When you want to examine complex issues, sometimes it’s best to break them down into terms everyone can understand, such as the Waffle House Index.
That’s an unofficial index some emergency planners use to help residents prepare for hurricanes. If the local Waffle House is staying open, conditions aren’t expected to be that bad but if the always-open restaurant shuts down, conditions might be dangerous.
In a similar vein, the Federal Reserve Bank of Atlanta is using a “bacon” index to help everyone understand the state of the U.S. economy.
“We like to create tools,” said David Altig, executive vice president and director of research for the Atlanta Fed, during a Feb. 13 presentation at the bank’s Jacksonville branch. “It’s sort of become a game with us.”
The Atlanta Fed’s “Business Activity Conditions” index is actually spelled “B.A.CON.” It’s a five-level index similar to the U.S. Military’s DEFCON system to describe its alert level.
In the best-case scenario, the economy is at B.A.CON level 5, which is “all clear.”
At the other end of the scale at level 1, “we’re heading into the tank.”
Altig believes the economy is currently between level 3 (“pull out the caution flag”) and level 4 (“things are good, but…”). He is “cautiously optimistic.”
The Federal Reserve Board is expecting the U.S. gross domestic product to continue growing at a steady rate of about 2.1%, Altig said.
“There’s nothing to suggest that’s going to change any time soon,” he said.
Altig said consumer spending is a strong point in the economy but business activity is “not great.”
Manufacturing activity has been down but capital spending by businesses appears to be a bigger weakness, as companies are reluctant to spend.
“The second half of last year was really negative,” Altig said.
He’s more optimistic about consumers.
“We don’t see much change in the consumer spending picture and that’s a good thing,” he said.
One reason for consumer confidence is the low unemployment rate, and the Fed expects the rate to remain below 4% “as far as the eye can see,” for at least a couple of more years, he said.
The jobless rate historically does not stay that low for long periods of time.
“This is a really, really unusual circumstance and a positive unusual circumstance,” Altig said.
The U.S. has been adding more than 200,000 jobs a month in recent years. Altig said that high growth level may not be sustainable and monthly growth may drop closer to the 100,000 level, but he’s not concerned.
“I would not interpret it as negative if we see it,” he said.
A key role of the Federal Reserve Board is to keep inflation under control.
Historically, inflation rates edge up as unemployment drops but in this economy, “inflation didn’t come to the party,” he said.
“Something’s changed (in the economy) and for once it changed for the better,” he said.
Altig said “not everything is peachy,” pointing to income disparity leaving some people behind while the overall economy gains. But the U.S. economy looks like it will continue to move along.
“Things are really pretty good,” he said.
“There’s a lot of noise in the world but we’ll manage our way through it.”