The performance of the economy over the past twelve months has been outstanding. Real Gross Domestic Product expanded by $254.4 billion, or 3.6 percent, since first quarter of last year. The output of our country's factories grew by a brisk 4.2 percent. Even with this level of activity inflation, as measured by the Consumer Price Index, rose by a meager 1.4 percent, and short‑term interest rates remained stable over the period.

     The current economic expansion began in 1991 and is now the third longest in the country's history. Perhaps by examining the current situation we can gain some insight into the future direction of the national, state, and regional economies.

     The overall economy grew by a better than expected 4.2 percent during the first three months of 1998. So far the economic difficulties in the far east have not had a significant negative effect on the nation or Wisconsin. As mentioned in last quarter's report the initial impact of the situation could be favorable. Currently the residents of our state and nation are enjoying the benefits of having lower cost imports. Simply stated the devaluation of many Asian currencies relative to the U.S. dollar has made their exports to our country less expensive. Additionally, the Asian countries up to this point in time have been unable to flood the U.S. and Wisconsin with more exports because they now lack the foreign exchange to import the inputs for their factories. Thus, these countries are not now in a position whereby they can increase production and take significant market share away from U.S. producers. This of course helps the domestic employment situation.

     With regard to the future it appears that the U.S. and Wisconsin economies will retain their competitive advantage. A study released in April by the highly respected International Institute for Management Development in Lausanne, Switzerland again ranked the U.S. as the world's most competitive nation. Overall 259 criteria are evaluated in determining the rankings for the world's 46 most developed countries. For comparison purposes Japan, which has experienced economic and political troubles, was ranked 18th. Germany was ranked 14th and Russia last in the study of competitiveness. The results of the study certainly underscore how well our economy is operating and suggest that at least through the foreseeable future it will perform well.

     Wisconsin and our region continues to move forward from an economic standpoint. For 125 consecutive months the unemployment rate in Wisconsin has been lower than that of the U.S. Likewise our local region has fared quite well in this comparison. Early this year Wisconsin's unemployment rate dropped to just 3.1 percent, tying the all time low set back in March 1970. Moreover, the state created 63,000 net new jobs over the past year, and our region shared a proportionate amount of that growth.

     Given the vitality of the economy, there is concern on the part of the financial markets that the Federal Reserve's Open Market Committee on May 19th will decide to raise interest rates in an attempt to cool down the economy. There is some concern that with so much economic activity coupled with the recent high rates of monetary growth, that inflation will be kindled. For the record, broad measures of the money supply suggest that perhaps too much money has been injected into the economy. Early this year growth rates of 8 percent were reported for several of these monetary measures. Thus, there is a real concern that unless the economy slows, the Federal Reserve will be forced to act in such a way as to prevent the development of an inflationary environment.