Once again it is my pleasure to welcome Commissioner Abraham and her colleagues before the Joint Economic Committee.

     The business cycle expansion that began in 1991 continues to increase payroll employment, according to the BLS data released today. Payroll jobs increased by 284,000 in October, bringing the total to 123 million jobs.

     According to the separate household survey measure, employment posted a gain of 179,000 in October. The unemployment rate slipped to 4.7 percent, its lowest level in 24 years. The employment-population ratio remains at an historically high level.

     In addition to the employment data, BLS also produces a variety of statistics on prices. The consumer price index, producer price index, employment cost index, and other measures are closely watched BLS price data.

     For most of 1997 we have reviewed these data and found no evidence of a real pick-up in inflation. As I have noted many times before, economic and employment growth do not create inflation. Inflation is a result of excessively expansionary monetary policies. These indicators as well as others used by the JEC do not show that inflation is emerging or in the pipeline.

     Instead, in recent weeks the focus in the media has shifted to a question of whether there is deflation -- that is, an actual decline in the price level. It is vital to keep this concept of deflation -- a general decline in prices -- distinct from disinflation, a slowdown in the general increase in prices. Gradual disinflation and stable prices are totally different from deflation and falling prices. Deflation is undesirable, and the price data should be closely monitored to ensure that there is no danger of emerging deflation.

     Fortunately, a careful and balanced examination of the evidence does not show real evidence of deflation. Virtually all broad price measures show year-over-year changes in positive territory. There is no evidence of a sustained general decline in prices. In addition, according to one point of view, it would be difficult to view the recent increases in average hourly earnings as consistent with deflation. On the other hand, it is true that the PPI has fallen for several months in 1997, and that the data bear careful watching.

     With respect to monetary policy, it is clear that a goal of price stability precludes either inflation or deflation. Monetary policy guided by an inflation targeting approach to stable prices, as I favor, actually is slightly biased against deflation. Inflation targeting means that monetary policy aims to prevent a sustained increase or decline in the price level reflected in general price indexes.

     Given the intense interest of many in this inflation/deflation issue, the BLS price measures will be closely scrutinized by the financial markets for the foreseeable future.

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