Economic Analysis and Forecast Paper Assignment

User Generated

ehryynfn

Economics

Description

I will upload examples on how to write only two to two and half pages only

Unformatted Attachment Preview

Economic Forecast: According to the Conference Board, new GDP data show that after growing at a nearly four percent pace during the middle of 2018, economic growth slackened in the last quarter of the year 2018 to 2.6 percent. However, the Conference Board argues that 2.6% growth rate of GDP is well above the US economy’s long-term 2% natural growth rate. The Conference Board expects, during 2019, GDP growth to slow further as effects from fiscal stimulus measures diminish, but to remain above its trend through the end of the year. During 2019, real GDP will grow more than 2% but less than 2.9%, the overall real GDP growth for 2018. According to the Conference Board, the recent tightening in the labor market causing rapid wage gains is instrumental in sustaining consumer spending. However, the same tightening in the labor market is increasing wage rates, causing the short-run aggregate supply decline. This effect might be instrumental in slowing the economic growth, unless the effect of the past investments on the labor product is positive. In addition, if the aggregate price level increases more than expected, the FED might increase interest rates in 2019 to prevent a possible inflationary gap, a possible punitive effect on investment spending. The Conference Board, in its recent release mentioned above, sees 2019 as a more challenging year for business compared to 2018 because growth in the Euro Zone and China is persistently slowing down. This might have negative effect on U.S. exports. Based on the recent yield curve’s shape (February 22, 2019), Federal Reserve Bank of Cleveland expects that the real GDP will grow 2.2% in 2019, which falls within the boundaries of the Conference Board prediction of the real GDP growth for 2019. Furthermore, According to Federal Reserve Bank of Cleveland, based on the shape of the February 22, 2019 yield curve, the probability of recession in 2019 is up to 29.7 percent, which was 24% based on the shape of the yield curve of December 2018. According to Federal Reserve Bank of Cleveland, the slope of the yield curve in December 2018 was 47 (basis point), in January 2019 it was 35, and February 2019, 21. This continuing flattening of the yield curve might be taken as a strong indication of an upcoming recession in the very foreseeable future. The following table contains information regarding the U.S. Economic Forecast by the Conference Board. Stock Market Analysis The update in the stock market this week is a very negative one. Due to the fact that stocks and bond yields have fallen due to the outlook of the global economy. The Dow Jones industrial average closed down 460.19 points, or about 1.8 percent, at 25,502.32. The Standard & Poor's 500 index dropped 54.17, or 1.9 percent, to 2800.71, its worst loss since January 3. One of the major indicators of this decline is that manufacturing declined not only in the US but across the world. A report Friday showed factory output in the Eurozone fell in March at the fastest pace in nearly six years, while a gauge of U.S. manufacturing activity slipped to its lowest level in nearly two years. The data sent bond prices rising and yields sliding, with the German 10-year bond yield dropping below zero for the first time since 2016 and the yield on the 10-year Treasury note falling to 2.459%, the lowest since January 2018. With that said however there is some divide among investors about how the stock market will act. The market is polarized: half thinks we are in a bull-market recovery and the other half thinks we are in a bear-market rally,” said Eoin Murray, head of investment at asset manager Hermes. To be sure, many believe that in the U.S., a recession isn’t imminent. Corporate earnings, while cooling, are still expected to post single-digit percentage growth in 2019, according to FactSet. The labor market has added jobs for 101 consecutive months, its longest streak ever, and unemployment remains low. Even weaker segments of the economy have appeared to stabilize in recent months, with data Friday showing that sales of previously owned homes soared 12% in February—far more than economists had expected. That is the perspective from the investors who lean on the economic recovery. But at the same time some investors are seeing this as the stock market showing signals of a possible recession. For much of 2019, stocks and bond yields had moved in opposite directions. That troubled fund managers, who noted bond yields typically rise—not fall—when investors are confident in growth prospects. But they moved lower in lockstep Friday, as investors across markets bet on an environment in which growth across the world is expected to slow. Friday’s data “confirms the softening data tone the market has been observing and central banks have been forced to take note of,” said Matt Cairns, strategist at Rabobank. Bank stocks slid again Friday, with the KBW Nasdaq Bank Index of large lenders posting its biggest one-week slide since 2016. This shows the concern investors have terms of stock market and economy moving forward. In conclusion, yes there is evidence demonstrating that the stock market has declined significantly and is in the negative. However, there is still a divide as to whether this decline is something permanent or there is a recovery period to come instead. Economic Analysis In the current US economy, the general trend is the growth seen in the past months has significantly slowed down. One perspective to look at is the manufacturing sector which helps to show the slowdown in the economy. Output at U.S. factories decreased 0.4% in February after falling 0.5% in January, according to Federal Reserve data released Friday. While the January drop was largely tied to tumbling auto production, February’s decline appeared more broad-based, spread across sectors including machinery, electronics and apparel. Another great point the article brings out is for this year, a 2.1% growth rate is expected. When asked about the biggest risks to the outlook, nearly half of respondents, 46.8%, mentioned trade policy or China. With that said we can take a look at the figures and see what picture they demonstrate. According to the BEA GDP Growth estimated to be 2.6 % for the fourth quarter compared to 3 quarter GDP which was at 3.4%. Which supports the slowdown mentioned in the WSJ article. If we take a look at conference board it demonstrates something similar. The Conference Board CEI for the U.S., a measure of current economic activity, edged up in January. The coincident economic index rose 1.3 percent (about a 2.7 percent annual rate). With that said we can quickly take a