The document provides an overview of the economic environment of the United States from the 19th century to 2011. It discusses key trends such as the US having the largest economy in the world, a high level of per capita output, and being the largest trading nation. It also examines sectors of the economy such as agriculture, industry, population, employment, inflation, monetary and fiscal policy, interest rates, and government debt.

1. 2012
ECONOMIC ENVIRONMENT OF
U.S.A
QAEM ZAIDI
JAIPURIA INSTITUTE OF
MANAGEMENT,LUCKNOW
4/5/2012

2. Abstract
This project examines the evolving structure of the American economy,
specifically, the trends in economic environment of U.S.A from 19XX to 2011.
These trends are closely connected with complementary trends in the size and
structure of the global economy. Employing historical time series data from the
Bureau of Labor Statistics and the Bureau of Economic Analysis & doing business
in U.S.A.
Executive Summary
1. The economy of the United States is the world's largest economy. Its nominal
GDP is estimated to be over $15 trillion in 2011, approximately a quarter of
nominal global GDP. The European Union has a larger collective economy, but
is not a single nation. Its GDP at purchasing is the largest in the world,
approximately a fifth of global GDP at purchasing power parity.
2. The U.S. economy maintains a very high level of output. In 2011, it was
estimated to have a per capita GDP (PPP) of $48,147, the 7th highest in the
world, thus making U.S. one of the world's wealthiest nations.
3. The U.S. is the largest trading nation in the world. Its three largest trading
partners as of 2010 are Canada, China and Mexico.
4. A central feature of the U.S. economy is the economic freedom afforded to the
private sector by allowing the private sector to make the majority of economic
decisions in determining the direction and scale of what the U.S. economy
produces. This is enhanced by relatively low levels of regulation and
government involvement, as well as a court system that generally protects
property rights and enforces contracts.
5. Value of currency is very high, about 60% of the global currency reserves have
been invested in the United States dollar, while 24% have been invested in the
euro.
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3. 6. The country is one of the world’s largest and most influential financial markets.
Foreign investments made in the United States total almost $2.4 trillion, which
is more than twice that of any other country. American investments in foreign
countries total over $3.3 trillion, which is almost twice that of any other
country.
7. Total public and private debt was $50.2 trillion at the end of the first quarter of
2010, or 3.5 times GDP. The proportion of public debt was about 0.9 times the
GDP. Domestic financial assets total are $131 trillion and domestic financial
liabilities total $106 trillion.
8. The United States is home to 29.6 million small businesses, 30% of the world's
millionaires, 40% of the world's billionaires, as well as 139 of the world's 500
largest companies. From its emergence as an independent nation, the United
States has encouraged science and innovation.
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4. Introduction
In the post crisis environment, issues of sustainability in the trajectory of the U.S.
economy have come to the fore. Among the problems pointed to be a large current
account deficit, the paucity of household savings, overleveraging in the financial
and household sectors, and stagnation of middleclass incomes. However, what
appears missing is a detailed look at the structural shifts in the economy over
longer periods, and the way in which the emerging economies’ growth is affecting
the pattern of industry employment and value added in the United States economic
structure over the past twenty years and exploring the implications of such shifts.
The American economy does not exist in vacuum; some of its most striking
evolving characteristics are tied to long-term trends in the developing world and
especially the large emerging economies.
The project report includes with Employment, Research development, and
entrepreneurship, Income and wealth, financial position, Composition Currency
and central bank, employment, interest rates, business spending, inflation, Trade
executive summary and the evolving structure of the U.S economy.
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5. Structural Evolution of the U.S. Economy
The structure of the American economy is evolving. Technology is one of the
driving forces, both domestically and in integrating the U.S. economy with the
global economy. The domestic economy does not operate in a vacuum. In
relatively open global economy, structural change in emerging economies causes
structural change in advanced countries. When a certain kind of activity declines in
u.s economy, normally it does not just disappear from the global economy, but
instead moves to another location. These powerful market forces operate directly
on the tradable sector, and indirectly on the no tradable portion through wage and
price effects and shifting opportunities in labor markets to divide the economy and
its component industries into the tradable and non tradable parts.
United States GDP Growth Rate
The Gross Domestic Product (GDP) in the United States expanded 3 percent in the
fourth quarter of 2011 over the previous quarter. Historically, from 1947 until 2011
the United States' average quarterly GDP Growth was 3.28 percent reaching an
historical high of 17.20 percent in March of 1950 and a record low of -10.40
percent in March of 1958. The United States is a market-oriented economy where
private individuals and business firms make most of the decisions. The federal and
state governments buy needed goods and services predominantly in the private
marketplace.
