Us Economy Expansion

.. sonal Consumption Expenditures. The Retail Sales economic indicator measures the sales of retail establishments, adjusted for normal seasonal variation, holidays and trading-day differences, and are not annualized. In recent months retail sales have increased faster than expected. February saw an 11.1 percent increase where a 0.9 percent increase was expected, marking the third strong gain in the last four months.

The recent beating that the American public is taking in gasoline prices is undoubtedly the cause for a 4.3 percent increase in service station sales and one reason there has been a strong over all retail sales gains. February sales reached $265.7 billion, an increase of 9.4 percent compared to February of last year. The 11.1 percent average sales increase for January and February has risen at an annual rate that is on track for the largest quarterly growth in the last year. With the exception of six points of quarterly data retail sales have increased a minimum of 5 percent and as much as 13 percent per quarter as compared to the prior quarter since 1994. This steady increase in retail sales indicates public trust in the current American economy.

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Their willingness to spend their hard-earned money in the retail market instead of acting with increased caution by hoarding funds could be an indication that the general public also has faith that the American economy will continue to prosper in the future. Increased retail sales are a direct reflection of the level of Personal Consumption Expenditures. Personal Consumption Expenditures economic indicator measures consumer spending for all goods and services in the economic market. These expenditures comprise approximately two-thirds of the total GDP. When viewed as a running average, nearly every quarter since 1995, Real Personal Consumption Expenditures have realized quarterly gains compared to each previous quarter.

With the recent increases in retail sales and the continued levels of Personal Consumption Expenditures there is no reason to doubt that our economy can continue it’s creditable levels of growth. These levels of fiscal activity have been and will continue to keep funds moving regularly through the financial sector within the circular flow. Housing and Construction Housing Starts and Building Permits are the economic indicator used to measure privately owned housing units started and privately owned housing units authorized by building permits. These are considered good leading indicators of home sales and spending in general. Housing Starts are used to predict the residential investment portion of the GDP. Building Permits usually become Housing Starts in about three to four months. Building Permits are also a component of the leading economic indicators index.

Single-family starts account for approximately 74 percent of all starts, and Multi-family units account for the rest. Monthly construction spending data produced by the Census Bureau are key source data for the GDP. The monthly construction spending data is used as a measure of production in the construction sector. Data on private residential spending are a source for the GDP residential investment component; nonresidential spending data, for nonresidential investment; and public construction spending data, for structures components within government consumption expenditures and gross investment. Analyst use economic data to forecast other economic series by monitoring various behavioral links due to one type of economic activity generally having an impact on another type of economic activity. For example, an unexpected increase in housing sales will lead to a drop in houses for sale as well as in the months’ supply of houses for sale. If housing stocks decline below desired levels, then builders take out housing permits, initiate housing starts, and work toward completing houses by construction spending. This cycle can differ when production is based on expected changes in the business cycle. Furthermore, housing stocks may be built up in anticipation of housing sales rather than housing being replenished after a rise in sales.

Building permits are one of the indicators of the current status of the economy. The number of residential building permits issued is an indicator of construction activity, which leads to other types of economic production. Before building residential or commercial structures the builder must apply for a building permit. Usually a contractor will apply for a permit at least 6 months in advance. By looking at the number of building permits that have been granted, economist can predict the amount of construction that is likely to begin in the next 6 to 9 months.

This is only a prediction, and it could be inaccurate. Acquiring a building permit does not require the contractor to build. Housing starts increased 1.3 percent to 1.78 million units at an annual rate in February, which is the highest level since January 1999. Single family starts declined 3.9 percent in February, their second decline after hitting a twenty-one year high in December. The multi-family starts jumped 19.2 percent in February, following a 20.4 percent jump in January. Multi-Family starts have risen to their highest level in eleven years.

The tightening of credit in private sector is likely to slow housing activity in the next few months. The interest rate on fixed-rate mortgages has averaged 8 percent so far this year, marking its highest rate since the middle of 1996. The homebuilders’ index of prospective buyer’s traffic has been on a downslide since last spring, and sales of new and existing homes have declined since the summer. This is a normal cyclical trend, and building and sales should pick back up in the spring despite increases in mortgage rates. Foreign Trade Foreign trade is the economic indicator that measures our economy and GNP against those of other countries the U.S. trades with.

The main factor that is tracked is the balance of trade; which is the difference between the value of goods and services a country imports, and the value of the goods and services it exports. This difference will produce what is known as a trade deficit (what occurs when imports exceed exports) or a trade surplus (exports exceed imports). The flow of the world economy is constantly fluctuating. In order to know precisely what our country’s global economic position is, foreign trade must be measured. The Bureau of Economic Analysis submits monthly reports broadcasting the difference between exports and imports in billions of current dollars.

This report, known as the International Trade Balance, analyzes the various international goods and services that are exchanged between countries. When paired with the quarterly Current Account Balance (an updated reading of trade and other certain seasonally adjusted transactions), it provides a powerful tool for economists and government agencies to calculate foreseeable trends. It also allows a gauge for which to adjust shortfalls where economic weaknesses exist and improve international standings. Aside from sustaining our own nations’ powerful trade balance, we provide a positive image with other countries. The U.S. promotes peace and goodwill through exchange.

These qualities have an indirect effect on the economy by ensuring that our trade partners have faith in our products and continue to contribute to our economy. Various factors can cause the foreign trade indicator to change. Exchange rates, quotas, and tariffs are some of the factors that drive change. Whether a country runs a trade deficit or a surplus is dependent on the supply and demand of its goods and services. Political climates can produce trade restrictions with other countries as well. For example, large deficits often provoke nations to prohibit imports. This causes negative impacts that offset the initial purpose of lowering the deficit, such as reducing domestic competition and instilling resentment from other countries.

This often leads to trade wars. Historically, the U.S. has been an economic juggernaut in the trade deficit area. During periods of economic growth, traditionally the U.S. trade deficit increases. According to the most recent BEA quarterly Current Account Balance Report, the January U.S.

trade deficit hit an all-time high of $28.0 billion, up from $24.6 billion in December. While exports declined from their December level, imports continued to trend strongly upward. The annual rate deficit totaled $336 billion in January, up from $268 billion this time last year. Of course, higher oil prices were a major contributor to the rising trade deficit. The deficit is predicted to remain high, and the U.S. economy will continue to outpace the economies of its trading partners.

Economic Outlook The overwhelming trend amongst all thirteen indicators suggests the U.S. economy will continue to stay in a period of economic growth. However, growth leads to increases in spending, which in turn leads to higher inflation rates. Inflation must then be kept in check by adjusting interest rates. National Output and Income levels are increasing at healthy rates suggesting employment rates are strong. The American people are working, making and spending money, and nothing suggests that is going to change any time soon. Manufacturing production is growing at its strongest pace since 1997, according to the Federal Reserve’s index of industrial production. As long as the American people continue spending money, buying goods and services, manufacturers will continue to produce at increasing levels. This in turn reflects the increased levels of Personal Consumption Expenditures and retail sales.

Despite increases in mortgage rates, housing starts have increased 1.3 percent to its highest level since January 1999. The American population having increased incomes fosters increased spending, domestic and abroad. This increased level of foreign spending continues to widen the gap in our trade deficit. Another untapped indicator of a booming economy may be the large number of American military members leaving the security of active duty for more lucrative opportunities provided by the private sector. Collectively all these indicators lead us to conclude the U.S. economy will continue to flourish.

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