Gross Domestic Product (gdp) of Usa

Introduction

United States (US) is the most prosperous mixed market economy in the world with a gross domestic product (GDP) of $19.36 trillion as of 2017. It is ranked 1st in terms of nominal GDP and 2nd for purchasing power parity (PPP). The population of USA is at 326 million with an unemployment rate as low as 4.1% and the highest external debt of any country which is estimated at $18.62 trillion. The great recession in 2008 caused the financial market to collapse and high unemployment rate. Furthermore, United States recorded the largest decline in trade deficit of $501 billion which represented 3.5% of the country’s GDP. (Norris, 2010) There are 5 major industries driving the economy which are energy, manufacturing, transport, healthcare and agriculture. Energy such as oil and gas production have increased dramatically due to technology advancement in drilling and hydraulic fracturing of shale formations which led to the creation of 2.1 million new jobs. Manufacturing industry contribute $2.09 trillion to the economy which accounts for 12% of total GDP and supports 17.6 million U.S. jobs. Consumer expenditure totalled $1.33 trillion in 2012 in the transportation industry such as air, maritime and trucking services which represents 8.5% of the annual GDP. In 2013, the healthcare industry enjoyed a 135% 3 year growth rate and brought in $21.8 billion which makes it one of the fastest-growing industries in the US. The agriculture sector was one of few industries that performed well during both the recession and recovery period. In 2014, US exported $152.5 billion worth of agricultural goods and it has scaled 41% in value over the past five years. In 2013, 16.9 million jobs were attributed to the agriculture sector which accounts for 9.2% of total U.S. employment. (Deutsch, n.d.)

Production output performance analysis

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Figure 1.1 (Trading Economics, n.d.)                                                                                                      

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Figure 1.2 (Trading Economics, n.d.)

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Figure 1.3 (Trading Economics, n.d.)

With reference to figure 1.1, the United States GDP has grown by 117% over the last 10 years, from US$14.7T to US$17.25T. Q1 and Q2 of 2009 has the lowest GDP of US$14.4T

With reference to figure 1.2, the real GDP growth rate is generally positive with the exception of mid of 2008 to end of 2009. This rapid dip was due to the global financial crisis and the aftermath of subprime mortgage crisis of 2006 and the banking liquidity crisis of 2007. (Amadeo, 2018) The recession has reduced the purchasing power of consumer due to the fall in disposable income. This has resulted in a fall in annual average consumer spending by 3.1% to $48109. However, average prices over this period have risen by 5.2% thus real consumer spending has fallen by almost 8%. (Economist, 2011)  

GDP per capita measures the standard of living of a person within the country. With reference to figure 1.3, the GDP per capita of United States has grown by 109.7% from 2009 to 2016. The lowest point was in 2009 where US economy was badly hit by the great recession. Fortunately it recovered quickly and bounce back to achieve where it is today.

The above figures show a decline or economic downturn in 2009 and improved significantly thereafter. It can be attributed to several government policies that was introduced to bring United States out of depression.

Firstly, the Troubled Asset Relief Program (TARP) is a bank bailout of $700 billion where the government purchase financial assets whose value has fallen significantly and risky mortgage bonds from financial institutions to strengthen its financial sector and prevent a financial meltdown. Government infused capital into the banks which provided an assurance to investors from around the world that whatever happens United States’ bank can pay off its debts. (Parker, n.d.) Similar to the TARP, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 also perform similar function. In this act, the Financial Stability Oversight Council and Orderly Liquidation Authority keeps an eye on the financial stability of major firms whose failure can have catastrophic effect on the economy. This is to prevent another scenario similar to that of the collapse of Lehman brothers. The Consumer Financial Protection Bureau (CFPB) is also set up to monitor predatory mortgage lending and prevent another subprime mortgage crisis which is instrumental in 2008 recession. (Koba, 2012)  Hence both the above measures help to stabilise the financial system and allow companies to receive more funding which ultimately cause an increase in GDP.  

Secondly, the American Recovery and Reinvestment Act (ARRA) of 2009 was a fiscal stimulus that the Obama administration came up with to tackle the recession and stabilise the economy. It was a $787 billion bill that consist of $288 billion and $499 billion in tax cuts and government spending respectively. (Amadeo, 2017)  However, the tax cuts amounted to $689 billion due to subsequent measures on top of the fiscal bill which directed mostly at families. This helped to increase household disposable income which encourages spending and is said to have a positive effect on long-run GDP growth. The increase in government spending can also cause GDP to increase. Furthermore, Thump administration recently passed the Tax Cuts and Jobs Act of 2017. Under this law, US will lower most of the consumer income taxes including the highest marginal rate from 39.6 % to 37 %. The law will also lower corporate income tax from 39.1% to 21% in 2018. Hence consumers and businesses will have higher disposable income which leads to higher consumption thus GDP of the country will increase. (Foundation, 2017)  

Labour market analysis

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Figure 2.1 (Trading Economics, n.d.)

With reference to figure 2.1, the lowest unemployment rate in US is approximately 4.1% and highest at approximately 10.0% in the past 10 years. The natural unemployment rate as of 2017 stabilise at around 4%. The unemployment rate is highest during the period from end of 2009 to end of 2010. This could be due to the impact of Lehman brothers that led to the global recession in 2008 which resulted in the loss of 8.7 million jobs during that period. (Garofalo, 2013)

Hence, US is said to experience unemployment. Unemployment can be categorised into three types, namely structural, frictional and cyclical unemployment.

Structural unemployment is created by changes in technology and a mismatch of skills. In 2008 recession, Structural unemployment hit the older population in the newspaper industry the most as they were replaced by technology. Furthermore, in 2016, many American manufacturing companies such as United Technologies, Cardone and Dematic moved to Mexico and caused the loss of 3,700 U.S jobs. (Gerard, 2016)  The government introduced the Workforce Innovation and Opportunity Act (WIOA) on July 22, 2014 in response to structural unemployment. This act is designed to help job seekers gain access to education, training, employment and support services that enables them to succeed in the labour market. Employers will also be matched with the skilled workers they require to compete with other firms in the global economy. Hence this helps job seekers to remain relevant in terms of skills though retraining and match employees to employers.