Discuss about the General Economic Conditions in The U.S Macroecomony.
Introduction :General economic conditions in the U.S. macroecomony
The US economy is considered to be one of the most dynamic economies in the world Combined by the lack of skilled labour in several sectors and a slow rate of wage growth, the GDP growth rate has drastically declined to 1.6% in 2016. Offlate, exports have decreased and imports have increased making a manifold impact on the world’s largest economy. Though the inflation has moderated and increased consumer expensidture is expected but the political upheavel may well change the overall scenario drastically including the passing of budget for 2018. Systematic risk is symbolised by the letdown of interdependent factors in an economy where a single entity or a group of entities can push back the entire economy towards major backdrop (Carpenter, McClellan, & Rees, 2017)
The US economy majorly includes outputs from services and manufacturing sector scaling up to 90% of the GDP which are expected to remain constant or to increase at a moderate level. The major risks and uncertainties in the US economy included the US presidential elections, the cost pertaining to the regulatory affairs n below average performance of the Western economies in the last few years, however, the Trump government is expected to stabilise the econom, inflation and the stock markets with some rigid and immediate monetary and fiscal measures. The US state is having a huge fiscal deficit in the books currently which may be temporarily stabilised but Trump measures are expected to have long term negative repurcussions. Besides this, the other risks include weakening of US currency, increased unemployment and rise in the debt proportion of the economy. The other major risk is the rise in the terrorism index of US due to conflict with the US allies (Akerlof, 2017).
Recommendations and Justification
The US ecomomy should put up right business formulation combined with a skilled labour efforts to boost productivity. Besides this, funds should appropriately allocated, rebalanced and diversified to avoid risks. Out of $1000000 to be allocated amongst 3 assets classes namely US equity, treasury bonds and cash, the ideal and optimum allocation percentage would be 50-50%, 35-40% and 5-10% respectively. This is because investing in equity gives huge returns but it is highly risky, whereas debt or the treasury bonds gives fixed returns and are comparatively less risky in a volatile market, cash and cash equivalents are highly liquidable and can be coverted to cash anytime and bear a very negligible risk. The reason of selecting a moderately aggressive portfolio is because US economy is volatile amidst political instability, rigid policy decision and changes, lower productivity and weakening of the currency. In such a scenario, the safest way to maximise the return is to diversify your portfolio with increased concentration in debt market and treasury bonds such that the loss, if any suffered in the equities can be offset agsinst the fixed profits earned in debt market (Prieto, Eickmeier, & Marcellino, 2016)
||U.S. 30-Year Treasury Bonds
All in all, the US government is taking all the necessary measures to mitigate all such risks and bring about increased infrastructure spending by introducing structural reforms in the taxation for 2018. To deal with all such "uncertainties", the US economy is aiming for regulatory easing, lower tax rates, tax holiday, etc. (Wieland, Afanasyeva, Kuete, & Yoo, 2016)
Akerlof, R. (2017). The Importance of Legitimacy. The World Bank Economic Review , 30 (1), S157-S165.
Carpenter, C., McClellan, C., & Rees, D. (2017). Economic conditions, illicit drug use, and substance use disorders in the United States. Journal of Health Economics , 52, 63-73.
Prieto, E., Eickmeier, S., & Marcellino, M. (2016). Time Variation in Macro-Financial Linkages. Journal of Applied Econometrics , 31 (7), 1215-1233.
Wieland, V., Afanasyeva, E., Kuete, M., & Yoo, J. (2016). Chapter 15 - New Methods for Macro-Financial Model Comparison and Policy Analysis. Handbook of Macroeconomics , 2, 1241-1319.