The US Economy in March 2013
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Current State of US Economy Today
The Federal Reserve announced today that it had lowered its forecast for US economic growth to a range of 2.3 percent to 2.8 percent for 2013. The Fed’s forecast in December 2012 had been 2.3 percent to 3.0 percent for 2013 growth. At the same time, Federal Reserve policymakers have also downgraded the inflation forecast for the US Economy. The Core PCE forecast for 2013 has been reduced to a range of 1.5 percent to 1.6 percent yearly inflation from a range of 1.6 percent to 1.9 percent yearly inflation. These revised economic projections for the world’s largest economy cast a dimmer light on the US economic outlook, in part, because of the “more restrictive fiscal policy” being used by the Fed. The Federal Reserve’s Open Market Committee did give a better near-term assessment of the economy by stating “the economy should return to moderate economic growth following a pause, late last year,” with “labor market conditions showing signs of improvement in recent months”. The Fed estimated unemployment for the rest of 2013 to be in a range of 7.3 percent to 7.5 percent. For 2014, the Fed predicted an unemployment range of 6.7 percent to 7.0 percent and for 2015 a range of 6.0 percent to 6.5 percent. The Fed concluded by saying the key interest rate was kept on hold at 0.25 percent and the pace of QE3 was kept on hold at $85 billion per month in agency MBS and US Treasury purchases.
Also this week, the government announced that fourth quarter Gross Domestic Product which is the value of all goods and services produced by the economy grew at a 0.4 percent annual rate. This was a big drop from the third quarter growth rate of 3.1 percent, but higher than the initial estimate of negative 0.1 percent. The main problem in the fourth quarter was government spending, which dropped primarily due to the largest cut in defense spending since 1973. Also, consumer spending only increased 1.8 percent which was less than expected. Some economists sighted increases in Gross Domestic Income as a reason for optimism. Paul Ashworth, the Chief Economist at Capital Economics said “growth is actually accelerating markedly from 1.6 percent in the third quarter to 2.6 percent in the fourth quarter so measuring economic activity from the expenditure side of the economy (GDP), growth is very weak, but measured from the income side (GDI), the economy was actually pretty strong.”
From a historical prospective, the growth rate for the US economy for all of 2012 was 2.2 percent versus 2011’s growth rate of 1.8 percent, and 2010’s rate of 2.4 percent. The real rate of the economic growth during the recovery has averaged 2.2 percent, which is about half the 4.23 percent average rate in the past ten recoveries and well below the average annualized GDP since World War II of 3.5 percent.
Posted on May 8, 2013, in Business financing, economics, Effi Enterprises, Finance, financial history, Venture Capital and tagged business funding, business plan, economic projections, US Economy. Bookmark the permalink. Leave a comment.