USA

Politics:

• Analysis

  USA politics: Quick View - Congress agrees funding to avert a government sh

  Event

  On March 21st Congress passed legislation to extend government funding until the end of the current fiscal year in September.

  Analysis

  The deal was first adopted by the Senate (Congress's upper chamber) on March 20th, before clearing the House of Representatives (the lower chamber) on the following day. It averts a government shutdown, which could have happened as soon as March 27th, and which would have damaged the economy and heavily disrupted federal government operations. Just three months ago, the prospect of a prolonged showdown over government spending had seemed highly likely. The "fiscal cliff" deal on January 1st left Republicans unhappy over the associated tax rises and keen to use upcoming fiscal deadlines to achieve policy victories of their own, particularly cutting government spending further. By ensuring the continuation of the "sequester"-a series of automatic budget cuts that began on March 1st-Republicans look largely to have achieved that goal. By contrast, forcing a government shutdown that would reflect poorly on the party came to be seen as undesirable. Consequently, the so-called continuing resolution that extended government funding until September was widely backed by both parties in both chambers of Congress. The straightforward passage of the funding also reflects a degree of weariness over repeated confrontations on fiscal policy, which has been the case since the election in November 2011. Lurching from one perceived fiscal crisis to another is not popular with the electorate, either.

  Alongside the approval of government funding for the next six months, Democrats and Republicans have also been producing their budgets for the coming 2013/14 fiscal year (October-September). The budgets largely serve as political messaging vehicles; actual approval for government funding comes from separate legislation. The budgeting process-in terms of the House and the Senate agreeing on a common budget-has largely broken down in recent years; the parties' fiscal preferences are particularly far apart at the moment. Nonetheless, both parties are moving their respective budget documents through Congress. The House Republicans passed a highly regressive budget drawn up by their fiscal standard-bearer, Representative Paul Ryan, the 2012 Republican vice-presidential candidate. It balances the budget in ten years, on the back of deep spending cuts. Senate Democrats are set to pass their budget on March 23rd; it is expected to use large revenue increases to improve the public finances. Neither side's budget is acceptable to the other, so there is no chance of either becoming law. Their primary purpose will be as political targets for the other party to attack.

  March 25, 2013

• Background

  USA: Political forces at a glance

  Present government: Barack Obama was elected president in November 2008. He is a member of the Democratic Party, which expanded its majorities in both the House of Representatives (lower house of Congress) and the Senate (upper house) at the congressional elections, which were also held in November 2008.

  Parliamentary forces: The legislative branch of government, Congress, is bicameral. The Senate has 100 members (two per state), who each serve a six-year term, with one-third elected every two years on a state-wide basis. The House has 435 members, who each serve a two-year term and are elected from constituencies based of broadly equal size.

  Election results
  (no. of seats)
  	House		Senate
  	2006	2008	2006	2008
  Republicans	202	178	49	41
  Democrats	233	257	49	58
  Independents	0	0	2	1
  Total	435	435	100	100

  Download text file (csv format)

  Next elections: Mid-term congressional elections will be held on November 2nd 2010, when all 435 seats in the House of Representatives and one-third of the seats in the Senate will be renewed. Presidential and congressional elections will be held on November 6th 2012, together with elections for governors in 13 states and territories.

  April 04, 2010

• Structure

  USA: Political structure

  Official name

  United States of America

  Form of state

  Federal republic

  Legal system

  Based on the constitution of 1787

  Federal legislature

  Bicameral: Senate of 100 members directly elected on a plurality (first-past-the-post) system for a six-year term, with one-third of its seats up for election every two years; House of Representatives of 435 members directly elected on a plurality basis for a two-year term. The Senate has the power to confirm or reject presidential appointments, including the cabinet, and to ratify treaties; the House of Representatives has the sole right to initiate revenue bills, although they may be amended or rejected by the Senate

  Electoral system

  Universal direct suffrage from the age of 18

  National elections

  Last elections were held on November 6th 2012 (presidential, House of Representatives and one-third of the Senate); the next presidential election will be held in November 2016; next congressional elections (House of Representatives and one-third of Senate) will be held in November 2014, together with elections for governors in some 36 states

