United States Economy

The United States economy will produce roughly $15 trillion worth of goods and services in 2008, making it easily the largest in the world. China is next, at about $12 trillion, according to one widely used method. Per person, the American economy has the fourth largest output - more than $45,000 for every man, woman and child, on average - behind Luxembourg, Bermuda and Liechtenstein.

In 2007, the American economy began to slow significantly, mostly because of a real-estate slump and related financial problems. Many economists believe that the economy entered a recession at the end of 2007 or early in 2008. A committee of academic economists, overseen by the National Bureau of Economic Research, makes the most commonly cited determination about when recessions begin and end. Because the committee defines a recession as a broad-based and protracted downturn in economic activity, its members typically wait many months before announcing that the economy has entered a recession. They have made no such announcement lately.

The economy was last in recession in 2001. Contrary to widespread belief, the terrorist attacks of 2001 did not cause the downturn that year. The economy slowed as the dot-com bubble started leaking in early 2000 and began to shrink in early 2001. The recession ended in November 2001.

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Over the last few decades, recessions have become less common than they once were. Ben S. Bernanke, the Federal Reserve chairman, and others have described this development as the "great moderation". While the economy used to swing between expansion and contraction every few years, there have been only two relatively brief recessions over the last 25 years. Perhaps the most important reason is the new flexibility of businesses. Executives can now track the ups and downs of their sales and inventories more closely than they used to, thanks in large part to computers. Better transportation, like FedEx, also helps companies to keep their warehouses lean. So a company is less likely to find itself suddenly stuck with too many workers and products - and then have to make sharp cutbacks.

Yet there are also now increasing worries that a boom in consumer spending, helped along by more consumer debt, played a large role in lifting economic growth over the last generation. If this is the case -- and if, as many analysts believe, the mortgage crisis marks the end of the debt boom -- economic growth may slow significantly in coming years.

Despite the healthy economic growth, many families have not received large pay increases. Starting in the mid-1970's, compensation - pay and benefits - for the typical worker began to grow more slowly than it had in the 1950's and '60s. Over the last 30 years, there has been only one period, from about 1996 to 2002, when hourly pay grew for most workers a lot faster than inflation. The most recent expansion, which began in late 2001, could end up being the first one on record in which median household income did not rise faster than inflation.

Published at The New York Times

By : David Leonhardt, Apr. 26, 2008