USA Business Cycle
This report will focus on the business cycle of a country of the author’s choice, that being the United States of America. The author chose that country because it is one of the most scrutinized and analyzed countries in the world and the data for it is readily available. More than a dozen metrics will be looked at for this report. In order, they will be real gross domestic product, price inflation, real private consumption, real gross fixed investment, inventory investment as a percentage of gross domestic product, unemployment/employment rates, productivity, short-term investment rate with maturity of less than a year, the growth in the money supply, the nominal exchange rate between the U.S.A. And Australia, the real exchange rate between the same, the trade balance/current account as percentage of gross domestic product, the yield curve, the stock price index or stock returns, the commodity price index, the consumer confidence index, the housing price index, the government debt as a percentage of gross domestic product and at least one index or variable figure not mentioned above.
According to the Bureau of Economic Analysis, an agency of the United States government, real GDP has jumped around a bit on a quarter-to-quarter basis. The second quarter of 2013 showed a jump of just over two percent after a more meager growth of one percent in the first quarter of 2013. The prior year, that being 2012, showed growth rates all year long including nearly four percent in the first quarter, one percent in the second quarter, a jump back up to three percent in the third quarter and a growth rate of just over one percent in the fourth quarter. The only negative growth amount from the third quarter of 2009 to the present occurred in the first quarter of 2011 when there was a rate of negative one percent in real gross domestic product growth (BEA, 2013).
The information trove Trading Economics has tracked the inflation rate in the United States on a month by month basis. Between mid-2011 and now, there has been no deflation whatsoever but the overall inflation rate has bounced around quite a bit between one and four percent with a spike at 3.9% in mid-2011 and a low of 1.1% in May 2013. Over the last year or two, the rate has hovered between 1.1 and 2.2% has shot back and forth between the two. The current arc, at least through August 2013, is a slight upward tick given that May 2013 was 1.1, June was 1.4, July was 1.8 and August leveled off a bit with a 2.0% (Trading Economics, 2013).
Private Consumption & Inventory Investment
As for real private consumption, also referred to as “household” consumption given that it is meant to refer to private buyers rather than government agencies, the United States economy is made up of seventy percent private/household consumption as compared to the overall gross domestic product. Given that the overall gross domestic product is $15.1 trillion USD (in 2011), then that means personal consumption accounted for $10.7 trillion of that proverbial pie (Matthews, 2013). Real gross fixed investment in the United States has hovered between 2.5 trillion USD and 2.0 trillion USD but is off its peak as it was 2.534 trillion USD in 2008 but is only 2.202 trillion as of 2011. 2012 data is not in as of yet, at least not with the World Bank. However, the 2011 figure is a rise from the 2.081 figure in 2010 (World Bank, 2013). Inventory investment, when included with residential and non-residential fixed investment, showed a growth rate of 1.1% in the first quarter of 2013 (Rampell, 2013).
The unemployment rate in the United States is currently trending down but it took a huge spike during the global economic crisis that occurred (and is still occurring for some) from 2007 to 2009. The unemployment rate in the United States hovered around six percent in early 2003 and then tailed downward slowly from 2003 to 2007 until it bottomed out between four and five percent. Starting in 2007 and then ramping very sharply in 2008 and through the end of 2009, the rate skyrocketed to just under ten percent for all employees 16-year or over. The rate bounced between nine and ten percent until early 2011 and then finally started to trend down. Through the early part of 2013, the rate has finally fallen below eight percent but is still double the rate seen a scant five years ago (BLS, 2013).
The Federal Reserve Bank of San Francisco shows the total productivity factor over the least couple decades going back to 1980. The extremes of this metric are not terribly wide, with the extremes being negative four percent growth rate and a shade over five percent positive growth rate and both of those occurred only in the 1980’s. The peak occurred roughly in 1982 and then swinging downward to 1983 and 1984. However, it spiked right back up to its extreme over the last thirty to forth years and has bounced mostly between negative 0.5% and positive three percent over must of the next 20 years until 2005 or so. It then spiked down all the way to negative four percent but has since spiked back up to roughly positive four percent. The overall factor and the utilization thereof have been pretty uniform except in the last few years. The total factor of productivity spiked sharply up in 2010 but the utilization did the opposite (FRBSF, 2013).
Short-Term Interest Rate & Money Supply
Short-term interest rates in the United States are extremely low and have been that way for a while because raising them would be seen as a drag on the United States economy. The United States economy is not in recession but has been in “low gear” for a few years now. As such, the federal interest rate is near zero and that probably will not be changing for at least early 2014 per words from Ben Bernanke (Rushe, 2012). Per Trading Economics, the rate is at 0.25% through the end of August 2013. Trading Economics also shows the overall M2 money supply in the United States. The overall money supply has been on an uninterrupted and upward arc in the United States since at least late 2012. The Trading Economics chart shows 9458.3 in mid-2011 and has spiked all the way up to 10,709.70 as of August 2013. With the exception with a few slight drops, every month since mid-2011 has been more than the previous (Trading Economics, 2013).
