The inflation rate might be lower than average, but Business Week did have this to say, “Federal Reserve policymakers say the biggest danger to the economy is if inflation doesn't recede as they currently predict” (Business Week, 2007). The Fed watches inflation and changes interest rates around to get the highest amount of employment, stable prices, and a healthy amount of economic growth (Investopedia, 2007). Those interest rates help the government control the money supply. The U.S. Government has done very good with watching inflation over the past 20 years.
Over the past 20 years, Americans have had a steady inflation rate of about 3.1% (BLS, 2007). Our current inflation rate of the first ten months of 2007 being 2.5% is a good thing as it is 0.6 percentage points below the average (BLS, 2007). The lowest inflation rate we have had over the past twenty years was 1.6% in the years of 1998 and 2002 (BLS, 2007). The highest inflation rate we have had was 5.4% in 1990 (BLS, 2007). So our inflation rate of 2007 being closer to the lowest inflation rate in the past twenty years of inflation history shows America is taking the right steps to prevent inflation. The data collected above can be viewed in the following graph.
As I mentioned earlier, interest rates help the government control the money supply. Unfortunately, The Fed's recent cut of three quarters of a percentage point in September hasn't done much to the banking system (Wall Street). According to James Bianco, president of Bianco Research, “Even though the Fed has eased three-quarters of a percentage point since September, the market has only gotten 0.25% and 0.50% of that easing” (Wall Street). The article later goes to tell us that the rates on loans haven't dropped, credit card interest rates have dropped a good amount, and homeowners are getting some benefits if they have mortgages with less years on them (Wall Street)). While inflation might be less than average, it isn't a good sign to see that interest rates aren't dropping as fast as the Fed would like them to. If investment spenders are affected in a negative way to these defiant interest rates, economic growth could slow down dramatically and the unemployment rate would increase along with it.
The final topic of Macroeconomics is the unemployment rate. According the Mankiw's (2007) textbook of Macroeconomics, unemployment includes those who were not employed, were available for work, and had tried to find employment within the last four months (Mankiw, 2007). This does not include discouraged workers, but simply those who want to work, are looking for a job, and or are waiting to be recalled back to a previous employer after being laid off (Mankiw, 2007). Some unemployment is good, but any unemployment has long-term effects on the economy. America is currently not in a state of massive unemployment and in fact the economic data of the United States of unemployment for 2007 show that, similarly to GDP and inflation, we are running at a slightly higher rate than average.
Similar to the data for GDP and inflation, the data for unemployment shows that America's economy is just a little bit above average. The current rate of unemployment of the average of the past ten months of 2007 is 4.56% (BLS, 2007). The average rate of unemployment is 5.5% over the past twenty years (BLS, 2007). Therefore, the current rate of unemployment is below the average of the past 20 years by 1.18 percentage points (BLS, 2007). The lowest unemployment rate of the past twenty years was 4% in 2000 and the highest unemployment rate was 7.5% in 1992 (BLS, 2007). So we are actually much closer to the lowest unemployment rate than the highest. As shown with the graph below, unemployment goes up and down as time changes and different events affect the economy.
I currently believe that the American economy is doing slightly well. My old band teacher used to say, “To be average, scares the hell out of me”. Well, we're not average. We just aren't in the greatest time in history for rapid economic prosperity. Many economists think that the only reason we aren't in a recession right now is because the unemployment rate is so low (Economist, 2007). They're saying that with not many people building houses right now and the fact that defense spending has gone down, we should in fact be in a recession right now (Economist, 2007). I have come to the conclusion that these people are crazy and 2007 is going to be a good year for the economy. All three parts of Macroeconomic data show that we are just barely above average. “In both 1990 and 2001, Wall Street's seers were predicting modest growth when the economy, it turned out, was already contracting” (Economist, 2007). 2001 and 1990 were our two worst years of the past twenty for the economy as shown by the graphs above and they were the result of bigger events. 1990's poor economy was the result of the Gulf War, high interest rates, and poor economic planning by the government and 2001 was the result of the 9/11 terrorist attacks. Unless something awful happens within the next month, like Ben Bernanke being captured by Al-Qaida, I don't think 2007's economy could turn out badly.
To summarize, the current American economy of 2007 is running well. I believe that with all areas of Macroeconomics above average, we are doing well, and there is no reason for concern. While studying economics is always as fun as fifteen roller coasters combined, I am depressed to say that the economy is not doing anything particularly out of the ordinary. Everything is stable, but in economics that's usually a good thing. We're more likely to have something bad happen than to have a time of unpredicted economic prosperity. Everything is as it should be.
