3 Dec 2012: Report on the US economy

Indicator Period Value ($) Growth/Decline
GDP July-Sept. 2012 15.09 trillion 2% up
Federal Debt 2012 16400 billion 6.7% up YoY
Federal Deficit 2012 1089 billion (7.3% of GDP) 16.23% down YoY
Current Account Deficit Q1-Q2 117.4 billion 12.12% down
Trade Balance July-Sept. 2012 (-)41.545 billion 13.27% improvement
Reserve Bank Credit Week ending 28 Nov 2841 billion
US Treasury securities Week ending 28 Nov 1644 billion
Gold Stock Week ending 28 Nov 11 billion
Treasury Currency outstanding Week ending 28 Nov 44 billion

Major Highlights

1. Real GDP: The increase in the real GDP in Q3 reflects positive contributions from personal consumption expenditures (PCE), federal government spending, and residential fixed investment that were partly offset by negative contributions from exports, nonresidential fixed investment, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.

2. Current Account Deficit: The U.S. current-account deficit—the combined balances on trade in goods and services, income, and net unilateral current transfers—decreased to $117.4 billion (preliminary) in the second quarter from $133.6 billion (revised) in the first quarter. The decrease in the current-account deficit was accounted for by a decrease in the deficit on goods and an increase in the surplus on income. The deficit on goods and services decreased to $139.3 billion in the second quarter from $148.4 billion in the first. The deficit on goods decreased to $185.8 billion in the second quarter from $194.3 billion in the first.

3. Operation Twist: While an aggressive economic easing policy has not been opted for, operation Twist has been extended for now. The latest round of QE (started Sept. 2012) will aim to provide nearly $40 billion of MBS per month until labour recovery is complete. This will put a downward pressure on long-term interest rates. The medium term inflation is expected to run around the target 2% mark. The US growth for this year is expected to be between 1.9 and 2.4%.

4. Interest Rates and Unemployment: It is expected that very low interest rates will persist until the end of 2014. Unemployment rate may range from 8 to 8.2%, rising from 7.8 to 8%. Growth hopes have, however, been lifted by positive housing data. Housing prices have risen for the 6th consecutive month now; the housing index rose by 0.3%, and is up 3% compared to last year. On the back of economic announcements, Treasury yields rose, while 30-year yields remained unchanged.

5. Personal income: Personal Income increased $48.1 billion, or 0.4 percent, and disposable personal income (DPI) increased $43.0 billion, or 0.4 percent, in September, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) increased $87.9 billion, or 0.8 percent. In August, personal income increased $17.8 billion, or 0.1 percent, DPI increased $15.1 billion, or 0.1 percent, and PCE increased $59.9 billion, or 0.5 percent, based on revised estimates. Real disposable income decreased less than 0.1 percent in September, compared with a decrease of 0.3 percent in August. Real PCE increased 0.4 percent, compared with an increase of 0.1 percent.

6. Private wage and salary disbursements: These have increased $19.5 billion in September, compared with an increase of $4.1 billion in August. Goods-producing industries’ payrolls increased $2.9 billion, in contrast to a decrease of $7.2 billion; manufacturing payrolls increased $0.5 billion, in contrast to a decrease of $6.3 billion. Services-producing industries’ payrolls increased $16.6 billion, compared with an increase of $11.3 billion. Government wage and salary disbursements increased $1.4 billion, compared with an increase of $2.8 billion.

7. Farm and Non-farm Payrolls: Farm proprietors’ income increased $3.9 billion in September, the same increase as in August. Nonfarm proprietors’ income increased $9.4 billion in September, compared with an increase of $4.8 billion in August.

 

GDP by Industry

Retail trade and durable goods manufacturing were the leading contributors to the deceleration in U.S. economic growth in 2011, according to revised statistics on the breakout of real gross domestic product (GDP) by industry from the Bureau of Economic Analysis. Real GDP growth slowed in 2011, increasing 1.8 percent after increasing 2.4 percent in 2010. The revised statistics do not change the general picture of the economy: 12 of 22 industry groups contributed to the slowdown in real GDP.

1. Retail trade real value added—a measure of an industry’s contribution to GDP—rose 0.2 percent in 2011, after increasing 7.0 percent in 2010.
2. Durable goods manufacturing increased 6.8 percent, after increasing 13.3 percent in 2010, primarily reflecting a slowdown in computer and electronic products manufacturing.
3. Nondurable goods manufacturing turned down in 2011, decreasing 2.1 percent after increasing 0.4 percent in 2010, primarily reflecting a downturn in food, beverage, and tobacco manufacturing.

Future Outlook

Obama is set to continue with some of his economic policies from last tenure. The target for the Fiscal deficit in 2013 is 4% of GDP, compared to 7.3% in 2012. This will be targeted through a ‘fiscal cliff’ which involves raising taxes substantially for the richer sections. With only 30% of fiscal cliff expected to expire in 2013, US growth is predicted at 2% for 2013. The expected affect of this fiscal cliff on India’s GDP is seen to be in the proximity of -0.6%. Global trade volumes are expected to decline 1.5%.

 

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