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Economic Review
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Policymakers and economic analysts have recently been concerned about potential inflationary pressures in the U.S. economy. Various economic statistics show the amount of unused productive resources has been diminishing. For example, the civilian unemployment rate has decreased and the capacity utilization rate of the nation's factories has risen. If real output grows rapidly in the future, the competition for scarce productive resources could put upward pressure on wages and other production costs and ultimately could raise consumer price inflation. Some analysts have challenged the view that productive resources are becoming so scarce that higher inflation is a danger. This challenge partly turns on whether the capacity utilization rate, which measures the percent of manufacturing capacity currently in use, is a reliable indicator of inflationary pressures. Garner examines whether the capacity utilization rate for the manufacturing sector is still a reliable indicator of inflationary pressures. He concludes that the historical relationship between capacity utilization and inflation still holds, indicating the capacity utilization rate remains a reliable indicator of inflationary pressures. Back to top Economic Review home
Twenty years ago, on the eve of the first of the great post-Bretton Woods recessions, unemployment did not appear to be a major problem for advanced economies. Today, of course, unemployment is back with a vengeance. In Europe, in particular, the seemingly inexorable rise in the unemployment rate has led to the creation of a new word: Eurosclerosis. While the United States has not seen a comparable upward trend, many people on both sides of the Atlantic believe the United States has achieved low unemployment by a sort of devil's bargain, whose price is soaring inequality and growing poverty. Why has unemployment risen? Will it continue to rise? What can be done to reverse the trend? These daunting questions have been the subject of massive amounts of research. Many economists have coalesced around a common view of the nature of the unemployment problem. In his remarks before the bank's 1994 symposium, Krugman restates that conventional wisdom. Back to top Economic Review home
Reducing unemployment has become a top priority for economic policy in most industrialized nations. While unemployment will ebb somewhat as countries recover from the recent global recession, millions are likely to remain jobless for a variety of structural reasons. Moreover, there is a disturbing trend in many industrialized countries toward long-term unemployment, especially among low-skilled workers. This trend has had less effect on measured unemployment in the United States than in Europe in part because U.S. workers have greater incentives to accept low-wage jobs. Nonetheless, virtually all industrial countries face a jobs problem that impairs living standards and threatens a breakdown in social cohesion. To enhance understanding of what has caused this problem and to analyze policies to address it, the Federal Reserve Bank of Kansas City invited central bankers, academics, and economists to a symposium entitled "Reducing Unemployment: Current Issues and Policy Options." The symposium was held August 25-27, 1994, at Jackson Hole, Wyoming. Higgins highlights the issues raised at the symposium and summarizes the papers and commentary. Back to top Economic Review home
Bank credit, the sum of loans and securities at commercial banks, is widely viewed as providing information about the current and future state of the economy. Analysts have been concerned about the behavior of bank credit during the nation's recovery from the 1990-91 recession. At first, analysts worried the recovery would be hampered because banks were making too few loans and purchasing too many securities. More recently, loan growth has picked up and securities growth has slowed, a development some analysts view as a sign the economy is growing too fast to keep inflationary pressures in check. Bank credit growth may also shed light on the current and future state of the district economy. Trends in Tenth District bank credit may vary substantially, however, from trends in the nation as a whole. For example, district banks could be in better financial condition than banks nationwide, making district banks more willing to lend. Or district businesses and households could be more optimistic about future earnings, making them more willing to borrow. Keeton describes the growth in bank credit in district states during the recovery and compares the district experience with that of the nation. He concludes that loan growth and securities growth followed the same pattern in the district as the nation, but that loan growth in the district was much stronger. Back to top Economic Review home
For three decades, experts on payments systems have forecast the imminent arrival of a completely electronic, paperless payment system. In this vision of the future, households, businesses, and government agencies would replace paper transactions with faster, more efficient electronic payments. The centerpiece of this new payment world is the debit card, a magnetically encoded plastic card that would eliminate cash, checks, and even credit cards in most retail transactions. While some parts of this payment revolution have arrived, in many respects the forecasts have proved to be overly optimistic. The biggest disappointment, thus far, is the debit card. Despite claims of cost savings and greater efficiency, consumers and merchants have been reluctant to switch from traditional payment methods to the debit card. Caskey and Sellon analyze the factors that have limited the debit card's success and examine prospects for future growth. They find that debit cards are likely to experience strongest growth where consumers find them more convenient than other payment methods, where merchants find them to be cost effective, and where consumers do not have access to a full range of payment alternatives. |