  Head of state

  Executive president elected by popular vote via an electoral college of 538 members, for a maximum of two four-year terms. Barack Obama (Democrat) replaced George W Bush (Republican) as president on January 20th 2009, with Joe Biden as vice-president

  State legislatures

  Each of the 50 states, except Nebraska (which has a unicameral system), has a bicameral legislature that essentially follows the model of the federal legislature; the states have certain fiscal and legal rights; some states now limit the number of terms that can be served by their elected representatives

  National government

  The administration is appointed by and responsible to the president; its senior officials are subject to confirmation by the Senate

  Cabinet secretaries

  Agriculture: Tom Vilsack

  Commerce: Rebecca Blank (acting)

  Defence: Chuck Hagel

  Education: Arne Duncan

  Energy: Steven Chu (departing)

  Health & human services: Kathleen Sebelius

  Homeland security: Janet Napolitano

  Housing & urban development: Shaun Donovan

  Interior: Ken Salazar (departing)

  Justice: Eric Holder

  Labour: Seth Harris (acting)

  State: John Kerry

  Transportation: Ray LaHood (departing)

  Treasury: Jacob Lew

  Other offices with cabinet rank

  Environmental Protection Agency: Robert Perciasepe (acting)

  Office of Management & Budget: Jeffrey Zients

  President's Chief of Staff: Denis McDonough

  United States Trade Representative: Ron Kirk (departing)

  Chairman of the Federal Reserve

  Ben Bernanke

  March 15, 2013

• Outlook

  USA: Key developments

  Outlook for 2013-17

  • Policymaking will remain difficult, as the 2012 general election divided control of Congress through the 2013-14 legislative term.
  • After a number of fiscal policy triumphs early in 2013, the president, Barack Obama, will struggle to achieve further victories in the face of obstruction by Republicans in Congress.
  • Immigration and gun control have become priorities for Mr Obama, and legislative action on both is possible in the next two years. The president will also oversee the implementation of his 2010 healthcare reform.
  • A combination of moderate economic growth, spending restraint and some tax rises will reduce the federal budget deficit in 2013-17.
  • The Fed's open-ended bond-buying programme (QE3) will keep monetary policy extraordinarily loose until the unemployment rate falls substantially. The Fed will also keep interest rates exceptionally low until mid-2015.
  • The impact of difficult fiscal decisions will hold back the economy in 2013. After growth of 2.2% in 2012, we expect the economy to expand by 2.1% in 2013 and by 2.3-2.4% in 2014-17.
  • Economic growth in the forecast period will be driven by rising private consumption as employment and wages expand steadily, and by relatively high investment growth, especially in the residential construction sector.
  • Inflation is forecast to average slightly above 2%. The current-account deficit is projected to narrow. The US dollar is expected to strengthen slightly in 2014-17.

  Review

  • In the absence of Congressional compromise, a series of automatic budget cuts entered into force at the beginning of March, even though both parties stated their opposition to the cuts.
  • Lawmakers are negotiating a government funding measure, which is required from April onwards to prevent a federal government shutdown. This may provide the opportunity to redirect some of the federal spending cuts.
  • Some Fed policymakers have expressed concern over the pace of asset purchases, but a majority still favours continued central bank bond-buying.
  • GDP was revised to marginal growth of 0.1% (annualised) in the fourth quarter of 2012, from a previous estimate of a 0.1% contraction.
  • Unemployment fell to a post-crisis low of 7.7% in February as the economy created another 236,000 non-farm jobs.
  • Consumer price inflation remained muted, at just 1.6% in January.

  March 15, 2013

Economy:

• Background

  USA: Country fact sheet

  Fact sheet

  Annual data	2011a	Historical averages (%)	2007-11
  Population (m)	311.8	Population growth	0.9
  GDP (US$ bn; market exchange rate)	15,076b	Real GDP growth	0.5
  GDP (US$ bn; PPP)	15,076b	Real domestic demand growth	0.0
  GDP per head (US$; market exchange rate)	48,350	Inflation	2.2
  GDP per head (US$; PPP)	48,350	Current-account balance (% of GDP)	-3.7
  Nominal effective exchange rate	86.1	FDI inflows (% of GDP)	1.6
  a Economist Intelligence Unit estimates. b Actual.

