In the past decade the United States has registered a constant rise in the country’s economic output in terms of the trend set on the Real GDP recorded in the last decade. This is apparent from the recovery from 2009 on which the lowest GDP was manifest, down to a record 14.419 trillion dollars. Since then, the country has experienced remarkable recovery with 2016 striking a record 16.662 trillion dollars, as presented in the graph below. The expansion exhibited by the economy throughout the last decade safe for the fallout in 2009, is a manifestation of increased trading activity and investments in the country while promising further increase in demand for products and services by consumers (Griffins, 2011).
The significant translates to decisions by investors and entrepreneurs to invest in durable goods, which seem to thrive in the economy based on the prevailing circumstances. Taking to account the current trend, it would suffice to infer that in the next couple of years, the United States’ economic output is prone to expand or maintain the GDP at its peak. From the estimate, it is highly probable investors and entrepreneurs are prone to invest in more trading activities especially while planning their capital expenditures and rearranging their assets.
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Graph 1. Real GDP For The Past 10 Years
Since the drastic economic decline in 2008 and 2009, the country has consistently recorded a positive rate of growth ranging above 1% but below 3%; with 2016 recording a lower rate of growth from 2015. With a positive rate of growth from the recession in 2009, the economy of the United States sets a viable environment, first, for retail sales since it is becoming apparent that the rate of personal consumption in the country is on the rise. The trend in the positive growth, which is estimated to maintain the positive growth in the next two to three years, also makes investment in export of durable products an appropriate option while making investment decisions (Griffins, 2011).
It is also apparent that since the inception of the Trump Administration, trailing from the lower rate registered in 2016, the transition in the new administration is likely to delay increase in the rate of growth albeit positive growth is still imminent. To this extent it is commendable that the new administration undertakes to engage in more government spending with a view to jumpstarting the economy before it deteriorates into recession reflected in the graph below.
Premised on the transition into the new administration, the GDP growth rate that is expected to slow down is likely to result into decisions by investors to temporarily desist from undertaking new investments, while employers would as well consider lay-offs or withhold recruiting more employees until the exhibits improvement (Griffins, 2011).
Graph 2. Rate of Growth of GDP In the Past 10 Years.
Besides the Real Gross Domestic Product and its growth rate having an impact on the economy of the United State, the Real Personal Consumption Expenditure also appears to be another significant economic indicator to be taken to consideration while making decisions on investments, trade among others; as presented in the graph below.
Graph 3. Real Personal Consumption Expenditures in the United States for the Past 10 Years.
Similar to Real GDP, Real Personal Consumption Expenditures recorded in the United States for the past 10 years has registered significant growth save for the decline manifested between 2008 and 2009 when the country was on a slight recession. The low Real PCE recorded in 2009 was attributed to the fact the negative Rate of growth of Real GDP recorded then resulted to decline in investment in purchases coupled with unemployment resulting from lay-offs and limited recruitment of human resource (Griffins, 2011). To this extent, it was quite inherent that there would be less money to spend hence the low personal consumption registered in that year.
From the augmenting rate of growth of Real GDP, it would suffice to estimate that the country is expected to register high Real Personal Consumption Expenditures, albeit there could be a slight decline due to the transition in administration coupled with shift in government policy. Investors are therefore prone to maintain focus on retail sales and trade in consumer goods, both durables and non-durables, which tend to currently thrive in the economy. This further translates to creation of more employment opportunities and generation of more money to spend.
It is also observable that the rate of growth of the Real GDP manifests apparent similarity to the rate of change of Real PCE from the previous years. It would therefore suffice to infer that real Personal Consumption Expenditures vary directly proportional to the Real Gross Domestic Product. For instance, the negative rate of growth of real GDP exhibited between 2008 and 2009 is mirrored in the negative rate of change of real PCE between those years. Further, the rate of Change of Real PCE exhibits a slowdown in 2016, which is also the case with the rate of growth of real GDP as reflected in the graph below.
Graph 4. Rate of Change of Real Personal Consumer Expenditures for the Past 10 Years
In relation to the trends in inflation in the United States, it is certainly the fact that the interest rate of federal funds, register low figures in the course of growing inflation. Taking to account the past ten years in which the country has exhibited significant economic growth, it is quite also apparent such growth corresponds with the decrease in interest rates charged on the federal fund. However, this is contrary to the case in the year 2009 when a lower rate at 0.16% was recorded, not to correspond to high inflation but rather to jumpstart the economy into recovery from the recession exhibited then. Subsequently, the rate has reduced to in correspondence to the growing rate of inflation in the economy in the last decade, as opposed to the other 20 years in which the country was relatively under low inflation as graphically presented in graph 5; which has been deployed strategically to achieve the money supply aimed at.
With regard to investment decisions, it is quite clear that the trend in recording lower interest rates for Federal Funds over the decade had drastically changed in 2016; being attributed to the fact that the country’s Rate of growth of Real GDP has been on the slowdown hence the Personal Consumer expenditure. This might lead to slight decline in undertaking new investment purchases as the Federal Funds Rate is even anticipated to grow in the next two to three years, despite the high inflation rate in which the country is currently engulfed.
A similar case is manifest with the trend in consumer price index for the last 30 years, whereby the prevailing high inflation in the economy and constant growth rate in the GDP has led to the constant augmentation of the Consumer Price Index. This is made in tandem with the high inflation with a view to matching the cost of living to the extent that the high inflation complements the high Consumer Price Index (Griffins, 2011).
Graph 6: The Effective Federal Funds Rate for the Past 30 Years
Graph 7. Consumer Price Index: All Items Less Food and Energy for the Last 30 Years
In the course of taking a loan to pay for the big-ticket item, the interest rate was 13% at the time when the interest rates were falling with time even after acquisition of the loan. The decision to make the purchase was not premised or influenced by any federal government or state government programs in place then. Rather, the decision was motivated by the prevailing circumstances, where interests on loans were low and there were expanding job opportunities in the market with commendable remuneration that would facilitate repayment of the loan.
Conclusion
From the report, it would suffice to infer that various economic indicators play a critical role in influencing personal and business related decisions depending on the prevailing circumstances. For instance, in the course of high inflation, hence a positively growing GDP, the conditions a viable to make big-ticket purchases; first due to low interest rates charged on loans, affordable cost of living and by virtue of the fact that the economic space is viable to accommodate high personal consumption expenditures. The contrary would be the same if the conditions change.
References
Griffins M. (2011). Economic Indicators For Dummies. United States: John Wiley & Sons. Print.
U.S. Bureau of Labor Statistics. (2017 June, 9). Consumer Price Index for All Urban Consumers: All Items Less Food and Energy [CPILFESL], retrieved from FRED, Federal Reserve Bank of St. Louis; Retrieved June 9, 2017 from https://fred.stlouisfed.org/series/CPILFESL .
U.S. Bureau of Economic Analysis. (2017 June, 8). Real Personal Consumption Expenditures [PCEC96], retrieved from FRED, Federal Reserve Bank of St. Louis; Retrieved June 9, 2017 from https://fred.stlouisfed.org/series/PCEC96 ,.
U.S. Bureau of Economic Analysis. ( 2017 June, 9) Real Gross Domestic Product [GDPC1], retrieved from FRED, Federal Reserve Bank of St. Louis; Retrieved June 9, 2017 from https://fred.stlouisfed.org/series/GDPC1 .
