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04/14/2014

Our Bread and Butter

It’s spring, which means warming weather, getting out the gardening tools, and convening the semiannual meeting of the Atlanta Fed’s Agriculture Advisory Council, which represents diverse agriculture and agribusiness interests across the Southeast.

Prices are always a topic of conversation at council meetings. This meeting was no exception, and here are some examples of what we heard:

  • Fertilizer prices are up.
  • Feed prices are down from last year’s highs.
  • Fuel costs have been stable over the last year.
  • Equipment and seed costs are up.
  • Beef prices are up, and some producers are considering increasing herd size because of favorable prices and lower feed costs.
  • The value on the very best farmland is holding up, but farmland prices may see some corrections, with the biggest changes expected on marginally productive land.

Citrus greening is reducing the supply of Florida oranges, and growers continue to seek ways to mitigate the effects of the disease. Even though costs for products that help fight the disease are up, growers are saying, “If you think it works, you do it.” Growers hope that new research funding included in the recently approved farm bill will help find a solution, but concern also exists that as production declines, processing infrastructure will be lost, which may make it challenging to expand in the future.

Foreign markets have also affected growers. For example, cotton prices are in flux as a result of China’s pricing policy, while dairy prices are enjoying an uptick because of China’s increased purchases. Poultry producers expect this year to be a good one. The poultry industry is setting export records, and producers are saying exports represent future growth.

Finding labor remains difficult for most producers, and the problem is no longer just finding the numbers they need but increasingly finding those with the necessary technical skills as well. Producers are encouraging local junior colleges to offer technical programs for farm workers: “We need fewer but better-educated laborers,” one source said. There is also a growing need for data-management skills. Many growers will outsource data management/analysis to big companies specializing in that area.

Council members agreed that the outcome of the newly signed farm bill remains uncertain as the details are worked out, but they anticipate large farm producers will have to significantly restructure their businesses.

Another challenge is coming from the consumer side, as buyers require unprecedented amounts of information about health and wellness and sustainability processes from agriculture producers. Advisory council members acknowledge that technology makes it possible to supply this information, but the group recognized the need for agriculture producers to have a seat at the table when discussing new requirements.

As the meeting drew to a close, we went around the table one last time, and these comments are among what we heard:

  • “We will get more efficient.”
  • “There will not be a lot of inflation in agriculture in the next year or two.”
  • “Agriculture will go through another cycle of de-peopling,” but “…as the labor required to produce is decreasing, value and next-step processing is not shrinking.”

As I reflect on all I heard that day, I know technology will continue to play a big role in agriculture production, and its use is expanding every day. I also know from talking with our council members that good old-fashioned tenacity, know-how, and the love of farming shine through. The continued marriage of these disciplines will literally be our bread and butter for years to come.

Photo of Teri GaffordBy Teri Gafford, a Regional Economic Information Network director in the Atlanta Fed’s Birmingham Branch


April 14, 2014 in Agriculture, Commodity Prices, Outlook, Prices, Productivity, Southeast, Technology | Permalink

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02/06/2014

Atlanta Fed Survey Highlights Regional Employment Plans for 2014

Given that the Federal Reserve’s dual mandate calls for maximizing employment, it shouldn’t surprise anyone that we continuously ask ourselves questions about labor market conditions. But we also ask our contacts. For the third year in a row, we reached out to our Regional Economic Information Network and asked the same questions regarding their employment plans for the year. The survey was conducted during January 6–10 and resulted in 554 responses. The sample represented a wide variety of firm types and sizes, and we want to discuss the results here.

The first question simply asked: Do you expect your firm to increase employment, leave employment unchanged, or decrease employment in 2014? A total of 46 percent of respondents said they planned to increase employment levels, similar to results from the previous two years. Another 44 percent indicated they planned to leave employment levels unchanged, a slight increase from a year ago and almost identical to two years ago. The remaining 10 percent of participants planned to decrease payrolls, down from 13 percent in January 2013 and nearly the same as reported in 2012 (see the chart).

