Economics Is the U.S. Really Recovering Faster

Economics

Is the U.S. really recovering faster than the EEC and Japan-Asian trading partners?

The economic climate improved for all during the second half of 2003. However, the U.S. recorded a more accelerated upturn during this period that many attribute to extensive tax cuts. Expansion in private consumption has been dramatic and business spending has also increased recently.

Japan's economy grew for a seventh quarter in Q3, 2003 the longest expansionary phase since 1997. Real growth came in at +.6% q/q, double the forecast. The economy expanded by 2.7%. In 2003, driven by exports and private capital investment. However, deflation is set to continue, albeit at a lower pace, and the general government deficit is expected to exceed 7% of GDP for the next two years.

The performance of the Western European economy was weaker. After a prolonged phase of stagnation, signs of a gradual economic recovery became visible in the second half of 2003. Exports increased despite the appreciation of the euro, but internal demand remained weak.

Organization for Economic Cooperation and Development (OECD) Economic outlook

GDP growth

US

Japan

Europe Area

EU

Total OECD

What are the prospects for "inflation" in the U.S. And E.E.U. For 3-4th Q. 2003, and the year 2004?

In the E.E.U., inflation was sluggish in Q3 and Q4, 2003, buoyed up by temporary factors such as oil price increases, weather-induced food price hikes and rises in indirect taxes. Compared to 2.3% in 2002, headline inflation is expected to remain at 2.1% on average in the euro area in 2003, before falling slightly to 2% in 2004. Core inflation was also low during 2003 as a result of sluggish productivity growth and the slow pass-through of the effects of the euro appreciation into production and consumer prices. However, the reduction in unit labor costs, as labor productivity picks up, and wage moderation are expected to lead to a fall in core inflation in 2004.

In the United States, inflationary pressures are clearly starting to mount, but this is after a significant bottoming out. Inflation during 2003 is estimated to be around 1.9%. The CPI (year-over-year) is expected to be 2.3% for 2004 vs. previously projected increases of only 1.6%. Core inflation increases are expected because of the pass-through of energy prices to core prices through higher transportation and production costs.

Other factors that ranked in the top half of forces driving the recent jump in inflation were rising non-energy commodity and basic materials prices. Given that this is an election year, many expect insignificant raises in interest rates to counter these trends.

Of the various national indicators, many economists consider "productivity" the index which is absolutely essential for GDP gains, solid employment growth, and competitive advances. Without productivity gains, other improvements will be short lived or not come to pass. Agree or not - discuss.

Productivity, the output of goods and services per hour worked, is essential for long-term GDP gains. Capacity to produce goods and services is determined by available labor, how many hours workers work, the workers' skills and intensity of work, the amount of capital workers have with which to work, and changes in technology.

Historically, GDP has increased in wealthy countries through productivity increases. Conversely, countries with a low productivity increase are among the poorest in the world.