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What Will Be the State of U.S. Economy at the End of This Year, 2020?

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The U.S. economy is the largest and one of the most diversified national economies of the world, which can also be considered the engine of the world economy

A distinctive feature of the American economy is its focus on scientific progress and advanced technology. The USA is a leader in implementing the results of scientific and technical progress in the production of export licenses for their discoveries, inventions and latest developments. This often leads to dependence of other countries from the United States in science and technology and determines foreign policy of the state.

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The growth of income and spending has not been as great this past year because job gains are lower. That, in turn, results from the tight labor market. Businesses would hire more if they could find additional qualified workers. Wages have not risen much, so the income growth rate is lower than back in 2018. However, the jobs picture is solid, leading to good incomes and a positive attitude among most consumers. Look for them to continue growing their spending moderately next year and into 2021. Business capital spending declined in the third quarter of 2019 after two flat quarters. Companies are replacing what needs to be replaced, without thinking too much about future growth. The precursors of robust capital spending are in place: economic growth and low financing costs. Those low costs come from corporate cash, which is pretty strong, as well as low interest rates

The current decline in capital spending results from uncertainty related to international trade negotiations. Business supply chains are far more complex than most politicians understand, and monkeying around with trade rules throws significant uncertainty into sourcing products, leading many executives to wait and see what is going to happen. And this wait-and-see attitude dampens spending.International trade volumes will be low, which is a global trend, with more reduction in imports to the U.S. than exports. Worldwide trade is flat despite continued economic growth. Part of this is services growing more than merchandise sales. The other part is that during times of uncertainty about international trade rules, companies source more inputs in their home countries rather than from foreign suppliers. In addition, the dollar is ten percent higher on foreign exchange markets than it was a year ago, making our exports more expensive to overseas buyers. Our imports, of course, are cheaper in terms of greenbacks. The dollar is unlikely to reverse course unless other major economies show more economic strength, or the Fed eases significantly more. Neither of these possibilities seems very likely.

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In a word, on the other hand, the demand shock has begun to drive down some prices. That’s been most evident in energy, where the consumer price index fell 10.1% in April after dropping 5.8% in March. April consumer gasoline prices fell below US$2 per gallon. That might have made for happy motorists, except that miles driven also fell—in fact, that was a key driver of low gasoline prices. Prices of apparel fell in April, unsurprising given an almost 80% drop in sales

In the baseline forecast, we expect overall demand to remain low, both because of the pandemic and because so many people are out of work. That will likely result in some significant discounting over the next year. The battle between supply and demand will likely continue through the forecast horizon. In a world of high unemployment, businesses will have little pricing power but will face higher costs. Given these offsetting factors, the baseline forecast calls for inflation to continue at about 2.0% over the forecast horizon.

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