FIGURE 3......................................................................................................................................6
FIGURE 4......................................................................................................................................7
FIGURE 5......................................................................................................................................7
FIGURE 6......................................................................................................................................7
FIGURE 7......................................................................................................................................7
FIGURE 8......................................................................................................................................7
FIGURE 9......................................................................................................................................8
FIGURE 10....................................................................................................................................8
FIGURE 11....................................................................................................................................8
FIGURE 12....................................................................................................................................9
FIGURE 13....................................................................................................................................9
FIGURE 14..................................................................................................................................10
FIGURE 15..................................................................................................................................10
FIGURE 16..................................................................................................................................11
FIGURE 17..................................................................................................................................11
FIGURE 18..................................................................................................................................12
FIGURE 19..................................................................................................................................12
FIGURE 20..................................................................................................................................13

http://www.cbpp.org/cms/?fa=view&id=711

Figure 1

Figure 2

Figure 3

Figure 4

Figure 5

Figure 6

Figure 7

Figure 8

Figure 9

Figure 10

Figure 11

Figure 12

Figure 13

Figure 14

Figure 15

10

Figure 16

Figure 17

11

Figure 18

Figure 19

12

Figure 20

13

BIBLIOGRAPHY

Bureau of Labor Statistics. http://www.bls.gov/cex/

The Federal Research Bank of San Francisco, 2011.
http://www.frbsf.org/publications/federalreserve/monetary/goals.html.
Americas Best and Worst Job Markets
http://www.forbes.com/2011/01/06/best-and-worst-places-for-jobsbusiness-beltway.html

The American Economics Association. http://www.aeaweb.org/index.php

14