U.S. Macroeconomic Trends and Policies Macroeconomic Status

U.S. MACROECONOMIC TRENDS AND POLICIES

Macroeconomic Status

The major recession that began in the United States in 2007 has drastically changed the landscape of the American economy, both in present times and for the future. Several major indices can be analyzed to determine the nature of this change, and there are many policy avenues in place through which the government can act to control its future course. By examining the current macroeconomic trends in the U.S., we can determine the likely economic scenario that we face in the future, and by understanding the fiscal and monetary policy tools at the government's disposal, we can determine the best method for manipulating those trends for a better outcome.

One macroeconomic trend that has been particularly troubling for economists and politicians during this recession is the civil unemployment rate. According to the Federal Reserve Bank of St. Louis Economic Data (FRED) site, the unemployment rate in the United States doubled between early 2008 to late 2009, from 4.5% to 10.1%. While the early 1980s did see a higher overall unemployment rate, at no point since the end of the Great Depression has unemployment risen as drastically and as quickly as it did from 2008 to 2009. Since its high of 10.1% in October of 2009, the civil unemployment rate has been trending downward very slowly, reaching a low of 8.8% in March of 2011 before rising slightly again over the summer of 2011 (FRED).

The data trend of the Real Gross Domestic Product (the GDP adjusted for inflation) is also troubling. After maintaining largely steady or static growth over the last 60 years, the real GDP took its steepest plunge since the 30s, losing three quarters of a percent between April of 2008 and April of 2009 (FRED). While the GDP has risen steadily during the last two years, forecasts by the independent Financial Forecast Center predict another decline beginning in January of 2012.

Both of these indicators both point to a possible return to recession in 2012, and this forecast is strengthened by the data trends involving inflation. The Consumer Price Index fell considerably from 2008 to 2009 before beginning to rise again in the last two years. However, the CPI began a trend towards deflation in July of 2011, and the Financial Forecast Center predicts this deflation to steepen in the coming year.

This dismal outlook for the U.S. recovery and the likelihood of a return to recession in the upcoming year as forecasted by the data trends presents a difficult problem for those functions of government concerned with determining fiscal and monetary policy. The divisive political debates surrounding the development of appropriate fiscal policy to deal with the current macroeconomic situation in the U.S. has been well-covered by the media recently. At the root of these debates is the double-edged sword of instituting an expansionary fiscal policy, wherein the government spends more than it brings in tax revenue. This was the initial response to the recession in early 2009, when Congress passed the $700 billion stimulus package. With the appearance of slight recovery during the past two years, however, many citizens and politicians have been more concerned with correcting the nation's massive budget deficit than with pursuing an expansionary fiscal policy to address the weak economy. The government is now deadlocked on fiscal decisions, with the committed to spending money on stimulating the economy, with or without the necessary tax revenue to pay for it, and the majority of members of Congress equally committed to keeping taxes and government spending low as a means of spurring small business growth. Part of the dispute has centered on the fact that the initial burst of expansionary spending seems not to have had much of an effect, but as Ezra Klein of the Washington Post points out, the stimulus spending by the Federal government was counteracted by severe cuts in local and state spending.