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ECOMONICS

ECOMONICS The US economy as a whole has experienced growth since the previous year and those before it. Full employment is closer than it has been in 29 years causing benefits and wages for the labor force to increase dramactically. This surge in wages and benefits is the largest amount since 1991, which is good news for workers but a new worry for Wall Street. This increase could lead to rising inflation and higher interest rates. The Employment Cost Index rose 1.1 percent from April to June and was the biggest quarterly change since the second quarter of 1991 when compensation increased 1.2 percent. Rises in employment costs, coupled with record low unemployment may drive up consumer prices. The industrial sector of the country is gradually slowing with durable goods rising .3% in June to $196.9 billion, a smaller-than-expected increase. During the previous June of 1998, durable goods orders was 182 billion. Unfilled orders fell .8%, marking a third-consecutive month of decline. Industries are softening up as durable goods orders fall below expectations, and it may continue to struggle if companies are reluctant to increase capital spending. There is growth nonetheless, but the rest of the year may yield below expected levels if the factory sector cannot recover. The US economic growth may be slowing as consumer spending slowed to a more moderate pace. According to the Commerce Department, the total value of goods and services slowed to 2.3% with a previous rate of 1.8% last year. The gradual decrease in growth indicates that the economy may be reducing to a more sustainable pace, and avoid another intererst rate increase from the Fed. The increase in employment costs may yet sway the Fed to to raise interest rates, but July will be decisive. Consumer consumption has fallen from 6% in increase in 1998 to 4% in 1999. The fall in consumer consumption has had its toll on the GDP as it too has slowed. Again, the economy has continued its growth, but the vigorous rate that it has been cruising along is falling. The US international trade deficit is growing every year revealing the US’s dependencies on imports vs. exports. The need for vast imports is not unusual, but the level of exports continues to fall. The Balance of US International Trade in Goods and Services for Jan.-Dec. of 1997 was -104.7 billion dollars and -164.2 billion this year. The deficit is detrimental to the economy as it continually creates a debt as it imports more than it exports. Becoming more dependent on imports will drag the economy as it spends large sums of money without exporting to counterbalance. Due to the economy slowing down from the initial rise in interest rates, would argue against the Fed raising it once again. On the other hand, higher emplyment-costs will cause a rise in wages and the sort of inflationary pressures that the Fed is trying to prevent. Although July could be a deciding factor, I do believe that the Fed will raise interest rates to prevent any chances of rising inflation. Bibliography:

Word Count: 509