Macroeconomics and the contemporary economy

Marcoeconomics & Economy

The major factors macroeconomists study to understand how the economy is performing include GDP, unemployment and price indices. Across all these indicators, recent evidence suggests that the economy today is functioning very poorly.

Recent GDP reports are not encouraging. In the first quarter of 2009, the U.S. economy shrank at an annual pace of 6.1% (Isidore, 2009). Isidore reports that the decline was the second larges drop in 26 years, behind only the fourth quarter of 2008 decline which was 6.3%.

The fall in GDP was accompanied by an increase in unemployment. In April 2009, the number of unemployed persons increased by 563,000 to 13.7 million people, raising the unemployment rate from 8.5 to 8.9% (Employment situation summary). Job losses were prevalent across nearly all private-sector industries. According to the same report, on a year-over-year basis, the number of unemployed persons has risen by more than 6 million and the unemployment rate has grown by 3.9 percentage points.

Given falling GDP and an increase in unemployment, it's not surprising that inflation is falling. In fact, the annual inflation rate was at -0.7% in April 2009, the sharpest drop in consumer prices since 1955 (Annual inflation at -0.7%, sharpest drop in consumer prices since 1955, 2009). A reduction in the cost of energy over the past 12 months helped drive the annual rate downward. Many economists are now concerned that, "The era of U.S. consumer price deflation is now upon us as the ongoing economic recession and deteriorating labor market conditions continue to weaken the bargaining power of retailers and laborers alike, thereby quenching the once raging inflationary flames." (Mulrained cited in Annual inflation at -0.7%, sharpest drop in consumer prices since 1955).