Major indicator of healthy state of an economy is the real Gross Domestic Product (GDP) growth rate. The GDP growth rate reveals the performances of an economy. United States is one of the richest country in the world and "has the largest gross domestic product (GDP) in the world." (Jabir, 2009 P. 3171). The country total GDP in 2010 was $14.5 trillion. (World Bank, 2012). Since 2006, the U.S. GDP has continued to fluctuate. Between 2006 and 2007, the U.S. enjoyed the growth in the GDP. In 2006, the country recorded 2.70% point of annual rate in the GDP, and in 2007, the country GDP slightly declined to 1.9%. While the U.S. demonstrated health growth rate between 2006 and 2007, the country recorded negative growth in the GDP between 2008 and 2009. In 2008, the U.S. recorded a -3.0% change in the GDP. It was in 2009 that the country GDP declined significantly with -3.5% changes.
Fundamental objective of this study is to access the U.S. economic performances between 2006 and 2011. To access the country economic performances, the paper evaluates the country annual growth rates/percentages from 2006 through 2011.
U.S Annual Growth Rate between 2006 and 2011
Gross Domestic Product is the market value of all the goods and services produced within the economy. The components of GDP are C + G + I + (X -- M) where:
G= Government Spending
As being discusses previously, the U.S. recorded a percentage increase in the GDP between 2006 and 2007. The percentage increase in the country GDP provides corresponding percentage increase in the personal consumption during the period. Data from Bureau of Economic Analysis (2011) reveal that percentage increase in the U.S. GDP provides the corresponding increase in the personal consumption of goods and services with the period. Moreover, between 2006 and 2007, the country recorded percentage increase in the gross private domestic investment because this was one of the components of GDP. Additionally, percentage change in government expenditure and investment between 2006 and 2007 was positive. With boom in the U.S. economy, the percentage increase in export is greater than the import revealing that there is a significant increase in the production of goods and services within the country.
Fig 1: Percentage Change in the U.S. GDP between 2006 and 2011
As being revealed in Fig 1 and Fig 2, the United States recorded increase in the GDP between 2006 and 2007. During the period, the country recorded the percentage increase in the entire GDP components except private investment, which showed negative percentage decrease in 2007. (See Fig 2).
Fig 2: Percentage Changes in the U.S. Component of GDP between 2006 and 2011
With collapse of housing prices that triggered the U.S. financial crisis, the country recorded the negative performances in the GDP between 2008 and 2009. During the period, there was a decline in the gross private domestic investment, and there was a decline in the country personal consumption in 2008. In 2009, the country plunged into recession, which contributed to the decline in the GDP rate. In 2009, the total investment, personal consumption, and export declined significantly. There was also significant increase in the level of importation. Typically, the downward trend in the country economic activity also contributed to the steep rise in unemployment rate. In 2006 and 2007, the percentage change in unemployment rate was 4.6%. However, in 2008, the percentage changes in unemployment increased to 5.8% and later increased to 9.3% in 2009.
With series of economic measures that the country has implemented, the country recovered in 2009 and 2010. There were positive percentage changes in the country real GDP, and the country recorded 3% increase in the GDP in 2010. However, the GDP declined to 1.7% in 2011. With improvement in the GDP between 2010 and 2011, all the components of GDP also improved during period. There was a decline in the importation between 2010 and 2011. Despite the increase in the performances of the U.S. GDP between 2010 and 2011, there is still increase in the unemployment rate. By February 2011, approximately 12.8 million people were unemployed. Decline in the U.S. economic performances also led to the decline in the Consumer Price Index (CPI) in 2009.
The Standard CPI and U.S. Year Treasure Yield
Illustration in Fig 3 reveals the CPI improved between 2006 and 2008. With deepening of the economic crisis in the United States, the CPI slide to negative in 2009. However, the CPI improved between 2010 and 2011 with the improvement in the U.S. GDP.
Fig 3: U.S. Consumer Price Index between 2006 and 2011
The U.S. treasure yield also showed a gradual decline since 2006 and recorded a slight improvement in 2009. Since 2009, the treasure yield declined significantly and by 2011, the treasure yields recorded a gradual decline. (See Fig 4).
Based on the decline in the CPI index and unemployment rates, there has been a drastic decline in the profitability of commercial banking industry since 2007.
Fig 4: U.S. 10-Year Treasure Yield
Major Theme affecting the Profitability of Commercial Banking Industry
The subprime crisis between 2007 and 2008 has affected the commercial banking industry making the commercial banking industry to record billion of dollar loss of financial assets, profits and revenue. The subprime turmoil has been the major cause of the U.S. financial crisis, and in 2008, there was a $678.5 billion loss of revenue of commercial banking industry. (IBISWorld Industry Report, 2009).
There are several macroeconomic themes that have affected the profitability of the commercial banking industry. First, the rise in the unemployment rate is one of the major factors that affect the profitability of commercial industry. (See Fig 5 for unemployment rate).
Fig 5: U.S. Unemployment Rate between 2006 and 2011
Since 2007, there has been a massive layoff of employee leading to the increase in the unemployment rates. In 2010, there have been more than 12.8 million people being unemployed in the country and the issue has reduced the ability of people to increase their savings. Typically, there has been a decline in the average propensity to save since people have not been able to earn income due to the high unemployment situation. The high unemployment rate in the country affects people's saving ability, and there is a massive withdrawal from savings across the country, and the issue affects the profitability of commercial industry. Typically, the issue has also affected the cash flow of many commercial banks and many of them do not have cash at hand to satisfy their obligations. Increase in the unemployment rate since 2007 have contributed to high loan default. The major factor leading people to default from the payment of their loans is the decrease in the GDP across the country. There was a decline in the GDP between 2008 and 2009, and the issue affected the profitability of the commercial banks across the country.
Another macro economic theme affecting the profitability of commercial banks is the decline in the gross private domestic investment. The decline in the investment opportunities reduces the saving capabilities of many firms across the country. Between 2007 and 2009, there were general decline of gross private investment in the country because many firms across the country recorded decline in the revenue. Between 2007 and 2009, there was a general decline in the stock performances across the countries. Many investors disinvested from the commercial banking sector because of the collapse of many financial institutions. The overall theme affects the profitability of commercial bank in the United States.
The report provides the February 2010 Blue Chip Forecast for 2012 and 2013 to enhance greater understanding of economic outlook.
Analysis Blue Chip Forecast for 2012 and 2013
Data from the Blue Chip forecast reveal that there would be 2.2% growth rate in the real GDP in 2012 and the GDP would increase by 2.0% in October 2012. There would also be 8.8% in unemployment rate in 2012 and the unemployment rate will increase to 9.0% in October 2012. Additionally, the consumer price index will increase by 2.1% in 2012 and GDP deflator will be 1.9% in 2012. There would also be increase in employment rate by 1% in 2012 and the employment rate would increase by 1.4% by October 2012. Personal income growth forecast is 1.4% in 2012 and the personal income would increase to 1.5% by July 2012. From the Blue Chip forecast, the real GDP would increase by 3.2% in 2013 and consumer price index would increase by 2.3%. By 2013, the unemployment rate would increase by 7.5%, and yield of the Treasury note would increase by 4.9% by 2013. (Kluwer, 2012).
Despite the data presented by the Blue Chip for the forecast of the U.S. economic outlook between 2012 and 2013, the forecast presented by Economic Intelligent Unit (2011) is a little bit different. The Economic Intelligent Unit (EIU) reveals…