The national economy continues to expand at a rapid rate. Fourth Quarter real Gross Domestic Product grew by 4.1 percent in a year over comparison. Additionally the number of jobs created in November reached 488,000 and December's preliminary job estimate is 256,000 giving strong indication that the economy has a great deal of momentum. Further, wages are being pushed up by all the economic activity, rising by an estimated 2.8 percent from last year. Contributing to the low labor cost growth have been gains in productivity which have the effect of partially offsetting, at least up to now, rising labor costs. However, labor shortages are now becoming more of a reality in many parts of the country and upward wage pressure will surely result.
 

     The key players in the economy right now are households and the Federal Reserve. Much of the growth that has taken place in the economy has been fueled by consumer spending. As a matter of fact consumer credit recently soared by 17.3 percent during November making it the twenty‑fourth consecutive month of increase. If households keep propelling the economy forward at some point the ability of the economy to provide enough goods and services will come into question.
 

     The Federal Reserve will likely read these signals as an indication that the economy is about to overheat. This assessment is based in part on the personalities of those who now serve on the Board of Governors of the Federal Reserve. Moreover, the Blue Chip Economist group is forecasting that inflation will accelerate to 3 1/2 percent in 1995 in spite of efficiency gains. Thus, it is quite likely that the Federal Reserve win boost short term interest rates in the early part of 1995. Given that it takes time for higher interest rates to work on the economy, it becomes difficult for the Federal Reserve to know precisely how much credit tightening is required to bring the economy to a so called soft landing. If it over estimates the strength of the economy and severely tightens credit now, it could produce a recession in 1996. If it underestimates the strength of the economy and pursues too easy of a credit policy the economy could overheat one year from now which would ignite inflation. 

     Most economists, such as the Blue Chip group, believe that the expansion in 1995 will moderate with real GOP growing about 2 1/4 percent. Implicit in this reasoning is that past interest rate hikes by the Federal Reserve in 1994 will take hold in 1995 and slow the rate of household economic activity. Also implicit in their forecast is that the Federal Reserve has not overreacted to movements in inflationary indicators. If by chance it has done so, a recession would come in 1995, obliterating the 2 1/4 forecast for real GDP. 

     Other Issues in 1995 that will influence the nation and the Wisconsin economies are: the health of the Mexican economy, European economies coming out of the doldrums, and the political change that has taken place in Washington and Madison. The ramifications of these events are unclear, but nonetheless, they will affect our lives in Central Wisconsin.