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n a t i o n a l o v e r v i e w 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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