Secular trends, cyclical pressures

Shapiro, Joshua
July 1999
Accountancy;Jul99, Vol. 124 Issue 1271, p66
Trade Publication
This article analyzes the prevalent economic conditions in the U.S. The state of the U.S. economy represents a quite extraordinary combination of outcomes, which present an enormous challenge for economic forecasters and monetary policymakers alike. As the unemployment rate has sunk to 4.2%, real GDP grew at almost 4% a year in 1997 and 1998, and appears on track for a similar outcome this year. Meanwhile, core consumer price inflation, a measure that excludes the volatile food and energy components, hit a new low for the cycle in first quarter of this year at 2.2%, while nominal labor costs as measured by the employment cost index and average hourly earnings are decelerating. A scenario of secular disinflation is part of the puzzle of how the U.S. has been able to grow so strongly for so long without yet generating any cyclical inflation pressures to speak of. However, on top of the demographically driven secular backdrop, the U.S. has more recently benefited from Asia's problem. The U.S. economy is now at a critical juncture. Long-term disinflationary trends remain in place, but the deflationary shock emanating from Asia is waning at the same time that U.S. growth remains robust.


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