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6. INCOME AND WEALTH
According to the United States Census Bureau, the pretax median household
income in 2007 was $50,233. The median ranged from $68,080 in Maryland to
$36,338 in Mississippi. In 2007, the median real annual household income rose
1.3% to $50,233, according to the Census Bureau. The real median earnings of
men who worked full time, year-round climbed between 2006 and 2007, from
$43,460 to $45,113. For women, the corresponding increase was from $33,437 to
$35,102. The median income per household member (including all working and
non-working members above the age of 14) was $26,036 in 2006. The average
home in the United States has more than 700 square feet per person, which is 50%-
100% more than the average in other high-income countries. Even in the lowest
income percentiles people enjoy more space - average 400 square feet per person -
than middle classes in Europe do. Likewise, ownership rates of gadgets and
amenities are exceptionally high compared to other countries. The recently
released US Income Mobility Study showed economic growth resulted in rising
incomes for most taxpayers over the period from 1996 to 2005. Median incomes of
all taxpayers increased by 24 percent after adjusting for inflation. The real incomes
of two-thirds of all taxpayers increased over this period. Income mobility of
individuals was considerable in the U.S. economy during the 1996 through 2004
period with roughly half of taxpayers who began in the bottom quintile moving up
to a higher income group within 10 years. In addition, the median incomes of those
initially in the lower income groups increased more than the median incomes of
those initially in the higher income groups. Between June 2007 and November
2008 the global recession led to falling asset prices around the world. Assets
owned by Americans lost about a quarter of their value. Since peaking in the
second quarter of 2007, household wealth is down $14 trillion. The Fed said that at
the end of 2008, the debt owed by nonfinancial sectors was $33.5 trillion,
including household debt valued at $13.8 trillion. About 30% of the entire world's
millionaire population resides in the United States (in 2009). The Economist
Intelligence Unit estimated in 2008 that there were 16,600,000 millionaires in the
USA. Furthermore, 34% of the world's billionaires are American (in 2011).
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7. FINANCIAL POSITION
The overall financial position of the United States as of 2009 includes
$50.7 trillion of debt owed by US households, businesses, and governments,
representing more than 3.5 times the annual gross domestic product of the United
States. As of the first quarter of 2010, domestic financial assets A totaled
$131 trillion and domestic financial liabilities $106 trillion. Tangible assets in 2008
(such as real estate and equipment) for selected sectors B totaled an additional
$56.3 trillion.
US Industry Sectors
Agriculture and the industrial sector made up 1.2 percent and 19.6 percent of US’s
GDP in 2010 respectively. This percentage can be relatively deceiving. The US is
not only the third largest agricultural producer in the world behind China and
India, but is also the leading industrial power in the world.
Agriculture is a vital part of US economy and society. According to the last census
of agriculture in 2007, there were 2.2 million farms in the US - covering an area of
922 million acres. Farmers are also one of the major political lobbyists in the US as
they are primarily responsible for the country’s food demands. Among US
agricultural products include wheat, corn, other grains, fruits, vegetables, cotton,
beef, pork, poultry, dairy products, fish, and forest products.
US Population and Labor Force
The US population for 2010 was 310.282 million. Although the US population is
significantly lower compared to India and China, the US has the highest labor
force participation rate in the world with 139.396 million employed.
The majority (35.5 percent) of the labor force’s occupations are managerial,
professional or technical in nature. A further 24.8 percent hold sales or office jobs,
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8. 22.6 percent are in manufacturing, extraction, transportation and crafts, 0.6 percent
are in arming, forestry or fishing and 16.5 percent have jobs in other services.
Unfortunately, the labor force has yet to recover fully from the 2008 financial
crisis. Unemployment rates in the US nearly doubled in 2009 from 5.817 percent to
9.275 percent while 2010 saw a further increase to 9.73 percent.
EMPLOYMENT
The job market is strengthening but the turnaround in 2012 won’t be
dramatic, with barely enough job creation to lower the unemployment rate - 8.3%
in February to around 8% by year-end and not enough oomph to spur much
economic growth.
The U.S. economy created an average of 245,000 jobs a month from December
through February, the best three months since 2006. But that pace will slow as
higher gasoline prices crimp consumer spending on other goods and services and
recent gains in manufacturing employment flatten out with slower export growth,
due to the cooling global economy.
