Essays24.com - Term Papers and Free Essays
Search

Economic And Financial Developments In 2000

Essay by   •  October 23, 2010  •  10,254 Words (42 Pages)  •  1,710 Views

Essay Preview: Economic And Financial Developments In 2000

Report this essay
Page 1 of 42

ECONOMIC AND FINANCIAL DEVELOPMENTS IN 2000

The expansion of U.S. economic activity maintained considerable momentum through the early months of 2000 despite the firming in credit markets that has occurred over the past year. Only recently has the pace of real activity shown signs of having moderated from the extremely rapid rate of increase that prevailed during the second half of 1999 and the first quarter of 2000. Real GDP increased at an annual rate of 5-1/2 percent in the first quarter of 2000. Private domestic final sales, which had accelerated in the second half of 1999, were particularly robust, rising at an annual rate of almost 10 percent in the first quarter. Underlying that surge in domestic spending were many of the same factors that had contributed to the con-siderable strength of outlays in the second half of 1999. The ongoing influence of substantial increases in real income and wealth continued to fuel consumer spend-ing, and business investment, which continues to be undergirded by the desire to take advantage of new, cost-saving technologies, was further buoyed by an accel-eration in sales and profits late last year. Export demand posted a solid gain during the first quarter while imports rose even more rapidly to meet booming domestic demand. The available data, on balance, point to another solid increase in real GDP in the second quarter, although they suggest that private household and business fixed investment spending likely slowed noticeably from the extraordinary first-quarter pace. Through June, the expansion remained brisk enough to keep labor utilization near the very high levels reached at the end of 1999 and to raise the factory utilization rate to close to its long-run average by early spring.

Inflation rates over the first half of 2000 were elevated by an additional increase in the price of imported crude oil, which led to sharp hikes in retail energy prices early in the year and again around midyear. Apart from energy, consumer price inflation so far this year has been somewhat higher than during 1999, and some of that acceleration may be attributable to the indirect effects of higher en-ergy costs on the prices of core goods and services. Sustained strong gains in worker productivity have kept increases in unit labor costs minimal despite the per-sistence of a historically low rate of unemployment.

THE HOUSEHOLD SECTOR

CONSUMER SPENDING

Consumer spending was exceptionally vigorous during the first quarter of 2000. Real personal consumption expenditures rose at an annual rate of 7-3/4 percent, the sharpest increase since early 1983. At that time, the economy was rebounding from a deep recession during which households had deferred discretionary pur-chases. In contrast, the first-quarter surge in consumption came on the heels of two years of very robust spending during which real outlays increased at an annual rate of more than 5 percent, and the personal saving rate dropped sharply.

Outlays for durable goods, which rose at a very fast pace in 1998 and 1999, accelerated during the first quarter to an annual rate of more than 24 percent. Most notably, spending on motor vehicles, which had climbed to a new high in 1999, jumped even further in the first quarter of 2000 as unit sales of light motor vehi-cles soared to a record rate of 18.1 million units. In addition, households' spending on computing equipment and software rebounded after the turn of the year; some consumers apparently had postponed their purchases of these goods in late 1999 before the century date change. Outlays for nondurable goods posted a solid in-crease of 5-3/4 percent in the first quarter, marked by a sharp upturn in spending on clothing and shoes. Spending for consumer services also picked up in the first quarter, rising at an annual rate of 5-1/2 percent. Spending was quite brisk for a number of non-energy consumer services, ranging from recreation and telephone use to brokerage fees. Also contributing to the acceleration was a rebound in out-lays for energy services, which had declined in late 1999, when weather was unsea-sonably warm.

In recent months, the rise in consumer spending has moderated considerably from the phenomenal pace of the first quarter, with much of the slowdown in out-lays for goods. At an annual rate of 17-1/4 million units in the second quarter, light motor vehicles sold at a rate well below their first-quarter pace. Nonetheless, that level of sales is still historically high, and with prices remaining damped and auto-makers continuing to use incentives, consumers' assessments of the motor vehicle market continue to be positive. The information on retail sales for the April-to-June period indicate that consumer expenditures for other goods rose markedly slower in the second quarter than in the first quarter, at a pace well below the av-erage rate of increase during the preceding two years. In contrast, personal con-sumption expenditures for consumer services continued to rise relatively briskly in April and May.

Real disposable personal income increased at an annual rate of about 3 per-cent between December and May--slightly below the 1999 pace of 3-3/4 percent. However, the impetus to spending from the rapid rise in household net worth was still considerable, labor markets remained tight, and confidence was still high. As a result, households continued to allow their spending to outpace their flow of cur-rent income, and the personal saving rate, as measured in the national income and product accounts, dropped further, averaging less than 1 percent during the first five months of the year.

After having boosted the ratio of household net worth to disposable income to a record high in the first quarter, stock prices have fallen back, suggesting less impetus to consumer spending going forward. In addition, smaller employment gains and the pickup in energy prices have moderated the rise in real income of late. Al-though these developments left some imprint on consumer attitudes in June, house-holds remained relatively upbeat about their prospective financial situation, accord-ing to the results of the University of Michigan Survey Research Center (SRC) sur-vey. However, they became a bit less positive about the outlook for business condi-tions and saw a somewhat greater likelihood of a rise in unemployment over the coming year.

RESIDENTIAL INVESTMENT

Housing activity stayed at a high level during the first half of this year. Homebuild-ers began the year with a considerable backlog of projects that had developed as the exceptionally strong demand of the previous year strained capacity. As a result, they maintained starts of new single-family homes at an annual rate of 1.33 million units, on

...

...

Download as:   txt (64 Kb)   pdf (555.3 Kb)   docx (31.5 Kb)  
Continue for 41 more pages »
Only available on Essays24.com