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Summary

U.S. real GDP has been positive for 7 consecutive quarters and the economy is considered to be in an "expansion" phase. As of the second quarter 2003, inflationadjusted growth was 3.9% above its previous high at the end of the 1991 - 2001 expansion. Real growth picked up in the second quarter to 2.4% from 1.4% (quarterquarter, annualized). Most forecasters expect growth to accelerate in the second half. Formally confirming the good news, the National Bureau of Economic Research (NBER), recently declared that the recession which began in March 2001 ended in November 2001.1 The recession lasted 8 months, which is slightly shorter than the postwar average (10 months). The NBER's decision was based importantly on trends in inflation-adjusted GDP, personal income and sales, all of which had started to turn upward again during the fourth quarter 2001. As usual, the NBER waited awhile to make its determination until it was confident of positive developments. Yet the rebound in growth since the end of the recession has not translated into higher payroll employment. Payroll employment has continued to contract (- 2.7 million since February 2001). The unemployment rate has risen and now stands at 6.2% (July). Many have referred to this as a "jobless recovery". There are positive elements of the economic picture: (1) A pick-up in output at the same time as employment is declining means that productivity (or output per worker) is increasing. As we saw in the 1990s, productivity growth is the key to raising our standard of living and is not necessarily associated with weak labor markets over time. We eventually experienced both rapid productivity and strong employment growth as the recovery broadened and deepened throughout the decade. In the short run while adjustment is taking place, however, there is a human toll from the continuing payroll employment losses. (2) Inflation decelerated in the second quarter. This has raised concerns about deflation. A low inflation environment is favorable for economic activity. (3) While overall investment has not yet recovered, information technology-related investment has been on the rise since early 2002. Most economists expect the economy to pick up in the second half, with growth above 3.5%. The unemployment rate is expected to show little change until businesses are sufficiently confident of conditions ahead so that they increase hiring. Inflation is expected to remain low as long as considerable slack remains in the economy, although near term "headline" inflation may reflect new rises in oil prices. Fiscal and monetary policies have both been eased since 2001 and the easing has continued into this year. They are having a positive effect on spending. The external deficit is large and expected to remain so. This report will be updated monthly.

Related Legislation:
• S.3

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