I intend to talk briefly about my assessment of the economic outlook and then turn to a more detailed discussion of how the evolution of household and business balance sheets in recent years is affecting economic activity.1  The Economic outlook As you know, real gross domestic product grew at an annual rate of 6 percent in the second half of 2003, and the economic fundamentals seem to be in place for another sizable advance this year.
Indeed, the GDP forecasts of Federal Open Market Committee members have a central tendency range of 4-1/2 to 5 percent. Yet despite the recent strong pace of economic activity, the labor market has improved only slowly. I am cautiously optimistic, however, that job growth will pick up - perhaps substantially - over the course of this year.