Category: business

According to Stratfor’s forecast for the upcoming decade, the United States will continue to be the major economic, political, and military power in the world. 

However, the U.S. may become less entrenched in global political and military affairs than in past years because of its decreasing emphasis on foreign policy. Recent falling exports and growing energy self-reliance will partially negate the need for the United States to involve itself economically and militarily in foreign matters at the same levels it has historically. The U.S. economy is doing comparatively well and is expected to continue to improve.

Short-Term Outlook

Americans have recently enjoyed greater personal disposable income as inflation stays low and year-over-year gas prices have declined significantly. Consumers are investing extra cash both in purchases and in savings. In January 2015, the savings rate increased to 5.5 percent—its highest point since December 2012.

Federal Reserve chair Janet Yellen addressed Congress at the end of February, announcing that increases to the federal funds rate would not occur for at least the next few meetings of the Federal Open Market Committee (FOMC). General consensus is that interest rate hikes won’t occur until at least September, though the Fed may choose to act more quickly if conditions warrant such a move.

Delicate domestic employment and economic weaknesses abroad affect the Fed’s reasoning in retaining flexibility with interest rate increases. Yellen stated that the current U.S. employment situation is still fragile, with too many Americans unemployed or underemployed. However, hiring has gained steam in recent months—employers added an average of 324,000 workers a month in the fourth quarter, which marks the labor market’s best performance in years. Despite positive indicators from the labor force, wage growth remains sluggish.

U.S. gross domestic product (GDP) increased at an annual rate of 2.2 percent during the last quarter of 2014, according to the revised estimate released by the Commerce Department at the end of February. The revised estimate was 0.4 percentage point lower than the original estimate of 2.6 percent. On average in 2014, GDP grew 2.4 percent. 

Despite GDP contraction in the first quarter of 2014, the United States economy experienced strong growth in the second and third quarters, and modest growth in the fourth quarter—a positive year overall. The downward adjustment for fourth-quarter growth reflected slower additions to business inventories than were initially estimated. Also, imports figures slipped by 0.2 percentage points, reflecting a weaker trade balance. Juxtaposing the dollar’s increasing value against the euro’s slipping value, we may see more imports than exports for a while.

Since 2007, the world’s major economies have taken on higher levels of debt relative to GDP. Over the last seven years, debt owed by governments, households, and non-financial corporations has risen by $57 trillion to $199 trillion, representing 17 percent of global GDP. The global debt-to-GDP ratio was 286 percent as of the second quarter of 2014—a record high. The United States has contributed to this trend, taking on higher levels of government debt in order to fund fiscal stimulus following the Great Recession. In the second quarter of 2014, the U.S. debt-to-GDP ratio was 233 percent, or about $40 trillion. The Congressional Budget Office projects that the U.S. debt-to-GDP ratio will continue growing over the next decade. In this light, it makes sense to keep interest rates low for considerable time.