Economic Slowdowns and Recessions Macroeconomic Term Paper
- Length: 6 pages
- Sources: 6
- Subject: Economics
- Type: Term Paper
- Paper: #11789300
Excerpt from Term Paper :
It was not until the subsequent eight months that the revisions in the GDP data which revealed declining real GDP for the first, second, and also the third quarters of the year 2001." ("NBER's Recession Dating Procedure," 2003) the graphs showing Quarterly real GDP, Real Personal Income less Transfers and Payroll Employment is stated in Exhibit -I, Exhibit -II, and Exhibit -III repectively. ("NBER's Recession Dating Procedure," 2003)
VI. Economically driven recession v. Entrepreneurs and consumers perception of recessions:
Economically driven recession:
The U.S. recession following March 2001 and after the 9/11 incident is considered to have clinched the decision regarding recession marked by a sudden decline in economic activity. According to the indexed value of the "net agricultural payroll employment in the U.S., by March 2001, the official cyclical peak equals to 100." "The job losses were quite modest through the 3rd quarter, but took the turn for a decidedly negative manner after the 9/11 attacks. The acute decline in employment figures during the fourth quarter, particularly during October and November made sure that the U.S. economy was in recessionary phase. In total, the U.S. cut 4, 24,000 jobs during the second and third quarters taken together and 9, 33,000 jobs during the fourth quarter. During 2001 second quarter, weaknesses in the U.S. economy was seen primarily in business fixed investment particularly in the Information Technology products and services. Consequently the job losses mainly centered around manufacturing, especially high tech goods and also in business services, inclusive of it-related services." (Daly, 2002)
Presently, the dollar is at a unprecedented low compared against the Euro, oil price is ruling more than $100 a barrel, consumer price have risen 4% from which was a year back, and Fed Reserve Chairman Ben Bernanke is reducing interest rates so often. The sub-prime mortgage disagreement continues to do damage and the Govt. coffers might not be large enough for the entire rescue underway. Overall, a recession is defined as a phase marked by a decline in the nation's GDP for two or more consecutive quarters. ("The Coming Recession," 2008)
Entrepreneurs and consumers perception of recessions:
According to consumer survey, 49% are of the view that their financial situations are proving to be worse and just 32% are of the opinion that are getting better. This is the worst consumer assessment of personal financial trends witnessed this decade. The Gallup poll consumer financial situation is shown in Exhibit -IV. U.S. consumers are inclined to be optimistic regarding their own financial future, especially as contrasted to their attitudes regarding the national economy. For instance, following the 9/11 terrorist attacks, in October and November 2001, the percentage of consumers stating that their financial condition were improving were in the range between 45% and 50%. The earlier low in this decade for such an optimistic view was in October 2002, and 43% also held this perception in March 2003 when the Iraq was starting. Considering this perspective, the present percentage of consumers who declare that their finances are improving is 32% and the ones who say that they are getting worse 49% are not just a complete reversal of consumer perceptions from a year back, rather, more crucially, happen to be the worst account on the measure this decade. (Jacobe, 2008)
Besides, the self-assessment of their present finances is more negative compared to any time of this decade. During the April poll, the percentage of consumers ranking their financial condition as "poor" is 17% whereas the percentage ranking their condition as "excellent" or "good" is 45%. Importantly, these consumers' giving a rating of their own finances, regarding something which they are aware and tend to connect more accurately compared to when they are asked to rate the national economy. As has normally been the situation, consumers' perceptions of their own financial situations are somewhat more positive compared to their ratings of the national economy. 83% of American citizens presently declare that the U.S. economy is turning for the worse and 46% give a rating that the national economy is indeed poor. (Jacobe, 2008)
To sum up, the U.S. economy finds itself in a recessionary phase marked by all-round drop in the value of economic indicators such as GDP, real income, employment and housing. The macro economic and NBER's definition regarding recession differs to some extent. While a falling GDP during two successive quarters is a recessionary phase according to macroeconomics, the NBER's view of recession is a major slump witnessed in economic activity present for over a few months. The applicable aspects of theory of business cycles describes recession as a discernible slowdown in economic activity which is spread across the economy, which is present for more than a few months, normally witnessed in terms of employment, real income, industrial production, GDP and sales of wholesale retail. The U.S. recession after March 2001 and post 9/11 appears to have concluded the decision as regards recession manifest by an abrupt decline in economic activity. The perceptions of consumers' regarding their own financial situations are rather more positive relative to their ratings of the national economy. It is a fact that 83% of American citizens currently state that the U.S. economy is getting bad and 46% rates that the national economy is in certainly a pitiable state.
Quarterly real GDP
In the following table the dark line reveals the movement of quarterly real GDP in 2002-03 and the shaded line the average over the earlier six recessions.
Real Personal Income Less Transfers
In the following table the dark line reveals the movement of income from May 2000 to the current and the shaded line the average of the last six recessions.
Exhibit - III
In the following table the dark line reveals the movement of employment from May 2000 to the current and the shaded line the average over the last 6 recessions.
Consumer perception of financial situation
Daly, Mary. (2002, Feb) "Profile of a Recession -- the U.S. And California" FRBSF
Economic Letter, Retrieved 4 June, 2008 at http://www.frbsf.org/publications/economics/letter/2002/el2002-04.html
Jacobe, Dennis. (2008, Apr) "Most Americans say now is the bad time to spend" Retrieved June, 2008 at http://www.gallup.com/poll/106612/Most-Americans-Say-Now-Bad-Time-Spend.aspx
Mills, Frederick C. (1936) "Prices in Recession and Recovery: A Survey of Recent Changes"
National Bureau of Economic Research. New York.
Mitchell, Wesley C. (1954) "Business Cycles: The Problem and Its Setting" National Bureau of Economic Research. New York.
N.A. (2008, Jun) "The Coming Recession" Retrieved 4 June, 2008 at http://www.reason.com/news/show/126021.html
N.A. (n. d.) "Recession- macroeconomics" Retrieved 4 June, 2008 at http://www.colombialink.com/01_INDEX/index_finanzas_eng/recession.html
N.A. (n. d.) "What is recession?" Retrieved 4 June, 2008 at http://recession.org/definition
N.A. (2003, Oct) "NBER's Recession Dating Procedure" Retrieved 4 June, 2008 at http://www.nber.org/cycles/recessions.html
Roubini, Nouriel. (2008, Feb) "The current U.S. recession and the risks of a systematic financial crisis" Written Testimony for the House of…