number enrolled in school, and those who may lack the necessary skills or face other barriers to taking jobs. the rise in the average workweek since early 1996 suggests employers are having increasingly greater difficulty fitting the millions who want a job into available job slots. if the pace of job creation continues, the pressures on wages and other costs of hiring increasing numbers of such individuals could escalate more rapidly. to be sure, there remain an additional 34 million in the working - age population ( age 16 - 64 ) who say they do not want a job. presumably, some of these early retirees, students, or homemakers might be attracted to the job market if it became sufficiently rewarding. however, making it attractive enough could also involve upward pressures in real wages that would trigger renewed price pressures, undermining the expansion. thus, there would seem to be emerging constraints on potential labor input. even before we reach the ultimate limit of sustainable labor supply growth, the economy ’ s ability to expand employment at the recent rate should rapidly diminish. the availability of unemployed labor could no longer add to growth, irrespective of the degree of slack in physical facilities at that time. simply adding new facilities will not increase production unless output per worker improves. such improvements are possible if worker skills increase, but such gains come slowly through improved education and on - the - job training. they are also possible as capital substitutes for labor, but are limited by the state of technology. more significant advances require technological breakthroughs. at the cutting edge of technology, where america finds itself, major improvements cannot be produced on demand. new ideas that matter are hard won. the economic outlook as i noted, the recent performance of the labor markets suggests that the economy was on an unsustainable track. unless aggregate demand increases more slowly than it has in recent years - - more in line with trends in the supply of labor and productivity - - imbalances will emerge. we do not know, however, at what point pressures would develop - - or indeed whether the economy is already close to that point. fortunately, the very rapid growth of demand over the winter has eased recently. to an extent this easing seems to reflect some falloff in growth of demand for consumer durables and for inventories to a pace more in line with moderate expansion in income. but some of the recent slower growth could simply be a product of abnormal weather patterns, which contributed to a first - quarter surge in output and weakened the

second quarter, in which case the underlying trend could be somewhat higher than suggested by the second - quarter data alone. certainly, business and consumer confidence remains high and financial conditions are supportive of growth. particularly notable is the run - up in stock market wealth, the full effects of which apparently have not been reflected in overall demand, but might yet be. monetary policymakers, balancing these various forces, forecast a continuation of less rapid growth in coming quarters. for 1997 as a whole, the central tendency of their forecasts has real gdp growing 3 to 3¼ percent. this would be much more brisk than was anticipated in february, and the upward revision to this estimate largely reflects the unexpectedly strong first quarter. the central tendency of monetary policymakers ’ projections is that real gdp will expand 2 to 2½ percent in 1998. this pace of expansion is expected to keep the unemployment rate close to its current low level. we are reasonably confident that inflation will be quite modest for 1997 as a whole. the central tendency of the forecasts is that consumer prices will rise only 2¼ to 2½ percent this year. this would be a significantly better outcome than the 2¾ to 3 percent cpi inflation foreseen in february. federal open market committee members do see higher rates of inflation next year. the central tendency of the projections is that cpi inflation will be 2½ to 3 percent in 1998 - - a little above the expectation for this year. however, much of this increase is presumed to result from the absence of temporary factors that are holding down inflation this year. in particular, the favorable movements in food and energy prices of 1997 are unlikely to be repeated, and non - oil import prices may not continue to decline. while it is possible that better productivity trends and subdued wage growth will continue to help damp the increases in business costs associated with tight labor markets, this is a situation that the federal reserve plans to monitor closely. i have no doubt that the current stance of policy - - characterized by a nominal federal funds rate around 5½ percent - - will need to be changed at some point to foster sustainable growth and low inflation. adjustments in the policy instrument in response to new information are a necessary and, i should like to emphasize, routine aspect of responsible policy making. for the present, as i indicated, demand growth does appear to have moderated, but whether that moderation will be sufficient to avoid putting additional pressures on resources is an open question. with considerable momentum behind the expansion and labor market utilization rates unusually