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  Background: The US has the highest level of output in the world, with GDP valued at an estimated US$15.7trn in 2012. Serious economic imbalances that emerged in recent years triggered a financial crisis and a deep recession in 2008-09. The economy has taken time to fully absorb the overhang from these imbalances, and the economic recovery has resulted in growth well below historical rates.

  Political structure: Powers are constitutionally divided between the executive, legislative and judicial branches, and between the federal and state governments. The president heads the executive branch. The federal legislature, Congress, consists of a House of Representatives, whose members are elected from constituencies based on population, and a Senate, whose members are elected state-wide (two per state). The president is elected every four years and House members every two years. Senators serve a six-year term, with one-third elected at each congressional election.

  Policy issues: Fiscal consolidation will be the focus of public debate and a significant policy challenge for the forecast period. The financial crisis has turned regulation and supervision of financial markets into a priority. Debate continues over the necessity of further central bank stimulus. In the longer term, the withdrawal of the existing, massive monetary stimulus will have to be managed carefully. A reform of healthcare that will substantially extend the reach of health insurance coverage has largely weathered a Supreme Court challenge, and will now be implemented. Population ageing will require a major review of entitlement programmes in the long term.

  Taxation: In general, personal tax rates are low compared with rates in other industrialised countries, whereas corporate tax rates are somewhat higher. Tax jurisdiction in the US is a complex web of powers divided between the federal government, the states, and local counties and municipalities. Sales tax varies from state to state.

  Foreign trade: The merchandise trade account (payments basis) recorded a deficit of US$738bn in 2011, and the current-account deficit was 3.1% of GDP. There may be some progress on trade liberalisation, including more bilateral free-trade agreements (FTAs), but targeted protectionist measures may also become more common. Such measures will focus on China, given its huge bilateral trade surplus with the US.

  Main exports 2011	% of total	Main imports 2011	% of total
  Machinery & transport equipment	39.2	Machinery & transport equipment	36.0
  Manufactured goods	19.1	Manufactured goods	24.4
  Chemicals	14.0	Mineral fuels & lubricants	20.6
  Mineral fuels & lubricants	8.7	Chemicals	9.0
  Leading markets 2011	% of total	Leading suppliers 2011	% of total
  Canada	19.0	China	18.9
  Mexico	13.3	Canada	14.5
  China	7.0	Mexico	12.0
  Japan	4.5	Japan	6.0
  UK	3.8	Germany	4.5

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  Download text file (csv format)

  January 15, 2013

• Structure

  USA: Economic structure

  Data and charts: Annual trends charts

  
  

  

  March 15, 2013

• Outlook

  USA: Country outlook

  USA: Country outlook

  FROM THE ECONOMIST INTELLIGENCE UNIT

  POLITICAL STABILITY: The political scene continues to suffer from the sharp ideological split between Democrats and Republicans, which is manifested in divided control of Congress. This makes political compromise and passage of legislation on high-profile policy topics difficult. The "fiscal cliff" stand-off at end-2012 and the deadlock over moderating automatic budget cuts in March have demonstrated that seeking compromise in Congress remains extraordinarily difficult. A key obstacle is that the Republican majority in the House of Representatives continues to be strongly influenced by ultra-conservative Republicans linked to the anti-government Tea Party movement. Their steadfast opposition to most presidential initiatives--and, for a notable minority, a severe aversion to the kind of political compromise implicit in governing--will have to be overcome to pass legislation. The Republicans themselves are split between Tea Party members and the more moderate wing of the party, led by the Speaker of the House, John Boehner. This means that Mr Boehner may need Democratic support to pass his own initiatives, a risky approach that will weaken his own position further and also weigh on his party's cohesion.

  ELECTION WATCH: The 2012 elections maintained the existing balance of power, but this disguises the Democrats' generally strong showing. The president, Barack Obama, convincingly defeated his Republican opponent, Mitt Romney. In the Senate, Democrats added two seats (including an independent) to their previous tally, reversing concerns earlier in the year that they might lose control of the chamber. Republicans comfortably retained control of the House of Representatives, but Democrats gained eight seats overall in the chamber.

