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Photo by Karen Brune Mathis - Chris Oakley, vice president and regional executive for the Federal Reserve Bank of Atlanta Jacksonville Branch, and Michael Chriszt, vice president of the Federal Reserve Bank of Atlanta. Oakley spoke Monday to the Menin...
Jax Daily Record Wednesday, Feb. 27, 201312:00 PM EST

Fed official: Economy has 'made the turn'


An improving economy remains tempered by uncertainty, although there appear to be higher doses of improvement and fewer layers of uncertainty.

Federal Reserve Bank of Atlanta Jacksonville Branch executive Chris Oakley spoke Monday to the Meninak Club of Jacksonville and Michael Chriszt, vice president of the Atlanta Fed, spoke Tuesday to the Economic Roundtable of Jacksonville.

Between those presentations, Atlanta Fed President Dennis Lockhart spoke Monday night to a group of students at the University of Tennessee in Knoxville, summarizing that the U.S. economy will continue to expand slowly but steadily this year.

Lockhart said economic growth, as measured by the gross domestic product, will be 2-2.5 percent this year and "data show some encouraging signs that growth could be even better," according to a speech summary.

One large element of uncertainty is the outcome of the Friday deadline for the $85 billion in military and domestic spending cuts that the Obama administration must make under the Budget Control Act unless Congress intervenes.

However, government spending is guided by fiscal policy, while the Federal Reserve applies monetary policy, which is to influence the availability and cost of money and credit "to help promote national economic goals," according to the Fed.

After 19 months of recession, which ended in June 2009, followed by more than three years of economic stops and starts, the economy has generated what Oakley calls "glimmers of good news."

"We really have made the turn," Oakley told Meninak.

Oakley, emphasizing he was expressing his own views and not necessarily those of the Fed, provided what he called "our basic narrative of the economy."

• Economic growth is stuck around 2 percent.

• Bright spots include autos, tourism, energy and housing, "yes, housing."

• Uncertainty remains a factor, inhibiting more significant improvement in economic activity.

• Labor markets are slowly improving.

• Price pressures appear to be muted.

• Risks to the growth forecast are evenly balanced.

Oakley said while the economic downside is uncertainty, "slowly, the layers of uncertainty are being removed."

A Federal Reserve Bank of Atlanta survey asked about 700 of its business contacts the three most important factors, if any, that would restrain their corporate hiring plans.

The top five included two regarding uncertainty –– about regulations or government policies and about the cost of health insurance.

The remaining top three included No. 1, wanting to keep operating costs low; No. 3, the expected growth of sales is low; and No. 5, cannot find workers with the required skills.

Jobs continue to be a primary source of focus and concern, according to the Fed.

The Federal Reserve System is the nation's central bank and is based in Washington, D.C. The Fed makes monetary policies to stabilize prices and moderate long-term interest rates. It also regulates banks for safety and soundness.

The Federal Reserve Bank consists of 12 regional banks among 12 districts. Jacksonville is one of six branch banks within the Atlanta district.

Oakley and Chriszt provided information attributed to Lockhart.

According to Lockhart, the slow-growth environment of the past several years led "to only measured increases in employment and a gradually declining unemployment rate."

Despite steady job creation since 2010, the unemployment rate "remains far too high," according to Lockhart.

About 40 percent, or four of 10, of people who are out of work have been so for six months or more, and many people who want full-time jobs still are working in part-time jobs.

Also, the percentage of people working or looking for work, which is the definition of the labor force, has been declining and is close to the lowest rate on record since 1980.

Those who have given up looking for jobs are not counted as unemployed.

"Unemployment, underemployment and abandonment of efforts to find a job, taken together, present a sobering picture for policymakers," according to Lockhart.

Oakley said the six states in the district, led by Florida, are experiencing employment momentum.

Florida along with Georgia and Alabama and parts of Louisiana, Mississippi and Tennessee, which comprise the district, are showing job momentum, he said.

Also, December was the first time since January 2008 that the U.S. and district unemployment rates were similar, he said.

