The following is an article review portfolio of ten economic articles featuring articles from reputable news sources.
U.S. Trade Gap Widens, Spurring Downshift in GDP Projections
The article analyses the impact of stagnated growth in foreign major economies particularly China and Europe to the US economy. According to House (2014), demand for US exports in the first quarter of 2014 has declined steadily. A report released by the US Commerce Department indicated that on February, exports dropped to $ 190. 43 billion representing a 1.1% drop compared to January. January also recorded a 0.6% drop compared to December last year. Imports from overseas however increased by 0.4% in February. The resultant effect of this continuous drop in exports with increased imports is a widened trade deficit of 7.7%. Analysts had estimated that the trade deficit would be maintained at $ 38.6 billion however, the deficit currently stands at $ 42.3 billion.
The decline has been attributed to slow economic growth in China and fragile economic recovery of the European economy, which has created lower than expected demand for US exports. These disappointing results according to analysts were also partly caused by recent adverse cold and stormy winter in the US that led to disruption of many economic activities. Despite a 0.4% growth in imports, analysts are still pessimistic as the rate is lower than expected. The weak growth in imports can be interpreted to symbolize weak growth in consumer expenditure on imported items such as cars and consumer electronics.
The Gross Domestic Product is comprised of among other contributors, the consumer expenditure. A decrease in consumer expenditure implies that the GDP will reduce especially if there is no compensating increase in other components such as net exports and government expenditure. In this case, exports have reduced while imports have increased thus net exports have reduced too. House (2014) therefore tends to paint a gloomy picture of the current state of US economy. He further reports that due to these developments, analysts have downgraded their future estimates of the US economic performance with Royal Bank Economic analysts adjusting their estimated annual economic growth for 2014 from 1.2% to 0.6%.
Budget proposal won’t tame debt, interest would soon exceed military spending- Fox
The article posted on Fox News discusses the status of the US national debt compared to the national GDP and the potential impacts of high national debt. According to the author, the current level and estimated future increase of the US national debt could land the nation into fiscal trouble in the long term.
The article forecasts that by the year 2024, the US national debt would rise from the current $17.4 trillion to around $ 25 trillion and that interest payable on national debt in 2020 would be higher than entire expenditure on national defense. The White House estimates that interest on national debt will increase from the current $ 223 billion to $ 800 billion in 2024. In 2020, the national defense budget will be $ 583 billion while national debt interest will be 600 billion. Most politicians have however, avoided confronting this looming fiscal crisis as it would affect their popularity in the forthcoming elections and are instead boasting of reduced budget deficit that is expected to drop from the current $ 649 billion to 564 billion in 2015.
A nation’s economic prosperity in the long term can be measured by the level of its national debt as a proportion of its Gross Domestic Product. When a nation has high level of national debt, due to repayments on the principle borrowing and applicable interest on the borrowing, it will have fewer saving to reinvest in the economy to spur economic growth. Government expenditure is one of the major components of GDP thus when the government spends less, GDP drops. High national debt also means that the government will have less funds to finance national programs such as medical care and social security. Other critical services such a defense will also suffer. Thus, high current and future US national debt is a threat to its long-term future economic prosperity.
Consumer Sluggishness Seems to Be Growth Drag, for Now
Leubsdorf (2014) analyses the patterns of consumer expenditure in the first quarter of 2014. The importance of consumer expenditure to the US economy can be explained by the fact that it contributes to more than two thirds of the national economy according to the author. A recent US Commerce Department report indicates that that consumer expenditure rose by just 0.2% in February, which is minimal, compared to analyst’s estimates of 0.4%. Poor performance in consumer expenditure according to the author has been caused by the harsh winter in the early months of 2014.
Consumer expenditure generally drop during adverse climate as people prefer staying indoors to going shopping. For instance, a gift shop owner reported that his daily sales have tripled since the end of the cold winter. However, despite the drag in the economy caused by the adverse weather, several factors helped to boost expenditure. Medical expenditure in particular rose sharply as people enrolled for Medicaid. The Affordable Care Act further increased employees’ income and therefore their spending. Certain types of expenditure such as spending on natural gas used for heating also increase during the cold weather. Leubsdorf (2014) reports that in Connecticut, a 20% increased consumption of natural gas was recorded during the cold winter period.
