MY STUDENT RESEARCH



PHASE 1 INDIVIDUAL PROJECTKENNETH C HOLMES ECON616-1601B-02PROFESSOR KENRETT JEFFERSON-MOOREFEBRUARY 22, 2016MACROECONOMIC FACTORS OF THE U.S. AND SOUTH KOREAIntroduction:In the last five years, Auto edge transitioned its auto parts manufacturing operations from Detroit Michigan to South Korea, in an effort to reduce supply and labor costs, government regulation, increase profits, and regain their competitive edge. The transition was initially successful, but ended up diminishing quality, and created issues resulting in several auto recalls, thus tarnishing their reputation of producing parts of high quality and dependability. To take advantage of current U.S. economic conditions, the Board of Directors is considering transitioning production back to Detroit, and closing their South Korea operations. Research must be conducted to compare current macroeconomic conditions in the U.S. and South Korea, comparing Gross Domestic Product, unemployment percentages, interest rates and inflation rate statistics, to determine if moving operations back to the U.S. would be the best decision. The following document discloses all research and findings.U.S. macroeconomic conditions:The current U.S. macro-economic conditions include: The GDP (Gross Domestic Product), GDP by industry, personal income (nationally, state and locally), national deficit, international investments, exports and imports (trade balance), foreign investment in the U.S., unemployment, interest rates and inflation. These are the major contributing factors to the current U.S. economic state, and combined have major influence on economic stability and growth CITATION NA1613 \l 1033 (N.A., 2016).National Deficit:The national deficit rose $13 billion from $111.1 billion in the second quarter, to $124.1 billion in the third quarter of 2015, and continues to increase because of a serious imbalance of goods and services, and investment and compensation income, and shows no signs of decreasing. This situation will continue until trade and invested income reach a more appropriate balance (N.A., 2016).Trade Balance:The national trade balance for December 2015 rose $1.2 billion from ($42.2) billion to ($43.4) billion, and shows no sign of changing. December figures state imports totaled $224.9 billion, and exports totaled $181.5 billion, leaving a trade deficit of $43.4 billion (N.A., 2016). International Investment Position:The international investments position decreased in the third quarter 2015 to ($7,269.8) billion from the second quarter 2015 of ($6,743.1) billion, and correlates with U.S. liabilities far exceeding assets (N.A., 2016). GDP:The GDP is the primary indicator used to measure the strength or weakness of a country’s economy. It represents the total dollar value of all goods, products and services produced in a specific country, usually over a quarterly or annual period, and is compared to the same period of the previous year for statistical analysis CITATION Ken16 \l 1033 (Jefferson-Moore, 2016). The U.S. GDP is calculated on Purchasing Power Parity (PPP). For the year 2015, fourth quarter figures were $18,286.69 billion, representing a 5% increase over 2014. For 2014, the U.S. placed 2nd in global ranking. The GDP is expected to rise marginally for 2016. These figures represent the value of goods and services produced in the U.S., less the value of goods and services used in production, and reflect all price adjustments. The main industry contributors to the fourth quarter GDP include: Retail, Food Service, Health Care and Social Services, Agriculture, Forestry, Fishing, and hunting CITATION NA1613 \l 1033 (N.A., 2016). Employment:There are currently 148,092,000 million employed in the U.S., contributing to the GNP and the overall economy, and the U.S. ranking number 1 in global employment. Employment is expected to maintain its level, with small annual increases expected. For the month of January 2016, non-farm employment increased by 151,000, and was led by retail, food services, health care, and production, while employments in education, transportation, warehousing and mining decreased. Overall, employment figures show no change. Employment has seen a steady increase of 1.5 percent for the last three years, and remains constant CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016).Unemployment:The unemployment rate is the measure of the percentage of the working age population (ages 16 to 65), who are willing and able to work, but are unable to secure employment. The unemployment rate does not take into account for under-employment (people working a position below their qualifications or education level) or discouraged workers (people who have stopped seeking employment after a prolonged period CITATION Ken16 \l 1033 (Jefferson-Moore, 2016). Equation: The number of unemployed/The total labor forceThe current rate of unemployment in the U.S. is 5.95%, and is 1.3% higher than the global average of 4.62%. This figure does not take into account for the underemployed or the discouraged worker, therefore the actual figures are higher than stated. Unemployment is expected to remain constant. For 2014, the U.S. ranked 62nd globally for unemployment CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016).Interest rates:As of December 15, 2015, the interest rate was 0.50%, meaning banks paid one half a percent on invested funds. As of February 19, 2016, mortgage rates range from: 2.72% for a one-year fixed rate, 2.8% for a fifteen-year fixed rate, 3.67% for a thirty-year fixed rate, 4.09% for a Jumbo thirty-year fixed rate, 3.42% for a thirty-year FHA, 3.30% for a 5/1 adjustable rate mortgage, and 3.9% for a 5/1 Jumbo adjustable rate mortgage. Interest rates on T-Bills, Notes and Bonds is zero (0), meaning no interest. CD rates are 1.35% for a thirteen-month CD, and 1.4% for a twenty three-month CD CITATION NA1616 \l 1033 (N.A., Today's Interest Rates, 2016).Inflation:The current inflation rate in the U.S. is 2.126%, places the U.S. in 118th place in global ranking, and indicates the average consumer price change. Over the last three years the U.S. inflation rate has seen small increases from 1.46 percent in 2013, to 1.976% in 2014 to the current rate. On the international scale, the U.S. falls 2.29 percent below the international average of 4.27 percent, and remains constant CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016).South