Finance and insurance industry
1 Introduction of the industry
The industry consists of enterprises that take part in financial transactions plus creating, liquidating, purchasing, and selling of financial assets and liabilities such as securities, equity instruments, bonds, and insurance. Key players in the industry comprises of companies like AIG, MetLife, Bank of America, Citigroup, Wells Fargo, and Fidelity. The US finance and insurance industry comprises of about 475,000 institutions with collective yearly returns of about $4.4 trillion. The productivity of each company hinges on its promotion, effective procedures, and investment proficiency (Hussain and Prieto, 2016). The main activities of the industry are; facilitating financial transactions, credit creation, raising funds by taking deposits, merging of risk by endorsing indemnity and annuities. Subsectors in the industry are; banking, asset management, insurance, venture capital and private equity.
2 Relative size and growth rate of the industry in the economy
- Relative size
Finance and insurance industry in the United States is the largest and most liquid worldwide with over 450,000 establishments. The industry represents around 7.4 % or $1.5 trillion of the United State gross domestic product. The market size of the industry in the US has experienced an average growth of 0.2% yearly between 2015 and 2020. The market size is expected to drop in the year 2020 because of the economic disruption caused by the present pandemic. The insurance and financial services sectors have employed at least 6.3 million individuals as of early 2020. At the end of 2018, over 20 financial and insurance services companies had decided to relocate their headquarters to the United States. This was done in order to take advantage of its inventive, comprehensive and competitive insurance and finance sector. Finance industry in the US gives the ultimate collection of financial products and instruments to allow customers control risk, generate wealth, and fulfill their financial needs.
- Growth rate
The real GDP growth for the Insurance and Finance industry has varied over the past five years to 2019, as a result of varied economic drifts. Data from the Data is from Bureau of Economic Analysis shows that there has been a constant growth in the industry GDP. % change in GDP indicates that there has been an average growth rate of around 0.2% from the year 2015 to 2019. This is expected to drop come the end of year 2020. This is due to the financial crisis present.
3 One macroeconomic indicator or policy
Government taxation and spending decisions
This is the fiscal policy where the government changes its expenditure and taxation. The US government may purposely change its public spending or tax revenue to impact economic activity. For instance the government may want to increase economic growth and employment by stimulating aggregate demand. To do this it will have to lower its taxes and increase its public expenditure. This will in turn increase the disposable income of the consumers which shall lead to more demand. More demand will lead to increase in investments. The industry should monitor these policies closely as they have a direct impact on them. For instance if taxes are reduced their revenue shall increase. Reduction in government expenditure shall lead to less disposable income hence low demand for their services. As a result of this their revenue shall reduce. Reduction in revenue leads to decrease in GDP of the industry (Gurdal, Aydin and Inal, 2020).
4 Recent trends in macroeconomic indicator
Due to the present economic crisis we are seeing many employees being laid off and no new jobs being created. This is due to reduction in revenue due to low demand as people are keeping their little money for precautionary motives and food. So there is less disposable income on the industry. This has resulted to decrease in % of job growth rate in 2020 dropping from 0.3% in 2019 (González and Gargalas, 2019). It will take around 3 years for the industry to recover to its usual rate. The table below illustrates this trend.