Barring a major energy shock that stalls economic growth, we expect job creation
to average about 185,000 a month or 2.2 million for the year. Private sector
employers will actually add about 2.4 million jobs, but that will be partially offset
by continued paring by cash-starved local governments. Look for them to eliminate
roughly 200,000 jobs this year.
Paradoxically, the recent pickup in hiring may nudge the unemployment rate up a
bit in coming months, as some folks who gave up looking for work decide to rejoin
the job hunt. That effect will wear off by the second half of the year, however, and
the jobless rate will decline.
Despite the recent acceleration in hiring, it is still a tough market for job
seekers. More than two years after the end of the Great Recession, the number of
workers unemployed for more than 27 weeks is 5.4 million, near its all-time high
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9. and unchanged in February. Likewise, the number of workers forced to take a part-
time job is 8.1 million, little changed from January.
Wages are likely to continue to creep higher, with the pace accelerating with
stronger economic growth in the second half of the year. Wage hikes remain well
below the rate of inflation for now, rising just 1.9% in the last 12 months,
compared to a nearly 3% gain in the Consumer Price Index. Faster wage growth
later this year could trigger new concerns about inflation.
United States Inflation Rate
The inflation rate in United States was last reported at 2.9 percent in February of
2012. The Labor Department said the consumer price index rose 0.4 percent in
February, the largest increase in 10 months, largely because of higher gasoline
prices. From 1914 until 2010, the average inflation rate in United States was 3.38
percent reaching an historical high of 23.70 percent in June of 1920 and a record
low of -15.80 percent in June of 1921. Inflation rate refers to a general rise in
prices measured against a standard level of purchasing power. The most well
known measures of Inflation are the CPI which measures consumer prices, and the
GDP deflator, which measures inflation in the whole of the domestic economy.
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10. Monetary & Fiscal Policy
The role of government in the American economy extends far beyond its activities
as a regulator of specific industries. The government also manages the overall pace
of economic activity, seeking to maintain high levels of employment and stable
prices. It has two main tools for achieving these objectives: fiscal policy, through
which it determines the appropriate level of taxes and spending; and monetary
policy, through which it manages the supply of money. The Federal Reserve, the
independent U.S. central bank, manages the money supply and use of credit
(monetary policy), while the president and Congress adjust federal spending and
taxes (fiscal policy).
Since the inflation of the 1970s, Federal Reserve monetary policy has emphasized
preventing rapid escalation of general price levels. When the general price level is
raising too fast, the Federal Reserve acts to slow economic expansion by reducing
the money supply, thus raising short-term interest rates. When the economy is
slowing down too fast, or contracting, the Federal Reserve increases the money
supply, thus lowering short-term interest rates. The most common way it effects
these changes in interest rates, called open-market operations, is by buying and
selling government securities among a small group of major banks and bond
dealers. A particularly tricky situation for monetary policy makers, called
stagflation, occurs when the economy is slowing down and inflation is rising too
fast.
In 2006 real wages rose 1.7 Percent. This means an extra $1,030 for the typical
family of four with two wage earners. Real median household income in the
United States climbed between 2005 and 2006, reaching $48,200. The wage
growth translates into an extra $585 for the average full-time worker and an extra
$1,030 in 2006 for a typical family of four with two workers. The President's Tax
Relief enabled more than 5 Million taxpayers, including 4 Million taxpayers with
children, to have their income tax liability completely eliminated in 2006. As a
result of the President's tax relief, a family with two children now begins to pay
income taxes when their income reaches $41,867. Without tax relief, the same
family would have begun to pay income taxes when their income reached
$33,070. The President's Tax Relief is helping Americans keep more of what they
earn.
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11. United States Interest Rate
The benchmark interest rate in the United States was last reported at 0.25 percent.
In the United States, authority for interest rate decisions is divided between the
Board of Governors of the Federal Reserve (Board) and the Federal Open Market
Committee (FOMC). The Board decides on changes in discount rates after
recommendations submitted by one or more of the regional Federal Reserve
Banks. The FOMC decides on open market operations, including the desired levels
of central bank money or the desired federal funds market rate. From 1971 until
2010 the United States' average interest rate was 6.45 percent reaching an historical
high of 20.00 percent in March of 1980 and a record low of 0.25 percent in
December of 2008. This page includes: United States Interest Rate chart, historical
data and news.