Nominal Exchange Rate
The basic exchange rate between the United States dollar and the Australia dollar is almost break-even, but not quite. As of September 15th, 2013, the exchange rate was one dollar from the United States for every $1.08 from Australia. Over the last few weeks, the rate has bounced between $1.06 AUD for each American dollar to $1.16 AUD for each American dollar. Extended to a year, the rate was actually fairly stalled at 0.95 AUD for each America dollar but it started spiking up in April 2013 but has leveled off and has been swaying between $1.05 AUD for every $1.00 USD to $1.09 AUD for every $1.00 USD (X-Rates, 2013).
The trade balance between the United States and Australia is fairly out of whack. Many have lamented about the imbalance between China and the United States in favor of the former but the opposite is true for the United States and Australia. The United States has exported about two billion a month for the duration of 2013, going back and forth between the $1.9 billion USD mark and the $2.5 billion USD mark for this year. Over the same period, the export of goods from Australia to the United States was less than half of what was flowing into Australia. For 2013, the amount of imports has gone back and forth between $651 million USD and $905 million USD. As such, the imbalance between the two figure shas ranged from $1.1 billion USD to $1.736 billion USD (Census, 2013).
The United States Treasury shows a yield curve graph for one’s choice of date. For September 13th, 2013, the curve stays at zero for most of the first year, edges up to about two tenths of appoint thereafter and then fairly smoothly rises to just short of four percent for a thirty year maturity based on nominal rates. For real rates, the figures starts at zero at the five-year marks and then rises to 2.5%, also fairly smoothly at the thirty year mark. The rate of growth is the same between nominal and real, but the latter does nothing until the five-year mark while the nominal starts its ascent at just before the one year mark (United States Treasury, 2013).
Stock Market Index
There are several common indexes that people often point to in the United States. Two of them are fairly large while the others are usually subsets of the two large indexes. The two large ones are the Dow Jones Industrial Average and the NASDAQ index. The latter is more related to high-tech and blue-chip stocks while the former is a catch-all for other types of companies. The Dow Jones average has been fairly crazy for the last few years but is currently on a strong upward trend. As with many stock indexes around the world, the Dow Jones index bottomed out in the sub-8,000 range (quite low for them) in 2008 but has risen quite strongly since then. There have been some slight valleys in the growth at least one a year but the one in 2012 was pretty slight and even the 2010/2011 iterations were not that bad. The index was at 10,000 at the beginning of 2010, about 12,000 at the beginning of 2011, about 13,000 at the beginning of 2012 and is currently at roughly 15,300 as of September 15th, 2013 (CNN Money, 2013).
The NASDAQ market has had a similar path but it is a smaller index and, thus, the figures overall are smaller. The major index level valley for NASAQ was also in 2008, with that figure being in the 1,500 range. Also like the Dow Jones index, there has been a slow and steady rise since then with brief dips happening about once a year with the worst ones being in 2010 and 2011 and the one in 2012 being much slighter. The index rose to 2,250 in January 2010, about 2,800 in January 2013 and 3,000 in January 2012. The index is currently at 3,722.18 as of September 15th, 2013 and is absolutely still on its upward climb (CNN Money, 2013).
Commodity Price Index
The Bloomberg commodity indexes, which include data from four major collectives, show roughly the same (but not identical) trends over the last year or so. When they do not intersect in terms of level, they follow the same rises and falls. As of October 2012, the index was very slightly negative but fell a bit after that in November down to negative ten percent and then back up to zero in February 2013. The trend then started back down and hovered between negative ten percent from April 2013 to July 2013. It has since been erratic through August and September 2013 going between zero and negative fifteen percent depending on the date and the index looked at (Bloomberg, 2013).
Since mid-2012, the consumer index in the United States has been fairly chaotic and has gone both up and down in fairly large spurts. In October 2012, the index was at a score of 70 and then rose slightly in November to about 72. It then fell in the months of December and January before bottoming out in February 2013 at 60. It then spike up to nearly 70 in March and then fell back down to nearly 60 in April. However, it then rose from May to July all the way to 81.5 or so but has been flat since then through the end of August (Bloomberg, 2013).
