American Economy Climate

As of 2022, the United States had the seventh-highest nominal per capita GDP and the eighth-highest PPP per capita Economy in the world.

Economy

The mixed-market economy of the United States is very advanced. By nominal GDP, it has the largest economy in the world, and by purchasing power parity (PPP), it is second only to China in size. As of 2022, its nominal per capita GDP ranks seventh globally and its PPP per capita GDP ranks eighth. In nominal terms, the U.S. contributed about 24.7% of the world GDP in 2022 and 15.5% of it in PPP terms. Its businesses, particularly in computer, pharmaceutical, medical, aerospace, and military equipment, are at the forefront of technical advancements or are very close to it.

During the Great Recession, which is considered to have lasted from December 2007 to June 2009, the American economy had a significant decline. But by 2011, household net worth, non-farm payroll jobs, and the unemployment rate had all returned to levels seen prior to the crisis (late 2007). Following those dates, each of these factors continued to reach post-recession records, and by April 2018, the U.S. recovery was the second-longest on record. In 2017, the United States had the largest income disparity among the 156 countries, placing 41st overall.

Income measures:

Real median household income, which is adjusted for inflation and is a reliable indicator of middle-class income, reached a record high of $59,039 in 2016. It was just marginally higher than the previous high, which was established in 1998, suggesting that for the majority of the last 20 years, the purchasing power of middle-class family income has been flat or declining. 2013 saw $8.969 trillion in employee remuneration and $2.781 trillion in gross private investment.

In the OECD, Americans had the highest average family income, and in 2010, their median household income fell to fourth place from second place in 2007. According to one research, whereas several other advanced economies have recently repaired the gap, middle-class earnings in the United States tied those in Canada in 2010 and may have gone behind by 2014.

Income Inequality:

The issue of income disparity is currently being discussed widely. The United States’ income disparity ranked 41st out of 156 nations in 2017, according to the CIA World Factbook (74% of nations have a more equal distribution of wealth). The Congressional Budget Office estimates that in 1979, the top 1% of income households received around 9% of pre-tax income, compared to 19% in 2007 and 17% in 2014. These numbers were 7%, 17%, and 13% for after-tax income, respectively.

These data show that the percentage of top earners’ income more than doubled between 1979 and 2007, then slightly decreased after the Great Recession, higher tax rates, and redistributive policies implemented by President Barack Obama in 2013 (i.e., the expiration of the Bush Tax Cuts for the top 1% and subsidies for lower-income individuals through the Affordable Care Act). The poorest 99% of families would have had an average of around $7,100 more income in 2012 if the income distribution from 1979 (which represents the more equal 1950–1980 period) had been used instead of 2012. More than two out of every three metropolitan areas in the United States had an increase in income disparity between 2005 and 2012.

According to an OECD study from 2018, the U.S. has much higher income inequality and a higher proportion of low-income workers than nearly any other developed country. This is because unemployed and at-risk workers receive almost no government assistance and are further hampered by a very weak collective bargaining system.

Discrepancy in wealth and household net worth:

The United States’ total household net worth reached a record $99 trillion in Q4 2017, up $5.2 trillion from the previous year. This growth is due to rising home and stock market values. Since Q4 2012, this measurement has been breaking records. If divided equally, the $99 trillion would equal an average of $302,000 per person or $782,000 per household (for a total of around 126.2 million families). However, the median household net worth in 2016 was $97,300 (i.e., half of the households above and below this amount). The median net worth of families in the bottom 25% was nil, while that of families in the 25th to 50th percentile was $40,000.

The top 1% of families owned over 42% of the nation’s net worth in 2012, up from 24% in 1979, making wealth disparity greater than income inequality. Wealth inequality is at historic highs, according to a Federal Reserve report from September 2017; in 2016, the richest 1% owned 38.6% of the nation’s wealth. According to a report published in June 2017 by the Boston Consulting Group, by 2021 only 1% of Americans will own 70% of the nation’s wealth.

80% of all financial assets are in the hands of the top 10% of earners. Other than Sweden, most developed nations have higher levels of wealth disparity than the United States. Many Americans who have become wealthy may have had a “significant head start,” which may be explained in part by inherited money. According to the Institute for Policy Studies, “almost 60%” of the 400 wealthiest Americans in Forbes in September 2012 “grew up in significant affluence.” Due to the Great Recession, the median household wealth in the United States decreased by 35% between 2005 and 2011, from $106,591 to $68,839. However, as mentioned above, it has since increased.

In the United States, there are about 30% of all millionaires in the globe (as of 2009). 16,600,000 millionaires were thought to reside in the United States in 2008, according to the Economist Intelligence Unit. In addition, 34% of the billionaires in the globe are Americans (in 2011).

Profit and Wages:

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For the majority of American employees, median salaries and real wages (wages adjusted for inflation) have either decreased or stagnated over the past twenty to forty years. A 2020 microanalysis showed that while the profit portion of the same output increased during the same time period, the labour share of the national output decreased over the prior four decades.

