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U.S.
real Gross Domestic Product expanded at a very respectable 4.3 percent rate
from fourth quarter 2002 to fourth quarter 2003.
Real Gross Domestic Product measures the inflation adjusted dollar
value of all final goods and services produced within the country.
With some minor accounting adjustments it also represents the level of
national income being produced.
The general consensus is that real GDP will expand by a very healthy
4.5 percent to 5.0 percent over the next twelve months.
The
reason for optimism is predicated upon the notion that the economy is
experiencing a great deal of monetary and fiscal stimulus.
Examples of the stimulus include an accommodative monetary policy by
the Federal Reserve, tax cuts and government spending increases.
These items alone should help to bolster and stimulate consumer
spending and business investment.
Moreover, the dollar continues to slide in foreign currency markets.
This will have a positive influence on exports and help to narrow the
trade gap. In
sum, unless there is some unforeseen economic calamity or political disaster,
the economy's output of goods and services will experience a significant
degree of growth.
This of course would bode well for Wisconsin's economy.
A
major issue that comes out of the discussion about the expanding GDP is where
are the new jobs?
For most individuals the economic expansion will not seem real until it
translates into rapidly growing payrolls.
At the center of the controversy is the way employment figures are
calculated. The
government employs two methods to estimate employment changes.
The first method is based upon a survey of business payroll data.
This method was, and is still, thought to be the most accurate way to
estimate employment.
The nonfarm payroll numbers that came from this survey indicate that
jobs are being generated, but at a relatively slow rate when compared to past
recoveries. After
being in the current expansion for two and a half years the economy could only
produce 112,000 net new jobs in January.
Some economists thought that 300,000 new jobs were possible.
Though the payroll numbers have expanded for six straight months, there
is little evidence that the job market is poised to take off anytime soon.
The
second method used to estimate employment is based upon a survey of
households. There has always been
a discrepancy between the business firm survey and the household survey in
terms of estimating the level of employment and its rate of change.
The gap between the two series has widened over the past several years.
Even worse is the fact that these series appear to be trending in
opposite directions. This raises
very serious concerns about the reliability of the employment numbers.
The household survey indicates that employment growth is much more
vigorous than what is suggested by the business firm survey.
For example, in January, the household survey indicated that employment
in the U.S. grew by approximately 500,000 positions.
This is a rather large discrepancy when compared to the other
estimation method. A number of
economists argue that the household survey may reflect a structural shift in
the nation's economy. Besides
capturing the traditional jobs in larger establishments, the household survey
also captures the self-employed and very small establishments.
Activities that may not necessarily be captured in the business survey
are being captured in the household survey.
The fact that many businesses have shed employees and have out-sourced
many functions may imply that many of these outsourced functions are being
filled by the self-employed or by very small businesses with few employees. In some cases the same employees who were downsized by the
large companies are performing these activities.
As
mentioned earlier the gap between the two employment series continues to
widen. This of course presents a problem for the nation and for
policy makers. Which series more
accurately reflects the conditions of the "new" economy?
Which series gives the best picture of economic conditions?
The implications for the formulation and implementation of monetary and
fiscal policy are huge. Depending
upon the circumstances an incorrect policy decision could cause unanticipated
inflation or a recession. In sum,
it has become increasingly more difficult to determine what the employment
conditions are really like in the country.
Structural changes in the economy may be causing a fundamental shift in
the employment patterns. This
will necessitate a closer examination of how economic performance is
evaluated. |
