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Appendix G: Economic Data
<br />RA3~MON~ JA1ViFS'
<br />w tJ ~ f ~ T t ~ ' ~ r~ ~ Monthly Ecanc-mia Outloak
<br />Scott J. Brown, Ph.D.
<br />Increased Anxieties
<br />U.5. economic growth sJOwaa in the second quarter,
<br />partly reflecting the impact o1 higher energy costs, rising
<br />interest rates, and the coo/!rig in the housing market.
<br />Downside risks have escalated.
<br />• The moderation !n growth should help keep inflation
<br />pressures In check. Nowevar, ene7gy prices are likely to
<br />stay elevated and InOation wip remain a concern.
<br />Federal Reserve pollcymakers would like to pause,
<br />but lnt/afion concerns may keep them on fhe defensive.
<br />GDP growth moderated In 2Q06 {the government's
<br />advance estimate, along with annual benchmark
<br />revisions, is due July 28). Higher energy prices, rising
<br />interest rates, and the slowdown in the Housing market
<br />Have dampened growth. Nonfarm payrolls average a
<br />108,000 monthly gain In the quarter, down from 776,000
<br />In 1Q06. Job destruction has not picked up significantly
<br />- layoffs rernein relatively low- but the rate of new hiring
<br />appears to have slowed. Nowevar. The net pace of job
<br />growth is not partiwlarly weak. Assuming a stable labor
<br />force partidpation rate and a t.t°'9 growth rate of the
<br />working-age population, a monthly average gain in
<br />payrolls of 124,000 is consistent with a steady
<br />unemployment rata (sustainable job growth would be
<br />more tnan tnls If labor torte participation were to rise)
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<br />Thursday, July 13, 2006
<br />The consumer fundamentals remain sharply divided.
<br />Average weekly earnings have struggled to keep pace
<br />with inflation. However, Interest and dividend income
<br />are posting strong gains {up 7.4"I9 yty and 17.1% yly,
<br />respectively), and, along vnth robust growth in corporate
<br />profits. are boosting federal tax receipts. Seies of
<br />domestically built motor vehicles slowed in 2Q06, while
<br />sales of foreign made vehicles have Improved.
<br />Natural gas prices nave declined, but crude oil
<br />prices remain elevated. Ths economic impact of higher
<br />gasoline prices depends on the duration as well as the
<br />magnitude o1 fhe Increase. This summer's rise to
<br />gasoline prices is having a greater impact on the
<br />spending habits of Iwx• and middle^income households.
<br />Spending at the high and of the income scale is mixed,
<br />but seems to be cooling a bit more in recent weeks.
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<br />The housing market has cooled, but the level of
<br />activity has held up relatively well in the spring and early
<br />summer. However, homy sales and rasidentiai
<br />construttion appear to be e~eakening at a sharper pate
<br />in recant weeks. The retreat in homebulitling is likely to
<br />subtraM more than a taw tenths of a percentage point
<br />from GDP growth in the near term -not enough to force
<br />tna overall economy into a recession, but the housing
<br />correction could become steeper in the months ahead.
<br />Mortgage rates, while higher, are still relatively low.
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