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Current Economics Conditions In The United States.

1455 words - 6 pages

The impressive performance of the U.S. economy persisted in the first half of 2000 with economic activity expanding at a rapid pace. Overall rates of inflation were noticeably higher, largely as a result of steep increases in energy prices. The remarkable wave of new technologies and the associated surge in capital investment have continued to boost potential supply and to help contain price pressures at high levels of labor resource use. At the same time, rising productivity growth--working through its effects on wealth and consumption, as well as on investment spending--has been one of the important factors contributing to rapid increases in aggregate demand that have exceeded even the stepped-up increases in potential supply. Under such circumstances, and with the pool of available labor already at an unusually low level, the continued expansion of aggregate demand in excess of the growth in potential supply increasingly threatened to set off greater price pressures. Because price stability is essential to achieving maximum sustainable economic growth, heading off these pressures has been critical to extending the extraordinary performance of the U.S. economy.The Economic Forces at WorkThe Bureau of Labor Statistics of the U.S. Department of Labor today reported revised productivity data--as measured by output per hour of all persons--for the second quarter of 2000. The seasonally adjusted annual rates of productivity change in the second quarter were 6.5 percent in the business sector and 5.7 percent in the non-farm business sector. (1)Underlying this performance is a continuing acceleration in productivity. One result of this remarkable economic performance has been a pronounced increase in living standards for the majority of Americans. Another has been a labor market that has provided job opportunities for large numbers of people previously struggling to get on the first rung of a ladder leading to training, skills, and permanent employment.With foreign economies strengthening and labor markets already tight, how the current wealth effect is finally contained will determine whether the extraordinary expansion that it has helped foster can slow to a sustainable pace, without destabilizing the economy in the process.Business CycleSigns of a moderating U.S. economy are legion. Amid Federal Reserve rate hikes and energy price surges today's economy looks as it did at past business cycle peaks. Interest-sensitive housing and commercial construction are slowing, and Detroit must shell out ever bigger rebates to induce consumers to buy vehicles. Consumer spending and employment aren't growing as fast as they were.Capital equipment outlays are still robust, but they atrophy only after the recession is manifest enough to scare business. Note that even computers and software are vulnerable. Most new tech is bought by old-style companies. Also, in classic prerecession fashion, the yield curve is inverted.Most significantly, inventories throughout the...

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