MAY 2004

Economic Growth Lifts Employment,
Wages and Income

Proving that last year’s growth spurt was not an aberration, the U.S. economy continued an above-average growth track in the first quarter of 2004, as GDP rose at a 4.2% annual rate. Over the past three quarters the economy has grown at the fastest pace in nearly 20 years. Economic forecasters now see growth continuing at a 4% pace or better for the remainder of 2004.

The economy’s sustained strength is boosting incomes: wage and salary income rose 4.8% in the first quarter and self-employment income rose 9.5%. The national unemployment rate fell to 5.7% in March 2004, down from its peak of 6.3% in June 2003. The Conference Board’s index of consumer expectations in April was the highest it had been in 3 months. Perhaps more importantly, consumer expectations about employment prospects were at their highest level in nearly 20 years. Personal consumption grew during the first quarter of this year at a 3.8% annual rate, despite a decline in spending on cars and other big-ticket items. Retail sales other than motor vehicles during the first quarter were up 11.6%. Tax cuts have contributed to growth in disposable income as well, helping to sustain spending. Real (inflation adjusted) after-tax incomes are up by 10% since December 2000.