ECON 545 WEEK 6 CASE STUDY Unemployment and Inflation.docx

Macroeconomic Challenges: Unemployment and Inflation Unemployment Rates by Gender Unemployment in September 2018 hit the lowest level since the Vietnam War, with little indication it is going to shoot back up in the near term. The jobless rate fell to 3.7%, the lowest since December 1969, the Labor Department said Friday. Employers added 134,000 jobs to payrolls, a record 96th straight month of gains. Wages rose 2.8% from a year earlier, a solid if still unspectacular rise. Unemployment rates below 4% are extremely rare in 70 years of modern record-keeping. The two longest sustained periods came during the Korean and Vietnam Wars, when the combination of strong growth and the enlistment of young men from the civilian labor force helped to largely wring unemployment out of the economy. In 1953, the year the Korean War ended, the jobless rate got as low as 2.5%. In the 1960s, it stayed below 4% for nearly four years, until a bout of rising inflation and interest rates led to recession and rising joblessness. Another run below 4% in 2000 lasted just a few months, burst by a bubble in technology stocks. Federal Reserve officials believe the current period can be sustained. They project the jobless rate will sink to 3.5% next year and remain below 4% through 2021. Fed officials see the current economy playing out differently than the 1960s. They estimate inflation will remain subdued, allowing them to keep short-term interest rates relatively low (Eric Morath and Harriet Torry, 2018). Amazon has disrupted traditional retail and accelerated the demise of struggling players. Without storefronts the company’s overhead costs are significantly lower than other retailers giving them an edge to undercut on prices and operate on wafer thin profit margins. That makes some economy watchers nervous about Amazon’s deflationary impact. Ideally, low unemployment is accompanied by wage growth, which in turn fuels inflation as companies pass on the cost to consumers. This is the logic of the Phillip’s Curve, but Amazon has disrupted that as well (Krishna, 2018). The Phillips curve is an economic concept developed by A. W. Phillips