Rachael Dimit

ECON 306
Final Paper
Dr. Berdell

Macroeconomic Forecast for the United States

The economy of the United States is one of the most important
economies in the world; that is why generally the economy of the US
reflects the global economy. The most pressing issue is getting
Americans back to work. The United States economy has been
expanding since 2009 according to the GDP Report of Bureau of
Economic Analysis of the United States, when there was negative GDP
growth of -3.5% annually, due to the implementation of the $800
billion dollar stimulus package towards the end of 2008. Since 2009
the economy has grown by 3.0% annually in 2010, and 1.7% annually
in 2011. The first quarter of 2012 saw .5% GDP growth, slowing down
from the previous quarter. Consumption, investment, and exports
were all positive contributions to GDP growth but these factors were
offset by government spending and imports which negatively
contribute to GDP. Also, private investment slowed in this quarter.
Economic growth is continuing, although at a slower rate than
previously.

As output has continually grown, according to The Conference

Board, leading and coincident indicators have increased in the past 6
months, suggesting a positive outlook for the future. Economist Ken
Goldstein of TCB suggested that growth is expected through the
summer months. This measure indicates that the economy is likely to
maintain itself in recovery and should not see any alarming changes in
the business cycle that would send the economy into a double-dip
recession. The Dismal Scientists Macro Outlook for the U.S. (DS) and
the FairModel (FM), both predict that the economy will continue to
grow. The FM predictions are overly optimistic, estimating as high as
5.5% growth in the third quarter of 2012. Growth is definitely expected
for the future, although the economy will likely not reach this level of
high economic growth, but rather, from a Keynesian standpoint, it will
remain around 2%, reach as high as 2.7% in the fourth quarter of 2012
as seen in figure 1, directly following the presidential election (as this
will see a small increase in consumer confidence), but then decrease
shortly after because the levels of consumer confidence will decrease
after the post-election excited and will stifle consumption and demand,
increasing unemployment and reducing income.
Talk of the Great Recession and the global economic crisis
seem to infiltrate all news sources on a daily basis. One cannot turn on
the television without hearing analysis of the Eurozone crisis and the
candidates for the 2012 presidential election in the U.S. often spat

about whom can more effectively create jobs. The economy is clearly
one of the most pressing issues in the United States, as unemployment
has remained high at 8.2% in May of 2012. This was only a slight
increase from April 2012 in which the unemployment rate was 8.1%.
Although this growth in unemployment corresponds with an increase in
the labor participation rate by .2% (Bureau of Labor Statistics 2012).
This increase in labor participation signifies that more people entered
the labor force in May than in April, which may mean that people have
more faith in the economy and feel more secure searching for work.
The unemployment rate will remain high according to the DS, never
dipping below 7.5% and the FM agrees that it will decrease from the
current 8.2% to around 7.7%. It is true that some growth is better than
none, but the rate of growth is hardly enough to spark consumer
confidence in the economy. As the growth of employment has slowed,
the jobless rate has remained stagnant. In comparison with the rest of
the developed world, the United States unemployment rate is normal.
Britain is seeing the same level of 8.2% unemployment, Germany is
slightly lower with approximately 7%, and Canada is seeing 7.3% of the
work force without jobs. This does not go without saying that France is
seeing upwards of 10% unemployment and in Spain more than 1 in 4
people do not have jobs (The Economist 2012). This dismal look at the
economies of many of the worlds developed nations will not resonate
with the confidence in consumers

The FairModel predicts the high levels of GDP growth, as it

assumes that the U.S. government will maintain the tax rate and the
amount of defense spending that is in place currently. Although it will
be difficult for the United States government to maintain high levels of
government spending without raising taxes, as it will likely cause a
decrease in consumer confidence. The deficit in the short-term will not
affect the confidence of investors will decrease, but rather confidence
of average consumers will decrease if they believe their government is
acting irresponsibly. Consumer confidence has actually dipped below
expected levels as the Eurozone continues to offer hostile economic
conditions that will have global effects. As seen in figure 2, consumers
begin to personally feel the effects of the global economic crisis, the
confidence level will decline along with the purchases of goods that
help to drive the economy like automobiles (Kline 2012). The Eurozone
will continue to see declining conditions, until the debt of Greece is
restructured or they pull out of the Euro. This will cause a global shock
as Europes economies becoming increasingly volatile and implement
protectionist policies to avoid feeling the effects of Greeces failure.
European exports are subject to decrease and therefore could have
negative effects on the US economy.
Labor productivity of nonfarm business has decreased. This
indicator is a measure of real output divided by the number of hours
worked. Both real output and average hours worked increased in the

first quarter, although hours worked increased faster than real output
causing an overall decline in labor productivity, signifying that the unit
labor cost increased for nonfarm businesses. Labor compensation costs
have increased by 1.9% between March 2011 and March 2012
Multifactor productivity has increased over the past year by .5%,
measuring output per unit of combined capital and labor input. Both
factors increased, but output per unit grew faster than capital and
labor inputs (Bureau of Labor Statistics 2012). Figure 3 shows that
overall productivity has fallen since the Great Recession as the labor
force has not seen any significant growth. It appears as though the
economys potential will remain stagnant or even possibly continue to
decline. CPI remained virtually unchanged in May 2012 after March
and April saw drastic increases and inflation will remain virtually
unchanged which will help to lessen some of the difficulties of the
decline in productivity (Zandi 2012).
The American economy is going to be noticeably affected
by the global economy in the next quarters as the Eurozone crisis
deepens and consumer confidence continues to decrease. The GDP
growth will be less than exciting and unemployment will not
significantly decrease.

11Q3
11Q4
12Q1
12Q2
12Q3
12Q4
13Q1

FAIRMODEL DISMAL GDP

GDP
N/A
1.8
FAIRMODEL
DISMAL
N/A
3
UNEMP
N/A UNEMP
2.2
N/A3.89
2.2
N/A5.02
2.9
N/A5.54
3.3
N/A4.99
1.8
N/A
7.7
N/A

Figure 2.

RACHAEL
GDP
1.8
RACHAEL
3
UNEMP
2.2
9.1
2.1 9.1
8.7
2.5 8.7
8.3
2.7 8.3
8
1.8 8.2
7.9
8.1
7.8
8
7.7
8

Figure 1.

Figure 3.

Moodys Analytics U.S. Macro Outlook. 2012. Dismal Scientist.

http://www.economy.com.ezproxy1.lib.depaul.edu/dismal/pro/data/o
utlook.asp?type=1

The FairModel. 2012. The US model.

http://fairmodel.econ.yale.edu/xaz/cgi/output.pl
Kline, S. 2012. U.S. Chartbook: Raising concerns. Dismal Scientist. West
Chester.
http://www.economy.com.ezproxy1.lib.depaul.edu/dismal/pro/article.
asp?cid=231436&src=thisweek_asp
The Economist. 2012. Output, prices and jobs.
http://www.economist.com/node/21556261
Bureau of Labor Statistics. 2012. Productivity and Costs, First Quarter
2012, Preliminary. http://www.bls.gov/news.release/prod2.nr0.htm
Zandi, M. 2012. U.S. Macro Outlook: Beneath the Surface: A recovery.
Dismal Scientist. West Chester.
http://www.economy.com.ezproxy1.lib.depaul.edu/dismal/pro/article.
asp?cid=230711
Bureau of Economic Analysis. 2012. GDP Report.
http://www.bea.gov/newsreleases/national/gdp/gdpnewsrelease.htm