Deep breath time
The Atlanta Fed's macroblog post from August 1 looked at the disappointing first half gross domestic product results for the nation and notes that:
"The news that the U.S. economy is not only growing slowly but has grown more slowly than anyone even knew has justifiably rattled some nerves."
Have nerves been rattled enough to drastically alter our view that the second half of 2011 will show stronger growth than the first? The answer is no. Not yet, anyway.
Atlanta Fed President Dennis Lockhart outlined his view of the current economic outlook last week at the third annual Rocky Mountain Economic Summit in Jackson Hole, Wyoming. He noted that:
"I am expecting greater strength in the second half of 2011 and into 2012, accompanied by inflation numbers that converge to around 2 percent. But, as I said, I don't dismiss the possibility that we're in the alternative, more problematic world I described of low and slow growth improving only very gradually. At this juncture, I think we have to wait and see what the incoming data indicate."
President Lockhart concluded:
"I am not yet ready to shift away from the more optimistic outlook I presented. I feel it's premature to abandon the expectation of a stronger second half that will bring renewed gradual progress on unemployment and a leveling out of inflation pressures. I'm not resigned to the view that we are dealing with economic problems that are more persistent and intractable than I thought."
What are we seeing around the region that helps us stick to our guns in calling for a stronger second half of 2011? There are several reasons:
- Our contacts in the auto sector have indicated that production will be back to normal levels during the second half of the year. Also, manufacturing of equipment tied to energy exploration is strong.
- Tourism activity and business travel are healthy, indicating that consumer and business confidence may not be as bleak as some surveys show. Strong international tourism has helped as well.
- Activity at regional ports has been strong. Imports and exports continue to rebound from 2009 lows, indicating that the region's international sector is doing well.
- Business spending and investment in efficiency-enhancing technologies continue to be healthy. Of course, this sort of activity holds downside implications for labor markets, which may be one of the reasons employment gains have been rather subdued.
- Banks are reporting that loan demand is showing some improvement, although current levels are still considered low. In addition, banks are reporting that lending standards have not tightened. In sum, these developments indicate slow improvement in credit markets.
- Finally, the majority of Atlanta Fed directors (nine Atlanta directors and 35 from our five branches) see stronger growth six months out compared to current conditions. I should add that "stronger" was usually qualified by words and phrases like "cautiously optimistic" and "grow at a modest pace" when we asked them about their outlook for economic activity in late July.
While we are still optimistic that the second half of 2011 will prove to be better in terms of overall economic growth, it's important to be cautious, as our directors advised. Indeed, President Lockhart noted his realistic approach to the outlook:
"I think a continuing flow of weak numbers through the third quarter and into the fourth will call for a serious reconsideration of the situation. The weight of cumulative data could point to a different order of problem—that is, different than just a passing slowdown—if indicators show continued weakness much past year's end."
In periods of economic uncertainty it's essential to take a deep breath and reflect on all aspects of incoming information. Sometimes we forget that we are still emerging from the deepest recession since the Great Depression—a recession that hit the Southeast harder than any other region. Recovery will clearly take time and patience. We will continue to watch the data and listen carefully to what our contacts are saying as the year progresses.
By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department
TrackBack URL for this entry:
Listed below are links to blogs that reference Deep breath time: