US Economy - US Economic Outlook & Growth As the U.S....

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As the U.S. economy ventured into 2006, GDP growth was high mostly due to high consumption spending. Aggregate demand was high and employment was high. These high employment levels and oil prices left the Federal Reserve worried about inflation as it appeared that increased price levels were beginning to take hold. However, they restrained themselves from any interest rate hike as the housing market began to cool off and oil prices began declining. Meanwhile, the hurricanes temporarily hurt both businesses and consumers in the third quart, but production recovered as reconstruction and domestic energy output began to pick up near the end of the year. Residential construction was still booming as new inventory continued to be pushed onto the market, however demand had begun to slow down pushing housing down. Consumer confidence, a leading indicator of economic performance, was high, moved a bit lower in part due to the hurricanes, but had begun to rebound in the latter part of 2006 coinciding with the rebound in the stock market and the decline in oil prices in that same period. Further into 2006, the housing market collapse was beginning but was buffered by lower oil prices, which supported growth and led to lower energy prices giving consumers more spending power. Even with this increased spending power, consumption growth still slowed as home prices fell, consumer credit became less available, and consumer debt levels peaked. Business demand momentum also slowed with a sharp decline in residential investment outweighing strong capital spending by businesses in structures and equipment. Government spending increased due the reconstruction efforts after the hurricanes and due to the unfunded Medicare prescription drug program. The U.S. current account balance hit a record deficit of $856.7 billion as consumers were still spending and the value of the dollar remained high. However, a reversing trend began to take hold as the economy began to slow, the dollar began to decline, and foreign economies began to pick up. The export driven GDP growth was notable moving into 2007 as the housing market collapses and the credit crisis took hold. This,
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This note was uploaded on 11/09/2010 for the course ECON 445 taught by Professor Staff during the Spring '10 term at Kansas State University.

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US Economy - US Economic Outlook & Growth As the U.S....

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