The Future of the Economy in the year 2000
The economy has performed exceptionally well for the past several years, combining rapid growth and very low unemployment with declining inflation. "Not only has the expansion achieved record length, but it has done so with far stronger growth than expected," stated Federal Reserve Chairman Alan Greenspan in his remarks to the National Community Reinvestment Coalition annual conference in Washington (Business Week, The McGraw-Hill Companies, Economic Outlook, March 6,2000). Figures show that since 1996, the growth of GDP has averaged more than 4 percent, compared with an average of about 3 percent since 1973. Because of those four years of rapid growth, the unemployment rate has fallen to 4.1 percent, its lowest level since January 1970. Consumer Price Index (CPI) inflation, excluding food and energy prices, had been vacillating at about 3 percent per year earlier in the decade but was roughly 2 percent over the past year (Bank of America, Economic in Brief, November 1, 1999). Much of the auspicious recent economic developments can be attributed to a surge in productivity growth. Alan Greenspan noted in his statement that output per hour in the non-financial corporate sector had increased since 1995 at nearly double the averag
e pace of the preceding 25 years (First Union, Monthly Economic Outlook, March 7, 2000). This rapid productivity growth allowed the economy to grow at a faster pace without raising the rate of inflation. However, the growth of consumer demand is exceeding the increase of productivity-boosting employment, tightening labor markets, and raising concerns that recent growth rates may not be sustainable without sparking a rise in inflation. After spending the past several years, extolling the virtues of improved productivity in allowing higher growth with less inflation, the Federal Reserve Chairman, seemed to turn the tables in his Humphrey Hawkins testimony, stating that the spurt in The current employment situation appears to be another "bright spot" in today's economy. The unemployment rate rose to 4.1% in February but remains near its lowest level in more than three decades (Bank of America, Economic Research, Economic in Brief, November 1, 1999). Consumer expectations of the economy remain favorable and spending is strong. Wages are rising faster than inflation, allowing families to stretch their incomes further. This "gilded" image of the job market, however, has its own shortcomings as well. Despite the existing prosperity and the tightest labor markets in a generation, more workers are afraid of losing their jobs than at the bottom of the 1991 recession (Market News, Greenspan: Worker Insecurity now more than in last recession by Chris Middleton). It is a "pivotal period," Greenspan went on, that is a direct result of the development of the transistor after World War II. "It brought us the microprocessor, the computer, satellite and the joining of laser and fiber-optic technologies." The average worker can no longer obtain skills in high school that will be a sufficient support for an entire career, he noted. For this reason, technological changes make many workers concerned about job security, and as a result, excessive wage increases do not come into view. Wage inflation is only 3.6percent for the twelve-months ended in February, and after adjusting for productivity gains, labor costs to employers are still low. Recent increases in the price of oil have reached their highest level since the Gulf War, and further increases could hurt U.S. economic growth. OPEC's decision to cut production last March has lead to rising inflation last year. Considering the most recent leap in oil prices, inflation reports in the near future could be strong, pushing the twelve-month CPI r
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Approximate Word count = 1682
Approximate Pages = 7 (250 words per page double spaced)
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