HTML _ RL30329 - Current Economic Conditions and Selected Forecasts
27-Apr-2001; Gail Makinen; 25 p.

Abstract: (Formerly 96-963)

According to the National Bureau of Economic Research, the agency that dates the American business cycle, the U.S. economic expansion that began in March 1991 is now the longest peacetime expansion in American history.

Gross Domestic Product (GDP), our basic measure of economic activity, grew at an annual rate of 2%during the first quarter of 2001. It grew 3.4% during 2000, compared with 4.2% during 1999, 4.4% during 1998, 4.4% during 1997, and 2.7%, 4.0%, 2.7% and 3.6%, respectively, during the period 1993-1996. There was little change in inventories during 2000 as Final Sales grew 3.6%. The growth of GDP over 2000 was irregular. The annualized rate of growth during the first half was 5.2% vs. 1.6% during the second half.

The unemployment rate, which has been falling since mid-1992, reached an expansion low of 3.9% in September 2000. It has risen slightly since then and for the first two months of this year it was 4.2%. Over 1998 and 2000, the unemployment rate has moved within a narrow band of from 4.7% to 3.9%. The monthly unemployment rates recorded during most of the past 4 years have been below those thought by many economists to characterize full employment. If these economists are correct, excess demand currently characterizes the economy. Excess demand leads to a rise in the inflation rate. This has yet to materialize, however. During the past 12 months, about 1.5 million jobs have been created, which means an average rate of job creation per month of 125,000. During the expansion, nearly 20 million jobs have been added to the economy.

The inflation rate has, on average, been low over most of the expansion. Except for 1996, 1999, and the first three quarters of 2000, the rate of inflation measured by the Consumer Price Index has declined in each year of the expansion. For the 12 months ending in March 2001, the CPI rose 2.9%. For the 3 months ending in March 2001, it rose at an annual rate of 4.0%. A similar pattern shows up in the two GDP price indexes. Both indexes rose 1.8% during 1997, 1.2% during 1998, 1.5% during 1999, and 2.3% during 2000. They increased at an annual rate of 3.1% furing the first quarter of 2001. The rate of rise of per unit labor costs, a possible indicator of future inflation, has shown no tendency to accelerate over the past three years as labor markets have tightened.

Fiscal policy continued to tighten during 2000. Monetary policy appears to be geared to promoting a real GDP growth rate of about 2.0% to 2.5% per year, a rate thought compatible with a stable rate of inflation.

Recent forecasts by private sector individuals and firms for 2001 suggest that GDP will grow between 1.5% and 1.8%, unemployment will average between 4.5% and 4.7%, and inflation will average between 1.7% and 3.3%. [read report]

Topics: Economics & Trade, International Finance

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