The article exposes the importance of consumer expenditure as a contributor to the national GDP. Due to poor actual growth in consumer expenditure at 0.2% compared to analysts’ initial estimates of 0.4%, they revised downwards their estimates of GDP growth. For instance, Macroeconomic Advisers an economic research company adjusted their GDP growth forecast for the first quarter from 1.5% to 1.3 %. Barclays Capital too, revised its estimates for the first quarter GDP growth from 2.4% to 2 %.
Russia’s Growth Was Already Slowing—Then Came Crimea
Meyer (2014) reports on the economic impacts of Western sanctions on Russia’s economic growth. The US and Europe has placed economic and political sanctions Russia following its annexation of Crimea. Currently, the economic effects of those sanctions are mild but economic conditions are expected to worsen in the near future, which hopefully, would force Russia to opt out of Crimea.
The immediate impact will be capital flight. Foreign and local investors would be scared that due to the sanctions, economic conditions in Russia would be unfavorable for investment. The US has threatened tougher sanctions on Russia than those placed on Iran. Due to fear, more Russian and foreign investors are likely to flee the country for Europe or elsewhere where political and economic conditions are conducive for investment. Sanctions also imply that Russia will not be able to export its products such as oil to the foreign market and will not import raw materials for local production and consumption.
Economists estimate that around $ 70 billion worth of capital have fled the country since the beginning of the conflict early this year compared to $ 63 billion that fled the country the whole of last year. The sanctions have already triggered panic in the capital markets. As a result, borrowing interest rates have increased which will discourage people from borrowing and investing. Stock prices have also plunged as investors rush to sell their stock due to panic of future price decline. Isolation of Russia out of G8 countries implies that it would not be able to influence global economic policies in its favor in future.
Political stability and good relations with foreign countries is thus essential for economic growth. Stability creates investor confidence therefore increasing private investments, which contributes to national GDP. Warm relations with foreign countries enable a country to find market for its exports, bargain for favorable terms of trade with them and obtain imports for local consumption.
IMF chief says global growth still too weak
Reporting on USA Today on the current global economic status and its future prospects, Davidson (2014) paints a dull picture of the global economy. The author quotes the Managing Director of International Monetary Fund Christine Lagarde who posits that the current fragile global economy is expected to worsen due to geopolitical tensions among other factors. The global economy is still feeling the impacts of the last global recession thus minimal growth this expected. IMF projects that 2014 and 2015 growth will slightly surpass 3% recorded last year. However, economic growth is likely to be hampered by three major obstacles. Firstly, minimal inflation expected in the Eurozone will stifle demand, production and employment. Secondly, the recent announcements by the US Federal Government that it will increase interest rates has forced foreign investors out of emerging markets as it will make capital borrowing for investment purposes more expensive. Thirdly, geopolitical tensions specifically Ukrainian incursion by Russia is expected to disrupt global economy as sanctions on Russia are implemented. The IMF official suggested more investment in infrastructure, reduction of unemployment and reduction of national debts as measures that would spur global economic growth.
The article touches on some of the essential elements imperative for economic growth. Interest rates enable investors to make new investments through availability of cheap capital. High rates of employment translate to higher income for citizens who will spend more hence higher consumer expenditure, which contributes to GDP. When more people are employed, the government also collects more revenue in form of taxes, which it uses to make investments contributing to further economic growth. Public infrastructure that supports investments such as transport facilities and energy is also needed for economic growth to occur. Finally, political calm is essential for economic growth. It provides investors with the confidence needed to make new investments and reduces capital flight.
Revelations of N.S.A. Spying Cost U.S. Tech Companies
Recent revelations by former National Security Agency Edward Snowden on the extent to which the intelligence agency spies on citizens on the internet has sparked controversy across the board. Miller (2014) discusses the commercial implications of these revelations on businesses operating on the technology industry. Foreign customers have been scared from using US technology products for the fear of being spied upon. Instead, they are opting for European and Chinese companies. For instance, Microsoft has lost customers including major clients such as the government of Brazil and Runbox, a Norwegian competitor to Gmail reported a 34% increase in its customer base since Snowden’s revelations.