Do you expect your firm to increase employment, leave employment unchanged, or decrease employment over the next twelve months?

Digging a little deeper by singling out the 46 percent of firms that indicated that they planned to increase employment, we then asked contacts to select the most important factors driving their decision. Participants were instructed to rank the three factors in order from 1 (most important) to 3 (third most important). The results largely mirrored our findings from previous years (see the chart).

What are the most important factors behind your plans to increase employment?

A majority cited high expectations for sales growth as the most important reason. The second most often cited reason was the firm’s need for skills not possessed by existing staff. The third reason was that the firm’s current staff was overworked. However, in looking at totals across rankings, another frequently cited issue was improvement in the firm’s financial position.

On the flip side, we asked all participants to rank (in the same manner as the previous question) the three most important factors restraining hiring activity. Interestingly, in all three categories (first, second, and third most important), a majority selected the same factor: keeping operating costs low. Other frequently selected reasons were uncertainties related to health care costs, regulations, government policies, and expectations for low sales growth. These results were also similar to our findings from the previous two years (see the chart).

What are the three most important factors, if any, restraining your hiring plans?

In a nutshell, we can see that employment activity remains constrained by some of the factors mentioned above. However, as the latest Southeastern Insights, reports, hiring should modestly expand. The latest data from the U.S. Bureau of Labor Statistics, which indicated that net monthly payroll growth for the district averaged 30,200 for 2013 (up slightly from 26,200 a month in 2012), strongly support our conclusion.

Photo of Shalini PatelBy Shalini Patel, an economic policy analysis specialist in the Atlanta Fed’s research department


February 6, 2014 in Employment, Jobs, Labor Markets, Outlook, Southeast | Permalink

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Why don't you publish the names of the companies that plan to hire so people can send in their resumes. Be part of the solution instead of just bean counters.

Posted by: Jack | 02/13/2014 at 04:02 PM

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12/18/2013

Middle Tennessee Consumer Confidence: Down but Not Out

Earlier this week, my colleague Christine Viets wrote about how consumers appear to be spending very cautiously this holiday season. One indication of why spenders have been wary can be seen in this month’s Middle Tennessee Consumer Outlook Index. After posting gains throughout 2013, the index dropped in December. The decline suggests that consumers in Middle Tennessee have a less optimistic view of the economy than they did in September.

The Middle Tennessee Consumer Confidence survey is conducted by the Office of Consumer Research at Middle Tennessee State University, headed by Professor Timothy Graeff. Students in Professor Graeff’s marketing research course conduct the survey by phone. The survey asks 11 questions related to economic conditions in the United States as well as Middle Tennessee.

Participants felt better about the local economy than they did about the national economy. The survey indicated that consumers in Middle Tennessee are rather pessimistic about current business conditions in the United States. Only 12 percent of respondents believe national business conditions are good, while 26 percent believe conditions are bad. Opinions about Tennessee business conditions were better, with 42 percent indicating conditions are good versus 9 percent who believe conditions are bad.

Looking forward, responses were slightly better for the U.S. economy. When asked what conditions for the United States would be like in six months, 25 percent indicated things would be better, and 25 percent felt things would be worse. For Tennessee, 27 percent expressed conditions would improve, while 11 percent stated conditions would be worse.

Historically, Middle Tennessee consumers have been more optimistic about the future of the economy than national consumers. When comparing the November Conference Board Consumer Confidence Index and the Middle Tennessee survey, Middle Tennessee consumers remain more optimistic about the future of the economy, the job market, and their personal situation.

Importantly, even though the Middle Tennessee consumer outlook declined, it is still more positive than negative, suggesting that people will still be visiting malls and outlet stores in the area and that consumers in Middle Tennessee may buck the national trend.

By Troy Balthrop, a Regional Economic Information Network analyst in the Atlanta Fed’s Nashville Branch


December 18, 2013 in Economic Indicators, Outlook, Tennessee | Permalink

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06/15/2012

Capital expenditure plans for regional firms

We recently reached out to our regional business contacts to gauge their intentions regarding capital expenditures. The results of our regional survey showed that over half plan to increase capital spending over the next six to 12 months. Only 14 percent anticipate decreasing spending from current levels.


