The national economy was surprisingly strong during Second Quarter 19913. The amount of evidence to support this assessment is extensive. For examples of this, consider the amount of job creation, the low unemployment rates, and real GDP growth during the period. This good news, however, has caused financial markets to be rather unsettled. ft seems that every time a piece of good economic news is released by the government, the markets decline. 

     To understand what appears to be an inconsistency, one need not look any farther than the relationship between inflation, interest rates, and expected corporate profits. A robust economic report irr the minds of market participants means upward pressures on prices and wages. R is. believed that this inflation‑tainted scenario would not be tolerated for very long by the Federal Reserve. The Fed would react by tightening credit conditions which would have a detrimental impact on future profits of firms. Thus, the investments in stocks and bonds become less attractive and their prices tumble. Because of this chain reaction in conditions, investors will see their portfolios and wealth contract. 

     Most economists believe that the economy will eventually cool down because the Federal Reserve will be forced to raise interest rates, if not before the election then shortly there after. This will cause housing and auto sales to slow. Further, corporate investments in factory, plant, equipment and inventories will also abate because of the tightening. Given that consumer confidence is at a record level and that consumers account for two‑thirds of the economy, it will be interesting to see if slightly higher short-term interest rates can indeed slow the economy to a significant degree. 

     Concerns about inflationary pressures while dominating discussion in the press may in fact be unwarranted. Except for the volatile food and energy sectors, the core rate of inflation remains at less than three percent per year. Domestic and international competitive pressures make R very difficult for firms or employees to achieve any long lasting price or wage increases. Even the increase in the minimum wage to $5.15, for the most part, affects a very small part of the workforce because even the most basic of jobs pay higher wages than the new minimum. Thus, the impact of the minimum wage on the economy as a whole will be slight. 

     In a report that was recently released by the Federal Reserve Bank of Chicago it was stated that the Midwest economy has experienced a considerable rebound in its economic fortunes since the bleak days of the early 1980s. Job growth and hiring plans of businesses were used to support this position. The factors cited as providing the foundation for the turnaround were, (a) the decline in real energy prices, (b) declining interest rates, and (c) the lower trade weight value of the dollar. Further, productivity improvement in Midwest manufacturing was cited as playing a key role in the resurgence. 

     Additionally, the study by the Federal Reserve Bank of Chicago indicated that the Midwest must confront several problems in the years ahead to stay competitive. One item cited was the need to develop more entrepreneurship. The Midwest seems to lag behind the rest of the country in terns of new business ventures. Additionally, the Midwest has a labor force which is aging more rapidly than the rest of the country. This along with a growing economy will mean that labor shortages will become a serious issue in the region. These factors plus the realization that the favorable conditions alluded to earlier are subject to change, suggest that our recent good fortune is not a birthright but something that requires constant vigilance.