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State of the U.S. economy for the first half of 2008 Essay Example for Free
State of the U.S. sparing for the first half(prenominal) of 2008 EssayIn the first half of 2008, four things are pummeling the typical the Statesn the housing bust, the ascribe crunch, higher fuel and food costs and, most recently, a weakening labor market. The unemployment rate arise to 5. 1% in March, while the private sector lost blood lines for the fourth month in a row. Consumer confidence is in a 26- socio- frugal kinsperson low. Feeling poorer and with fewer people prepared to lend money, consumers are acidulated back. Seeing that consumer spending accounts for 70% of the Statesn exact, makes it more difficult for the preservation especially when it is coupled with a collapse in the once mighty construction indus accent. The Inter subject field Monetary Fund (IMF) now formally predicts an American recession in 2008. (The Economist). For the first time, Federal unobtrusiveness Chairman Ben Bernanke conceded that the U. S. economy may stray into recession but said growth should pick up later this year as the match of interest rate cuts and other emergency steps take root. Bernanke told a congressional panel that the economy appeared to be growing, but warned it could shrink in the first half of 2008 as housing and financial markets uttermost out distressed despite dramatic Fed interest rate cuts and emergency lending (Reuters).Volatility and crisis were the watchwords of the U. S. economy in 2007 buffeted by rising oil prices and the subprime mortgage crisis. Their combined impact stretched into 2008 especially in the first half, slowing economic growth. The impact of these factors was felt in the broader economy undermining both business investing and consumer confidence. The U. S. house of Commerce appears to be more optimistic predicting modest growth averaging most 2% in the first half of the year, an improvement all over a weak fourth bum of 2007. Growth should step-up to 2. 5% in the second half, as the housing sector bottoms out.Job growth will continue, albeit at a relatively slow pace-with the unemployment rate rising slightly above 5%. Corporate pay should improve as 2008 progresses and business enthronement will pick up modestly by the put of the year. Export growth will continue to brighten the overall economic picture. Inflation will be in the moderate range, making further interest rate reductions less likely as the year progresses (US Chamber of Commerce). As 2008 progressed, many Americans experienced a growing despair as they watched their largest asset- the family home- decline in value.The United States is experiencing its worst housing recession in more than 15 years. Underscoring the breadth of the veritable farming recession, sales of existing homes fell in 45 states and Washington D. C. and prices dropped in more than half the subway areas it tracks according to the National Association of Realtors. In fact, homes are selling at a price 24% less than year ago as foreclosures contin ue to increase dramatically at 57% in Southern California. The slide in sales are predicted to persist and prices will likely fall passim 2008, according to a majority of economists surveyed last month by regular army TODAY (Knox).The housing downturn is spreading more broadly through the economy. Employers are shedding jobs, consumer confidence and spending squander been shaken, and lenders have pulled back. If not for stronger demand for U. S. goods brought on by a weaker dollar, the economy would be in worse shape. To electric shock the effect of the on-going crisis, the Federal Reserve has slashed interest rates, promised more cuts if the economy stays weak and perchance most importantly sharply reduced the odds of financial-market catastrophe by extending its safety net to investment banks.The Federal Reserve has lowered benchmark interest rates by three percentage points to 2. 25 percent since mid-September to help put a floor under an economy hit hard by a housing slump and credit market turmoil. Bernanke said those rate cuts and other emergency measures to melt frozen credit markets should promote growth over time. Also, Bernanke staunchly defended the Federal Reserves decision last month to broker JPMorgan Chases (JPM) takeover of investment bank Bear Stearns, (BSC) including approval of a loan okay by $30 billion of Bear Stearns assets.According to Bernanke, A Bear Stearns default could have sparked a chaotic unwinding affecting the overall economy. Given exceptional pressures on the worldwide economy and financial system, the harm caused by a potential Bear Stearns default could have been severe and extremely difficult to take (Kirchhoff). In retrospect, if the Federal Reserve did not intervene bankruptcy was inevitable which might have caused the U. S. and global markets to collapse. Even though the economy is slowing, inflation, boosted by skyrocketing energy and food prices remains a concern and constraint for the central bank.Anothe r factor would be the declining value of the dollar if the dollar buys less, inflation rises. The Federal Reserve data show that the U. S. dollar has declined about 10 percent over the past year against a trade-weighted basket of currencies from major U. S. trading partners. Moreover, the dollar sank to raw lows against the euro in the days following March 4, 2008 subsequently a series of dour reports on the U. S. economy and expectations that the Federal Reserve will continue cut down interest rates. Indeed, with the fall of the dollar, prices of all the things bought are rising.The Producer Price Index for one month was up 1. 1% in March with the price of wheat and rice up at least one hundred percent than last year. The price of oil reached $114 a barrel and gasoline is also at a new high of $3. 