U.S. Economic Performance 2006–2011: GDP, CPI, and Outlook

Introduction

A major indicator of the health of an economy is the real Gross Domestic Product (GDP) growth rate, which reveals how well an economy is performing. The United States is one of the wealthiest countries in the world and has the largest gross domestic product of any nation (Jabir, 2009, p. 3171). The country's total GDP in 2010 was $14.5 trillion (World Bank, 2012).

Since 2006, U.S. GDP has continued to fluctuate. Between 2006 and 2007, the U.S. enjoyed GDP growth: in 2006 the country recorded a 2.70 percent annual growth rate, and in 2007 GDP slightly declined to 1.9 percent. While the U.S. demonstrated a healthy growth rate between 2006 and 2007, the country recorded negative GDP growth between 2008 and 2009. In 2008 the U.S. recorded a −3.0% change in GDP, and in 2009 GDP declined even more significantly, posting a −3.5% change.

The fundamental objective of this study is to assess U.S. economic performance between 2006 and 2011. To do so, the paper evaluates the country's annual growth rates from 2006 through 2011.

U.S. Annual GDP Growth Rate, 2006–2011

Gross Domestic Product is the market value of all goods and services produced within an economy. The components of GDP are expressed as: C + G + I + (X − M), where C = Consumption, I = Investment, G = Government Spending, X = Exports, and M = Imports.

As noted above, the U.S. recorded a percentage increase in GDP between 2006 and 2007. This increase corresponded with a rise in personal consumption during the same period. Data from the Bureau of Economic Analysis (2011) reveal that the percentage increase in U.S. GDP was accompanied by a corresponding increase in personal consumption of goods and services. Moreover, between 2006 and 2007 the country recorded a percentage increase in gross private domestic investment, as this is one of the components of GDP. The percentage change in government expenditure and investment between 2006 and 2007 was also positive. With the boom in the U.S. economy, the percentage increase in exports exceeded that of imports, indicating a significant increase in the domestic production of goods and services.

As shown in Figures 1 and 2, the United States recorded an increase in GDP between 2006 and 2007. During this period, the country recorded percentage increases in all GDP components except private investment, which showed a negative percentage change in 2007.

With the collapse of housing prices that triggered the U.S. financial crisis, the country recorded negative GDP performance between 2008 and 2009. During this period, there was a decline in gross private domestic investment and a decline in personal consumption in 2008. In 2009, the country plunged into recession, which contributed to the sharp decline in the GDP growth rate. Total investment, personal consumption, and exports all declined significantly in 2009, while the level of importation increased notably. The downward trend in economic activity also contributed to a steep rise in the unemployment rate. In 2006 and 2007, the unemployment rate held at 4.6%. In 2008, it rose to 5.8%, and by 2009 it had climbed to 9.3%.

Following a series of economic measures implemented by the government, the economy began to recover in 2009 and 2010. There were positive percentage changes in real GDP, and the country recorded a 3% increase in GDP in 2010; however, GDP growth slowed to 1.7% in 2011. With the improvement in GDP between 2010 and 2011, all components of GDP also improved during this period, and the level of importation declined. Despite the improvement in GDP performance between 2010 and 2011, unemployment remained elevated: by February 2011, approximately 12.8 million people were unemployed. The decline in U.S. economic performance also led to a fall in the Consumer Price Index (CPI) in 2009.

The Consumer Price Index and Treasury Yield

The CPI improved between 2006 and 2008. With the deepening of the economic crisis in the United States, the CPI turned negative in 2009. However, the CPI improved between 2010 and 2011 in line with the recovery in U.S. GDP.

The U.S. 10-year Treasury yield showed a gradual decline from 2006 onward and recorded only a slight improvement in 2009. Since 2009, the Treasury yield declined significantly, and by 2011 it was still on a gradual downward trend. Based on the decline in the CPI and rising unemployment rates, the profitability of the commercial banking industry declined sharply from 2007 onward.

Conclusion