The housing price index in the United States took a major hit in 2007 to 2009 because the housing market crash is the primary (but not the only thing) that caused the wide economy to tank in 2007/2008. The federal housing index to be used in the United States, at least one of them, is administered by the Federal Housing Finance Agency The chart showing the rate of change is quite telling of what happened during the Great Recession with the 2003 to 2006 rates of change being eight percent and then a huge fall to nearly negative twelve percent in 2008 and 2009 but it has since recovered to nearly where it was pre-recession. However, there was a debt in the recover in 2010 and 2011 (FHFA, 2013).
As for government debt as a percentage of GDP in the United States, the rate has been fairly reasonable for much of the recent history going back as far as the Eisenhower administration in the 1950’s. There was a huge spike during World War II when it spiked to 120% of GDP but then fell steadily until the Carter Administration in the late 1970’s when it was less than 40%. However, it rose sharply since then until the Clinton administration when it leveled off just above sixty percent and then fell to about 58 around the time that George W. Bush took office but has since spiked up sharply since then since the start of the Great Recession and it’ss still rising very sharply. As of around 2010, the debt to GDP ratio was 1:1 (Bloomberg, 2013).
Overall, the United States does set much of the trends for economic trends and ebbs/flows along with other juggernauts like China, the European Union, India and Australia. Many to most of the countries on that list had a hard fall in 2007 to 2008 but have been recovering modestly or majorly since then. There seems to be a major to cataclysmic shock to the economic business cycle about once every thirty to fifty years with the most proper examples in the 20th and 21st century coming in the 1930’s, the 1970’s and the 2000’s. Some solid growth around the world, including in Australia and the United States, should probably show itself between now and roughly 2030 to 2040.
BEA. (2013, September 15). U.S. Bureau of Economic Analysis (BEA). U.S. Bureau of Economic Analysis (BEA). Retrieved September 15, 2013, from http://www.bea.gov
BLS. (2013, September 15). Bureau of Labor Statistics Data. Databases, Tables & Calculators by Subject. Retrieved September 15, 2013, from http://data.bls.gov/timeseries/LNS14
Bloomberg. (2013). Commodity Futures Online Trading – Bloomberg. Bloomberg – Business, Financial & Economic News, Stock Quotes. Retrieved September 15, 2013, from http://www.bloomberg.com/markets/commodities/futures/
CNN. (2013, September 15). NASDAQ Composite Index – CNNMoney.com. CNN Money – Business, financial and personal finance news. Retrieved September 15, 2013, from http://money.cnn.com/data/markets/nasdaq/
Census. (2013, September 15). Foreign Trade – U.S. Trade with Australia . Census Bureau Homepage. Retrieved September 15, 2013, from http://www.census.gov/foreign-trade/balance/c6021.html
FRBSF. (2013, September 15). Federal Reserve Bank San Francisco | Total Factor Productivity. Federal Reserve Bank of San Francisco. Retrieved September 15, 2013, from http://www.frbsf.org/economic-research/total-factor-productivity-tfp/
Matthews, R. (2013, September 15). PolicyMic.com. U.S. GDP is 70% Personal Consumption. Retrieved September 15, 2013, from http://www.policymic.com/articles/15097/us-gdp-is-70-percent-personal-consumption-inside-the-numbers
Rampell, C. (2013, August 29). United States â„¢ 2nd-Quarter Growth Is Revised Up to 2.5%, From 1.7% – NYTimes.com. The New York Times – Breaking News, World News & Multimedia. Retrieved September 15, 2013, from http://www.nytimes.com/2013/08/30/business/economy/second-quarter-gdp-revised-sharply-higher.html?_r=0
Rushe, D. (2012, January 25). U.S. Federal Reserve to keep interest rates near zero until 2014 | Business | theguardian.com . Latest news, world news, sport and comment from the Guardian | theguardian.com | The Guardian . Retrieved September 15, 2013, from http://www.theguardian.com/business/2012/jan/25/federal-reserve-interest-rates-near-zero
Trading Economics. (2013, September 15). United States Inflation Rate | Actual Data | Forecasts | Calendar. TRADING ECONOMICS | 300.000 INDICATORS FROM 196 COUNTRIES. Retrieved September 15, 2013, from http://www.tradingeconomics.com/united-states/inflation-cpi
United States Treasury. (2013, September 15). Yield Curve Metrics. United States Treasury. Retrieved September 15, 2013, from www.treasury.gov/resource-center/data-chart-center/interest-rates/Pages/Historic-Yield-Data-Visualization.aspx
WorldBank. (2013, September 15). Gross fixed capital formation (current U.S.$) | Data | Table. Data | The World Bank. Retrieved September 15, 2013, from http://data.worldbank.org/indicator/NE.GDI.FTOT.CD
X-Rates. (2013, September 15). Exchange Rates – X-Rates. Exchange Rates – X-Rates. Retrieved September 15, 2013, from http://www.x-rates.com
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