The economy's performance in 1998.

Editor's note: This article contains parts of Federal Reserve Chairman Alan Greenspan's testimony before the Committee on Banking, Housing, and Urban Affairs in the U.S. Senate. Greenspan testified on February 23, 1999. The complete testimony can be found on the Federal Reserve's website at http://www.gob.frb.fed.us.

Federal Reserve Board Chairman Alan Greenspan recently testified that the U.S. economy performed admirably during 1998, despite the challenges presented by severe economic downturns in a number of foreign countries. Real GDP grew about 4 percent for the third straight year. National unemployment dropped to its lowest rate since 1970, while hourly labor compensation posted further gains. Robust advances supported real compensation gains in labor productivity that resulted in heavy investment in manufacturing plant and equipment. Inflation also fell to its lowest rate in many decades. Rising household wealth, along with strong growth in real income related to better pay, slower inflation, and expanding job opportunities, boosted consumer consumption at the fastest rate in over a decade.

Employment

In 1998, 2.75 million jobs were created on net, bringing the total increase in payrolls to more than 18 million. As a result of more newly created jobs, the national unemployment rate dropped for the third year in a row, with a 0.5 percent decrease from 1997-1998. The regional unemployment rates also dropped for the third year in a row. The Midwest had the lowest 1998 unemployment rate of 3.6 percent, while the West had the highest 1998 rate at 5.2 percent.

State and Local Government Revenues

State and local governments increased their own-source revenues up 4.3 percent from 1997-1998.

State and Local Government Borrowing. Higher employment figures caused an increased local productivity, increasing state and local governmental revenues from 1996 to 1998. The government had more liquid funds and did not need to borrow as much, thereby saving money.

State and Local Government Expenditures on Goods and Services. In addition to an increase in revenue, state and local governments increased their spending for capital projects, structures, equipment, and other goods and services.

Business Investment

Business investment spending was the "hallmark of the economic performance." Competitive global markets and persisting technological advances both spurred the business drive to become more efficient and induced the price declines for many types of...