Expected U.S. GDP Growth Rate

Victoria Rock

AIU Online

BUSN300-1202A-15

Abstract

Being a newly appointed President for the local Chamber of Commerce, a presentation on the

Expected U.S. GDP growth will be examined and explained.

Introduction

In this paper the GDP growth rate of the U.S. will be examined through trends, forcasts, and

statistics. Also how the GDP is determined and interpreted.

Expected U.S. GDP Growth Rate

The value of the U.S. GDP has continued to increase in value and the year with the highest

value recorded was in 2010 at $14,526.5 billion dollars. (National Income and Product Accounts

Table, 2012). However, the rate of growth in GDP has varied. There are periods when the GDP

increases at an increased rate while others have a negative growth.

A graph of GDP against years

0.00

2,000.00

4,000.00

6,000.00

8,000.00

10,000.00

12,000.00

14,000.00

16,000.00

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Years

GDP

(Bill

ions

of d

olla

rs)

Series1

As you can tell in the next chart in our analyses we reviewed the annual GDP growth from

1991 to 2010, and can see alternate cycles of increase and decrease with the highest growth rate

recorded in 2000. The economy registered a boom between 1998 and 2000 which shows an

increase of 6.39% in 2000. In 2001 GDP growth was recorded at 3.36%, 2002 at 3.46%, 2003 at

4.70%, and 2004 at 6.38%, with the highest growth occurring in 2005 at 6.49%. From 2005 to

2009 the economy experienced a recession and the GDP decreased at a diminishing rate. The

Annual growth registered amounted to 5.97% in 2006, 4.87% in 2007, 1.87% in 2008, and the

lowest in 2009 at -2.47%. Decline in GDP can be attributed to reduced personal consumption

expenditures which is the main component contributing to the GDP. However in 2010 the

economy started to improve and growth was recorded at 4.21%. (Economic Expansion (GDP),

2011)

Annual GDP growth

-4.00%

-2.00%

0.00%

2.00%

4.00%

6.00%

8.00%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Years

%ag

e ch

ange

in G

DP

The Economic Times stated that the Federal Reserve cut its forecasts for the US economic

growth from 3.1 to 3.3 percent down to 2.7 to 2.9 percent and sees 2012 growth in a 3.3 to 3.7

percent range. The slowed growth was being attributed to increasing inflation due to factors

pushing up the price of commodities. The slow pace is also attributed to higher prices of food

and energy which will lead to a reduced consumer purchasing power. (Federal Reserve cuts US

GDP forecast; no hint of more support, 2011)

Global Finance has provided various statistics in relation to GDP which includes information

that the GDP per capita in the US amounted to $48,666 based on 2010 figures. The service

sector is the main contributor to the GDP accounting for 76.9%, manufacturing at 21.9%, and

agriculture sector at 1.2% and is based on GDP values for 2009. (DATA ON GDP AND

ECONOMIC INFORMATION, 2011)

Real GDP for the past ten years

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Real

GDP

4.1% 1.1% 1.8% 2.5% 3.6% 3.1% 2.7% 1.95 0% -2.6% 2.8%

Note: Reprinted from the United States Country Report by Global Finance, 2011

How GDP is determined

There are two ways in which the GDP can be calculated; the income approach which is

calculated by adding up total compensation to employees, gross profits for firms, and taxes less

any subsidies.

GDP = compensation of employees + gross profit for firms + taxes – subsidies

The expenditure method is the more common approach and is calculated by adding total

consumption, investment, government spending and net exports less imports.

GDP = personal consumption + government spending + investments + exports – imports

Interpreting GDP

A positive Real GDP number reflects a growing economy while a negative GDP reflects a

declining economy like what we saw in 2009. When you have two consecutive quarters of GDP

decline it generally is associated with a recession. (Economic Expansion (GDP), 2011)

Reference

DATA ON GDP AND ECONOMIC INFORMATION. (2011). Retrieved from Global Finance: http://www.gfmag.com/gdp-data-country-reports/151-the-united-states-gdp-country-report.html#axzz1s9ytNMsh

Economic Expansion (GDP). (2011, December). Retrieved from Russell Investments: http://www.russell.com/helping-advisors/Markets/EconomicIndicatorsDashboard/EconomicExpansion-GDP.aspx

Federal Reserve cuts US GDP forecast; no hint of more support. (2011, June 23). Retrieved from The Economic Times: http://economictimes.indiatimes.com/news/international-business/federal-reserve-cuts-us-gdp-forecast-no-hint-of-more-support/articleshow/8956240.cms

National Income and Product Accounts Table. (2012, March 29). Retrieved from Bureau of Economic Analysis: http://www.bea.gov/National/Nipaweb/Tableview.Asp?Selectedtable=5&Viewseries=NO&Java=No&Request3Place=N&3Place=N&Fromview=YES&Freq=Year&Firstyear=1990&Lastyear=2010

What is GDP and why is it so important? (2007, September 19). Retrieved from Investopedia: http://www.investopedia.com/Ask/Answers/199.Asp#Axzz1aeuepbgk