This report gives an overview of the current state of the US economy, a flashback to the pre 1990 recession, and the subsequent boom years of the past decade. Challenges and events during the 1990 recovery leading to the 2000 bust are discussed, as well as a comparison between the US and Canadian economies during that decade. Finally, the rise and fall of the technology sector is discussed.
CURRENT OVERVIEW OF THE US ECONOMY
Growth and Employment
The US economy is currently experiencing slow growth and rising unemployment. GDP growth currently at 1.17% was up only .9% in the first quarter of 2008. The current dollar GDP is at $14,195.6 Billion, and the expected 2008 deficit will be 410 Billion, more than double that of 2007 (bea.gov, 2008). Unemployment rose to 5.5% in May, up one full percentage point from the same time last year (bls.gov, Jun 2008). Consumers are suffering in this economy, no longer able to tap their homes for equity because of the mortgage crisis, and suffering from significant price increases in consumer staples. The CPI was up .2% in April, personal income was also up .2% in that month, but real disposable income remained unchanged (bea.gov, 2008). Today’s economy is experiencing stagflation, or cost push inflation. (see Appendix Table-1, GDP)
Interest rates are on the decline given the current state of the struggling US economy. The Fed has been on an aggressive rate cutting campaign of late, in an effort to stabilize the economy, and appease the financial markets which have been hypersensitive to recession woes. The prime rate one year ago 8.25%, is now 5%, the Fed Funds Rate one year ago 5.25%, is now 2%, and the Fed Discount Rate one year ago 6.25%, is now 2.25% (bankrate.com, 2008). Rates on long term treasury securities have also fallen with the struggling economy. The ten year yield curve one year ago 5.20%, is now 4.11%, and T-Bill rates have seen a dramatic decline from 4.97% one year ago to only 2.25% today (ustreas.gov, 2008).
The Financial Markets
Financial markets have been on tumultuous ride since the fall of 2007. Financials are weak, commodities are high, and oil has risen from approximately $60 per barrel this time last year to over $130 today. Money continues to sit on the sidelines, as investors watch with a hair trigger finger, to react to unfavorable news and a looming recession. The Dow Jones Industrial Average (DJIA), peaked in the fourth quarter of 2007 at 14164, it opened the year at 13044, had a low in January 2008 of 11630, and recently in June of this year traded at 12083, about 15% off its’ highs (finance.google.com, 2008).
The S&P 500 Index (S&P) peaked in the fourth quarter of 2007 at 1565, it opened the year at 1447, had a low in March 2008 of 1256, and recently in June of this year traded at 1335, about 15% off its’ highs (finance.google.com, 2008).
The NASDAQ, peaked in the fourth quarter of 2007 at 2859, it opened the year at 2609, had a low in March 2008 of 2155, and recently in June of this year traded at 2394, about 17% off its’ highs (finance.google.com, 2008).
RECOVERY YEARS AFTER THE 1991 RECESSION
Downturn in the Economy
1990 brought a new decade, but set the stage for a looming recession. Still experiencing some hangover from the 1987 Black Monday stock market collapse, the former President Bush was struggling to stabilize the economy. 1990 was opening the decade with an 8% Fed Funds Rate, a spike in oil prices, increased inflation, high unemployment, and a growing budget deficit. With tensions rising in the Persian Gulf in the summer of that year, the US was about to commit troops and would soon be at war. 1991 GDP output fell 1.3%, and slow GDP growth would dampen the economy until late 1992. That period would see the Fed Funds Rate fall to 3% before the next president would take office. (UStreas.gov, 2008) Challenges to Economic Expansion