Good simple analysis for non-ecomists from Bloomberg
To diagnose the sick U.S. economy and find the elements driving the deterioration, one must look at the composition
of the aggregate demand equation:
GDP = C + I + G + (X-M), where Consumption (70 percent), Investment (13 percent), Government spending (20 percent), and
Net exports (~ -3 percent).
In the U.S., the consumer is king and this king has lost a great deal of his fortune. Real disposable personal incomes
– incomes adjusted for taxes and inflation – fell 0.3 percent in August. Real spending increased just 0.1 percent in August.
Consumers are pulling back on many discretionary categories.
The best representation of business investment is changes in the shipments of nondefense capital goods excluding
aircraft, which tumbled 0.9 percent in August. On a year-over-year basis, new orders are collapsing, signaling recession.
Government spending, which comprised nearly 20 percent of GDP in the second quarter, has contracted in each of the last
eight quarters, equaling the prior record for the longest string of declines registered in 1953-55.
With the fiscal cliff looming for 2013, there’s a very good chance this contraction continues throughout next year.
In the past, trade has been quite beneficial to the overall economic performance, especially during the housing crisis. Trade is now only adding 0.2 percent to GDP each quarter.
The sick U.S. economy is getting sicker.
Currently, Federal Reserve monetary policy is the only treatment in town and their medicine cabinet is running empty. Meanwhile, fiscal policy makers appear
apathetic as government spending is plunging at a record pace and likely to worsen. With growth this slow, it is unreasonable to expect any significant
pace of job creation.