Economy Is Nearing Cruising Altitude by ProQuest

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Economy Is Nearing
Cruising altitude
By Kevin L. Kliesen


A     lthough the trajectory has been flat-
      ter and the ride a little bumpier than
usual, the U.S. economy continues to gain
momentum. Real GDP has increased
for three consecutive quarters (through           More broadly, other key measures of eco-        of a European slowdown on the U.S. econ-
2010:Q1), private-sector hiring is picking        nomic activity also augured well for the        omy. At this point, it is too soon to say how
up, and inflation and inflation expectations      economy. These include the manufactur-          large these effects might be, but U.S. exports
generally remain low and stable. Still, the       ing and nonmanufacturing purchasing             to the euro area countries comprised only
unemployment rate remains stubbornly              managers indexes, the index of leading          15 percent of total U.S. exports in 2009.
high because of continued weakness in the         indicators, and rising levels of confidence     Still, the sovereign debt crisis comes at a
residential and commercial construction           by large-company CEOs. (Confidence              time when stresses to the U.S. financial
sectors and because of lingering strains in       among small firms was much less buoyant.)       system are keeping bank failures and non-
the financial markets. Moreover, as the              Housing and the commercial real estate       performing loans at elevated rates.
developments in Europe suggest, the huge          industry have been a festering problem,
accumulation of government debt in the            but there are some signs that the worst has     Inflation under Control
advanced economies poses risks to the             passed. One lingering worry is the strength        The news on the inflation front remains
world economy. Minimizing these risks             of the housing industry without the support     good, and Fed policymakers continue to see
will be key to maximizing the economy’s           of the homebuyers tax credit. But with the      low and stable inflation over the next few
growth potential.                                 economy strengthening and mortgage rates        years. Accordingly, the FOMC appears to
                                                  still low, home sales and construction activ-   be in no hurry to depart from its extraordi-
Turbulence Is Limited So Far                      ity should begin to increase from their low     narily accommodative policy. If anything,
   Real GDP, which measures the produc-           levels, albeit modestly.                        low inflation, continued high unemploy-
tion of final goods and services in the              Labor markets are improving. In May,         ment and developments in Europe may keep
economy, rose at an annual rate of 2.7            total nonfarm payrolls rose by 431,000,         the Fed on hold for a longer period of time
percent in the first quarter of 2010. A key      
								
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