Macroeconomic situation and analysis

Macroeconomic Situation

Delivering a speech to the American Bankers Association in Atlanta on June 7, 2011, Federal reserve Chairman Ben Bernanke posited a pessimistic view of current macroeconomic conditions. "The U.S. economy is recovering from both the worst financial crisis and the most severe housing bust since the Great Depression, and it faces additional headwinds ranging from the effect of the Japanese disaster to global pressures in commodity prices" (Hilsenrath, J. June 7, 2011). In this context it is useful to analyze the current economic recovery to see which if any additional monetary or fiscal policy measures could speed the pace of recovery and continue its upward trajectory.

What is the Current Macroeconomic Situation in the U.S.

According to economists the "Great Recession" ended in the second quarter of 2009 (Isidore, C. September 20, 2010); from that point the economy has slowly climbed out of negative growth returning to a positive expansion cycle. This recovery however, has been ponderous and difficult fraught with continuing downward pressures: food and energy inflation, burgeoning federal deficits, high unemployment, and a deleterious housing sector. Mr. Bernanke's view of the economy though while conceding these headwind pressures does see the "recovery continuing at a moderate pace with improvement later this year" (Hilsenrath, J. June 7, 2011). The economic slowdown is evident when one analyzes the data over the last several months across several key indicators.

A main area of concern is the slowing growth rate of Gross Domestic Product in the first quarter of 2011 annualized at 1.8% (Feldstein, M. June 7, 2011). Yet this growth rate may even understate the problem. "Two-thirds of that 1.8% went into business inventories rather than sales to consumers or other final buyers. This means that final sales growth was at an annual rate of just 0.6% -dangerously close to no rise at all" (Feldstein, M. June 7, 2011).

A second negative data point is the continuing decline of the housing sector as reflected in falling prices in the S&P / Case- Shiller National Home Price Index. The data reveal a housing market that has retracted to price levels last seen in the second quarter of 20002 (Hilsenrath, J. June 7, 2011). The continued decline in housing is troublesome because it now only has a negative wealth effect on consumers, but "historically, residential investment, of which new home construction is the largest part, has always been the main locomotive in pulling the economy out of recessions" (Djik, D. May 17, 2011).

A third disturbing piece of news is the continuing high level of unemployment and slow level of job growth. In May job growth was an anemic 54,000 addition to payroll (Hilsenrath, J. June 7, 2011), "far below the roughly 200,000 needed each month to reduce the unemployment rate" (Bernard, S. & Arbel, T.N.D.). In step the unemployment rate in May increased from 8.89% to 9.1% (Hilsenrath, J. June 7, 2011).