08/26/2009
Grassroots and green shoots
Chairman Bernanke noted the detection of "green shoots" in financial markets back in March during his interview with 60 Minutes. Ever since, the term "green shoots" has become synonymous with any detection of a budding turnaround in the economy. We saw green shoots here in the Southeast as well, but in a different form.
The difficulty with finding evidence of green shoots with regard to regional economic activity as opposed to financial markets is that data on financial markets are available in real time, while data measuring economic activity are not. For example, the Bureau of Labor Statistics reported on July state employment levels on August 21. The data, along with other series we monitor, are very useful in ascertaining where the regional economy has been. Trend analysis helps us identify where it may be going, but determining emerging turning points in economic activity requires additional information.
That's where the "Grassroots" nature of the Atlanta Fed enters the picture.
Not only do the economists and analysts in the Bank's research department maintain numerous business and academic contacts, but our regional executives do as well. What's a regional executive, you ask? Each branch office of the Atlanta Fed is headed by one. They maintain extensive contacts in their communities and use these relationships to gather first-hand, real-time information about economic performance in their respective geographic region. Lee Jones, the Nashville regional executive said in an EconSouth article that as a regional executive he has become involved with civic and business groups, partnered with a number of organizations to conduct business roundtable meetings, and gathered intelligence from home builders and residential and commercial real estate agents.
The regional executives bring to the table grassroots information about what is happening in real time, which helps us bridge the gap caused by lags in economic data.
This spring, anecdotal information these contacts provided led our staff to conclude that signs of economic stabilization were emerging. The Atlanta Fed's Beige Book contribution for that time period noted that "Sixth District business contacts reported that economic activity remained weak in March. However, residential real estate contacts noted modest sales improvements in several areas. Also, while manufacturing contacts noted that production and orders remained very low, their outlook was less pessimistic than last reported."
The final, and most essential, piece of the regional economic analysis puzzle is our boards of directors. The Atlanta Fed and each of its branches has a board (Birmingham, Jacksonville, Miami, Nashville, and New Orleans). The directors are drawn from different industries and geographies to gain a full representation of the regional economy.
Our branch boards meet about a week and a half before each Federal Open Market Committee (FOMC) meeting. These meetings are attended by senior bank officers, economists, and, of course, our regional executives. The discussions focus on current and expected economic conditions and are shared with FRB Atlanta President Dennis Lockhart.
The Atlanta Board of Directors meets the week before each FOMC meeting. We ask the branch and Atlanta directors to share their thoughts on the outlook at every meeting. President Lockhart incorporates the information he receives from the branch and Atlanta boards into his view of current economic conditions as well as the outlook.
The grassroots complexion of the Atlanta Fed, and the entire Federal Reserve System, often goes unnoticed but is indispensable to the formulation of sound monetary policy.
Note: These first three installments of SouthPoint focused on why and how the Atlanta Fed conducts regional economic analysis. Beginning next week we will turn our focus to the "what we do" part of the equation by looking at recent employment trends.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 26, 2009 in Economic Growth and Development, Monetary Policy, Southeast | Permalink
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08/19/2009
There's a lot to LEARN
When the Atlanta Fed set out to improve its understanding of the Southeast economy, one thing that became immediately apparent was that we could not hope to field a staff of experts on every area in the region. Clearly, there are vast differences between the economies of south Florida and north Georgia, between east Tennessee and west Mississippi. And New Orleans, well, that's a world unto itself! So we set out to find experts on local economic conditions, and we found a bunch. Most are located in university-based business and economic research centers, and a list can be found on our Web site.
Many of these centers are also part of the Association for University Business and Economic Research (AUBER), which is the professional association of business and economic research organizations in public and private universities.
We called our network "LEARN," which stands for Local Economic Analysis and Research Network. Our goal was not to establish a formal organization, but an informal network of local economic experts throughout the region. We held a conference in September 2008 in New Orleans and will meet again in 2010. The real benefit of these relationships is the information we gather on local conditions throughout the year as well as insight into larger trends in the broader economy.
Most of the centers that are in the LEARN network produce regular commentary and hold conferences that focus on regional economic developments and outlooks. For example, the University of Alabama's Center for Business and Economic Research publishes a quarterly newsletter titled "Alabama's Business," which includes an overview of economic conditions in the state as well as an outlook. In addition, they held a midyear economic update conference in July 2009.
Many centers also produce unique economic measures of local activity. For example, Kennesaw State University's Econometric Center produces a monthly purchasing managers index (PMI) for the state of Georgia and for the Southeast region. The regional PMI can be compared to the Institute for Supply Management's National PMI index to compare regional manufacturing trends to those developing at the national level.