To avoid further losses IBM has been forced to spend 1.2 billion dollars in building computer servers overseas to reassure customers of their privacy. If other companies in the industry adopt this trend, it would cost the US economy billions in investments lost to other countries. Economic analysts forecast that US technology based companies could lose as much $ 180 billion by 2016 in revenue losses from cloud computing line of businesses, as customers will be skeptical to entrust their digital information to US firms. This translates to lost taxes and exports for the US economy.
Furthermore, the leaked documents revealed that the NSA had been spying on sovereign states particularly Germany and Brazil. This has caused governments of these states to adopt adversarial attitude towards American companies. Thus, the possibility that American companies will lose those foreign markets the same way Chinese company Huawei lost American market after spying allegations is high. The NSA spying case presents a typical scenario on how government interference in commercial activities hurts the economy. Unfavorable government policies drive away investment and customers to the detriment of national economy.
Payrolls in U.S. Rose 192,000 in March, Unemployment 6.7%
Woellert (2014) reports on the current state of employment in the US. Writing on the Bloomberg, the author posits that the slight growth in employment has been caused by increase in number of jobs in the private sector. In March, the number of new workers that joined the labor force increased by 503,000 most of which found employment. Out of these, the private sector accounted for 192,000 jobs compared to 188,000 reported in January according to a recent Labor Department report. This caused the total number of jobs in the US to rise to 116.1 million, which is the highest record since recession when 116 million total jobs were recorded during prerecession period in January 2008. Despite unemployment, rates have remaining at 6.7%, there is a bright future for the US job market with many companies planning to hire more workers in the near future. Earnest & Young for instance, plans to hire 12,700 more workers and Bayerische Motoren Werke motor company has announced an expansion program that will take in 800 more workers.
Increased employment has been contributed to by increased demand and consumption as US recovers from the most extreme winter conditions in four years. Ford, Chrysler and General motor companies announced that their sales in March exceeded their expectations. As a result of higher demand expected in future they, are building more manufacturing plants and increasing the labor force thus improving the national employment status?
The article proves the concept of multiplication of gains in an economy. When demand and consumer consumption increases, businesses make more investments and expand in anticipation of higher demand. As a result, they take in more workers while improving employment rates. High employment rate translates into higher income for the population, which in turn, further increases demand and consumption resulting in higher investments. The cycle repeats until it finally results in a grown economy.
S. economy shows some muscle, housing still weak
Mutikani (2014) reports on the overall performance of the US economy in comparison to performance of the housing market. The author reports that the economy grew slightly faster in March than it had earlier been anticipated while unemployment too dropped in late March. The Gross Domestic Product grew by 2.6% compared to 2.4% reported at the end of last year. Unemployment rates fell as the Labor Department recorded 10,000 less claims for unemployment than the expected 325,000 claims. Growth was partly driven by increased consumer expenditure, which rose by 3.3%. According to analysts, this is the highest consumer expenditure growth in three years. The consumer expenditure alone contributed 2% of the 2.4% GDP growth. Healthcare, utility and manufactured goods expenditure accounted for a large portion of the rise in consumer expenditure.
Despite increase in overall consumer expenditure, demand in the housing market however fell to the lowest level in two years in February as new housing contracts fell for the eighth consecutive month. This trend is expected to prevail past March. Interest rate on housing mortgages also fell from 4.49 recorded in September 2013 to 4.3% in February further symbolizing the deteriorating state of the market. A recovery in the interest rates is however expected in early 2015 following the Federal Government’s announcement that it will buy back treasury bonds.
The importance of the housing market to the US and global economy cannot be overemphasized. It is the poor performance of the housing market that caused the previous global recession when most subprime mortgagees defaulted loan repayment resulting into high rates of repossession and a drop in housing values. Thus, macroeconomic analysts ought to keep a keen eye on the performance of the housing market. Expected improvements in interest rates because of Federal Government steps to repurchase treasury bonds will hopefully improve the performance of this crucial market.
17 million reasons to raise the minimum wage
A proposed increase in national minimum wage by the US Congress has triggered a debate among economic analysts on its potential economic impacts. Some economists argue that raising the minimum wage is likely to hurt the economy by forcing employers to lay off workers they cannot afford to pay hence creating high rates of unemployment and higher prices resulting from higher costs of running businesses.
