E C O N O M I C R E P O R T O F T H E P R E S I D E N T

years, rather than stagnated as in other mature expansions, and price inflationhas been on a falling, not a rising, trend.In the later stages of the two previous long expansions, productivity growthslowed to just above a 1 percent annual rate (Table 2-2). In contrast, over thelast 2 years, productivity has been growing nearly 3 percent a year, in partowing to rapid business investment. Strong productivity growth has enabledthe economy to grow rapidly and helped restrain the cost pressures typicallyassociated with a strong economy.Inflation trends provide a second sign of an expansion’s age and health. Latein the expansions of the 1960s and the 1980s, high rates of utilization anddecelerating productivity contributed to an acceleration in prices, that is, a risinginflation rate. In the current expansion, even with unemployment wellbelow 5 percent, the acceleration in productivity has helped keep inflation stable.In fact, inflation has fallen relative to the previous 2-year period. Surveysof inflation expectations provide a further encouraging sign that inflationremains in check: these surveys show that both consumers and professionalforecasters expect inflation to stay low over the next several years. Some haveargued that the U.S. economy is now nearly immune to the business cycle,because of the effects of increased international competition, rapid innovationand productivity growth, and improved flexibility of the production and distributionsystems.TABLE 2-2.— The Late-Expansion Economy and the Current Expansion[Average annual percent change, except as noted]Item1967 Q4to1969 Q4Last 2 yearsof earlierexpansions1988 Q3to1990 Q3Most recent2 years ofcurrentexpansion1997 Q4to1999 Q4Real GDP per capita .......................................................................... 2.5 1.613.4Unemployment rate 2 ......................................................................... 3.5 5.3 4.4Productivity 3 ...................................................................................... 1.3 1.1Real business fixed investment.......................................................... 6.0 3.143.0110.0CPI-U-RS 5 ........................................................................................... 5.3 4.7 2.0CPI-U-RS acceleration 6 ...................................................................... 2.1 .9 -.41Preliminary.2Percent; annual average for 1968-69, 1988 Q4-1990 Q3, and 1998-99.3Output per hour worked in the nonfarm business sector.4Change through 1999 Q3.5For pre-1978 data, CPI-U used.6Percentage-point difference in 2-year average annual inflation rate from that of preceding 2 years.Sources: Department of Commerce (Bureau of Economic Analysis) and Department of Labor(Bureau of Labor Statistics).78 | Economic Report of the President