American Public University
The American economy has almost recovered from the negative influences of the global financial crisis started in 2008, and the GDP data indicates that the American economy has started growing again.
The GDP data indicates that the American economy has partially recovered from the global financial crisis. It is not possible to claim a full recovery from the crisis because the graph indicates that the GDP production could not gain a strong upward development yet. The reason behind the weak economic growth in the American economy is the weak domestic demand, the decreasing exports, and the loss of confidence in the American economy among the citizens. Therefore, many investors believe that the American economy is still carrying a high risk, and they prefer waiting a relatively better development in the economy.
The consumer confidence index is an important indicator to understand what truly is going on in the American economy. The year of 2008, when the global financial crisis started, had the lowest level of confidence index. After 2008, the confidence index has started rising; however; the expectations indicate that the confidence level will not reach the level before the crisis in the short term. The government is trying to invest in increasing the confidence level in the American economy by developing stable economic growth. The low domestic demand and the decreasing export in the American economy are the difficulties that the economy management has to fight against in the long run. Developing the motives for increasing the expenditures of consumption and investment will help develop the domestic demand and the domestic investments. Therefore, the American economy management has to develop the belief of the full recovery from the global financial crisis.
The inflation rate is an important indicator of the low domestic demand. The inflation rate is an essential indicator for the economic growth. The low inflation rate is a psychological barrier for the investors and the producers. For stimulating the investments and the production in the economy, the inflation rate has to rise 4% or close to it. As can be seen in the graph, the inflation rate is almost zero, and even it is possible to claim that the real interest rates are negative in the American economy. Under these conditions, it is not possible to stimulate the production and the investments. The increasing prices might attract the attention of the producers and the investors.
The American economy management is trying to develop a stable economy, and they follow a policy with the smooth preventions to the markets. For instance, the FED has increased the interest rate to develop the accumulation of the national capital in the American economy slowly. In another word, the American economy has to avoid sudden and big changes in the economy to get rid of the potential risks of losing trust in the American economy.
The global financial crisis caused many bankruptcies in the economy, and many people have been unemployed in the long term. After 2010, the recovery has started, and the unemployment rate has started going down. However, the unemployment is still high compared to the level before the crisis. Many people still believe that the full recovery is not possible in the short run, and the employees are hesitating to increase their recruitments.
At the same time, the labor cost is comparatively higher in the American economy. Hiring an American citizen is comparatively more expensive. Therefore, many American companies preferred moving their production plants to the countries with the low production costs thanks to the low labor costs. The American economy management is trying to attract these companies back to the country; however, because of the labor rights in the American economy, it seems to be difficult to do this in the short or the middle term.
As can be seen in the graph, the labor working in the manufacturing industry is demanding relatively higher wages. Considering that many people are in debt in the American economy and thanks to the well-developed labor rights in the States, expecting a decrease in the nominal wages is not realistic. Also taking that the inflation is almost “0”, the real wages will not go down in the short run. Therefore, the business owners will have to bear the high cost of labor if they would like to continue producing in the States.
Considering, all the things explained in this essay up to this point, the producers will not increase their productions, and the investors will expect a high-risk ratio for making new investments. The recent values of the macroeconomic indicators exhibit that the American economy is recovering; however, it is not possible to claim that the economy is fully recovered. Depending on this idea, the agents in the American economy will be cautious until they see the signs of the full recovery. The stock exchange market is a derived market of the real industries. Therefore, we might expect the parallel development in the stock exchange markets.