Assessing the Recession

Assessing the Recession

Have you ever wondered who would come to the rescue if the economy crashed? Would American be able to survive a recession? Recently, we got to experience firsthand how a recession affects the economy locally and internationally. Additionally, we felt the economic impact that resulted from Japan’s earthquake. Who was it that came to our rescue during these times? The Federal Reserve, which consists of a Board of Governors, twelve Federal Reserve Banks, the Federal Open Market Committee (FDMC), Members Banks, and Advisory committees. The Federal Reserve basically has four functions. Their duties include handling monetary policy, overseeing banking institutions, keeping the financial system stable, and providing depository institutions foreign official institutions and the U.S. Government financial services. (The Federal Reserve System, Purpose and Functions)

The FOMC met on the first and second of November 2011 to assess the current economic activity and financial markets. The economic activities strengthened overall indicating a reversal of temporary factors that weighed on the economical growth. Unfortunately, the labor market is not one of the factors that is strengthening. As of September 2011, the unemployment rate was 9.1%. Long duration unemployment contributes substantially to the high unemployment rate. Employees that are employed part time due to economical reasons are also at a high. Fortunately by mid-September, things were looking up and the amount of unemployment claims being submitted decreased.

The housing market which took a major nose drive during the recession remains weak. Due to the surplus of foreclosure and distressed properties, the market is kept down because of the uncertainty of future hosing prices. Currently, housing prices are steadily decreasing and have been near depression levels since the middle of 2010. There have been very few sales of new or existing homes and part of the reason they aren’t selling is because of the strict underwriting standards for mortgage loans.

Real personal consumption expenditures (PCE) increased in the third quarter. PCE’s include motor vehicle and light motor vehicle purchases. Unfortunately an increase in consumer prices caused disposable income to decline. Real business purchases also increased. Although firms remain cautious, equipment, software, and nondefense capital goods sale are on the raise. This could be in part due to the increases in industrial production and the manufacturing capacity utility rate. These increases are mainly due to increases in motor vehicles as Japan recovers from the earthquake.

The outlook of the financial market is declining; although they have been very volatile since the FOMC meeting in September 2011. Due to the FOMC’s assessment at the September meeting, long-term Treasury security yields declined. Since short-term