Of the businesses that planned to increase spending in the near term, high expected growth of sales and the need to replace information-technology equipment were the two most common factors driving their plans. Firms that commented in the "other factors" category cited expansions as reasons for increasing spending now. Decreased economic/financial uncertainty was the least cited factor.


Among the businesses that said they do not plan to increase spending in the near term, firms cited increased or high economic/financial uncertainty, limited need to replace capital goods, and low expected growth of sales as the major factors behind not increasing capital spending.


Indications are that the broader regional economy continues to grow at a modest pace, and the results from our recent capital expenditure poll appear to support that conclusion. Firms continue to invest, driven largely by expectations for improved sales. Those that have chosen to hold off noted that uncertainty is the main factor, so if the future becomes less cloudy we might expect further increases in capital spending.

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


June 15, 2012 in Growth, Outlook, Southeast | Permalink

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03/02/2012

Atlanta Fed’s Beige Book shows an increase in regional economic activity

Eight times per year, each Federal Reserve Bank gathers anecdotal information on current economic conditions in its district through reports from Reserve Bank and branch directors and interviews with key business contacts, economists, market experts, and other sources. Results are published in the Beige Book on the Federal Reserve Board of Governors website. The Atlanta Fed's Regional Economic Information Network (REIN) provides a robust platform for compiling our Reserve Bank's contribution to the Beige Book.

We tend to see the our Beige Book exercise as a touch point for the middle of the Federal Open Market Committee's cycle, where we bring the intelligence gathered by our regional executives and other sources to our staff economists and Atlanta Fed President Dennis Lockhart. It helps inform our forecast for broader U.S. economic activity and gives President Lockhart the latest input from business and community leaders throughout the Southeast.

The latest Beige Book was published February 29. The opening sentence to the Atlanta Fed's latest Beige Book reads:

"Sixth District business contacts described economic activity as expanding at a somewhat stronger pace in January and early February compared with late last year. Expectations were generally more positive, although firms continued to express caution with regard to the outlook."

Importantly, the rising pace of economic activity in the region should not be viewed as evidence that the economy here is taking off. It is performing better, but it would be a mistake to interpret this improvement as a sign that the economy is firing on all cylinders. Our outlook is still rather tame.

President Lockhart noted this in his February 14 speech at New College of Florida in Sarasota:

"Not all the recent economic news has been uniformly positive, but the balance of incoming data has been rather upbeat. This gives me confidence in the view that economic growth in 2012 will be noticeably better than in 2011."

He continued:

"Significant unanticipated developments are part of economic life, but barring shocks, we at the Federal Reserve Bank of Atlanta expect 2.5 to 3 percent growth for 2012."

Fed Chairman Ben Bernanke struck a similar tone in the February 29 Monetary Policy Report to Congress:

"Looking ahead, growth is likely to be modest during the coming year, as several factors appear likely to continue to restrain activity, including restricted access to credit for many households and small businesses, the still-depressed housing market, tight fiscal policy at all levels of government, and some slowing in global economic growth."

Our overall take from the region, based on the incoming data from the Southeast and what our business contacts are telling us, leads us to believe that the economy is gaining some traction and that this momentum should carry forward through 2012 and result in continued, modest increases in economic activity. Caution regarding the outlook was clear. While concerns about a potential spillover from financial events in Europe appear to have subsided, there was growing unease regarding the impact of rising gasoline prices.

Below are sector overviews from the Sixth District's Beige Book:

  • Retailers noted that sales and traffic increased compared with a year ago and auto sales remained robust. Hospitality contacts, with the exception of cruise lines, reported strong bookings for this year.
  • Homebuilders and brokers reported that unseasonably warm weather has helped bolster residential real estate activity by pulling some activity forward. Nonetheless, overall home sales and construction levels remained weak apart from the generally robust multifamily sector.
  • Manufacturers and transportation contacts continued to note positive activity on balance.
  • Bankers reported a modest improvement in loan activity at larger institutions.
  • More firms reported increased hiring, although contacts continued to signal they approached hiring decisions very cautiously.
  • Concerns over increased input costs generally eased as most firms reported that input prices leveled off. Only a few contacts reported having significant pricing power.
  • Contacts in the energy exploration sector noted that recent lease auctions have helped stimulate more industry optimism, contributing to an improvement in investment conditions.
  • Agriculture sector contacts reported that some farmers in Alabama and Georgia were reviewing their planting plans in light of their concerns of labor shortages.

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

March 2, 2012 in Beige Book, Outlook | Permalink

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02/28/2012

Georgia outlook update

On February 22, the Economic Forecasting Center at Georgia State University's J. Mack Robinson College of Business held its first quarterly conference focusing on the outlook for the local, state, and national economies.

According to GSU's forecast, the ongoing fiscal and financial challenges in Europe, rising energy prices, cautious U.S. consumers, and weak corporate confidence are the headwinds that Georgia's economy will face in 2012 and 2013. Rajeev Dhawan, director of GSU's Economic Forecasting Center in the Robinson College, reported that gains in growing sectors—such as professional and business services, manufacturing, and healthcare services—have not been great enough to offset losses in lagging sectors such as construction, local government, and banking.

Here are some highlights from the GSU Economic Forecasting Center's report for Georgia and Atlanta:

  • Georgia will add 14,300 jobs, including 2,500 premium jobs, in calendar year 2012. Employment levels will improve in 2013, when the state will add 40,600 jobs, of which 7,200 are premium jobs (resulting in a 0.8 percent annual growth rate). In 2014, the recovery will be better but still moderate, with the economy adding 66,700 jobs, 14,100 of which will be premium jobs (a 1.5 percent annual growth rate).

  • Georgia's unemployment rate will be 9.7 percent in 2012, only 0.3 basis points lower than 2011 levels. In 2013, unemployment will decline to 9.3 percent. In 2014, it will decline again significantly, to 8.5 percent.

  • Atlanta employment will mirror statewide conditions for calendar year 2012, with 10,300 job gains (2,900 premium jobs). Employment will grow in 2013, with the Atlanta economy adding 28,700 jobs (5,200 premium jobs). Atlanta employment will increase again in 2014 by 44,800 jobs (9,600 premium jobs).

  • Atlanta housing permits will increase by 12.6 percent in 2012 to 9,594 units as a result of a boost in multifamily housing permits (28.9 percent). Single-family permits will post a mild increase of 5.9 percent this year. Permit activity will increase by 17.1 percent in 2013, with single-family and multifamily housing activity posting increases of 11.7 percent and 27.8 percent, respectively. Permit activity will grow again in 2014, posting an overall increase of 22.4 percent, with multifamily permits growing at 31.6 percent.

In a recent speech, Atlanta Fed President Dennis Lockhart noted that he anticipates steady, moderate growth in the absence of potential shocks, a view similar to Dr. Dhawan's outlook for the state.

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

February 28, 2012 in Georgia, Outlook | Permalink

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01/19/2012

Georgia on my mind (again)

You wouldn't think a breakfast talk about economics would be all that interesting. Not true. Yesterday morning, I participated in a monthly breakfast seminar hosted by a local group aptly called "Eggo-nomics." The discussion was about the current state of Georgia's economy.

I'm not saying that my presentation was all that enthralling, but the questions and comments from the participants certainly were interesting. Of the several questions I received, the most common centered on the theme of why Georgia's economy continues to lag other parts of the country.

As it so happens, these questions mirrored one that was posed to Atlanta Fed President Dennis Lockhart in a recent interview with the Atlanta Journal-Constitution. He was asked, "Certain areas of the country, like the Northeast, are recovering faster than the Southeast. Why?" Here is President Lockhart's response:

"I get the question frequently: 'How is the Southeast doing relative to the rest of the country?' And my answer is, broad generalization, a little worse than the national averages. Not dramatically worse, just a little worse. And I use unemployment as an example. The unemployment rates for the six states we follow here, with the exception of Louisiana, are above the national average.

"Those rates have been coming down, just as the rate nationally has been coming down. But there is a lagging picture for Georgia and for most of the Southeast. You can explain some of the cause by looking at the exposures in the bust which were real estate-oriented, the dramatic slowdown in construction and the number of people put out of work who were in the construction trades.

"And to some extent in banking [many of the problems stemmed from] the dependence on real estate lending in many banks.

"If you want to step back even further, you had a couple of decades of in-migration, particularly Atlanta. You have to build houses to hold the people who migrate here, so real estate construction was a big thing. They come and get jobs; they need office buildings in which to work. So commercial real estate is a big thing and when that turns negative, it creates a problem that is more difficult than in the Northeast service-industry contraction."

SouthPoint has reported on this topic and will continue to dig into reasons behind Georgia's lagging recovery.

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

January 19, 2012 in Georgia, Outlook | Permalink

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01/06/2012

More on the Sixth District's exposure to Europe

Europe remains in the news as 2012 begins. Developments there continue to influence global financial markets and might be pushing the euro area's economy into recession. Many forecasters have identified contagion from the European financial crisis and recession as a significant risk to U.S. economic growth in 2012.

Atlanta Fed President Dennis Lockhart noted this in his November 29, 2011, remarks during the University of Georgia's Terry College of Business 2012 Economic Outlook conference:

"My baseline forecast for 2012 builds on the picture I've just painted of the second half of 2011. I'm expecting continued moderate growth, decently behaved inflation, continuing net job creation, but slow progress on unemployment. You will note I used the word ‘baseline.' I need to emphasize that at this juncture I perceive considerable downside risk to this baseline forecast. The most prominent source of risk is Europe. "

Steven B. Kamin, the director of the Division of International Finance at the Federal Reserve's Board of Governors, discussed the economic situation in Europe and its impact on the U.S. economy in testimony before the U.S. House of Representatives on December 16, 2011:

"Here at home, the financial stresses in Europe are undoubtedly spilling over to the United States by restraining our exports, helping to push down business and consumer confidence, and adding to pressures on U.S. financial markets and institutions."

A few weeks ago, SouthPoint looked at trade connections between Europe and the Southeast, noting that

"While there is concern about the financial impact of instability in Europe, a souring of economic activity across the Atlantic would also affect international trade. In either case, the region is not immune."

We thought we'd dig a little deeper into the issue and look more closely at which parts of the Southeast economy are vulnerable to the crisis in Europe.

Clearly, U.S. companies that depend on sales of their products to the euro area are likely to see the weakening of demand for their Europe-bound products as the euro area's economy contracts and if the euro continues to depreciate. According to the U.S. International Trade Administration, the exposure of Southeast's exporters—as measured by the share of goods sold in the euro area as percent of total goods exports—is relatively low, but the share varies significantly across the Southeast states.

Alabama's exporters appear to be the most vulnerable to changes in European demand—almost a fifth of the state's merchandise exports are shipped to the euro area. About half of those exports are sold in Germany, mainly autos. The good news is that Germany seems to be one of the more resilient European economies, along with the Netherlands, Belgium, and France—the other large euro area markets for Southeast's exporters. The economically weakest countries in the euro area—Greece, Ireland, and Portugal—account for a small fraction of the region's exports.


While Florida's exporters appear to be least exposed to the euro area compared to other states in the Southeast (most of Florida's exported goods go to Latin America), the state's large tourism industry may feel some impact if a recession and a weakening euro keep Europeans from traveling to the United States. Based on data from the Office of Travel and Tourism Industries and VISIT FLORIDA, an estimated 1.2 million residents of the euro area visited Florida in 2010. Fortunately, this number represents less than 2 percent of all the visitors to the state.