Korea macroeconomic conditions:South Korea (The Republic of Korea), constitutes the southern portion of the divided nations (North and South Korea). The border between the two is highly contested, and is the most militarily fortified in the world. Conditions between the two have put the South Korean Military of full non-wartime alert status, making dealings with the north currently impossible CITATION NA124 \l 1033 (N.A., Country Profile South-Korea , 2012). Currently, South Korea is the third largest Asian economy, and is the 15th largest economic global power. Their economic contributors include international trade, which constitutes 100% of their GDP, finance, and constitutes strong exports and stimulus plan during slow financial periods. Because South Korea heavily depends on international trade, their economy is highly vulnerable to international events. To provide economic stabilization and protection, their government applies tax incentive programs and monetary policy, and the Central Bank of South Korea helps by pursuing and accommodating economic balance of both price stabilization and economic stimuli CITATION NA124 \l 1033 (N.A., Country Profile South-Korea , 2012). Their current economic success is driven by the Free Trade Agreement of 2007 with the U.S., and the Free Trade Agreement of 2011 with Europe, which dismissed 98% of import duties on agricultural products, services and manufactured goods between Europe and South Korea, both of which drive huge increases in consumer purchases, and brings 19.1 billion Euros to the South Korean economy. Both trade agreements have facilitated major changes in the automotive, textile and consumer electronics industries. The result, South Korea has experienced immense foreign investment from Japan, U.S.A. and Holland, who are attracted by their immense economic growth and development, and strong economic framework CITATION NA124 \l 1033 (N.A., Country Profile South-Korea , 2012).South Korea’s primary industrial sectors include: Agriculture, including rice, soybeans, corn, wheat, barley and sorghum; textiles; automotive production; ship building and consumer electronics; and they are the world largest manufacturer of semiconductors. Their primary manufacturers include Samsung, Hyundai and Kia, which are major contributors to their economy. South Korea enjoys a positive trade balance, meaning their exports far exceed their imports, and their poorly performing (Won) currency helps maintain high exports, but also has some negative side effects. Their primary global trade partners include: China, U.S.A., Japan and the EU (European Union) CITATION NA124 \l 1033 (N.A., Country Profile South-Korea , 2012). The South Korean labor force is 35 percent production based, and 60 percent service based, is highly skilled, and excels in technologies and Research and Development. Their highly regulatory government makes labor costs and real estate prices high. To offset high costs, and provide foreign investment protection, the government applies tax deductions and identical treatment to internal firms for their business operations CITATION NA124 \l 1033 (N.A., Country Profile South-Korea , 2012). GDP:South Korea’s GDP is calculated on Purchasing Power Parity. For the year 2015, fourth quarter figures were $1,895.15 billion, representing a 5.89% increase over 2014. In 2014, their GDP of $1,789.76 billion placed them 13th in global ranking. In 2013, the GDP was $1,697 billion. All indications show a steady increase in GDP of approximately 5.5%, and this figure is heavily dependent on trade agreements with their Eastern and Western trade partners, and continued expected trade surpluses CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016). Employment:There are currently 24,963,000 million employed in South Korea, contributing to the GNP and the overall economy, and they take 6th place for global employment. Currently their unemployment rate shows a continuous steady reduction, with temporary employment increasing CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016).Unemployment:The current unemployment rate in South Korea is 3.125%, which is 1.5% lower than the global average of 4.62%, and places them 96th in global unemployment. Their unemployment rate is expected to remain steady for 2016 CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016).Interest rates:As of June 11, 2015, the interest rate was 1.5%, meaning bank were paying one and one half percent interest on invested funds. The Central Bank of Korea is intentionally holding the interest rate at 1.5% to offset their poorly performing currency (Won), and to maintain their edge against globally unstable markets. Currently, the Won is Asia’s poorest performing currency, and has lost 3.4% to the U.S. dollar. Their poorly performing currency is costing them global funding, as investors are cashing in their stock and bonds, and waiting for the economy to stabilize. Their GDP lost 18.8% due to reduced demand for products, and the risks and tensions with North Korea may potentially hinder the situation CITATION Par16 \l 1033 (Jabri, 2016)Inflation:The current inflation rate in South Korea is 2.4%, and indicates the average consumer price change. For 2014, the inflation rate was 1.57%, ranking South Korea 131st in global ranking, and for 2013 the inflation rate was 1.3%. Inflation is expected to rise marginally, and have little effect on the economy CITATION NA1614 \l 1033 (N.A., 2015 Economic Statistics and Indicators, 2016). REFERENCES BIBLIOGRAPHY \l 1033 Jabri, P. (2016, February 16). South Korea holds interest rate at record low . Retrieved from BUSINESS RECORDER: world/global-business-a-economy/278888-south-korea-holds-interest-rate-at-record-low.htmlJefferson-Moore, K. (2016, February 17). Retrieved from ECON 616 Unit 1, Live Chat 2: ctuonline.edu/econ616-1601B-02/unit1/livechat2N.A. (2012, March 28). Country Profile South-Korea . Retrieved from : f/business/text/South-Korea/Business...N.A. (2016). 2015 Economic Statistics and Indicators. Retrieved from ECONOMY WATCH: Follow the Money: economic-statistics/year/2015N.A. (2016, February 19). Today's Interest Rates. Retrieved from Market Watch: tools/pftoolsN.A. (2016). U.S. Economy at a Glance: Perspective from the BEA Accounts. Retrieved from Bureau of Economic Analysis: newsreleases/glance.htm ................
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