I am pleased to welcome Commissioner Abraham and her associates before the committee this morning.

     The business cycle expansion that began in the second quarter of 1991 continues to produce economic and modest employment gains. According to the household survey, the employment-population ratio, an important measure of the economy's ability to create enough new jobs, remained at an historically high level. The unemployment rate was little changed at 4.9 percent.

     The employment gain posted in the payroll survey was affected by the UPS strike. Overall, labor market conditions appear to be solid given the healthy pace of economic growth. My main area of concern is the continued stagnation of earnings for middle class workers reflected in BLS data right up through the last quarter. This measure of real median weekly earnings has shown decline or stagnation for a number of years.

     The overall strength of the economy and labor market has produced concerns about inflation among some economists. However, lower unemployment has been associated with lower, not higher, inflation during the last two business cycles. Market price indicators monitored by the JEC do not show solid evidence of inflation. This lack of evidence of inflation validates recent Federal Reserve policy and suggests that an increase in interest rates is not appropriate in the near future.

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