Unemployment
There are massive job losses due to massive layoffs resulting from the Sub Prime crisis in the USA. This news is welcomed into the job market. This means that there is an increase in the unemployment rate in the USA than what was expected. The job represents a sector that is vital to the economy. The unemployment rate is reported to have gone up to 8% from the rate of 6% projected by economists and the rate that was in the previous year.
The real estate sector and financial sector are slashing their payrolls, as was not expected. For the last year, most firms in the two sectors are carrying out job cuts. This will lead to unemployment increase and affect consumer behaviour and spending. Many economists have described the situation of unemployment as a lagging indicator of the performance of the economy. However, the job cuts and losses that to an increase in the unemployment rate reduces the disposable income of white and blue-collar workers who are the major consumers in the USA economy (Schuman J.; 2003).
Inflation
With the subprime crisis and the fluctuating energy prices, the consumer price inflation rate remained constant and manageable that single digit. The inflation has not been felt in the economy because producers leaving the consumer prices not affect much are absorbing the high cost of energy. The subprime crisis has only affected consumer habits, but it is yet to be felt the consumer prices thus inflationary has remained constant. The inflation expectations as measured by Treasury bonds has remained unaffected in the period. The situation may change if more banks that are affected by the subprime crisis join the likes of JP Morgan bank in denouncing the government plan on how to handle the crisis. (James P., 2008):
Interest rates
Interest rates are the best indexes that are used by banks to set loan consumer products. The wall street journal monitors the prime interest rates, which are used by banks for their products. Because of the prime interest rate crisis, as reported by the Wall street journal, the rates have gone higher. This means the credit card and other credit facilities interest rates will go up. The interest rates are expected to go up than before as many banks join in rejecting the government plan to solve the crisis. In the USA, the economy there has never been a period in the history of the real estate sector when such a crisis hit.
However, in the past, there has been a situation where there is a boom, and the economy is performing well when the interest was higher. The interest rates effect in the USA will be felt worldwide as most economies rely on the USA market or companies. A boom elsewhere in the world where USA companies are trading will mean that there will be liquidity in the USA and the treasury will still be purchased, thus controlling the interest rates (Bankrate.com; 2008);
Gross domestic product
Gross domestic product measures the economy of a country. GDP uses personal consumption expenditure, gross private domestic investments, government consumption expenditure, gross exports and imports of goods and services in estimating the inflation measures in the economy. In the recent past, there has been growth in the GDP trends. If with the Hurricanes, the growth was not affected very much as economists and analysts were estimating. GDP started growing from the year 2003 where the growth was 2.3%, while in the year 2004, the growth was 3.9%. In the year 2005, the came down to 3.2% because of the hurricanes then it went up to 5.3% in the year 2006. The year and 2007, the growth rate was 2.3%, and they expect the growth rate of 3% in the year 2008.. (CBO, 2007)
Balance of payments
Balance of payments provides data on how a country carries out their trade and their position in the payment of debts. This also acts as a source of information relating to international relationships. The country’s financial transactions and balances with the rest of the world are shown. It has a current account for balances, capital account for the capital transaction, financial account balance, and change in the reserves, errors, and omissions. They are using the year 2007 figures the USA balance of payments 0.3 billion dollars. This was a result of the current account balance of 188.9 billion dollars, the capital account balance of 0.6 billion, the financial account balance of 93.4 billion and net errors and omissions of 85.6 billion. (Bureau of economic analysis, 2007)
References
Schuman J. ;( 2003); Unemployment Keeps Rising, But Investors Appear Relieved: Wall Street Journal.
Bankrate.com; (2008); wall street journal Prime rate. Web.
James P. ;(2008): Mideast Turmoil? Surging Rates? Wall Street Shrugs; US News. Web.
Congressional Budget Office (CBO); (2007); The Budget and Economic Outlook: Fiscal Years 2008-2017. Web.
Bureau of economic analysis, (2007); U.S. International Transactions: International Economic Accounts.