South-Western College Publishing - Economics  
June Report Shows No Busting Out
Subject Economic Growth, Inflation
Topic Employment, Unemployment, and Inflation
Key Words Inflation, Economic Growth, Consumer Price Index, Index of Industrial Production, Index of Consumer Confidence
News Story

The Federal Reserve recently raised interest rates a quarter of one percent because of concern that the economy was expanding beyond its capacity. The Fed also indicated that additional rate increases might not be necessary at this time. Data from the U.S. Department of Labor June's employment report support the Fed's assertion. The employment report suggests that the economy continues to grow, but at a moderate pace.

The Labor Department reported that in June the economy added 268,000 jobs. This large increase was in sharp contrast to May's data which was revised downward to show a net loss of 5,000 jobs. For the second quarter of 1999, the economy created almost 600,000 new positions - an average of 194,000 jobs each month. Although this average is less than the 209,000 reported for the first quarter, it is still indicative of a strong economy.

The Labor Department also reported a slight increase in the unemployment rate. June's unemployment rate increased to 4.3 percent from May's 4.2 percent unemployment rate. The unemployment rate in May was the lowest in about 30 years. The economy's employment growth did not produce significantly higher wages. Average hourly wages were about 3.7 percent higher than last June's, and have moderated, compared to the 4 percent increase reported for January.

Employment growth in the service sector was 151,000 for June - a sharp increase over the 119,000 monthly average gain for the past year. June data show a continued loss of manufacturing employment - down 35,000 for the month and almost 500,000 since March 1998. Employment in the apparel industry has decreased by almost a third since November 1991.

The Labor Department also reported that unemployment for blacks fell to 7.3 percent in June - a new record low, while unemployment rates for women and Hispanics remained close to their record low levels.

(Updated August 1, 1999)

Questions
1. What does the Consumer Price Index measure? How is it calculated?
2. The article states that the news of no inflation in May caused the stock market to increase and the yield on U.S. Treasury bonds to fall. Why did the stock market react the way that it did? Why did the yield on U.S. Treasuries fall?
3. What is the core rate of inflation? Why is the core rate considered to be a better indicator of the underlying rate of inflation?
Source Alejandro Bodipo-Memba, "Economy Continues to Grow at Moderate Pace;" The Wall Street Journal, July 6, 1999.

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