June 2, 2013US Economyby EW World Economy Team

United States Economy

The United States of America has the world's largest national economy. It makes up roughly 17 to 22 percent of the world's gross domestic product (GDP). The currency of the United States, the dollar, is the most widely used currency in international trade, as well as the world's foremost reserve currency. In fact, several nations other than the United States use the US dollar as their own currency: including the British Virgin Islands, Ecuador, Panama, the Bahamas, Turks and Caicos, Vietnam, Cambodia, Nicaragua, and Belize.

The US economy is a "mixed economy," as both private interests and state interventionism play a role. Predominantly driven by private ownership, the nation's GDP has maintained overall steady growth rate for decades. In addition, the US economy benefits from abundant natural resources, strong industrial and agricultural production, a large and well-developed service industry, as well as extremely high rates of research, innovation, and capital investment.

Host to the largest and most influential financial market in the world, America boasts both the New York Stock Exchange (NYSE) and National Association of Securities Dealers Automated Quotations (NASDAQ). Foreign investments in the US average $2.4 trillion, while American investments in other countries total $3.3 trillion. Consumer spending comprised 71% of the US economy in 2013, and the United States has the largest consumer market in the world.

As a result, the US possesses not only the largest economy, but also one of the most stable in the world.

Economic History

The United States has had the world's largest national economy—not including the benefit of colonial empires—since the 1890s.

The United States began as a European settlement in the 16th Century. After the nation became independent of Great Britain in 1776, the economy blossomed from a moderately successful colonial system to an independent agrarian economy and went on to become a powerful industrial nation in less than a century. The resulting high wages and high rates of employment attracted immigrants from all over the world.

By the middle of the 19th Century, the US economy began to experience growing pains due to its rapid expansion. These came in the form of relatively frequent "booms" and "busts." Thus, in the beginning of the 20th Century, a number of modern financial institutions came into being to help regulate the economy. These included the creation of minimum wage laws, social security, a centralized banking authority (the Federal Reserve Bank or "FED"), and more.

By the 1920s, the US economy had grown to be the largest national economy in the world. It was also one of the most progressive, becoming the proving ground for a wide assortment of political and social policies. These included both heavy government spending to stimulate growth and recovery under the "New Deal" and favoring big business and cutting taxes on the wealthy under the economic theory of "Trickle-Down" (sometimes called "Reganomics" after President Ronald Regan who most famously implemented these policies).

Between 1946 and 1973, the U.S. economy grew by an average of 3.8 percent, while real median household income surged 74 percent (i.e., 2.1 percent per year). However, since 1973, the US economy has slowed in growth to an average of just 2.7 percent per year.

While the US economy has experienced sustained merchandise trade deficits since 1976, it has had a long-standing surplus in services trade.

Current Economic Situation

Today, the US economy remains the largest in the world. It is the second largest overall trading nation and the world's second largest manufactured goods producer: making nearly 20 percent of all goods manufactured in the world. It is also the third largest producer of oil and natural gas. The US consistently ranks around ninth or tenth in the world for per capita GDP, and American workers have some of the highest average household incomes in the world. Unfortunately, the gap between the wealthy and poor is also larger in the United States than anywhere else in the world.

The overall financial picture for the United States, as of 2014, included $269.6 trillion of assets owned by households, businesses, and governments within America's borders. That represented 15.7 times the annual gross domestic product of the United States that year. On the other hand, the US owed debts that year amounting to $145.8 trillion. That equates to about 8.5 times the annual gross domestic product for 2014.

Although the United States experienced a significant economic downturn that began in 2008, causing the US economy to contract by 2.8 percent in 2009, the economy has returned to its typical trend for sustained growth since 2010. Unemployment dropped from a high of 9.9 percent in 2010 to a much more typical 5.4 percent by April of 2015.

Economic Forecast

According to the Organization for Economic Co-Operation and Development (OECD), economists predict that the US economy should continue to grow steadily in 2015 and 2016. Increases in private employment will continue to have a positive, downward influence on unemployment rates. The value of the dollar should return to normalcy, based on its unusually high trading value in early 2015. This will have a positive influence on exports, increasing trade demand.

The FED's policies remain supportive of growth at the risk of moderate inflation, though the markets anticipate an increase in interest rates to occur at some time in 2015. The federal budget deficit has also narrowed substantially, and some further narrowing should occur later in 2015 and into 2016.

While America's overall position as the world's largest economy will likely remain so for a number of years, the US government must focus on improving aging infrastructure and addressing issues related to over-burdened social welfare programs in order to maintain that position.

The US economy will most likely continue to shift towards an increasingly service based economy, thanks in large part to the proliferation of technology giants on US soil. As the intellectual development of many high-tech devices remains domesticated in the United States, the production of those devices usually occurs overseas, where production costs keep these devices more affordable to the average consumer. However, staples of American industrial production, such as automotive manufacturing, will likely remain strong for years, keeping American manufacturing output firmly within the upper echelons of overall global production output.

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