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Has Growth Slowed? (2006 Report)
Summary: Economic growth slowed in the fourth quarter, as the auto industry curtailed sales incentives after an aggressive third quarter. The labor market preformed very well, nevertheless. Unemployment hit a cyclical low of 4.9% and initial unemployment claims declined to just 271,000, although this level is surely somewhat distorted. A tight labor market presents major risks to the Fed, since wage rates ought to be under upward pressure, with cascading effects on prices. The Fed will likely hike rates once again at its next meeting, as widely expected, but subsequent policy decisions will reflect the labor market and its implications for inflation.
Economic growth slowed in the fourth quarter, as the auto industry curtailed sales incentives after an aggressive third quarter. The labor market preformed very well, nevertheless. Unemployment hit a cyclical low of 4.9% and initial unemployment claims declined to just 271,000, although this level is surely somewhat distorted. A tight labor market presents major risks to the Fed, since wage rates ought to be under upward pressure, with cascading effects on prices. The Fed will likely hike rates once again at its next meeting, as widely expected, but subsequent policy decisions will reflect the labor market and its implications for inflation.
The fourth quarter slowdown in the economy is not at all surprising. Rising energy costs, changing pricing strategies in autos and normal volatility combined to produce a weak report. It remains to be seen if this slowdown is temporary or more lasting. If it proves temporary, as we expect...
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This section contains 412 words (approx. 2 pages at 300 words per page) |
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