Atlanta Fed President Lockhart: Economy on Better Footing at Dawn of 2014

The nation enters 2014 on firmer economic ground than it was on a year ago, Atlanta Fed President Dennis Lockhart said during his recent annual economic outlook speech at the Rotary Club of Atlanta.

Lockhart listed progress on several fronts since the Great Recession:

  • federal fiscal uncertainty has diminished
  • financial markets have stabilized
  • housing has made a partial comeback
  • corporate America is in generally good financial shape, with plentiful cash to invest
  • manufacturing is rebounding, and
  • domestic oil and natural gas production is at historic highs

Because of those factors and others, Lockhart said he expects the stronger economic growth of the second half of 2013 to continue this year. Given his outlook—gross domestic product growth of 2.5 percent to 3 percent for 2014—it's reasonable to expect more progress on the jobs front, Lockhart said.

Labor market progress significant, but uneven
So far, progress in the labor market has been uneven, he noted. The country has reversed 65 percent of the increase in the unemployment rate caused by the Great Recession. The jobless rate has fallen from a high of 10 percent at the end of 2009 to 6.7 percent last month, according to preliminary numbers from the U.S. Bureau of Labor Statistics.

On the other hand, the labor force participation rate has declined significantly since 2009—in part because of baby boomers retiring, and in part perhaps because of discouraged potential workers giving up the search for a job. Other measurements, such as the share of workers who are working part-time but want a full-time job, also show underwhelming improvement. Meanwhile, income growth remains weak.

"To sum up, these comparisons of employment data suggest that the labor market is not as healthy as the improved unemployment rate might indicate," Lockhart explained.

Fed in transition
Concerning monetary policy, Lockhart said he does not expect the Fed's leadership change, from Chairman Ben Bernanke to incoming Chair Janet Yellen, to bring a change in basic policy direction.

"If all goes as expected, there is a policy transition under way from a QE world, so to speak, to a post-QE world. That decision was made in December," Lockhart said, referencing the Federal Open Market Committee's decision to start reducing its large-scale asset purchases (a policy known as quantitative easing, or QE) by $10 billion per month. "And the economy itself seems poised to transition to better conditions."

January 28, 2014