Question

Economic policy is always a major policy debate, and today is no exception. Some economic indicators are looking good these days; others are making people very nervous. Bring us your economic policy news and analysis - the good, the bad, the potentially scary.

Answer 1

The United States has recovered from one of the worst financial crisis in decades ( the crisis of 2008-09). While there is ample good news, there are also several economic concerns. Some of the key positives and concerns are listed below -

1. US GDP growth has sustained above 2.0% and with consumer confidence still remaining high, US GDP growth is likely to remain healthy. The Federal Reserve projects GDP growth of 2.1% for 2019, 1.9% in 2020 and 1.8% in 2021. While growth is likely to decline on a relative basis, it remains healthy considering the fact that the federal reserve has been tightening policies.

2. The civilian unemployment rate is currently at 3.8% and this is below the natural rate of unemployment in the United States. This indicates relatively tight labor markets and further indicates healthy economic conditions.

3. One key concern is that even with economic growth remaining robust, inflation has struggled to reach 2.0%, which is the target inflation rate for the Federal Reserve. It remains to be seen if inflation trends lower in the coming quarters as economic growth is relatively muted on tight monetary policies.

4. While unemployment rate has declined in the United States, a major concern is decline in the civilian labor force participation rate. For January 2007, the civilian labor participation rate was 66.4%. This has declined to 63% in March 2019. With an ageing population, the dependents are increasing and this puts pressure on household budgets and spending potential. This is a major concern since consumption spending is nearly 70% of US GDP.

5. Closely related to an ageing population is the fact that the budget deficits in the United States continue to widen even with economic recovery. The reason is increasing spending on medicare, medicaid and social security. With federal debt at $22 trillion and with interest rates trending higher, the government debt and it's impact on economic growth is a major concern for the United States.

6. One of the factors that can impact GDP growth in the foreseeable future is the ongoing trade wars. If there is no resolution among trading countries, it is likely to hit, imports, exports, consumption and price levels. This can potentially translate into a global slowdown or recession.

Therefore, amidst positives of strong GDP growth and low unemployment rate, there are some major concerns related to an aging population, rising government debt and global trade wars. This makes economic conditions relatively uncertain for the coming quarters.