U.S. Economic Recovery?
Is the U.S. economy recovering? Certain signs and events seem to indicate so but after years of false starts can we really feel confident that the economy is about to turn around this time?
Let's take a look at some possible telltale signs:
There has been a 5 % increase in imports from November 2010 through November 2011.
Historically, the Gross Domestic Product (GDP) increases on a one to one basis when imports increase. So can we can expect a 5% increase in the GDP?
Imports typically rise when consumption increases; consumption (considered the largest component of the GDP) raises imports because most durable goods are manufactured overseas.
So what are some factors that cause consumption to increase?
- Increase in a family's disposable income: As a result families purchase more luxury goods and luxury goods are typically imported.
- Growth in the housing industry: Increased home sales result in imports because people purchase items for their new homes. For example, in November 2011 there was a 7% growth in shipments of furniture, a top import commodity.
The Federal Reserve recently announced that it was not going to raise interest rates until the end of 2014, adding an additional 18 months to the most basic response to the economic crisis. Does this mean the Federal Reserve does not expect the economy to recover over the next three years, or does the Federal Reserve believe that the economy is poised for a strong comeback and the holding off of interest rates is the push a stagnant economy needs to get started? Only time will tell.
In the meantime, as imports continue to rise, we can expect an increase in consumption, the driving factor of our economy. This fact alone should be enough to offer a glimmer of hope that we are on our way to an economic recovery.