U.S and Kansas Economic Forecasts for 1989

Abstract

National Forecast

The U.S. Economy will continue to expand during 1989, although at a slower rate than in 1988. Real GNP growth will average 2.3 percent for the year, compared to 3.8 percent for 1988. The major components of GNP, consumption spending, investment spending, government purchases, and net exports, will grow in 1989, but all except government spending will grow more slowly than in 1988.

The major forces for growth will be investment spending and exports. Investment spending will be spurred by continued high capacity utilization rates, although its growth rate will be lower than in 1988 because of higher interest rates. Export growth will be stimulated by a slight decline in the dollar and the healthy economic growth of many of our trading partners. Strong export growth and a reduction in the rate of growth of imports will cause a modest reduction in the real trade deficit of about $6.8 billion. As a consequence of the expectation that the Federal Reserve's concern over inflation will lead a restrictive monetary policy during the year, interest rates will rise throughout 1989, with the rate on three-month treasury bills averaging 9.1 percent during the fourth quarter.

Nonagricultural establishment employment will grow 2.9 percent compared to 3.5 percent in 1988. The national unemployment rate will decline to just under 5 percent for the year. Some tightness in the labor market will cause wage rates to increase by 5.8 percent, about one percentage point higher than the increase in 1988.

The rate of inflation as measured by the consumer price index will increase 5.2 percent in 1989, compared to 4.1 percent in 1988 due to increased inflationary pressure on the cost side.