Last week, we talked about a report published by the census bureau reporting that in 2007, after adjusting for inflation, middle income Americans experienced the lowest income level since 1997.
Your assignment was to comment on the kind of impact that middle income Americans would likely have in the US economy going forward and how it will impact consumer spending which represents about 2/3 of the US economy.
In my opinion, the US is about to move from a market driven economy to a government driven economy. The numbers reported by the US Census Bureau revealed what many middle income Americans already knew, their disposable incomes are stagnant or declining. Furthermore, the inflation-adjusted value of their investments, both fixed and non-fixed, have declined over the last ten years forcing middle income Americans to cut back on spending. Second quarter GDP statistics reveal that personal consumption expenditures were down 1%, non-residential fixed expenditures were down 10.9%, and residential fixed expenditures were down 22.8%. At the same time, Government spending increased 11% during the second quarter. With unemployment approaching 10%, I expect to see this trend to continue. Government spending will likely increase as a component of GDP as consumer spending continues to decline. As a result, I would expect the government to continue to spend on economic stimulus programs to try to generate short term economic growth as measured by GDP, and in the process, it will become the decisive player determining economic growth in the US for the next few years.
Nevertheless, economic stimulus programs designed to influence GDP in the short term may not generate long term, sustainable economic growth. According to Federal Reserve Chairman, Ben Bernanke, the US recession is likely over but unemployment is expected to remain high at current levels through 2010.
How is it possible that a recession can be over and unemployment can remain at about 10% even after 12 to 18 months? Is it GDP alone a good measure of economic growth? Or is it unemployment and national disposable income growth a better measure of a country’s real economic growth?
GDP tells allot about our economy, but at the same time it’s not much because, it doesn’t tell us how the job market is doing and that is one of the most essential parts of our economy.