As the economy in the Euro area continue to show bleak
prospects, Americans can at least be starting to hear some good news regarding
their economy. The recovery may not be over but key economic indicators suggest
that the state of the economy is now better than it was in the past two years.
Latest figures from the Bureau of Economic Analysis shows
that real GDP was up in the first quarter (Q1) of 2013 to 2.5% from 0.4% in the
Q4 of 2012(Bureau of Economic Analysis,2013). Personal income also increased by 0.2% in
March just as there was a reduction in U.S trade deficit. These improvements
are modest but nevertheless encouraging given where the economy is coming from.
Figures by the Bureau of Labor Statistics (BLS) also show a trend towards the
improvement in the economic outlook (BLS, 2013). Consumer inflation as measured
by the Consumer Price Index (CPI) decrease in March by 0.2%. This was significant
given that it had previously been on the rise for 12 consecutive months. The
reduction in the CPI is mainly attributable to declines in some of the indices
used in the measurement. For instance, the food and oil indices had declined
from their levels in February. Unemployment still remains an issue for the
economy even as other indicators show good signs. March saw unemployment rate
still high at 7.6%. The economy was able
to add 88,000 payroll jobs in the same month. The over 1,000 mass layoffs that
took place in the same month of March affected over 120,000 workers.
Leading equity benchmarks have also been promising since
the start of 2013(Mass Mutual Financial Group, 2013). The Dow Jones Industrial
Average managed to record a gain of 11.93% just as Standards and Poors(S&P
500) accumulated returns for the quarter was 10.61%. The NASDAQ was, however, below at only 8.21%. The relative poor performance by the NASDAQ
may be an indication that investors are beginning to lose confidence in the
information technology industry.
Though modest, any sign that the economy is on a rebound
portends well for Americans. It would have been difficult to imagine an end to
the recession that started in 2007 and ended in 2009. What started as a problem
in the subprime mortgage sector wreaked havoc in the entire economy and beyond.
Thanks to the interventions by the monetary and fiscal authorities, the economy
has been able to rebound even if the pace has remained slow.
Working together with the U.S Federal Reserve (Fed), the
treasury was able to intervene immediately when the crisis begun in 2008(Mass
Mutual Financial Group, 2013). The initial stimulus package of over $600
trillion went along way in averting total collapse of the economy. Components
of the package like the Troubled Assets Relief Program (TARP) were able to save
the banking industry. Even the Fed was very innovative in its approach given
that the crisis begun when the funds rate was at the zero lower bound. The Fed adopted unconventional measures such
as quantitative easing (QE).It continues to keep the funds rate low as
evidenced by the latest meeting of the Federal Open Market Committee (FOMC)
where members voted for a 0.25% target
interest rate. They have promised to keep it low until unemployment falls below
6.5%. Even more responsible for the current positive outlook is the ability of
the Congress to avoid the fiscal cliff late in December 2012.
From the exploits of the foregoing, things are at least
starting to look good. Analysts expect the economy to continue on a growth
path. The only fear is the potential effect of the Sequester which is likely to
impact negatively on defense related industries. One can only hope that things
will work out for the better.
References
Bureau of Economic Analysis (2013).U.S Economic Accounts. Retrieved April
30, 2013, from http://www.bea.gov/
Bureau of Labor Statistics (30, April 2013).Latest Numbers. Retrieved April 30,
2013, from http://www.bls.gov/
MassMutual Financial Group (2013). Q1 2013: Investors give the U.S Economy a
Vote of Confidence. Retrieved April
30,2013,from http://www.google.co.ke/url?sa=t&rct=j&q=&esrc=s&source=web&cd=57&ved=0CF4Q FjAGODI&url=http%3A%2F%2Fwwwrs.massmutual.com%2Fretire%2Fpdffolder%2Fi nvestments%2Fquarterly_market_review.pdf&ei=KSt_UfHBPMnVswaG- IA4&usg=AFQjCNFWICCEXDwfVJZ2l3X1Ly1VVVqQmg
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