KNOXVILLE, Tenn. — The nation’s economy is growing. Unemployment is approaching a near 24-year low. So why don’t more economists leave it at that and enjoy the good news?
Dr. Matt Murray of the University of Tennessee says it’s the work of the two-handed economist.
“You have come to the man with the two-handed answers — on the one hand…, but on the other…,” economist Murray, poking a little fun at himself, said.
“Actually, the premise is interesting.”
Murray of UT-Knoxville’s Center for Business and Economic Research said if economists sometimes seem to contradict themselves or talk negatively about developments that others think are positive, it is usually for good reason.
“Most economists are looking for balance — for a growing economy, but not one that is expanding too rapidly.”
For example, economic growth can be too slow or too fast, while unemployment can be too low or too high, Murray said.
“Inflation is holding now at a rate that is good for the average Tennessee worker. Prices are not rising very fast, which is good because wages aren’t rising very fast.”
If inflation picked up, Murray said he doubted wages would keep pace with prices.
“It is a global economy and our producers need every competitive advantage they can get,” Murray said. “Producers don’t feel like they have much room to pay a higher wage.”
“The last thing we want to see is spiraling prices because we are not likely to see wages gains coming on the heels of those prices.”
For that reason, recent action by the Federal Reserve Board to raise interest rates may be good for workers, Murray said.
“It was a small increase, but it sent a signal that the ‘Fed’ is very committed to fighting inflation and that they are not going to stand for spiraling inflation.”
Murray said the interest increase might make purchasing a new home or car more difficult.
“On the other hand, better to make buying a new home a little more difficult this year than to do nothing with the result that buying a home next year becomes impossible,” Murray said.
“If the economy were to overheat, I think people lose sight of the fact that the Fed would truly put the breaks on the economy and these would be airbrakes that would bring the economy to its knees.”
Regarding other economic indicators, Murray said the following:
— Manufacturing of durable and non-durable goods is at the core of the nation’s economy. Flucuations in manufacturing orders and manufacturing production cause the ups and downs in the business cycle.
— New home starts and new car sales are indicative of consumer confidence in the economy.
— A strong stock market can have no downside. A growing market increases the wealth of those people who are invested in it. Even persons not invested in the market are influenced by its strength. The effect on expectations is very positive.
Contact: Dr. Matt Murray (423-974-5441)