The Federal Reserve Bank of New York revealed that seven million Americans are at least three months behind on their auto payments in February 2019, which is a record. Economists view the fact that Americans are having trouble making ends meet despite a low jobless rate as a warning sign. According to a May 2019 NPR study, 49% of rural Americans could not pay for a $1,000 emergency in cash and would instead borrow the money to cover the cost. 40% of rural Americans struggle to pay for healthcare, food, and housing.

According to some experts, the US has seen a “two-tier recovery,” with 60% of the population benefiting while the remaining 40%, or the “bottom tier,” has been struggling to make ends meet due to stagnating earnings, rising housing, healthcare, and education costs, as well as mounting debt. According to a 2021 study by the National Low Income Housing Coalition, employees must make at least $24.90 per hour (i.e., 30% of a person’s income or less) to be able to afford renting a typical two-bedroom home or $20.40 for a one-bedroom home anywhere in the US. The former is 3.4 times more than the federal minimum wage now in effect.

Poverty:

Although assessments utilising a common data set for comparisons tend to conclude that the U.S. has a lower absolute poverty rate by market income than most other wealthy nations, relative poverty rates have continuously exceeded those of other wealthy countries since the 1980s. In the United States, the number of households experiencing extreme poverty—defined as those making less than $2 per day before receiving government assistance—doubled from 1996 levels to 1.5 million households in 2011, including 2.8 million children. 16.7 million children, or roughly 35% more than in 2007, lived in households where there was food insecurity in 2013, bringing child poverty to record high levels. Children in the United States live with low-income families in 44 percent of cases as of 2015.

In 2016, 12.7% of Americans lived in poverty, which is a decrease from 13.5% in 2015. Before the Great Recession, the poverty rate increased from 12.5% in 2007 to a peak of 15.1% in 2010, then decreased to just above the 2007 level. The poverty rate was over 20% between 1959 and 1962, but once Lyndon Johnson’s War on Poverty was launched, it fell to an all-time low of 11.1% in 1973. The IMF issued a warning to the United States in June 2016 that it must take immediate action to reduce its high poverty rate.

The social safety net in the United States is among the least extensive in the developed world, reducing both absolute and relative poverty by a far smaller amount than the average for wealthy countries. Some analysts contend that the living conditions of the poor are comparable to those in the developing nations. According to a May 2018 study by the U.N. Special Rapporteur on extreme poverty and human rights, more than five million Americans experience conditions similar to those in the “Third World,” or elsewhere.

Prison time has been “commonplace for poor males of working age” in America during the past three decades, with rates of incarceration far higher than those in other industrialised countries. According to some academics, the transition to neoliberal social and economic policies, which began in the late 1970s, increased the criminal justice system, reduced social welfare, liberalised the market, and criminalised poverty, ultimately “transforming what it means to be poor in America.”

Composition and Economic Sectors:

With an industrial output of US$2.4 trillion in 2013, the United States ranked as the second-largest manufacturer in the world. Its manufacturing output exceeds that of Brazil, Germany, France, India, and all of them put together. Petroleum, steel, vehicles, construction equipment, aerospace, agricultural equipment, telecommunications, chemicals, electronics, food processing, consumer products, lumber, and mining are some of its primary industries.

America is the world leader in the production of aeroplanes, which accounts for a sizable amount of the country’s industrial output. The majority of the world’s civilian and military aircraft are made in American factories by businesses like Boeing, Cessna (see: Textron), Lockheed Martin (see: Skunk Works), and General Dynamics.

Over the past few years, the manufacturing sector of the American economy has seen significant job losses. The number of such positions was 14.3 million in January 2004, down 3.0 million (17.5%) since July 2000 and around 5.2 million since the peak in historical records in 1979. Manufacturing employment was at its lowest level since July 1950. Between 1980 and 2000, the number of steel employees decreased from 500,000 to 224,000.

Around 18% of the world’s manufacturing output is produced by the United States, though this percentage has decreased as other countries have built up competitive manufacturing businesses. Multiple variables, including greater productivity, trade, and long-term economic trends, have contributed to the job loss during this continuous volume growth. Additionally, while low end, low skill industries like apparel, toys, and other simple manufacturing declined, other U.S. occupations became more highly skilled and paid. These include jobs in telecommunications, medicines, aeroplanes, heavy machinery, and other industries. Whether the drop in manufacturing jobs is due to American unions, lower overseas pay, or both has been a hot topic of discussion in the US.

Central Bank and Currency:

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The currency of the United States is measured in dollars. The currency that is most frequently utilised in cross-border transactions is the US dollar. It is the de facto currency in many nations, and it is used as legal tender in many others.

In order to maintain low inflation, strong economic growth, and low unemployment, the federal government uses both fiscal policy (taxes and spending) and monetary policy (management of the money supply through mechanisms like changes in interest rates). To ensure a stable currency and monetary system, the Federal Reserve, a private central bank, was established in 1913. The U.S. dollar has a reputation for being one of the most stable currencies in the world, and many countries use U.S. dollar reserves to support their own currencies.

Although it is steadily under competition, the U.S. dollar has maintained its status as the major reserve currency of the globe. United States dollars make up about two thirds of all currency reserves kept globally, compared to the euro, which is the second most common currency, which makes up about 25%. Some have predicted that the U.S. dollar will no longer be the world’s reserve currency as a result of rising national debt levels and quantitative easing, although this has not yet happened.