  INTERNATIONAL RELATIONS: Confrontation with Iran over its nuclear programme will be an ongoing foreign-policy challenge. Economic sanctions imposed by the US and the EU on Iran, particularly the embargoes on purchasing its oil, are having a noticeable effect on the country's export revenue and, by extension, its fiscal affairs. In response, there have been periodic Iranian threats to close the Strait of Hormuz, a vital conduit for crude oil, followed by US vows to reopen it by military means. The dispute is in a cooler phase at present, and there is little appetite in the US for engaging in another protracted war in the Middle East. Nonetheless, any Israeli military attack on Iran's nuclear enrichment facilities could draw the US into the fray.

  POLICY TRENDS: Significant decisions on cutting federal spending have largely been made. A series of planned spending cuts, amounting to a total of US$2.1trn over the coming decade, is programmed into US law. Of that, around US$900bn is settled; debate continues over the remaining US$1.2trn--known as the sequester--which began in March 2013. Both parties want to change the composition of these cuts, but without consensus on how to do so, the sequester may well remain in force. Continuing government funding also needs to be approved from April onwards, which will provide an opportunity for moderating the sequester. Separately, the Bush-era income tax cuts that were set to expire in 2013 were made permanent for lower- and middle-income wage earners and raised for the wealthy as part of the fiscal cliff deal. The issue of the debt ceiling (the federal borrowing limit) has been suspended until mid-year, although it will certainly return in the coming months and years. Congress's duty to approve periodic increases in the ceiling provides an opportunity for renewed fiscal stand-offs.

  ECONOMIC GROWTH: Real GDP was essentially flat in the fourth quarter of 2012, according to the government's revised estimate of economic performance, rising by just 0.1% at an annualised rate. This represented a sharp deceleration from growth of 3.1% in the third quarter. This volatility was driven by two unusually pronounced one-off effects: a rise and subsequent fall in both federal defence spending and inventory movements. Overall, the underlying pace of economic growth is probably reflected by an average of the two quarters. Indeed, despite the decline in headline GDP, the underlying drivers of the recovery--consumer spending and business investment--recorded healthy growth in the fourth quarter. This is promising, especially since the risks associated with the fiscal cliff at end-2012 might have been expected to weaken both consumer and business sentiment. The Economist Intelligence Unit continues to believe that the fiscal consolidation in early 2013 will hold back the economy in the current and next quarter. Nonetheless, initial signs suggest that dynamism in the private sector will partly negate the effects of the fiscal cuts. From mid-year onwards we expect a substantial pick-up in growth, resulting in average growth of 2.1% for 2013, slightly down from 2.2% in 2012. The upswing is forecast to carry through into 2014, with expected growth of 2.4%, before a gradual monetary tightening delivers average GDP growth of 2.3% in 2015-17.

  INFLATION: Consumer price inflation was muted in January, at 1.6%. Underlying price pressures have been soft too, but inflation is expected to pick up during 2013 as the quantitative easing (QE) programme provides a stimulus to the real economy. The Federal Reserve (Fed, the central bank) has indicated its willingness to tolerate above-trend inflation while the labour market remains weak. That notwithstanding, we do not believe that inflation will stay above 3% for an extended period of time. We forecast inflation at 2.2% in 2013 and 2.5% in 2014, followed by an annual average of 2.3% in 2013-17.

  EXCHANGE RATES: The dollar:euro exchange rate averaged US$1.29:EUR1 in 2012 and has returned to around that level after a sharp euro appreciation in January on the back of the QE programme and also because of euro area developments that lowered the chances of a break-up. The Fed's actions have the potential to weaken the US dollar further, but other currency areas are also loosening monetary policy. We estimate an average exchange rate of US$1.33:EUR1 in 2013, before a strengthening to an annual average of around US$1.27:EUR1 in 2014-17. We expect the Fed eventually to reverse course and begin a monetary tightening cycle, and this will support the US dollar's value from mid-2015 onwards.

  EXTERNAL SECTOR: We expect the current-account deficit to have narrowed marginally as a share of GDP in 2013, after falling to 2.7% of GDP in the third quarter. In the forecast period increasing energy self-sufficiency, due to rising shale gas and oil production, will play a key role in reducing import requirements. In turn, we expect this to drive further declines in the current-account deficit as a percentage of GDP to an average of 1.8% by 2016-17.

