Free Custom «Gross Domestic Product» Essay Paper

Free Custom «Gross Domestic Product» Essay Paper

This paper will assess various economic indicators in the United States, including real Gross Domestic Product (GDP) growth, Consumer Price Index, Industrial Production, Interest rates, change in Nonfarm Payrolls and unemployment rate. For every indicator, the paper will explain the current status, modification from the previous year and the trends (rising or falling). Through these, it will determine how the outcomes and trends imply for the health of the economy, how the economy has being doing, for example, determine if the economy is experiencing growth or decline and forecast the performance of the economy in the following year.

Gross Domestic Product (GDP) is used to measure the value of a dollar of the entire goods and services manufactured in one year in the United States economy. Gross Domestic Product is measured by totaling the spending in investment (firms), consumer, government and foreign sectors. In order to compare GDP figures with other years, the impacts of inflation from the present GDP must be removed, as this will also offer a good sign of the present production. One of the major essential gauges of the economic performance is the real GDP, and it refers to the present GDP divided by GDP price deflator. An increase in the real GDP signifies a growth in the economy, whereas a decrease implies a decline in an economy. In the last half of 2008 and in the early 2009, the real GDP was on a decline, and this indicated an economic decline. However, the country recorded a rise in the real GDP in the late 2009 and early 2010, and this indicated an economic growth (Federal Reserve Bank, 2012). A decreasing Real GDP characterized the late 2010 and 2011. However, the real GDP in the U.S. is currently increasing (Federal Reserve Bank, 2012). These results suggest that the United States economic health is good, as a rise in the real GDP shows that the economy is growing.

Consumer Price Index (CPI) is used to determine the modification in the general cost of diversity of the consumer services and goods. The CPI is measured by the Department of Labor Bureau of Labor Statistics through the creation of a market basket of an array of stuffs, which are bought by the clienteles, including clothing, housing, food, recreation, medical care, transportation, energy, communication and education. The Consumer Price Index is the percentage modification in prices of the particular products. Generally, the CPI rises during a period of the economic growth, whilst during an economic decline, prices of the products may either reduce or the rate of increase in prices slows down. In the first half of 2008, the Consumer Price Index increased, meaning that it was a time of economic growth; however, the last half of 2008 was characterized by a decrease in Consumer Price Index, which indicated economic decline (Federal Reserve Bank, 2012). In the subsequent years, the rate of prices increased, but at a slow rate and this signifies the increases in Consumer Price Index. Nevertheless, the current status of the CPI is on a decline and this means that the economy is not doing very well, as a decline in CPI signifies economic decline (Federal Reserve Bank, 2012).

Industrial production is used to measure the American industry output. Industrial production is measured through the computation of the manufacturing output in the business equipments, consumer goods, materials, construction supplies, mining, manufacturing and utility industries. Industrial production is reported as the percentage modification in output and, it usually rises during the periods of an economic growth, but it reduces during economic decline. In 2008, industrial production decreased at a rapid rate, reaching to -4%. Although there was an increase of up to one percent in the end of 2008, the year 2009 was also characterized by a decrease in industrial production (Federal Reserve Bank, 2012). The implication of this is that the economy in these two years was on a decline. The last half of 2009 was characterized by an increase in industrial production that was also recorded in the subsequent years, but at changing percentages. Nonetheless, the current status of the industrial production is decreasing, which means that the economic growth is also declining, and this is bad for the health of the economy (Federal Reserve Bank, 2012).

The ten-year treasury interest rate is used to determine the percentage return received by investors on the United States treasury bonds. Treasury interest rates may be pinpointing modifications in other long-term interest rates, including mortgages. Generally, a decrease in interest rates encourages investment spending and this encourages economic growth, whilst high interest rates discourage investments, and this result in to a decline in the economic growth. At the first half of 2011, the ten-year treasury interest rates were high, reaching to approximately 3.5%. Nevertheless, the last half of the same year was characterized by a decrease in the interest rates, which reached to two percent. The previous year 2010 had the same trends, whereby the ten-year treasury interest rates were high in the first half of the year, reaching to about 3.8 percent, but the rates decreased in the last half of 2010, reaching to approximately 2.5 percent (Federal Reserve Bank, 2012). The current low interest rate encourages investment spending, which as a result promotes economic growth.

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Change in non-farm payroll is used to determine the number of persons who are working with the government and companies. Change in non-farm payrolls is usually the change in the number of persons employed as recorded from the previous month. Certainly, during the economic growth, there is an increase in non-farm payrolls, whilst an economic decline results to a decrease in non-farm payrolls. Although non-farm payrolls were high in 2011 compared to other years, there were variations in every month with the highest change, reaching to about 250,000 people and the lowest change to less than 50,000 persons (Federal Reserve Bank, 2012).

The previous year 2010 was also characterized with the same trends whereby changes in non-farm payrolls increased during the certain months and decreased during others reaching with the worst month reaching to negative 400 thousand. This was, nevertheless, an increase in the change of non-farm payrolls from the previous years 2008 and 2009, which all recorded negative changes, reaching to negative 800 thousand (Federal Reserve Bank, 2012). The increase in change of non-farm payrolls in 2011 compared to 2010 signifies that during the former, there was an economic growth, as non-farm payrolls and the economic growth are directly related.

Unemployment takes place when persons are jobless and they have aggressively looked for work in the past four weeks. The rate of unemployment is a determinant of unemployment prevalence, and it is computed as a percentage by dividing the number of unemployed persons by the entire persons in the work force. Generally, unemployment rate declines during the periods of economic growth and increases during the periods of economic decline. In 2010, the unemployment rates were high, lower compared to 2009 when the United States recorded a high unemployment rate of approximately 10 percent (Federal Reserve Bank, 2012). Compared with 2010, on the other hand, the unemployment levels in 2011 declined, reaching to approximately 8.5 percent and still show signs of decline in the future (Bureau of Labour Statistic, (2012). This means that the United States economy is doing well, as decline in unemployment levels indicates an economic growth.

Certainly, economic growth is generally triggered by an increase in demand for the economic goods. This as a result leads to a rise in Gross Domestic Product, whilst at the same time, resulting to an increase in prices. In order to meet the augmented demand, companies usually increase their production levels, and this necessitates an increase in payroll, thus resulting to a decrease in unemployment levels. Furthermore, the augmented demand for the goods may also lead to high demands for loans or buying such products and this may result to an increase in the interest rates.

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Based on the current status of these economic indicators, it is apparent that the United States economy is experiencing a growth. This is based on the fact that such indicators as the real Gross Domestic Product, and a change in nonfarm payrolls are currently increasing and a rise in these indicators is directly linked with the economic growth, whilst the rates of unemployment and interest rates are decreasing, implying that the economy is growing. However, even though the other two indicators, industrial production and Consumer Price Index have been recorded to be declining, their rates of decline are very small and furthermore, the previous months recorded an increase in these indicators. This means that such a decline is only temporary and may be caused by other factors, and therefore, future increase in industrial production and Consumer Price Index is predicted.

Apparently, economic trends from the past years and the current economic status may be used to predict the future economic performance. Certainly, the current performance of these indicators implies that the economy is growing. This means that there is a high possibility of continual growth of the economy in the following year and other subsequent years (Financial Forecast Center, 2012). In fact, research has revealed that the U.S. economy always grown further compared to what has been predicted. For instance, in the third quarter of 2011, the economy grew by 1.8 percent compared to the growth rate of 1.3 percent in the previous quarter (Homan, 2011).



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