Looking more closely at Florida, all sectors of the economy lost jobs during the recession, led by a 53.3 percent loss of construction jobs according to his presentation.

Since the low point of the recession, all employment areas are recovering as well, especially a 9.8 percent increase in business services. Construction jobs have increased by 4.2 percent.

Among the state's 19 metro areas, Naples experienced the largest job loss, at 18.1 percent, and also has regained the largest percentage, at 9.1 percent.

Jacksonville's employment fell by 9.2 percent and has regained 3.9 percent.

Panama City rode out the recession with the lowest percentage of job losses, at 7.1 percent. It also has regained at the lowest rate, 0.7 percent.

Oakley and Chriszt said Jacksonville's unemployment rate, at 7.6 percent, is lower than the 7.9 percent U.S. rate and the 8 percent Florida rate.

Within the Jacksonville metro area of Baker, Clay, Duval, Nassau and St. Johns counties, job gains from December 2011 to December 2012 were led by leisure and hospitality and by business services.

There also were gains in financial services, retail and wholesale trade, and private education and health care.

However, several sectors remain weak, they said.

Construction jobs dropped by 3.9 percent, followed by a 2.9 percent loss of transportation and utilities jobs, a 1.9 percent drop in manufacturing jobs, a 1 percent fall in information services and a 0.4 percent decline in government jobs.

As of December, however, Jacksonville's employment momentum increased, Oakley said.

The Fed plays a role in employment, according to Oakley's presentation.

The Fed's Federal Open Market Committee has the statutory mandate "to foster maximum employment and price stability."

It expects "a highly accommodative stance of monetary policy will remain appropriate" until the economic recovery strengthens.

That remains as long as the unemployment rate remains higher than 6.5 percent and as long as projected inflation for the coming year or two does not exceed the Fed's long-run goal of 2 percent by more than one-half percent.

The Atlanta Fed asked businesses about their inflation expectations. In January, those responding said they expected 1.8 percent inflation this year, down from the December survey in which they expected a 1.9 percent inflation rate for the subsequent year.

Reaching 6.5 percent unemployment nationally could take time. To reach that rate this year would require the economy to create an average 276,000 jobs a month. To reach it by 2015, it would take 163,000 jobs a month.

It's not clear how many jobs will be created. An Atlanta Fed survey found in January that 45.8 percent of businesses it polled expect to add jobs this year, similar to the 45.6 percent who said so in January 2012.

However, 12.5 percent expect a decrease in jobs this year, up from 10.2 percent in January 2012.

The remainder expected no change.

A major question concerns fiscal policy, which is determined by government policies on spending and taxes.

The Friday deadline for federal budget cuts, referred to as sequestration, and another looming deadline for the federal budget, the continuing resolution, are out of the Fed's hands.

However, the Fed must take the economic impacts of fiscal policy into consideration with monetary policy.

"Monetary policy simply cannot offset the effects of failing to resolve today's fiscal crisis," Lockhart said, according to Oakley's presentation.

"The coming months will be, in my opinion, something of a moment of truth for fiscal policymaking," Lockhart said.

Oakley said the Atlanta Fed's business contacts believe there is pent-up demand that "could be unleashed with removal of fiscal uncertainties."

"Something's got to be done," he said.

According to a posting of Lockhart's speech, he said Congress and the Obama administration "still have some very controversial fiscal issues to negotiate. My outlook assumes some amount of fiscal drag from spending cuts, but does not assume a political shock resulting from a self-inflicted crisis of some kind."

He also said that "if momentum continues and some of the potholes out there are avoided (particularly a political crisis around fiscal decisions), growth could accelerate.

"I admit it's a qualitative assessment, but I sense rising optimism among much of the public in terms of economic prospects. Although it's not reflected in our baseline forecast, I detect a growing conviction that the economy is beginning to emerge from a long spell of anemic performance," he said.

Chriszt, asked why this time might be different in predicting economic growth, considering the stops and starts of the past few years, responded that the data shows improvement and there is anecdotal evidence –– people's "gut feelings" — that times are better.

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