Economic Letter

Over the past few years robust growth in manufacturing employment has helped California expand more rapidly than the nation. Recently, however, the financial crisis in East Asia and general imbalances in supply and demand in some high-tech sectors have combined to damp growth in the state’s manufacturing sector.

This year, Japan’s economy is mired in recession, and the financial crisis that hit several smaller East Asian countries has deepened and spread throughout most of the region. Many analysts have predicted that these problems would exert restraining effects on economic growth in the U.S.

What is perhaps most surprising about recent events in Asia is not the widespread currency devaluations but the subsequent declines in economic activity. Many observers noted that the declining yen and China’s devaluation of the yuan had eroded the competitiveness of these countries.

It is now more than a year since the financial crises broke out in East Asia. Yet the sharp currency depreciations associated with the crises have not spurred rapid growth in their dollar exports, which would underpin a rebound in economic activity in the region.

In recent years, the push to allow greater affiliation among banks and other financial firms has intensified. Through regulatory measures, banking organizations have made inroads into both securities and insurance activities.

The pace of productivity growth since the end of the Civil War has averaged about 1.6% per year–or so historical estimates (Kendrick 1961) and the official statistics of the Department of Commerce say. This average annual growth rate implies that output per worker doubles every 44 years, and that in the 133 years since the Civil War, productivity has doubled three times.

Mortgage interest rates dropped in early 1998 to nearly the lowest level in several decades. As mortgage rates moved down, refinancing activity surged, flooding some mortgage investors with funds for reinvestment at a time when a broader array of fixed-income investments also were offering lower yields.

Rapid growth in income inequality in the United States over the past 20 years has raised numerous concerns among policymakers. One of the more disturbing is the possible link between income inequality and mortality.

The natural rate of unemployment is a key concept in modern macroeconomics. Its use originated with Milton Friedman’s 1968 Presidential Address to the American Economic Association in which he argued that there is no long-run trade-off between inflation and unemployment: As the economy adjusts to any average rate of inflation, unemployment returns to its “natural” rate.