The Little Dipper

By Chace Goff

The economy is always a large topic of interest in America, and for obvious reasons. We, the American people, pride ourselves on being the richest in the nation and being the best “well-off” of any other nation in the world. However, the fact that our economy’s recovery from a few years back has been fairly slow going is nothing close to news.

In the third quarter of 2012, it was reported that there was a 3.1% growth in GDP. By the fourth quarter, there was a slight drop of 0.1%. Both private stock building, referring to growth of business inventories, and federal defense spending dropped 1.3 points from growth. 

On January 30 of this year, the Federal Reserve met and claimed that the pause in the growth of the economy was due to “weather-related disruptions and other transitory factors.” Referring to the tragic superstorm Sandy which caused extreme devastation to millions of Americans, especially those living in the east coast states of New York and New Jersey.

In addition, a huge scare was put on the growth of consumer spending and business investments upon the dreaded arrival of the variety of tax-increases and spending cuts at the end of the year known as the fiscal cliff. Astonishingly, an article from The Economist stated:

           

“…those were in fact the strongest sectors of the economy, growing at a combined brisk 3.3% rate, faster than in the third quarter. Housing construction and machinery investment were especially robust.”

Although many were relieved to avoid a horrible devastation that could have been caused by the fiscal cliff, consumer confidence has definitely been bruised from expired tax cuts on the wealthy and a temporary payroll tax cut, which overall largely impacts the economy of our country. Consumer confidence has an enormous factor in the end on the country’s GDP. This can be explained by the wealth effect: the more perceived wealth an individual or household has, the more one will buy with their money, therefore affecting the overall well-being of America.

Also according to the article:

“In March automatic federal spending cuts, worth some $85 billion this year, kick in if Congress and president cannot agree on delaying or replacing them, which is looking increasingly unlikely. Those factors together represent fiscal drag worth some 1.5% of GDP this calendar year.”

Any American citizen would agree this drag would be horrible for America’s economy and would be yet another stunt in our growth.  Only time will tell if this is put into effect, so until then we will all just have to cross our fingers and hope for the best. 

             

It can be seen from the two charts that this year has not been our best, but definitely not our worst. Again, as you can see we’ve come a long way since 2009. That was not the first time we as a country had struggled economically, and it certainly will not be the last. There is no concise cycle the economy goes through, but according to a man, Adam Smith’s, theory, an “invisible hand” will help guide us, and it will ultimately fix itself.   

-Chace Goff