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10/10/2013

What We’re Hearing

The Atlanta Fed’s most recent Southeastern Insights reported an “increased level of apprehension regarding the pace of growth in the near term as a result of growing concerns over another damaging debt ceiling debate, heightened geopolitical risks, and uncertainties related to regulations and the Affordable Care Act.” The report provided a broad summary of economic intelligence gathered through our network of business contacts and other sources throughout region from August 1 to September 18.

Increasing apprehension about the economic outlook
Recently, we’ve had several opportunities to discuss the outlook with audiences in the region. Lesley McClure, the Atlanta Fed’s regional executive in the Birmingham Branch, gave a presentation to the Rotary Club of Dothan and to the National Business League in Birmingham. Lesley detected a slight increase in apprehension regarding the short-term outlook.

“I queried the audience on how many of them felt things would be the same or get better/ if business activity would increase in the next three to six months,” she said. “The vast majority expected things to stay the same and only a couple raised their hands expecting improvement.”

In Tifton, Georgia, Regional Economic Information Network (REIN) Director Laurel Graefe gave a presentation to the local Rotary Club. Much discussion took place about the federal government’s partial shutdown and what it means on a broader level. The audience wondered about the impact on employment and GDP and was uncertain about what the shutdown would mean for them and their businesses. There was some apprehension about what the current congressional impasse may mean for the bigger discussion of the debt-ceiling limit.

Galina Alexeenko, REIN director at the Nashville Branch, recently gave a presentation to Middle Tennessee State University’s Small Business Development Center and found similar concern over the impact of the government shutdown and the potential economic impact of the government shutdown and failure to raise the debt limit.

I also fielded several questions about the impact of fiscal policy uncertainty in a recent talk in Atlanta and at a presentation to the Carrollton Rotary Club. Rising uncertainty was captured in several other indicators, including the Atlanta Fed’s poll of small businesses in the Southeast, as this recent macroblog post noted.

Questions on inflation
In Dothan, Lesley discussed inflation, which has been running below the Federal Open Market Committee’s target of 2 percent. After Lesley discussed this trend, one audience member asked, “How can you say inflation is low when I see rising prices at the grocery store?”

We get this question quite a bit, and we reply by explaining that inflation cannot be measured by an increase in the cost of one product or service, or even several products or services. Rather, inflation is a general increase in the overall price level of the goods and services in the economy. To read more about how the Fed evaluates inflation and its effects on the economy, see this explanation from the Board of Governors. To follow current trends in inflation indicators, check out the Atlanta Fed’s Inflation Project.

Price developments were also on the minds of my audience in Carrollton and at the Tifton event. The Tifton area has a large concentration of agricultural activity, cotton in particular, and Laurel spent a good deal of time discussing whether and how the Fed’s current accommodative monetary policy stance was affecting agricultural commodity prices and commodity prices more generally. Like Lesley, Laurel discussed recent inflation trends and added that increases in the prices of crude oil, food, and other commodities have proven temporary and can best be explained by the fundamentals of global supply and demand rather than by the stance of U.S. monetary policy. For a deeper discussion of this issue, see this speech by Janet Yellen, the vice chair of the Federal Reserve Board of Governors.

Apprehension about the economic outlook can be attributed to the notable rise in uncertainty we have detected in recent discussion with several audiences. We’ll continue to reach out to our business contacts to determine if this results in a pullback in overall economic activity.

Photo of Mike ChrisztBy Mike Chriszt, a vice president in the Atlanta Fed's public affairs department


October 10, 2013 in Economic Indicators, Employment, Forecasting, Inflation, Prices | Permalink

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01/13/2012

Forecasting at the national and regional levels

The Atlanta Fed produces economic forecasts on a regular basis, as do other Reserve Banks, economic think tanks, and many, many other institutions. The Fed's forecasts are published with the minutes of meetings of the Federal Open Market Committee (FOMC). In 2011, these forecasts were released after every other FOMC meeting, the last being in November. In the Atlanta Fed's latest macroblog, Dave Altig, our senior vice president and research director, detailed the changes coming in 2012 to the Fed's Summary of Economic Projections (SEP).

How are the Atlanta Fed's economic projections developed? It's a combination of sophisticated econometric modeling, application of intelligence gathered through our Regional Economic Information Network (REIN) and direct input from our Boards of Directors, expertise of our staff macro, micro, and financial economists, and, most importantly, President Dennis Lockhart's own views. The Bank's economic forecast is, after all, his forecast, so he gets the final word.

President Lockhart detailed his outlook for economic growth earlier this week in his speech before the Rotary Club of Atlanta:

"This brings me to the outlook for 2012. Europe is the biggest wild card for the coming year. Also, the rising tensions in the Persian Gulf and the jumpiness of oil market prices cannot be ignored.

If there are no surprises from Europe or elsewhere, we at the Atlanta Fed are expecting modest GDP growth for the year in the range of 2.5 to 3 percent, but we will not be surprised to see some retrenchment of consumer activity as well as exports and inventory accumulation in the first quarter as compared to the last quarter of 2011."

While these projections focus the national economy, several regional projections focus on state outlooks. The Atlanta Fed does not produce state forecasts, but many members of our Local Economic Analysis and Research Network (LEARN) do, several of which can be found below:

Alabama: University of Alabama's Center for Business and Economic Research

Georgia: Georgia State University's Economic Forecasting Center

Georgia: University of Georgia's Selig Center for Economic Growth

Florida: University of Central Florida's Institute for Economic Competitiveness

Although not a state forecast, Louisiana State University's Center for Energy Studies posted a September 2011 presentation by Dr. David Dismukes titled "Natural Gas Trends and Impact on Industrial Development" that dives deeply into the outlook for this important and rapidly growing sector.

The 18th Annual Mississippi Economic Outlook Webcast hosted by Mississippi's Institutes of Higher Learning Economics Department can be viewed in its entirety.

Quarterly updates on the Volunteer State's outlook are available from the University of Tennessee's Center for Business and Economic Research. The latest post is for fall 2011, but check back for its 2012 Economic Report to the Governor of the State of Tennessee which should be available sometime in January.

The Business and Economic Research Center at Middle Tennessee State University holds an annual outlook conference. The latest presentation from the center director, Dr. David Penn, can be found here.

Of course, forecasting is not an exact science. Macroblog has looked at forecasts and forecasting over the years. Take a look for some thoughtful dialogue on the topic and check back with us and our colleagues throughout the region to see how 2012 national and state forecasts evolve.

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

January 13, 2012 in Forecasting | Permalink

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10/21/2011

Some growth is better than none

As a lifelong Cleveland Browns fan, I'm prone to pessimism. A win on Sunday only brings expectations of a loss next Sunday. I wait for good news, then don't believe it when it comes. It's a tough way to go through a football season, but I can't help it.

Tracking the economy over the last few years is a perfect fit for a Browns fan—good news followed shortly by bad. When positive economic reports come out, skepticism creeps in. In September, several pieces of economic data came in better than expected and, when combined with what our business contacts in the region were telling us, paint a picture of an economy that appears to be doing better than what we experienced over the summer. Let's look closer.

The lead from the October 19 Beige Book summary reads:

"Reports from the twelve Federal Reserve Districts indicate that overall economic activity continued to expand in September, although many Districts described the pace of growth as modest or slight."

The opening sentence from the Sixth District's section of the Beige Book struck a similar note:

"Business contacts in the Sixth District indicated that economic activity continued to expand at a modest pace in September."

The message here is an important one. Businesses here in the Southeast and in most other regions are telling us that the economy does not appear to be contracting. True, the overall pace of activity may be modest or slight, but we were told that it is still positive. Recent data support what our contacts were telling us. As Atlanta Fed President Dennis Lockhart said in his October 18 speech to the CFA Society of East Tennessee in Chattanooga:

"The somewhat overlooked story of the period since the end of August is that much of the incoming data have exceeded most forecasters' low expectations. For the third quarter at least, it appears that downgrades of growth forecasts have been too pessimistic."

Of course, we're not going to proclaim that the economy is clearly on a path to significantly better outcomes based on a month of data and anecdotal information. After all, three weeks ago the Browns were 2-1 and tied for first place. Today we are 2-3 and in the cellar.

Along those lines, it is important to recognize that modest economic growth does not help address the high rate of unemployment. As President Lockhart noted in Chattanooga:

"[M]ost private sector forecasters envision growth in 2012 approaching 2.5 percent. In the opinion of many economists, that 2.5 percent approximates the steady-state growth rate of the economy's potential. This rate would certainly be an improvement over 2011 as a whole. The problem is without growth measurably better than 2.5 percent, little progress will be made in absorbing slack in the economy—above all, labor market slack."

