Will economic 'wait and see' end with election today?

  • News
  • Share

Today’s presidential and other elections are expected to influence the economy, which was evident to the Federal Reserve Board branch executives who interview area business contacts about what they see happening.

“Many contacts say they’re in a wait-and-see mode,” said Chris Oakley, vice president and regional executive for the Federal Reserve Bank of Atlanta Jacksonville Branch.

Oakley was the keynote speaker Monday at the First Coast Manufacturers Association Manufacturing Strategy and Finance Summit.

About 55 members and guests attended the all-morning summit at the University of North Florida Adam W. Herbert University Center.

Oakley presented the last of eight informational sessions that covered energy, strategy, the European economy, insurance and capital markets, among other topics.

Oakley summarized the Fed’s economic update, including that third-quarter economic growth of 2 percent was higher than expected and above second-quarter growth of 1.3 percent, driven by a signficant increase in government spending.

The unemployment rate remains “frustratingly” high, he said, with the economy gaining an average of 100,000 jobs a month while a monthly gain of 150,000 to 200,000 jobs is needed “to make a dent in the unemployment rate.”

Inflation remains within the Fed’s target objective of 2 percent. The Bureau of Labor Statistics will report the October rate next week. For September, the inflation rate, as measured by the Consumer Price Index, rose 0.6 percent in September, the same as in August.

Oakley stressed, as he does in all of his presentations, that he was expressing his own views and not necessarily those of 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 Banks consist of 12 regional banks among 12 districts.

Jacksonville is one of six branch banks within the Atlanta district.

Oakley told the manufacturers, bankers and others at the summit a bright spot in the economy is housing.

He showed charts indicating increases in housing starts, existing home sales, home prices and new residential home construction permits.

He said permits are “again ticking up, not gangbusters but in the right direction.”

“Our contacts are telling us this recovery is real,” he said of housing, noting the increases are following some “very low numbers.”

Housing was one of the industries hit hardest in the recession, which officially began five years ago in December and ended in June 2009, although Florida economists say it lasted until early 2010 in the state.

Oakley also said consumer confidence and sales tax revenue growth is rising and growth in auto sales remains strong.

The Daily Record reported in October the Federal Reserve found that economic activity in the Southeast expanded slowly in September and said little change was expected in the near term.

The Fed’s report, commonly known as the Beige Book, is issued eight times a year. It covers the 12 districts, including the Atlanta district. The Atlanta district comprises Florida, Georgia, Alabama and parts of Louisiana, Mississippi and Tennessee.

The most recent report, Oct. 10, was based on information collected on or before Sept. 28.

Each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from bank and branch directors and interviews with business contacts, economists, market experts and other sources, such as those by Oakley.

Oakley said the 180 industry contacts at the Jacksonville branch are interviewed at least once a year.

The latest report for the Atlanta district said:

• Most retailers cited slow sales growth but auto dealers continued to experience strong results.

• Hospitality reports remained largely positive, with the exception of cruise lines.

• Residential brokers and builders reported that housing conditions continued to improve in many parts of the district. Sales and prices of new and existing homes slightly increased compared with a year ago.

• Commercial development continued to improve, led by multifamily construction.

• Manufacturers indicated new orders had softened and production levels increased mildly.

• Bankers saw improvements in demand for overall loans, particularly those for housing purchases and refinances.

• Payrolls expanded modestly while wages remained relatively unchanged.

The Federal Reserve Board issued a news release Oct. 24, about two weeks ago, saying information received since the Federal Open Market Committee met in September suggests that economic activity has continued to expand at a moderate pace in recent months.

It said:

• Growth in employment has been slow.

• The unemployment rate remains elevated.

• Household spending has advanced a bit more quickly, but growth in business fixed investment has slowed.

• The housing sector has shown some further signs of improvement, although from a depressed level.

• Inflation recently picked up somewhat, reflecting higher energy prices. Longer-term inflation expectations have remained stable.

The release said the committee, citing its statutory mandate “to foster maximum employment and price stability,” remains concerned economic growth might not be strong enough to generate sustained improvement in labor market conditions.

It said global financial markets continue “to pose significant downside risks to the economic outlook” while inflation likely would run at or below its 2 percent objective.

In reaction, among other actions, the committee said it would continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month.

As the Bloomberg.com news site reported Thursday, the Federal Open Market Committee will continue buying $40 billion in mortgage-backed securities each month, aiming to reduce 7.8 percent unemployment.

It was reported Friday the rate rose to 7.9 percent in October.

Bloomberg said the central bank also is purchasing $45 billion of longer-term Treasuries, in a securities-swap program called Operation Twist scheduled to end in December.

Bloomberg reported Federal Reserve Bank of Boston President Eric Rosengren said the Fed should buy mortgage bonds until the unemployment rate falls to 7.25 percent and hold the target interest rate near zero until hitting 6.5 percent unemployment.

“As long as inflation and inflation expectations are expected to remain well-behaved in the medium term, we should continue to forcefully pursue asset purchases,” Rosengren said in a speech, according to Bloomberg.

The $40 billion purchases are part of what is called “QE3,” for the third round of “quantitative easing.”

The WashingtonPost.com news site said the goal of the policy is to bring down unemployment “to more reasonable levels without allowing inflation to get out of control. Only with time will we know whether Fed Chairman Ben S. Bernanke and the Fed’s policy committee have threaded that needle correctly.”

Investopedia.com summarizes quantitative easing as “a government monetary policy occasionally used to increase the money supply by buying government securities or other securities from the market. Quantitative easing increases the money supply by flooding financial institutions with capital, in an effort to promote increased lending and liquidity.”

Asked Monday about Operation Twist, Oakley explained the Fed is a nonpolitical entity that uses “the tools in our toolbox.”

“Monetary policy alone is not going to fix what ails us,” he said.

“We have an obligation to do something if we have a tool in our toolbox that can help,” he said.

Fed minutes posted online show 11 committee members voted for the action, including Bernanke and Atlanta Fed President Dennis Lockhart. One member, Richmond Fed President Jeffrey Lacker, voted against it.

Oakley said it was not an easy situation.

“If it were easy, it would already have been done,” he said.

[email protected]





Special Offer: $5 for 2 Months!

Your free article limit has been reached this month.
Subscribe now for unlimited digital access to our award-winning business news.