We tap our LEARN members directly for insight into some of the questions we are trying to answer here at the Atlanta Fed. For example, when some national economic data began showing signs of improvement, we approached our network in the late spring and asked if they were seeing an increase in economic activity in their areas. The overwhelming response was that conditions remained very weak but appeared to be stabilizing. A number of the respondents also shared their belief that the economy would turn around in the second half of the year.
This information provided some additional perspective and helped in developing our opening sentence to the June Beige Book, which read, "Sixth District business contacts reported that economic activity continued to contract in late April and May, although the pace of decline had moderated in some industries and most noted that their outlook had improved."
More recently most of our LEARN members shared their belief that while economic conditions were turning, they expected only a modest recovery.
Finally, LEARN members are frequently cited in press reports, offering commentary with regard to economic developments at the local, state, regional, and national levels. My recent favorite comes from Sean Snaith, director of the University of Central Florida's Institute for Economic Competitiveness. He said in a June interview on National Public Radio that people should "forget the V-shape or other letters that economists talk about when they describe the economy. This will be a 'gravy boat recession' with a steady and gradual recovery. After touching bottom in the third quarter of 2009, we'll see GDP slowly climb like a gravy boat's spout." Who said economists can't be colorful?
I hesitate to highlight only a few members of our LEARN network because they are all doing very interesting work and are making significant contributions in the field of economic research and analysis. Fully understanding local economic developments and conditions would be impossible without them. We invite you to visit their Web sites—I promise you, there is indeed a lot to LEARN.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 19, 2009 in Economic Growth and Development, Forecasts, Local Economic Analysis and Research Network (LEARN) | Permalink
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08/12/2009
Why SouthPoint?
Welcome to SouthPoint, the Atlanta Fed's new weekly blog on regional economic developments. In this blog, we'll focus on the states in the Sixth Federal Reserve District—Alabama, Florida, Georgia, Louisiana, Mississippi, and Tennessee—a very economically diverse area of the country.
One of the regional Federal Reserve banks' roles is to gather and process regional economic information to help inform the Fed's monetary policy process. The president of the Federal Reserve Bank of Atlanta is a member of the Federal Open Market Committee (FOMC) and as such plays a role in deciding the direction of certain interest rates. In gathering regional economic intelligence to assist our Bank president in his role as a member of the FOMC, we gain a deep understanding of what is happening in our district.
With that information as background, I should make another distinction up front. That is, the mission of the Atlanta Fed does not include being experts in regional economics. Our mission, as laid out in the Federal Reserve Act, specifies that the FOMC should seek "to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates." The Fed's mandate is for the U.S. economy as a whole, not the regional economy. We feel that the actions we take to meet the mandate put us in a position to offer educated commentary on economic developments in our region.
To that end, a little more than a year ago we launched the Regional Economic Information Network, or REIN, to provide an enhanced structure for handling incoming information and process it into useful economic analysis. "In our monetary policy role, we collect and analyze data covering various industries and indicators within the Sixth District," said John Robertson, vice president and then regional research team leader at the Atlanta Fed in announcing the initiative. "Sharing information helps to better position the Atlanta Fed as a knowledge source. At the end of the day, our objective is enhanced understanding of the economy. More information leads to more informed decision making."
Our REIN activities are geared toward "more informed decision making," as John put it, in relation to our FOMC-related duties. His reference to "sharing information" is what SouthPoint is all about. Please also look to the REIN section on this Web site for regular analysis of recent economic developments in the region.
So, what is so special about the Southeast region? What leads us to believe that what we learn about economic developments here is so useful when developing a picture of the national economy as a whole? After all, when the Atlanta Fed's President Dennis Lockhart goes to FOMC meetings, his policy decisions are not based on what he thinks is best for the region but what he believes is in the best interest of the U.S. economy as a whole.
Well, for starters, the states of the Sixth Federal Reserve District account for a substantial proportion of total U.S. economic output and employment. What happens in this region has a large impact on national economic trends.
Table 1 shows that if the Sixth District were an independent country, it would have the world's eighth-largest economy.
Table 1
In addition, the structure of the Southeast economy is very similar to the U.S. economy as a whole. Table 2 shows the share of gross domestic product (GDP) by industry for the combined states of the Sixth District and the United States as a whole. Except for durables manufacturing, where the Southeast is below the U.S. percentage, and construction as well as leisure and hospitality, where the region is above the U.S. concentration, the industrial structure of this region's economy is very similar to that of the national economy.
Table 2
In other words, the Southeast economy is very big, and it's structured a lot like the U.S. economy as a whole. Therefore, the picture we paint through data analysis and talking to decision-makers throughout our region puts us in a pretty good position to advise our Bank's president on broader U.S. economic developments—which is directly tied the to Fed's mandate.
It is this information and insight that will be the focus of SouthPoint, and we hope you find our posts interesting and informative.
By Michael Chriszt, an assistant vice president in the Atlanta Fed's research department
August 12, 2009 in Economic Growth and Development, Forecasts | Permalink
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