Region's Recovery for Real, Economist Tells Chamber
BOARDMAN, Ohio – The economy continues to improve, especially in the Midwest, as the manufacturing sector adds jobs and inflation remains under control, Mark Sniderman told the Youngstown/Warren Regional Chamber Thursday.
Sniderman, who grew up in Youngstown, is executive vice president and chief policy officer at the Federal Reserve Bank of Cleveland. He addressed the chamber’s annual economic outlook breakfast at Mr. Anthony’s.
The economist touched on these areas:
- The U.S. economy, characterized by slow growth but benefiting from low rates of interest.
- Labor markets, where “much slack remains.”
- Households – “still deleveraging,” that is, families are paying down their debts and loath to take on new obligations.
- Housing, “Better” as reflected in the number new starts and increases in the price of houses, but the activity remains slow.
- Monetary policy (controlled by the Fed), “Effective” and assessing the health of the economy accurately.
- Regional economy – “We’re holding our own here,” the Fed official said. The region, historically a center of manufacturing, has benefited from all the recent activity. Just fewer than 20% are employed in manufacturing in the region compared to 9% or 10% in the United States as a whole, and manufacturing pays better. “Manufacturing has increased its share of employment in the region,” Sniderman noted. ”Manufacturing has really soared.”
While the economy is regaining its health, the Great Recession continues to takes its toll as reflected in the graphs he used to illustrate the levels of activity and the levels that would be expected absent the severity of the recession.
Sniderman is slightly more optimistic than other economists in that he projects the gross domestic product will grow between 2.5% and 3% this year and grow at 3% next year and into 2015. He does anticipate a growing acceleration of the economy.
The Great Recession was unusual, Sniderman pointed out, in that industrial capacity shrank 20% rather than just go unused. One consequence is that capacity has been rebuilt but the percent of capacity used today is somewhat deceptive because of that severe shrinkage. The rate today, he observed, is up but only because of the amount taken out.
Some 8.7 million jobs were lost during the Great Recession but only 5.3 million had been regained at the end of 2012. That, atop the “jobless recovery” that followed 2001, means “There’s plenty of slack in the labor market, plenty.” Moreover, of those unemployed, 40% have been without work six months or more, Sniderman said.
Full employment, now described at an unemployment rate of 5.5% to 6%, remains far off with Sniderman seeing the rate at 7.5% at the end of this year and down to only 7% at the end of 2014.
Consumer spending contributes somewhere between two-thirds and 70% of GDP. Households, however, while no longer as vigilant about how they spend their income, remain more concerned about paying down the debt they have and savings than taking on more debt.
Housing, “the epicenter of the collapse” that brought on the Great Recession, and one of two sources of wealth in this country (the stock markets are the other), is just beginning to get back on its feet. Homeowners lost $7 trillion in wealth as the prices and values of their residences plummeted. And mortgage lenders and Fannie Mae and Freddie Mac continue to contend with administering other real estate owned, that is the real estate they repossessed.
When an economist divides the median home price to median income, he finds the quotient was 2.9 between 1980 and 2000. “Then it went above 4 in 2004 when we collectively lost our minds,” Sniderman said. Today it’s closer to 3 and has been since 2008. “It’s remarkable how [the ratios] fell as quickly as they rose,” he said.
Encouraging the sale of homes and housing starts are the extremely low interest rates, he noted. Sniderman related that home construction employment rose 300,000 in 2012, 100,000 of that figure in the last four months.
Households continue to deleverage, which Sniderman thinks is a good thing, but could decrease their debt even further and actually build up their savings, steps that would strengthen the economy. From an economist’s point of view, there is no difference between repaying debt and adding to a savings account.
Helping households reduce their debt are low interest rates, and he expects the Fed will continue to succeed in its efforts to keep interest rates low, keep prices stable and inflation at 2% of less annually well into 2015.
No economist can discuss the region without mentioning energy companies drilling for oil and gas in the Utica shale. And Sniderman touched on it. The activity is bolstering job growth in the near- and mid-term, he said. It has the potential to be a long-term player in job growth, not just pay royalties to landowners, he said.
Copyright 2013 The Business Journal, Youngstown, Ohio.
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