look at the global economy. rd The global economy is on more of the decline than that of the domestic economy. A big factor is China slowdown. In a national address in early March, Premier Li Keqiang announced the government will cut taxes and fees for businesses by a total of 2 trillion yuan ($298 billion), or 2% of China’s $13 trillion economy. That includes reductions in value-added taxes—which hit products as they move from raw material to finished goods for sale—and required corporate contributions to pensions The whole fear for the global economy is that these changes will not have the same impact as It once had when the global economy was in peril. Stock Market Analysis & Forecast According to “2019 Schwab Market Outlook—U.S. Stocks & Economy, Global Stocks & Economy, and Fixed Income, the key variables for the stock market outlook are the following: (1) it is widely expected that U.S. economic growth will slow down in 2019 with a high probability of emerging recession, (2) earnings growth of businesses will probably slow down, (3) even though trade tensions constitute a significant risk, still investors should watch for inflation and interest rate risks, (4) the Fed continue tightening the monetary policy to keep short-term interest rates high, and (5) investors should be aware of the fact that ten-year Treasury yields have already peaked at 3.25%. All these indicators are clearly signaling that the demand for investors for stocks will decline and thus stock prices, on average, will decrease in 2019. A decrease in stock prices will increase the cost of equity and thus cost of capital, which will reduce investment opportunities for non-financial corporations. The latest yield curve is actually signaling mild decline in the aggregate economic activity in the time horizon of two years. In other words, investors are not optimistic about the near future of the U.S. economy. Therefore, it would be reasonable to expect a decline in the overall stock market in the United States. See figure 1, on the following page, for Friday’s Treasury Yield Curve. Figure 1 – Treasury Yield Curve According to the website “Trading Economics,” The Dow Jones Industrial Average is expected to trade at 25544.91 points by the end of this quarter. Looking forward, analysts of “Trading Economics” estimate that Dow Jones Industrial Average will trade at 24472.11 at the end of 2019. Figure 2 – Dow Jones Industrial Average Economic Analysis For this week, Real Gross Domestic Product (GDP) increased at an annual rate of 2.6 percent for Q4 of 2018, according to the initial estimate released by the Bureau of Economic Analysis (BEA). For Q3, real GDP increased by 3.4 percent. The BEA stated that the Q4 initial estimate released on February 28, 2019 is based on data that are incomplete. There will be an update for Q4 based on more complete data on March 28, 2019. There was an increase in GDP in 49 states and the District of Columbia in Q3 of 2018, according to statistics released on February 26, 2019 by the U.S. Bureau of Economic Analysis. The update in real GDP for Q3 ranged from 5.8 percent in Washington to 0.0 percent in West Virginia. The next release will be on May 1, 2019. According to the Conference Board’s Director of Economic Research there was an increase in the Consumer Confidence Index (CCI) in February, after a decline in January. The Index is now at 131.4 up from 121.7 in January. The Present Situation Index (PSI) that is based on consumers assessment of current business and labor market conditions increased from 170.2 to 173.5. The Expectations Index (EI), based on consumers’ short term outlook for income, business and labor market conditions increased from 89.4 last month to 103.4 this month. Stock Market Analysis & Forecast The recent trend of the stock market has been impacted greatly by inflation rates, according to the wall street journal. Among global fund managers surveyed by Bank of America in February, 55% expected below-trend growth and inflation over the next year, the highest share since December 2016. This means investors are wary when it comes to the economy improving because in the past couple of weeks the economy has slowly come down from the growth it had made. Another key factor that plays into inflations rates is the Fed. The Fed plays a major role on interest rates and is trying to adjust it. In recent months, “Fed officials have begun publicly discussing potential changes to how they define their inflation target. One approach would have the Fed aim for an average of 2% inflation over several years, meaning it would deliberately seek modest overshoots of the 2% target during good times to make up for falling below target during recessions. The Fed would want slightly higher inflation to reduce the risk of deflation in a slowdown and to give investors and consumers’ confidence that growth would continue. Officials have said they won’t make any changes before early next year”. This makes investors uneasy because inflation makes treasury bonds very unattractive. In terms of the stock market forecast, one thing to look at for is the trade deal the US and China are finalizing. According to WSJ China and the U.S. are in the final stage of completing a trade deal, with Beijing offering to lower tariffs and other restrictions on American farm, chemical, auto and other products and Washington considering removing most, if not all, sanctions levied against Chinese products since last year . This is an interesting development because in the past the stock market was affected negatively by the tensions of China and the US. Now with this change it will be very interesting the impact it will have on the stock market. It will be key moving forward.
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Attached.

Running Head: FORECASTING

1

Forecasting
Student’s Name
Course Name
Instructor’s Name
Institution’ Name
Date

FORECASTING

2
Economic Analysis and Forecast

The GDP this year is expected to slow to 2.1%, it will mean a fall from 3%in 2018. It is
estimated to be 1.9% in 2020 and 1.8% in 2021. These statistics are according to the recent
forecast that the Federal Open Market Committee released during their meeting in March this
year. The fall in the GDP growth rate is as a result of the effects of trade wars that have
happened due to President Trump’s economic policies. The unemployment rate is also expected
to rise to be at 3.7% in 2019. It will, however, decrease slightly to 3% in 2020 but later increase
to 3.9% in 2021; this is at least lower than the Federal target of 6.7% (Amadeo, 2019). The Chair
of the Federal Reserve Janet Yellen said that most people are part-time workers and they would
prefer full-time jobs. Most jobs are also ...


Anonymous
Goes above and beyond expectations!

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags