The Federal Reserve released its June FOMC minutes today and the shift in language seemed to cause a significant market reaction. The reaction was especially strong when added to the Retail Sales numbers released this morning (Tuesday) that were much worse than expected with a drop of .5%. Strong enough to offset what has so far been a very good week for corporation earnings reports.
The result this afternoon of the pull back in Federal Reserve optimism was that the bond market had a mid-afternoon price jump. Good for rates, but what does it say about our recovery?
Back in June I reported briefly on the presentation given at the Chattanooga Mayors' Business and Industry Appreciation Breakfast by Dr. David E Altig, SVP and Director of Research at the Federal Reserve Bank of Atlanta. In that post reviewing his presentation, I had promised a follow up with more details about his economic projections. And while this is very late, it seems fitting to write this follow up today, in line with the release of the recent FOMC minutes.
At that breakfast Dr Altig was basically optimistic, stating that the "double dip recession" scenario is off the table of possibilities. With the recent FOMC minutes release, I thought it would be good to break out my notes on Dr Altig's speech and compare to the official statement published today.
Dr Altig projected a 3.2 to 3.7% GDP growth in 2010. This is fair growth, but he admitted that a recovery from a deep recession should really have growth more in the 7-9% range. He recognized that the recovery might be uneven in various regions because of differences in the regional employment picture.
He did not mention housing much, instead focusing on employment. Both major problems, but I certainly understand the need to focus on employment.
All regions last year in June had lost jobs over the previous 12 month and 3 month periods, with the Atlanta region one of the worst hit. In the most recent 12 months though the pace of job losses had slowed and in the most recent 3 month period there has been some regional job gains.
Tennessee was congratulated as doing relatively well in job creation.
The projection for 2010 unemployment is over 9%. And for 2011 about 8%. To put the employment problem in perspective, he reminded everyone that 200,000 new jobs are required to change the unemployment percentage by 1%.
Our present unemployment is around 9.6% and the unofficial rate ( the underemployed and discouraged worker) rate is over 16%.
The take home point here is that to fix these employment numbers requires a lot of new jobs.
He referred to our employment crisis as the Alice Cooper Labor Market:
I can't get a girl
cuz I ain't got a car
I can't get a car
cuz I ain't got a job
I can't get a job
cuz I ain't got a car
So I'm looking for a girl with a job and a car
Don't you know where you are
Lost in America
We are looking for a girl with a job and a car.
He put all this though in a positive spin. Our loss of jobs can be viewed as a gain in productivity. He said that the US led the world in losing jobs but the recession was not more severe. The 2007 to 2010 productivity fell in other countries while it soared in the US.
He offered 2 theories.
Theory 1
The US is mean and Europe is nice to workers. The US has shifted the risk of recession to the workers while Europe has shifted the risk of recession to companies.
Theory 2
Productivity difference is real. The recession has led US companies to work better, to find ways to improve the job. This short term pain will make for a stronger and more efficient economy. When the unemplo
You choose which theory you like best.
The answer for workers though is new job skills and education beyond high school. The demands of new industry and of established industry such as auto manufacturing require a skilled labor force. Dr Altig referred to an article about a potential labor shortage in the auto industry, even in the midst of steep unemployment. The labor shortage is from a lack of skilled workers.
It is interesting though that a follow up article on the difficulties of finding employment after job training told a slightly different story.
He gave a point by point program for "how to bring everyone along." His points are below with my interpretation in parentheses.
•· Solution is not monetary policy (Federal Reserve cannot help)
•· Solution is not at the federal level (stimulus cannot help)
•· Solution is to bring skilled labor force to local labor market is at local level (county and cities increase school budgets to support more technical training at high school and community college level)
These points of course leave me a little frustrated with the federal government that takes so much of our tax dollars and passes so many unfunded mandates and creates so many departments and so many regulations and then says "Hey local boys and girls, you need to fix this problem that we created after we took all that money from you." But that for another post. I really did not intend this to be so long.
Anyway the Dr Altig basically suggested that the unemployment can be seen as an indicator of increasing US productivity and local government and business should step up to develop a more skilled work force. He also said that improvements in unemployment will be slow, but will produce a more efficient economy.
Don't you know where you are. Lost in America.
Next I hope to compare his comments from June to the recently published minutes of June's FOMC meeting.
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