Current Economic Conditions and Selected Forecasts

Publication Date: June 1998

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Economics

Type:

Abstract:

According to the National Bureau of Economic Research, the arbitrator of the U.S. business cycle, the U.S. economy is in an expansion that is soon be 7 years old, having gotten underway in March of 1991.

Gross Domestic Product (GDP), our basic measure of economic activity, grew at an annual rate of 4.8% during 1998:1 compared with 3.8% during 1997, 2.8% during 1996, 2.0% during 1995, 3.5% during 1994 and 2.3% during 1993. Over the past five quarters there has been some net increase in inventories as the growth rate of final sales has been closer to 3%.

The unemployment rate has continued to fall during 1997 and 1998, reaching an expansion low of 4.3% in April 1998. The monthly unemployment rates recorded during most of the past 2 years have been below the rates 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, approximately 2.9 million jobs have been created, which means an average rate of job creation per month of 243,500. During the expansion, over 14 million jobs have been added to the economy.

The inflation rate has, on average, been low over most of the expansion. Except for 1996, the rate of inflation measured by the Consumer Price Index has declined in each year of the expansion. For the 12 months ending in April 1998, the CPI rose 1.4%, the lowest rate of increase since 1986. For the 3-months ending in April, it rose at an annual rate of 1.2%. A similar pattern shows up in the two GDP price indexes. Both indexes rose 1.8% during 1997 an at a rate of 1.4% for the 12 months ended in March. Labor costs, a possible indicator of future inflation, have shown some tendency to accelerate as labor markets have tightened.

Fiscal policy continued to tighten during 1996 and 1997. Monetary policy appears to be geared to promoting a real GDP growth rate of about 2.0% to 2.75% per year, a rate thought compatible with a stable rate of inflation.

Recent forecasts by private sector individuals and firms expect GDP to grow about 3.1% during 1998 and in the 1.7% to 2.3% range during 1999. Unemployment is expected to average about 4.7% this year and 5.0% for 1999 and inflation is expected to average in the 1.4% to 2.8% range for both years.