The Atlanta Fed's Beige Book recorded little improvement in regional labor markets in September:

"Employers continued to manage their labor supply very tightly. Most contacts indicated that the outlook for hiring remained restrained by modest expectations regarding future sales. Several reports suggested that permanent employees were primarily being used to maintain a firm's core business, while specific projects were being assigned to contractors and temporary hires. Firms continued to seek efficiency gains through investment in technology and other cost-saving applications."

Although not mentioned in our Beige Book, we should also note that while we did not pick up on significant plans to increase employment in our discussions with business contacts, we also did not hear much in the way of plans to reduce current levels of employment. The economy may not be improving enough to help cut into unemployment much, but it appears to be doing well enough to prevent further job declines.

Back to the Browns. They are playing better and we may be looking at a .500 season. After two straight years of going 5-11, 8-8 looks pretty good. But, like the Browns, a steady-state rate of growth and not experiencing further reductions in employment is not the best outcome, but it is better than where we were a few years ago.

President Lockhart concluded in Chattanooga that

"[A]s the numbers over the last couple of months demonstrate, outcomes better than consensus expectations can happen. Let's not talk ourselves into believing that enduring weakness or recession is inevitable."

Photo of Michael Chriszt By Mike Chriszt, an assistant vice president in the Atlanta Fed's research department

October 21, 2011 in Beige Book, Economic Growth and Development, Forecasting, Labor Markets, Outlook, Southeast | Permalink

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04/14/2010

Measuring regional economic performance

I spent the first two days of this week in Washington, D.C., at the 2010 National Association for Business Economics (NABE) Professional Development Seminar. Now in its seventh year, the NABE Professional Development Seminar (PDS) is a program designed to strengthen participants' knowledge of economic statistics and analytical techniques. I've been honored to present the Atlanta Fed's approach to regional economic analysis at several PDS events over the years.

This year I had the privilege of presenting with Dr. Charles Stiendel, a senior vice president at the New York Fed, and Dr. Keith Phillips, a senior economist and policy advisor at the Dallas Fed.

Dr. Stiendel discussed the Beige Book process in detail—a very well-timed presentation since today is when the Fed releases the latest report. He pointed out that while the Beige Book is driven by anecdotal reports from contacts in the business and labor community, one study has found that a quantitative classification of the Beige Book can be used to enhance near-term GDP forecasts. The Dallas Fed published a study in 1998 by Balke and Petersen that found that both in-sample and out-sample, the quantitative Beige Book indices, do have significant predictive content for current and next-quarter real GDP growth. Furthermore, the Beige Book has information about current-quarter real GDP growth not present in other indicators such as the Blue Chip Consensus Forecast or time series models that use real-time data.

The Atlanta Fed published a study in January 2003 by Ginther and Zavodny that examined whether the descriptive content of the Beige Book affects asset prices. The results indicate that more positive Beige Book reports on economic growth are associated with increases in interest rates, particularly long-term rates, even after controlling for other macroeconomic data releases. Stronger Beige Book reports are positively associated with changes in equity prices during expansions but negatively during recessions.

In his presentation, Dr. Philips presented some of the novel methods the Dallas Fed uses in measuring economic performance in Texas. Among them are several measures of state and metro area business cycles. In 2004, the Dallas Fed published Phillips' work on a New Monthly Index of the Texas Business Cycle and followed that up in 2005 by extending coverage to include major metro areas in the state.

In 2007, we at the Atlanta Fed developed our own measure of regional economic activity called the "D6 Factor." The paper that developed the D6 factor by Silos and Vilan outlines and estimates a model of the Sixth Federal Reserve District economy that provides a single economic indicator. The model assumes that the region's economic activity—measured by a large set of time series of employment, construction, earnings, and sales tax revenues—is driven by an unobserved common factor. The model incorporates disaggregated information for each state into a large model to derive a common component. Having a single economic indicator for the region allows for simpler and faster interpretation of various (sometimes contradictory) economic signals and makes comparisons with the nation's and other region's economies easier.

Whether it's the Beige Book or data-driven measures of economic activity, the Fed's regional banks provide a wealth of information to gauge regional economic performance.

By Michael Chriszt, assistant vice president in the Atlanta Fed's research department

April 14, 2010 in Beige Book, Forecasting | Permalink

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