U.S. Economy Grew at 2% Rate in Third Quarter

This article discussed the present state of the economy and the affect on consumers. The economy has only grown 2% in the third quarter, which the article says is only a small increase but better than zero. Our economy still has “High unemployment and soaring foreclosure numbers in the Midwest and West.” There are still millions unemployed and many jobless for two years. “Two percent growth, almost all economists agree, cannot produce nearly the demand needed to reduce the nation’s 9.6 percent unemployment rate.” In addition, the US is having many more imports from foreign countries than we are exporting to other countries. Josh Bivens states “The growth rate is just nowhere near enough to put downward pressure on unemployment.”
Our nation’s high unemployment means we have an extremely high supply of workers and a low demand for labor from companies which creates a surplus. The economy is not producing enough demand for jobs. In addition, the US is importing more than we are exporting, this creates more jobs in other countries and fewer jobs in the US. We are importing more because it can be cheaper. Our opportunity cost of importing more is US jobs. We are not creating enough jobs since we are importing more goods. If the United States is able to export more to other countries, that would create more jobs and it would help the economy.
The article continues saying “Demand is crucial to re-igniting the economy and demand remained flaccid in the third quarter, although there were hints of increased consumer spending.” Consumer confidence is the key to increase consumer spending, which will boost the economy and create more jobs to reduce to surplus of workers. But, consumer spending is hard to increase if the consumer’s incomes are not increased enough. The article states that income growth rose at 0.5% in the third quarter but prices, excluding food and energy, increased at 0.6% in the third quarter. With prices increases as income increasing makes it difficult for consumers to spend. The demand for many goods will not increase if the prices are increasing. Two of the determinants of demand are income and prices. High prices encourage production but reduce consumer’s purchases and low prices encourage consumption but discourage production. This makes it difficult to reach market equilibrium, a balance between buyers and sellers.
The article progresses to show that the economy is slowly getting better, “There have been fledgling signs of growth: home sales and chain store sales are up a bit; a swelling equities market has raised consumer confidence a few notches; and jobless claims fell noticeably last week, albeit they are still quite high.” All of these factors will increase consumer spending to help eliminate the surplus of workers. But, Steve Blitz says “There is certainly no sign that a normal cyclical upturn is taking hold. The consumer is still underemployed and overindebted, so the normal push won’t be there.”
Bernard Baumohl summarizes the article by stating, “The main message from this report is that the economic recovery is gathering fresh momentum from the sector that matters most to this recovery: consumer spending, slowly but surely, worries over job security and future income growth have subsided and households appear to be more at ease about shopping.” Increasing the demand for United States goods and increasing consumers spending will hopefully create for jobs and improve our economy.
http://www.nytimes.com/2010/10/30/business/economy/30econ.html?pagewanted=1&sq=Demand&st=Search&scp=10