It is once again a pleasure to welcome Commissioner Abraham before the Joint Economic Committee.

     The employment data released today shows the current economic expansion continues to generate job gains. According to the payroll survey, 316,000 jobs were created in July. Private sector job gains totaled about 260,000. The household survey shows that employment rose by 344,000 last month.

     The civilian unemployment rate stood at 4.8 percent in July, compared to 5.0 percent the previous month. The employment-population ratio, an important gauge of the economy's job creation, remains near historically high levels at 63.8 percent.

     Recent trends suggest the economy is doing quite well, with economic and employment growth steadily expanding and unemployment falling. In fact, this economic expansion is now in its seventh year, making it one of the longest post- World War II upswings. Moreover, the expansion has been remarkably balanced, with little reason to expect disruption or serious problems in the near-term.

     At the same time, most inflation measures suggest inflation remains well-contained with little sign of an imminent resurgence.

     This mix of events has puzzled many economists and even some key US policy makers. With the unemployment rate relatively low and the economy expanding at a healthy pace, many had expected much higher increases in wages and prices than have actually occurred. But so far during this expansion, low unemployment and healthy economic growth have not proven accurate precursors of higher inflation. Moreover, low inflation has not been associated with higher unemployment as some have predicted. Instead, lower inflation has been associated with lower unemployment.

     In this context I believe the Federal Reserve has recently adopted an appropriate stance. Rather than overreacting to healthy real economic and employment growth and low unemployment, monetary policy is consistent with the view that other variables are more reliable indicators of future inflation. In particular, forward looking inflation indicators that I have emphasized-such as commodity prices, the value of the dollar, and bond yields-suggest that no serious upturn in inflation is imminent and these variables suggest there is little reason to change monetary policy now.

     In any case, the good news is that the economy continues to expand at a healthy pace with both low unemployment and inflation. The sustained business cycle expansion has also collapsed the budget deficit, with some projections showing a deficit under $30 billion in 1997.

     We look forward to your testimony as well as to your interpretation of recent labor market conditions and trends.

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