Magazine article Economic Trends

The Economy in Perspective

Magazine article Economic Trends

The Economy in Perspective

Article excerpt

Imagine the possibilities ... The U.S. economy has come a long way since the 2001 recession. Despite terrorist attacks, an ongoing war, and a series of energy price shocks, economic activity has steadily advanced for four years and shows no sign of abating. In fact, the most recent news about the expansion has been very positive: Employment increased at a solid pace in July;, and the prior estimates for May and June were each revised upward. Industrial production and opacity utilization continued to rise, and manufacturing orders love been strengthening. Although successive waves of energy price hikes might have made the public uneasy about future inflation, most households and financial market participants seem confident that it will be lower than current inflation.

The economy's performance has not been without its critics. The expansion, which followed a fairly short and shallow recession, got off to a slow start. The labor market's performance was so weak that the first part of the expansion was derisively labeled the "jobless recovery." Today, there are analysts who contend that the unemployment rate has declined to 5%, its long-term average, only because of an unusual pull-lock in the labor force participation rate. The employment-to-population ratio has finally edged up to its 2002 level, but is still considerably below its record-high prerecession value. And after four years of growth, capacity utilization rates in a host of industries still lie below their long-term averages.

Tempting as it is to compare one business cycle with another, or with the average of many, the comparisons are not always apt. Business cycles often display some similar characteristics, but the forces driving the cycles--and the mediating channels through which those impulses travel--are usually different. This expansion differs from others partly because of the legacy of the prior cycle, which had its own idiosyncrasies, partly because of the war in Iraq and against terrorist forces elsewhere, and partly because of the continuing expansion of economic activity and trade around the world. There are enough differences from cycle to cycle to make caution advisable when diagnosing problems and prescribing solutions. …

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