Economy of the United States

Posted: November 6, 2012 in Education

Economy of the United States

The economy of the United States is the world’s largest national economy and the world’s second largest overall economy, the GDP of the EU being approximately $2 trillion larger. Its nominal GDP was estimated to be over $15 trillion in 2011, approximately a quarter of nominal global GDP. Its GDP at purchasing power parity is the largest in the world, approximately a fifth of global GDP at purchasing power parity. The U.S. economy also maintains a very high level of output. The U.S. is one of the world’s wealthiest nations with per capita GDP (PPP) of $48,450, the 6th highest in the world. The U.S. is the largest trading nation in the world. Its four largest export trading partners are as of 2010: Canada, Mexico, China, and Japan.

There are 4,352 colleges, universities, and junior colleges in the United States. In 2007, Americans stood second only to Canada in the percentage of 35 to 64 year olds holding at least two-year degrees. Among 25 to 34 year olds, the two-year degree rate is the tenth highest. In 2003 a Supreme Court decision concerning affirmative action in universities allowed educational institutions to consider race as a factor in admitting students. The labor market in the United States has attracted immigrants from all over the world and its net migration rate is among the highest in the world.

The labor market in the United States has attracted immigrants from all over the world and itsnet migration rate is among the highest in the world. There are approximately 154.4 million employed individuals in the US. Government is the largest employment sector with 22 million. Small businesses are the largest employer in the country representing 53% of US workers. The second largest share of employment belongs to large businesses that employ 38% of the US workforce. The private sector employs 91% of Americans. Government accounts for 8% of all US workers. Over 99% of all employing organizations in the US are small businesses.

About 284,000 working people in the US have two full-time jobs and 7.6 million have a part-time job in addition to their full-time employment.

In May 2009, the unemployment rate was 9.4%.
In April 2010, the official unemployment rate was 9.9%.

Financial position
The overall financial position of the United States as of 2009 includes $50.7 trillion of debt owed by US households, businesses, and governments, representing more than 3.5 times the annual gross domestic product of the United States.

Since 2010, the U.S. Treasury has been obtaining negative real interest rates on government debt. Such low rates, outpaced by the inflation rate, occur when the market believes that there are no alternatives with sufficiently low risk, or when popular institutional investments such as insurance companies, pensions, or bond, money market, and balanced mutual funds are required or choose to invest sufficiently large sums in Treasury securities to hedge against risk.

The United States is the world’s largest manufacturer, with a 2009 industrial output of US $2.33 trillion. Its manufacturing output is greater than of Germany, France, India, and Brazil combined. Main industries include petroleum, steel, automobiles, construction machinery, aerospace, agricultural machinery, telecommunications, chemicals, electronics, food processing, consumer goods, lumber, and mining. The U.S. produces approximately 18% of the world’s manufacturing output, a number that has declined as other nations developed competitive manufacturing industries.

Energy, transportation, and telecommunications
The United States is the second largest energy consumer in total use. The U.S. ranks seventh in energy consumption per-capita after Canada and a number of other countries. The majority of this energy is derived from fossil fuels: in 2005, it was estimated that 40% of the nation’s energy came from petroleum, 23% from coal, and 23% from natural gas.

American dependence on oil imports grew from 24% in 1970 to 65% by the end of 2005. At that rate of unchecked import growth, the US would have been 70% to 75% reliant onforeign oil by about 2015.

Jobs Outlook
The economy must grow at 2.5 to 3 percent—long term—to keep unemployment steady, because new technology and better methods permit labor productivity to increase 2 percent each year and natural population increases pushes up the labor force about 1 percent.

New Policies Needed
The economy must add 13.0 million jobs over the next three years—361,000 each month—to bring unemployment down to 6 percent. Factoring in continuing layoffs at state and local governments and federal spending cuts, the private sector must add about 380,000 jobs a month. To create that many jobs, GDP would have to increase at a 4 to 5 percent pace—that is possible after a long deep recession but for chronically weak demand for U.S. made goods and services.

The U.S. economy, the world’s largest, has not recovered fully from the 2008 financial crisis and ensuing recession. Under Democratic President Barack Obama, the federal system of government, designed to reserve significant powers to the state and local levels, has been strained by the national government’s rapid expansion. Spending at the national level rose to over 25 percent of GDP in 2010, and gross public debt surpassed 100 percent of GDP in 2011. A 2010 health care bill that greatly expanded the central government’s reach has been under challenge in the courts, and the Dodd–Frank financial overhaul bill has roiled credit markets. Although the election of a Republican Party majority in the House of Representatives in late 2010 slowed spending growth, divided government has left U.S. economic policy in flux.

Rule of Law
Property rights are guaranteed, and the judiciary functions independently and predictably. Serious constitutional questions related to government-mandated health insurance have been under consideration in the courts. Corruption is a growing concern as the cronyism and economic rent-seeking associated with the growth of government have undermined institutional integrity.

Limited Government
In the absence of comprehensive tax reforms, the top individual and corporate tax rates remain at 35 percent. Other taxes include a capital gains tax and excise taxes, with the overall tax burden amounting to 24 percent of total domestic income. Government expenditures have grown to 42.2 percent of GDP, and the budget deficit is close to 10 percent of GDP. Total public debt is now larger than the size of the economy.

Regulatory Efficiency
Business start-up procedures are efficient, and the labor market remains flexible. However, over 70 new major regulations have been imposed since early 2009, with annual costs of more than $38 billion. There were only six major deregulatory actions during that time, with reported savings of just $1.5 billion. Although inflation is under control, price distortions caused by government interventions persist.

Open Markets
The trade weighted average tariff rate is 1.8 percent, with non-tariff barriers such as “buy American” procurement rules adding to the cost of trade. Investment freedom is hampered by ongoing protectionist restrictions. The impact of the recently passed financial reform bills has yet to be measured, as detailed regulations are gradually emerging. However, they are likely to increase compliance costs, complicating the banking sector’s recovery.


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