Macroeconomics the Current State of the U.S.

Macroeconomics

The current state of the U.S. macroeconomy is one of delicate recovery from a major economic shock several years ago. The economy is growing, albeit slowly, and there remain a number of linger issues that should be addressed. This paper will outline the state of the U.S. economy and develop some policy prescriptions for addressing any issues that may exist.

The gross domestic product grew at an annual rate of 0.4% in the fourth quarter of 2012, which was down significantly from the 3.1% annualized growth that was recorded in the third quarter. The Bureau of Economic Analysis reports that gains in the fourth quarter came from increases in personal consumption spending, nonresidential fixed investment and residential fixed investment. These gains were partly offset by negative contribution from private inventory investment, federal government spending, exports and local government spending (BEA, 2013). Real GDP increased by 2.2% in 2012 for the year, compared with an increase of 1.8% in 2011. Both of these figures indicate slow but steady growth. Yet, while growth accelerated overall in 2012, it slowed in the fourth quarter (BEA, 2013).

The seasonally-adjusted CPI, a key inflation measure, increased 0.7% in February 2013, and the seasonally-adjusted core CPI increased 0.2%. The all-items index rose 2.0% for the past twelve months, compared with 1.6% for the past twelve months in January (BLS, 2013). These figures are roughly in line with expectations that the Fed has a for moderate, controlled rate of inflation.

Unemployment was 7.6% for March, 2013. This is down from 7.7% in February and represents a general downward slope dating back to October, 2009. Unemployment is still above historical norms, having last been below this level in December, 2008 and having been below this level for at least the five years previous. Thus, unemployment, while trending in the right direction, is high relative to historical norms.

The overall state of the economy, therefore, is that unemployment is the key issue. The GDP is growing at a slow, steady pace. While it might benefit from faster growth, such growth Inflation is most certainly not an issue, falling well in line with the Fed's target zone and being quite minimal in some months. The major issue in the U.S. economy today remains the unemployment rate. This remains higher than the normal rate, despite the encouraging trend. While the government and Fed could focus policy on GDP growth, which usually also has a positive impact on unemployment, they could also focus policy directly on unemployment since the other two major indicators are performing well.