Five key economic indicators shaping the U.S. economy in 2004

¶ … future of the economy. There are seven references used for this paper.

The United States economy has experienced several changes in the past few years. It is important to look five economic indictors in order to speculate the direction the current economy is moving in.

Consumer Price Index

The economy continues to gather momentum in the midst of pessimistic reports. In November, there were two economic reports issued by the government.

One showed orders for durable goods plunging 3.1% from October, the largest drop in more than a year, including a sharp decline in orders for capital goods. The other showed the consumer price index falling 0.2% from the previous month, while the more stable core index, which excludes energy and food, declined 0.1%, the first outright drop in 20 years (Cooper)."

Housing Starts and Unemployment

Treasury Secretary John Snow acknowledges there has been a decline in the jobless rate and "a number of other key indicators including housing starts, have remained strong (Unknown)."

The Blue Chip consensus feels that in 2004, "housing starts will slip but only slightly, since last year's level of 1.8 million, the highest since 1986, is a tough one to match (Benjamin)."

The Commerce Department "reported that construction spending in November set a record for the fifth month in a row, jumping 1.2% and construction has been up 15% in the past six months. The housing sector has buoyed the economy over the past few years and continues to be a point of strength, as housing starts jumped to a twenty-year high in November (Industry Group 99)."

The unemployment rate is predicted to drop to around 5.4% over the next year, with an increase in jobs in "health care, financial services, the building trades and the technology field (Lambro)."

In December 2003, the unemployment rate "dropped to 5.7%, the lowest level in 14 months, but employers finished the year without much hiring for the holidays, adding just 1,000 new jobs (Strope)." The Labor Department stated "the 0.2 percentage point drop in the jobless rate occurred only because fewer people were looking for work. More than 300,000 gave up their search for jobs and dropped out of the pool of available workers (Strope)."

Producer Price Index

The Labor Department will issue December's producer price index on January 14th, 2004. In November there was a drop in the price indexes due to "tight inventories and the pickup in demand (Cooper)." Economists are not discouraged by these figures as "several one-time factors weighed on the price indexes. The 0.1% drop in core producer prices can be traced partly to fallbacks in prices of drugs, clothing, and appliances following increases in October. Those price swings carried into the index covering core consumer prices, and vehicle prices fluctuated as the Labor Department adjusted for quality improvements between the 2003 and 2004 models (Cooper)."

There are small price pressure increases, however. This is noted as "goods producers are paying more for inputs, while core crude material prices were up 17.1% in the year ended in November (Cooper)."

Retail Sales

In November, there was a growth in industrial production of 0.9%, which was the largest monthly increase since 1999. "Consumer goods and business equipment both increased and high-tech goods were especially strong, up 27.5% over last year (Industry Group 99)."

Solid auto sales had a large influence on retail sales, which were up 0.9%. "The holiday season ended well, with weekly reports showing a 5.6% increase in the most recent week, compared to a year ago (Industry Group 99)."

Conclusion

The United States economy has been showing signs of growing stronger in the past several months. Housing starts and retail sales are up, while unemployment is down. The consumer price index has dropped, and while the producer price index dropped slightly, this was not a major concern for economists. Reports in December showed a slight decline in consumer confidence; however all of the economic indictors strongly suggest that the economy will continue on a strong growth path over the next year.