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Four forces

The nation's economic performance in 2011 was disappointing. The Federal Reserve Bank of Atlanta's 2011 Annual Report aims to explain some of the reasons why economic performance was not better.

Entering the year, many people expected a more vigorous expansion than the 1.7 percent growth in gross domestic product (GDP) that the nation actually experienced for 2011. Annual GDP growth for 2010 was 3 percent, near the nation's postwar average, and indicators of production and household spending had strengthened late in the year. At the same time, the labor market was slightly better on balance, in line with expectations. These and other factors set the stage for an optimistic outlook regarding economic performance in 2011.

However, numerous forces conspired to slow the recovery. This commentary is not intended to be an exhaustive study of all the factors that influenced the nation's economy last year. Rather, it is an attempt to illuminate four basic forces that played a key role in shaping the economic year.

Three of these forces were significant impediments to stronger near-term economic performance:

  • Businesses, households, and the public sector worked on repairing balance sheets, in ongoing efforts to adjust and adapt to an altered economic environment.
  • Labor market dynamics dampened progress in reducing unemployment.
  • Pervasive global uncertainty inhibited investing, hiring, and spending.

The fourth was a counterweight designed to strengthen the recovery:

  • Monetary policy was intended to mitigate the negative effects of the other forces, especially uncertainty.

These forces are interrelated, and are not discrete influences on the U.S. economy. They both overlay and interact with one another. By focusing on adjustment and adaptation in several sectors, labor market dynamics, uncertainty, and monetary policy, we hope to provide insight into the performance of the nation's and the Southeast's economies in 2011.