View on world economies

 
With the volatile global growth on the back of factors including growth of industrialized economies, weakening developing economies, currency devaluations, and falling energy prices, U.S. being the largest economy driving the global growth force is also significantly impacted. Global growth forecasts have been cut down the maximum number of times in the current decade. It is noted that only the U.S. and Japan are growing at similar rates compared with their pre-crisis growth rate after adjusting for changes in the working-age population, but their economies have still grown more slowly than expected. On the other hand, only Saudi Arabia and Turkey have posted growth rates that exceeded their October 2010 projections.
 

US Inflation trend (Source: Thomson Reuters)
 

Factors that need attention

 
Among the factors hindering the U.S. growth rates, rising inequality as analyzed by the rents or the returns on productive resources (like land or labour) which are much higher than the actual amount required to maintain the costs of production has been an alarming one (Annual Economic Report of the President). On the labour front, the aforementioned report examined how the imbalanced division of rents between workers and firms led to the lack of wage pressures. Secondly, high levels of housing costs given few zoning rules and local regulations that restrict housing supply have led to affordability problems. Another concern of worry entails the productivity slump over the years and thus the way to use new technologies for innovation and productivity growth. For instance, interest in robotics has risen especially in the automotive sector, which at the same time has raised concerns about whether they will displace human workers. It has been further reported that the annual supply of industrial robots has nearly doubled since the start of the decade.
 

Fourth quarter U.S. GDP

 
In the fourth quarter of 2015, the U.S. economy expanded at a 1% rate compared to a 0.7% gain reported earlier driven by better inventory figures. U.S. businesses pared back inventories with the change in private inventories accounting for a 0.14 percentage point drag on growth much less than the initially estimated 0.45 point drag earlier. This highlights better growth result than that seen in final months of 2015, but it’s not entirely positive. Consumer spending stood at 2% in the fourth quarter compared to 3% annualized gain in the third quarter. State and local governments limited spending by an annualized rate of 1.4% in the fourth quarter compared to estimated 0.6% decline. However, the federal spending stood positive at a 2.2% growth rate.
 

Economy still in good shape despite challenges

 
Despite challenges faced by the U.S. economy and the broader global gloomy scenario, the American economy can be categorized to be in a good shape based on some economic indicators. Analysts believe that the fall in the U.S. stock market is nothing but a correction in some of the financially overpriced assets which was caused by the Federal Reserve's unconventional monetary policy. As per the recent price to earnings ratio of the S&P index, it is still more than 35% higher than its historical average.
 

Unemployment rate (Source: Annual Economic Report of the President)
 
Among other indicators is the full employment level at the U.S. with an overall unemployment rate of 4.9% and 2.5% among college graduates. Total payroll employment is up more than 600,000 in the past three months, and the ratio of employment to population, which has been at very low rates for several years, is inching up.  Real disposable income is up at a 3.5% annual rate, and the total value of homes is 7% higher than a year earlier. Then housing is seen as a big factor in boosting the U.S. recovery with rise in real estate prices, more construction jobs and positive market sentiments.
 

Equity indices and oil (Source: Thomson Reuters)
 
Also, the 70% decline in oil prices since early 2015 is said to positively impact the U.S. economic growth as indicated by the subsequent fall in gasoline prices alone which drove annual household spending power by about $129 billion or more than $1,000 per household. Although households have temporarily pooled much of the money into savings, it is likely to see it lead to increased consumer spending in 2016 and 2017. Overall, the U.S. economy can be said to be on track if issues discussed above along with factors arising from growing debt, probable tax hikes, fiscal deficits etc. are dealt with in a manageable way.

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