US Weekly Jobless Claims
According to a CNBC story, the US weekly jobless claims were 232,000, compared to 240,000 predictions (CNBC, 2017). This study implies that the number of Americans filing for unemployment benefits has decreased in six months, and the data further demonstrate the tightening in the labor market, prompting the Federal Reserve to spell out measures to unwind its massive bond holdings. According to this article, labor market strength was confirmed, and workers' hours were considerably increased in August amid an increase in new orders and unfilled orders. Besides initial claims for state unemployment benefits dropped to 12,000 with seasonally adjusted 232,000 for the week ended 125th August (CNBC, 2017). The Prices of U.S. Treasury were trading lower as were U.S. stock index futures. The dollar became stronger against the currency baskets, and the labor market tightness failed to generate strong wage growth, resulting in inflation which increased the interest rates.
Inflation Concept and Aggregate Demand (AD)
Inflation is the primary reagent behind a healthy economy as it inhibits economic development. Inflation destructs the working of an economy in many facets including essential commodities such as medical care and housing. It effortlessly weakens the amount of saving and investment in a nation which are vital in impacting on aggregates demand. The producer price index (PPI), consumer price (CPI), and retail price index (RPI) are affected by inflation (Fair, 2009). Aggregate demand is the measurement of all final goods and services that are produced in an economy comprising of capital investment (I), household goods (C), government expenditure (G), exports (X) and imports (M). This is expressed by an equation as; AD= C +I +G + (X-M). Effects of inflation on Aggregate Demand (AD) is evident through investment and consumption. An inverse relationship is depicted between interest rates and investment. On the other hand inflation, and interest rates are directly related, and this means that an increase in the level of inflation reduced the level of investment in the economy (Zagler, 2007). Additionally, inflation increases the purchasing power and therefore influence the consumption level hence affecting the aggregate demand. Net exports which are calculated by lessening the value of imports from the exports is similarly affected by inflation. Equally, increase in inflation makes people demand foreign products over domestic goods as local products are deemed expensive and therefore affects the net exports.
Effect on the US Economy
Inflation results from an increase in money supply, meaning that the paper money decreases in value. When this happens to be the case, it takes more dollars to buy a product in the foreign market. Inflation significantly affects the US economy as it reduces the amount of domestic investment in the nation. High inflation rates increase the interest rates which discourage borrowing. High inflation disrupts the growth of the economy leading to the slowed development and economic stagnation which is detrimental. The purchasing power of money drops due to high inflation and thus individuals choose to invest their money by diverting their investments into risky assets such as bonds. In the US, inflation influences the oil prices, the stock market, and calls for Federal Reserve intervention to reduce the level of interest in the economy. Also, it influences the retirement planning and makes it harder to plan for the future. The impact on the retirement planning affects the quality of life as people are only able to buy less with the money they have. Besides, inflation impacts on the treasury bonds or treasury notes. These bonds earn a fixed amount of money at the end of the year. When the amount of inflation rises in the economy, the level of return on the treasury bonds and notes assets become less valuable to the individual. Consequently, this makes people rush and sell their assets which further depreciates the face value. The government of US then increases the treasury yields, and this upsurges mortgage interest rates. The level of investment reduces and increase the cost of the federal government of financing the US debt. Interest on the US debt rises, and thus the additional expense of budget is offset by cutting the discretionary budget or increasing the amount of taxes. If this does not occur, deficit spending results and the contractionary policies slow the economic growth culminating to lower standards of living.
Agreement with CNBC Article
I agree with the economic article released by CNBC as the explained information translates to current economic expansion that was started in 2009. The underlying trend of jobless claims has remained very stable in the US. Longer-run trends also showed improvement and businesses have been reluctant to fire employees for fears of failure of replacement in the short run and thus affect the business operations. There have been reductions in the number of people that receive unemployment benefits, and this paints a good picture of reduced cases of unemployment.
References
CNBC. (2017). US weekly jobless claims total 232,000 vs 240,000 estimate. Economy. Retrieved on August 28, 2017 from https://www.cnbc.com/2017/08/17/us-weekly-jobless-claims-aug-12-2017.html
Fair, R. (2009). On Modeling the Effects of Inflation Shocks. Contributions In Macroeconomics, 2(1). http://dx.doi.org/10.2202/1534-6005.1045
Zagler, M. (2007). Aggregate Demand, Economic Growth, and Unemployment. SSRN Electronic Journal. http://dx.doi.org/10.2139/ssrn.248679
