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U.S Economy: There's Still Hope for the Future

Like many government economies in the world, the U.S economy of late has been caught up in several economic hiccups. There have been lots of concerns on unemployment rates, the declining production, which is being replaced by an increase in imports among other many issues. Here are some of the economic challenges affecting the U.S.

Problems Affecting the United States

Production- The United States no longer produces goods to satisfy the needs of her citizens but rather imports. Where production takes place, then it is in small scale such that the deficit that is not met by such production has to be imported. For many years, the U.S has been seen as a super power but this status is slowly fading away due to her ever increasing demand for imported goods.

Other countries that have been racing up with the U.S in supremacy battles are now planning to celebrate by rendering the U.S a completely dependent economy in production, innovation and even finance. Hence, this is a major blow to the United States economy, where most of the production assets instead of being put on use are now being sold as the country routes to taking massive debts in an attempt to sustain her high living standards.

Foreign Trade Practices- The U.S trade and globalization policies have been detrimental for long. Instead of manufacturers in the U.S targeting their potential markets, they have always been more or less struggling to compete with China and Mexico in designing, engineering and even producing for third world countries.

Is the U.S economy likely to recess? Here are reasons as to why this is most likely to happen.

The problems faced by the U.S currently are a clear indication that if nothing is done things are going to be much worse. Here are seven reasons as to why recession is most likely to happen.

1. Stunted Growth of the Economy- the only way to beat recession, hands down, is to have a robust economic growth. This is what the U.S economy lacks as evidenced by the annual economic growth rate registered in the last 3 years where in 2010; her economy grew by 2.4%, 1.8% in 2011 and 2.2% in 2012. The last quarter of 2012 seemed to be the worst hit by stunted growth where a growth rate of only 0.4% was registered.

Ever since the 2nd

world war, this is the lowest economic growth rate the U.S has ever registered, as in most cases the annual growth rate registered has never gone below 3.4%. Similarly, after every recession, the U.S has been experiencing an economic growth rate of between 5-6% but this has not been the case in the last three years.

2. Unemployment- Like other governments in the world, the U.S is now slowly

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joining the list of countries with a high rate of unemployed people. According to the Bureau of Labor Statistics, the month of March this year registered a decline in labor force by 496,000. Much worse, is the fact that most Americans have already given up in their job search.

3. The return of Home Foreclosures- of late, there has been a rise in Federal

Housing Authority. Among the factors that are alleged to be behind this FHA rise is unemployment rate which is discussed above.

4. Lack of Consumer Confidence- April this year marked the 9th

month of a sharp drop in consumer confidence. What this means is that consumers are not likely to spend let alone invest. Job seeking also tends to decline among them.

5. China’s Economy- the drop of China’s economy from its usual average of 10%

to 7.9% in the fourth quarter of 2012 and finally to 7.7% in the 1st

quarter of 2013 is a clear indication of tough times ahead.

6. Europe’s Economy- the EU shrunk its GDP by 0.6% last year and it's projected

that this year they may shrink it by 0.3% as they had suggested. This will not only make the EU economy weak but will mean a much weaker U.S economy.

7. Taxation and Revenue Expenditure- Obama’s administration has continuously

assaulted the economy through high taxation and heavy government budget. The introduction of new taxes as well as regulations on individuals and businesses coupled with bad economic policies like those passed by Washington are a good recipe for recession.

Road Map to US Economic Recovery According to experts’ warning, the current US situation is likely to continue for the next four years, which will be far much above the average economic recovery of 58

months ever since the 2nd

world war. In these four years, there will be an upswing that will lead to lack of excesses that often lead to contraction, slow inflation, shrinking of household debt, slack in the labor market and unemployment as well as a depression in the housing market.

Economic experts such as Mark Zandi, Chief Economist at Moody’s Analytics, has further warned that any economic shock can send the recovery off course. This can lead to things like the collapse of the stock market, sudden spike in long-term interest rates or even worse, a confrontation between the US military and Iraq hence leading to an increase in oil prices.

To avoid worse economic situations, action is necessary and inevitable. This, therefore, begs the question: What should be done to save this situation or rather promote economic recovery? There are quite a number of interventions that can be advanced by both the private sector and the government. Here are some of them.

Paying More for Fast Goods For years, those working in the food industry have been complaining of poor pay. An intervention into the retail jobs earnings can really help boost the U.S economy. A good pay will always amount to an increase in the workers purchasing power. This is

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because workers with money are more likely to buy more consumer goods like cars, homes, appliances among others. This will boost the government, as more revenue will be collected from taxes.

This is what the renowned economist John Maynard Keynes termed as aggregate demand as a result of good wages hence leading to the multiplier effect. Therefore, the minimum wage per hour should be between $10-15 in order to achieve this.

Investing in the Manufacturing Sector Tough economic times have generally contributed to the ever-declining manufacturing and construction industry. There are now fewer homes being constructed as well as fewer cars being made annually. Car repairs are reported to be on the increase and this is very worrying because the old cars are not going to last forever. Hence, the law of diminishing returns will definitely come to play.

It is, therefore, essential to promote such activities that will enhance consumers’ purchasing power and so will encourage more manufacturing and construction. A rush of household formation can also unleash pent-up demand for almost everything, as more young adults will be able to spend after many postponements.

In conclusion, the U.S economic situation needs a lot of intervention. Proper measures should be put in place so as to curb the high unemployment rates and the declining manufacturing sector, which is forcing the US to go for imports rather than being an exporter. This is not only doable but also achievable.

- Kimmy Burgess