Warren (2014) however has a positive outlook towards raising the minimum wage. She argues that adjusting the minimum wage upwards from $ 7.25 to $ 10.1 will benefit around 15 million families by raising their income and therefore alleviating them from poverty. It is estimated that around 17 million dependents will benefit from increased wages. She argues that large businesses backed by some economists, lawyers and politicians are only opposing the proposal for fear of losing their large profits. The government intends to use raised minimum wage to reduce economic gap between the poor and the rich by reducing business profits and increasing incomes of poor families.
According to Warren (2014), increased wages will translate into higher income for the population, which will increase their spending to the benefit of the economy, as increased demand will expand small businesses while creating more employment. Increased income also means that people will be less dependent on the government for assistance on basic needs such as food stamps thus the government will have more money to invest in economic development. The government will also collect more taxes from workers. Generally, increasing income for the overall population can be expected to bring positive results to the economy by increasing consumer expenditure and thus the GDP. The increase does not necessarily create unemployment as critics claim because businesses can find other ways of cutting their costs such as reducing salaries for senior employees and other expenses.
. 10. Good News: Obamacare clearly is not stifling the Economy
Writing on the Huffington Post, Orlando (2013) reviews the economic effect of implementing Obamacare. Economists had earlier predicted that implementation of the affordable healthcare scheme would harm the economy by reducing jobs as employers would retrench employees following high employee healthcare costs caused by the scheme. However, based on official reports on economic performance the author disapproves the critics’ position. The reports indicated that the economy recorded a 4.1% growth as the government implemented the scheme late last year. Skeptics had feared that the $ 2000 fine payable by businesses which don’t comply with Obamacare provisions would put unbearable operating costs on small businesses and thus kill them in the long run. They also expected employers to shift insurance premium costs to employees by reducing their salaries thus drain their savings or employ part time workers to avoid providing health coverage.
According to Orlando (2013) disruptive effects of implementation of Obamacare on businesses however, were minimal. This could be attributed to the fact that the provisions of the law only applied to businesses employing above 50 workers. However, in the US, only 4% of businesses match this criterion. Thus, most businesses were not burdened with the $ 2000 non-compliance fine. The predicted shift of insurance premium costs to employees did not happen either. Neither did employers stop providing health coverage. The author argues that most businesses provide health care benefits to employees to attract the best workers in the market thus; they would not stop offering coverage.
The critics reasoning was that Obamacare would decrease employees income due to salaries reduced to cater for increased employer premium contribution. Reduced income was expected to cause reduced consumer expenditure thus drop in GDP. Furthermore, high operations costs were expected to force businesses to shut down and to reduce costs, employers were expected to retrench employees and increase prices. The result would be an economy with high unemployment, low GDP growth and high inflation. As Obamacare is being implemented, this is not happening however.
The paper has reviewed economy related articles from reputable sources while discerning the authors’ positions and relating their arguments to macroeconomic concepts. The articles cover various issues ranging from the impacts of government policies such as health care policies, security policies, fiscal policies and employment policies on the national economy to the impact of geopolitical events on the global economy. The overall status and future prospects of the national economy, global economy and key markets according to various author’s opinions have also been reviewed.
Budget proposal won’t tame debt, interest would soon exceed military spending (2014, March 04). Fox News.
Davidson P. (2014, April 2) IMF chief says global growth still too weak. USA Today.
House J. (2014, April 3) U.S. Trade Gap Widens, Spurring Downshift in GDP Projections. The Wall Street Journal.
Leubsdorf B. (2014, March 28) Consumer Sluggishness Seems to Be Growth Drag, for Now. The Wall Street Journal.
Meyer H. (2014, April 3) Russia’s Growth Was Already Slowing—Then Came Crimea. Bloomberg Businessweek.
Miller C. C. (2014, March 21) Revelations of N.S.A. Spying Cost U.S. Tech Companies. The New York Times.
Mutikani L. (2014, March 27) U.S. economy shows some muscle, housing still weak. Reuters.
Orlando W. A. (2013, December 27) Good News: Obamacare Clearly Isn’t Stifling the Economy. The Huffington Post.
Warren E. (2014, March 28). 17 million reasons to raise the minimum wage. Market Watch.
Woellert L. (2014, April 4) Payrolls in U.S. Rose 192,000 in March, Unemployment 6.7%. Bloomberg Businessweek.