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12. United States Government Debt to GDP
The Government Debt in the United States was last reported at 93.2 percent of the
country´s GDP. From 1940 until 2010, the United States' average Government
Debt to GDP was 59.40 percent reaching an historical high of 121.70 percent in
September of 1946 and a record low of 32.50 percent in September of 1981.
Generally, Government debt as a percent of GDP is used by investors to measure
the United States' ability to make future payments on its debt, thus affecting the
United States' borrowing costs and government bond yields. This page includes a
chart with historical data for the United States' General Government Gross Debt as
a percent of GDP.
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13. TRADE
The U.S. trade deficit to grow in coming months as rising oil prices push imports
higher. In January, the deficit climbed 4.3% over the previous month, a sign of
increased consumer confidence and more spending here in the U.S. It was the
highest monthly deficit since October 2008. Add the impact of oil prices above a
$100 a barrel, as we saw last month and the value of imports will skyrocket.
Expect an annual trade deficit of $620 billion in 2012, up 11% over last year.
Exports will grow at a slower pace this year than last, with a recession in Europe
and slower growth in emerging markets. Still, exports increased almost 8% in
January over the same month a year ago. If that pace continues, exports will total
$2.25 trillion this year.
Look for import gains to more than offset export growth as U.S. consumers keep
snatching up foreign cars, electronics and other consumer goods. Imports climbed
2.1% in January, compared to a 1.4% gain in exports. For the year, expect imports
to rise about 8%, possibly more if oil prices stay high for an extended period of
time.
The trade deficit with China will hit another record this year as demand for
consumer goods rises here and China’s breakneck growth slows. In 2011, U.S.
exports to the Asian giant hit nearly $104 billion, while imports climbed to almost
$400 billion. The deficit with the European Union is also likely to rise this year.
Imports from the 27 European countries fell 8.7% in January, offsetting a drop in
exports, but the trade gap is expected to widen again as austerity measures there
zap consumer demand for U.S. exports.
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14. Conclusion
The U.S. economy continues to be a leading competitor and innovator in the global
economy as measured by its overall performance, market position in Science and
Technology industries, and trends in patenting of new technologies at home and
abroad. The U.S. economy has grown relatively rapidly and become more
productive while sustaining a high and rising per capita income. The U.S. gap with
Asia on many of these measures is narrowing, however, because of rapid progress
by China and several other countries. Although the EU’s economic position is
relatively strong, its market position in Science and Technology industries has
either flattened out or slipped.
The strong competitive position of the U.S. economy is tied to continued U.S.
global leadership in many industries that have extensive ties
to Science&Technoloogy. With the service sector increasingly dominating global
economic activity, the United States continues to hold the dominant market
position in service industries that rely on Science & Technology. The U.S. trading
position in technology-oriented services remains strong, as evidenced by the
continued U.S. surplus in trade of computer software and manufacturing know-
how.
The U.S. position in high-technology manufacturing industries, however, is not
quite as strong as in services. The United States continues to be a leading innovator
and producer in many high-technology manufacturing industries, but the
historically strong U.S. trade position has decreased. Although in surplus for the
prior two decades, the U.S. trade balance moved to a deficit during the late 1990s
because of faster growth of imports, primarily in computer and communications
equipment. The U.S. trade balance in advanced-technology goods has similarly
moved from surplus to deficit during this period.
Led by China, South Korea, and Taiwan, Asia is challenging the U.S. market
position in Science & Technology industries and reducing the gap on technological
innovation. China has rapidly risen to become a leading producer and exporter of
high-technology manufacturing goods, as measured by world market share. This
rapid ascent shows signs of continuing. South Korea, Taiwan, and other Asian
economies have also become leading producers and exporters in S&T-intensive
industries.
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15. Various patenting indicators suggest that the United States will remain a leader in
technological development within its domestic and foreign markets. The leading
source of economically valuable patents known as triadic patents, the United States
also leads in U.S. patent applications and is the leading foreign source of European
patent applications. Asia shows a strengthening of technological development,
however; its share of U.S. and European patents has risen markedly, led by Japan,
South Korea, and Taiwan.
In sum, the United States continues to be a world-class competitive and
technologically innovative country with a leading position in most high-technology
industries. Several Asian economies, however, including China, South Korea,
Taiwan, and India, have become global players in some high-technology
industries, and their technological capabilities are strengthening. The EU, on the
other hand, has lost market share in high-technology industry.
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