  March 12, 2013

• Forecast

  USA: Country forecast summary

  Country forecast overview: Highlights

  • The period of divided government will continue at least until 2015. Power in Congress is split between the Democrats and Republicans at a time when they find themselves even more ideologically distant than usual. We believe that the degree of partisanship could be slightly lower in the coming years, but the prospects for major reforms beyond fiscal policy will remain uncertain.
  • The president, Barack Obama, convincingly won re-election on November 6th, ensuring policy continuity for the next four years. He will still have to deal with the Republican majority in the House of Representatives, which, being heavily influenced by its ultraconservative Tea Party wing, will tend to oppose his legislative proposals.
  • The budget deficit will remain substantial, although it will decline steadily. Congress has yet to negotiate a deal on federal spending cuts after securing a deal to raise tax rates on the wealthy at end-2012. Spending cuts scheduled from 2013 onwards may well be pushed out to later in the decade.
  • The Federal Reserve (the Fed, the central bank) is undertaking a new monetary stimulus, with an open-ended commitment to buy mortgage-backed securities. The Fed has moved monetary policy into new territory with a pledge to keep conditions extremely accommodative until unemployment falls to a target level of 6.5%. It is prepared to continue its bond purchases even when the economy picks up and inflation rises above normal tolerance levels of around 2%. The Fed's commitment to keeping interest rates exceptionally low until mid-2015 will help to hold down long-term interest rates as well.
  • The economy is estimated to have grown by 2.3% in 2012 (revised up from 2.2%), but we expect the prospect of a fiscal shock in early 2013 to restrain growth in the first quarter. We expect the Fed's stimulus to support growth of 2.1% in 2013, and forecast an average expansion of 2.3-2.4% in 2014-17. High levels of indebtedness in the household and financial sectors will prevent more normal post-recession recovery rates.
  • The US dollar is expected to strengthen to around US$1.26:€1 over the forecast period, from an average of US$1.29:€1 in 2012. We expect the current-account deficit to have narrowed marginally as a share of GDP in 2012, before narrowing in 2013-17. This trend will be supported by faster domestic shale oil and gas production than previously expected, which is forecast to markedly reduce import requirements.

  

  January 15, 2013

View detailed map

Country Briefing

Land area

9,161,923 sq km

Population

313.9m (July 1st 2012, Census Bureau estimate)

Main urban centres (incl suburbs)

Population in millions (July 1st 2011 Census Bureau estimates):

 New York: 19

 Los Angeles: 12.9

 Chicago: 9.5

 Dallas-Fort Worth: 6.5

 Houston: 6.1

 Philadelphia: 6.0

 Washington DC: 5.7

 Miami: 5.7

Climate

Mainly temperate; subtropical in the South

Weather in Washington, DC (altitude 22 metres)

Hottest month, July, 21-31°C; coldest month, January, –3-6°C; driest month, February, 69 mm average rainfall; wettest month, August, 99 mm average rainfall

Language

English

Measures

Previous UK (imperial) system, except

US gallon = 0.833 UK gallon

US bushel = 0.969 UK bushel

US short ton = 2,000 lb

Currency

Dollar (US$) = 100 cents

Average exchange rates in 2011: ¥79.8:US$1; US$1.39:€1

Time

Hours behind GMT:

 Eastern zone: 5

 Central zone: 6

 Mountain zone: 7

 Pacific zone: 8

 Hawaii: 10

 Alaska: Hyder: 8

 Aleutian Islands west of 169.30°W: 10

 St Lawrence Island: 10

 Rest of Alaska: 9

Fiscal year

The federal government fiscal year, for example for 2012, runs from October 1st 2011 to September 30th 2012. State and local fiscal years can differ

Holidays

New Year's Day; Birthday of Martin Luther King, Jr (January 16th); Washington's Birthday (February 20th); Memorial Day (May 28th); Independence Day (July 4th); Labor Day (September 3rd); Columbus Day (October 8th); Veterans' Day (November 12th); Thanksgiving (November 22nd); Christmas Day

January 15, 2013