Another important part of Florida's economy that to some extent depends on European spending is residential real estate. In Florida, sales to nonresident foreigners account for about 25 percent of total residential sales (compared with only 3 percent nationally). For the state as a whole, Western Europeans (excluding U.K. residents) account for about 11 percent of all nonresident foreign buyers. While the number is relatively low, some parts of the state are much more dependent on Europeans. For example, in the Miami-Fort Lauderdale-Miami Beach market residents of Germany accounted for nearly a quarter of all nonresident foreign buyers in the 12 months ending in June 2011, according to the National Association of Realtors.

In general, whether through exports, tourism or real estate, the Sixth District's exposure to Europe appears relatively small. The bigger concerns are the possibilities of severe financial contagion (via the banking system and financial markets) and a hit to business and consumer confidence, which apply as much to the District as to the nation overall.

Photo of Galina Alexeenko By Galina Alexeenko, director of the Atlanta Fed’s Regional Economic Information Network

 

and

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

January 6, 2012 in International, Outlook, Trade | Permalink

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01/04/2012

Happy new year

Resolutions and predictions are hard to avoid as the new year begins. With regard to the former, most focus on personal improvements and tend to be fuzzy and are abandoned by February. "Lose weight" is one that seems to appear on my list every year. But this year is going to be different. I've set real, measurable goals and shared them with my family so they can hold me accountable. We'll see how it goes, but I'm counting on the fact that my children take every opportunity to point out my mistakes (in a fun-loving way, of course).

Predictions can be even more fuzzy. I always seem to predict that my Cleveland Browns will make the playoffs. That's more like a wish than a prediction, but I can't help it. With regard to the region's economy, we don't call "predictions" predictions. They are "forecasts" or "outlooks." Whatever we call them, it is a thoughtful and necessary exercise to look back at where we've been and think about where we're going.

The latest issue of the Bank's quarterly publication EconSouth does just that. In our outlook for 2011 we said that:

"In 2011, the regional economy will have to surmount a number of obstacles before it can resume the growth that made it one of the nation's most dynamic economies."

In the introduction to the 2012 outlook, we asked if the region surmounted these obstacles:

"Has [the region] resumed the growth that made the Southeast so dynamic? Unfortunately, the answer is no. Not completely, anyway. While the region made some progress along the road to recovery, many impediments remain. The challenges the region faces are similar to those faced by the nation as a whole, but many of these barriers have proven especially tough to overcome in the Southeast."

In-migration has been a hallmark of regional economic development for decades. As EconSouth points out:

"The driving force behind the region's economic growth over the years has been robust population growth, which ignited development and spurred job creation. The slowdown in population growth to the levels experienced by the rest of the country explains a big part of the regional economic contraction, and lagging in-migration appeared to continue in 2011."

Drags on regional economic activity in 2011 were largely tied to real estate, which showed few signs of a turnaround. Quoting EconSouth again:

"The dynamic between population and economic growth is quite nuanced, but when real estate developers anticipate steady population gains that fail to materialize, serious imbalances can result. Construction of homes and commercial space does not stop on a dime, hence the high degree of overbuilding apparent in many parts of the region. Housing demand remained historically low in 2011, according to regional business contacts, while commercial property vacancy rates—especially for retail space—barely budged from 2010 levels. Add in continued falling home prices, and it is little wonder that the real estate sector remained a drag on the region's economy in 2011."

The 2012 regional outlook article goes on to discuss trends in agriculture, small business, manufacturing, consumer spending and tourism, government, and overall employment. It concludes by saying:

"Barring unforeseen shocks, economic activity in the Southeast is expected to improve in 2012. But, with in-migration stalled, there is only a small likelihood that the region will regain in 2012 the solid expansion levels seen before the recession. And, while the region is expected to see positive net job creation in 2012, the pace will probably be too slow to make a significant or rapid dent in the high unemployment rates seen in 2011."

In December 2012 I'd love to look back and say we were wrong about our outlook and that the region outperformed our expectations. I also hope to look down at the scale and see that I lost more weight than I said I would. We'll be watching the data and listening even more intently to our business and community contacts with regard to the former, and I'll be watching my waistline and listening to my kids' comments on the latter.

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

January 4, 2012 in Outlook | 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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