38 per gallon. Purchases of crude oil jumped, reflecting increases in the number of barrels bought and a al-Quran price surpassing $100 a barrel on the New York Mercantile Exchange archean this year. The U. S. is the worlds biggest consumer of crude oil and higher fuel costs are making imports more expensive (Bloomberg). America is in fact the worst food and energy inflation in two decades and consumers take a direct hit.The pace of job losses in America has been relatively mild compared with previous downturns. However, data showed the economy during February shed the biggest amount of jobs in nearly five years. Because of the high fuel prices, budget airlines are bleeding and are filing bankruptcies resulting to further job losses. Frontier airline was the fourth airlines to do so in just two weeks. There is also slow spending in malls everywhere as increasing number of consumers struggling to make ends meet causing retailers such as Sharper image, Levitz piece of furniture and stores like Ann Taylor, Zales Jeweler and Footlocker to close.General Electric (GE), second largest company on Earth, reported a 6% loss in income for the first quarter. It was a s urprise result that rattled Wall thoroughfare with the stocks of GE experiencing its worst one-day loss since the 1987 crash. GE had a lot of trouble selling commercial real state and people are not buying appliances. economical figures indicate a weakening economy. The zip fastener Information Administration (EIA) forecast that U. S. real gross domestic product would contract from $11. 577 trillion in the fourth quarter of 2007 to $11.563 trillion in the first quarter of 2008, then decline to $11. 542 trillion in the second quarter. U. S. Stock prices continue to slip, with the blue chip Dow Jones industrial average closing down at the 12,000-level. Prices for U. S. government bonds also fell, as did the value of the dollar. As waves of bad news began to wash in- foreclosures, tumbling dollar, falling retail sales and more recently investment bank rescues- exporters were the only thing keeping the national nose and lips above the recessionary waters.The decline in the value of t he dollar relative to other currencies, notably the euro, has helped make U. S. goods less expensive for overseas buyers and therefore more attractive. This fuelled a healthy global demand for U. S. products and services resulting to earnings from exports rising to a new record (Chandra). So what can be through in order to address the crisis? The government should introduce a fiscal stimulus, which would help create new jobs in 2008, and induce consumer spending through tax rebates in order to keep the economy moving.To try and keep the subprime-mortgage crisis from escalating, the Federal Reserve should propose changes for loans including requirements that creditors should strictly verify a prospective borrowers income and assets ahead providing actual loans. The government must offer mortgage advice to homebuyers who may not have understood the risks. very much borrowers did not even realize that their monthly payment would rise if interest rates went up. Subprime borrowers on a djustable interest rates, whose mortgages make up just 7% of the total, accounted for more than 40% of the foreclosures begun in the fourth quarter of last year (The Economist).And if the subprime mortgage crisis gets worse, the government should consider a possible bailout for the housing market. For a semipermanent solution, a new version of a deliberate program to build up the middle class must be instituted similar in nature with postwar programs like the G. I. Bill, interstate highway system and other measures with job-creating investments in biomedical research, alternative energy, roads, railroads and education (McIntyre). The G. I. Bill, created after World contend II, was one of Americas most successful investments.According to the 1988 report for Congresss Subcommittee on Education and Health of the Joint Economic Committee by 1952, the US government had spent $14 billion (1952 dollars) on educational and job training benefits for 7. 8 million veterans. Of these funds, $7 billion was spent on college and graduate school for 2. 2 million G. I. s. ? The first benefit from this investment was increased growth in the economy. The report calculated that about 40 percent of those who took advantage of the G. I. Bill would not otherwise have been able to attend college. The especial(a) output those people created in the economy amounted to $35.6 billion (1952 dollars after factoring out inflation) over the next 35 years. America is in the bleak of a recession and a sound economic plan should be in place to cushion its effect. References Chandra, Shobhana. U. S. January Trade Deficit Rises 0. 6% Exports Gain (Update6). Bloomberg. 29 April 2008. 29 April 2008. http//www. bloomberg. com/apps/news? pid=20601087refer=homesid=aynvcWrnI 8w. Doggett, Tom. UPDATE 2-U. S. economy to contract in 1st half of 2008 EIA. Reuters. 11 March 2008. 2 May 2008. http//www. reuters. com/article/oilRpt/idUSN1148909720080311.Kirchhoff, Sue. Fed chief Bernanke defends Bear Stear ns deal. USA Today. 4 April 2008. 2 May 2008. http//www. usatoday. com/money/economy/2008-04-02-bernanke economy_N. htm . Knox, Noelle. Falling home sales problem spreads to 45 States. USA Today. 14 Feb 2008. 2 May 2008. http//www. usatoday. com/money/economy/housing/2008-02-14 housing-q4 nar_N. htm. McIntyre, Jamie Tenth anniversary of the Gulf struggle A look back CNN. com In-depth specials Gulf War. 16 Jan. 2001. 24 April 2008. http//archives. cnn. com/2001/US/01/16/gulf. anniversary/index. html. MoneyNews. treasury Economy May Improve in 2nd Half 2008. MoneyNews . 24 April 2008. 2 May 2008. http//moneynews. newsmax. com/money/archives/articles/2008/4/24/085350. cfm. Subcommittee on Education and Health of the Joint Economic Committee (1988). A Cost Benefit Analysis of Government Investment in Post-Secondary Education Under the World War II GI Bill. The Economist. Getting it right on the money. The Economist. 3 April 2008. 8 April 2008. http//www. economist. com/displaystory. c fm? story_id=10958702. US Chamber of Commerce. The Economy in 2008. US Chamber of Commerce. 2 May 2008.