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The strength of an economy is measured in terms of unemployment rates, economic growth rate, and the rate of inflation. Economic analysts and interpreters must accurately monitor the trends of the above parameters to keep track of economy and give advice to government accordingly. As a result, data have always been collected, analyzed and recorded to monitor the state of economy. In the US, Federal Reserves is obligated with the responsibility and this essay therefore looks at the significance and trends of the economic parameters.
Unemployment Rate in the US
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Unemployment rate refers to the percentage of jobless citizens and it is the most significant parameter used to analyze the labor market (Armstrong, and John 1994). It is sole responsibility of the federal government to ensure that unemployment rates are kept to the minimal as high unemployment rate increases rate of interest. High interest rates are detrimental to economic development. Lowering unemployment rates is fundamental in an economy in that it means most citizens get paychecks. With enough money to use, there will be an increase in their propensity to spend leading to economic growth (Cabral, 1990). However, low unemployment rates are a possible cause of high inflation. In the other hand, high unemployment rates are synonymous with a stagnating economy, low paychecks, and low propensity to spend. The unemployed should be willing to work and must have been aggressively searching for job in at least the last 4 months. In addition, the labor market only recognizes services of those aged 16 years and above.
From January 2007 to end of the year 2009, the total number of jobless US citizens stood at 6.9 million. This survey was conducted for those who add held their jobs for the last three years. The figures reflect an almost 100% increase from the same figures between January 2005 and December 2007. This observation was greatly influenced with the economic crisis that struck the US and the other world major economies. About two thirds of the unemployed population was reemployed in the succeeding survey. This can be attributed to the recovery efforts directed at the economy; for instance, bail offs and other economic strategies instigated by the Obama administration. In the current year, a 95,000 decline in nonfarm payroll employment was witnessed in the month of September whereas. The monthly rate of unemployment still stood at 9.6% in the same month. There was a reduction in public jobs following the opportunities created by 2010 population Census in the US. However, the private sector continued to register growth in employment, 64,000. Below is the corresponding quarterly averages GIF graph;
Inflation rate is a basic economic parameter used to measure strength of currency of a country, state, or city. It does vary as it is measured on monthly basis and its main component is the Consumer Price Index (CPI). Inflation rate represents the cost of living as a result of changes in consumer prices. In addition, inflation may be caused by printing too much money within an economic set up or if a country is hit by financial disaster. An example in point is the recent economic crisis of world's strongest economies. Another cause of inflation is an increase in cost of fuel which leads to higher transportation costs. Increase transportation costs causes general rise in cost of goods leading to inflation. The table below shows inflation rates in the United States from 2000-2010.
Table of Inflation Rates by Month and Year (1999-2010)
Source: US Inflation Calculator
The table shows a steady decrease in inflation rates from 3.4 in 2000 to 1.6 in 2002. However, the succedding years realised increased rates of inlation to 3.4 in 2005. There is a valid reason to explain this trends. In the year 2000 OPEC set oil price band of between $22-$28 per barrel. Conflict in Middle East raised the price to $24 and following successive production reduction due to effects of the war, there was an oil price surge that can only be compared to that of 1970s. The increased oil prices in 2005 explains the high inlation rates in that year. The following years registered decreased inflation rates to 2.8 in 2007. However, the year 2008 experienced high inflation due to the most talked about economic crisis. The crisis weakened the capital market and the overall effect of Wall Street had negative effects on major compaies and institutions. Due to lay off of workers by the affected conpanies, CPI significantly reduced causing inflation rates to rise. From the 2000, inflation hit an all time low of -0.4 in the year 2008 following economic recovery under new government administration.
Economic Growth Rate
Economic growth rate refers to percentage economic growth for a given periods. It is expressed without consideration of other economic parameters like inflation. In real sense, economic growth rate is the measure of how Gross Domestic Product, GDP or Gross National Product, GNP compares between two consecutive years. GNP is an effective factor to use if an economy widely depends on foreign exchange for its domestic economy. If GDP1 and GDP2 represent GDP for year one and year two respectively, then;
Economic Growth = (GDP2 - GDP1) / GDP1
Economic growth rate can be analyzed to observe the general trend and growth levels of overall economy. The rate is between 2-5% for the US economy on average; however, at times the rate may go to as high as 10%.
GDP calculation has to consider the effects of inflation and adjusted to weed out the impacts on prices of consumer goods and services. GDP is an economic indicator that measures standards of living of persons; though, it does not spell out income distribution within an economy and the negative consequences brought about by population and the positive effects of education and health. In addition, GDP does not consider activities that cannot be expressed in monetary terms such as leisure costs. Due to these deficiencies, GDP is less important to economists as a measure; but, it is crucial as it acts as an economic indicator used universally. In order to avoid these discrepancies, economic growth has to be expressed exponentially and the exponent should reflect the GDP rate within a year.
The millions of job losses caused by economic crunch that ended in mid 2009 seriously affected consumers' willingness to spend. On the other hand, the housing sector has experienced unsustainable growth due to lack of government tax waiver and unwillingness of US citizens to buy houses. As a result, there has been a general slow growth (stagnant at 1.7%) of the economy that is now a concern for the Federal Reserves. Consumer expenditure caters for about 70% of the US economy, and it has hit a 2.2% rate in the last quarter, a feat that was only witnessed last in the January, February, and March in the year 2007.