RL30329
Current Economic Conditions and Selected Forecasts
June 20, 2005
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Summary
U.S. real GDP growth has been positive for 14 consecutive quarters, and the economy is considered to be in an "expansion" phase. As of the first quarter 2005, real or inflation-adjusted growth was some 12% above its previous high near the end of the 1991-2001 expansion. Real GDP growth, at an annualized rate of 3.5% in the first quarter of 2005, was below three of the four quarterly rates of growth during 2004 (which were 4.5%, 3.3%, 4.0%, and 3.8%). The rebound in payroll employment has not been strong. During May 2005, it was about 2.5 million above the level prevailing at the end of the recession (November 2001), but only 836,000 above the peak of the last expansion. The unemployment rate rose to a high of 6.3% in June 2003; it has since declined and now (May 2005) stands at an expansion low of 5.1% (down from 5.6% one year ago). The low achieved during the last expansion was 3.8%. The other elements in the economic picture are mixed: (1) A pick-up in output at the same time as employment is growing slowly 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. (2) The inflation rate, measured by the CPI, rose 3.3% during 2004. This was largely driven by rising energy prices as the inflation rate excluding food and energy rose only 2.2%. Over the three months February-May, the overall inflation rate was 4.4% while the rate less food and energy was 2.2% (at annualized quarterly rates). Nevertheless, the rise in the inflation rate is now generating some concern. The consensus among economists is that GDP will grow between 3.2% and 3.8% this year. The unemployment rate will show little tendency to change. Inflation is expected to be above the rate that prevailed in 2004. Fiscal and monetary policies were both eased beginning in 2001. The easing continued into the first half of 2004. This has had a positive effect on spending. However, on eight occasions beginning on June 30, 2004 and concluding on May 3, 2005, the Federal Reserve has made a modest effort to tighten monetary policy by increasing the federal funds rate by 1/4%. The cumulative increase has been 2%. Fiscal policy also tightened modestly. The international trade deficit is large and expected to remain so. This report will be updated monthly.
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Related Legislation:
- S.3
- S.4
- S.2
