Currently signs show that the economy is beginning to expand at a more favorable rate than over the past two or three years. Economic activity has certainly quickened and on a broader scale and their have been noticeable gains in employment. In addition signs are beginning to show inflation is also rising more so than it has been in the past few years. The two main factors contributing to the inflation are the increase in energy prices and a strengthening in demand. The higher prices have been part of the reason consumer spending has been less than expected. With the higher prices consumers have less disposable income an in turn are consuming less. The low consumer spending rates is expected to be a short-lived issue. The economy had been showing signs of improvement since the beginning of the year. Capital spending was increasing, and this was due to the lower interest rates, improving profits, and the investment tax incentives which were put into effect. In addition shipments of nondefense capital goods have been increasing, and backorders for unfilled orders are rising.
             Over the past few months there have been clear signs that the labor markets are improving. On average an additional 200,000 jobs per month have been created over the past six months. In the fourth quarter of 2003 there were, on average about 60,000 jobs being created each month. The increases in employment will in turn have a positive effect on household spending. With employment expanding and the tax cuts that have been implemented over the past year, this will provide households with more personal disposable income. In addition to this lower interest rates have allowed consumers to save money by paying less interest on household mortgages, cars, etc.
             Along with the increasing employment has come increasing prices. Consumer prices excluding food and energy have been rising quicker than in 2003. The twelve month change in the core personal
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