The U.S. economy appears to be back on track after a disappointing start to the year, said Atlanta Fed Research Director Dave Altig in a November 19 ECONversations webcast. Indeed, the U.S. economy experienced a "very substantial" bounce back in the second and third quarters, with growth averaging about 4 percent, he said.
Altig shared his take on the economy's performance since the last webcast in June, when economists were still analyzing the steeper than expected 2.9 percent decline in gross domestic product (GDP) in the first quarter. Looking ahead, he expects fourth-quarter growth to be in the neighborhood of 2 percent, adding that "all in all, the first quarter looks like an aberration, and the year is going to end up confirming our outlook of a 3 percent pace of growth, following the pace of 2013."
Central to that forecast, however, is steady growth in consumer spending—about 2 percent—and a continued pickup in business investment.
Labor markets improved, but not there yet
In terms of unemployment and job growth, "there are certainly things that look really good," Altig said. Similar to past years, monthly job growth throughout 2014 has averaged 220,000—a pace strong enough to bring down the unemployment rate to 5.8 percent in October.
Despite the good news, it's not quite time to "declare victory and move on," he said. Broader measures of labor market utilization—such as the U-6 measure produced by the U.S. Bureau of Labor Statistics—point to signs of weakness. There's still a gap between that broader measure, which includes marginally attached workers and involuntary part-time workers, and the official unemployment rate. "We treat that as a meaningful sign that even though we've made great progress in labor force improvement, we're still not quite all the way there and some measure of help from monetary policy is appropriate," Altig said.
On other topics, Altig noted:
- Nearly every sector has enjoyed job growth during the recovery, yet wages have been mostly flat. Weak wage growth is symptomatic of a still-struggling labor market.
- Price stability, along with full employment, comprises the Fed's dual mandate. Progress toward the Fed's 2 percent inflation objective has been somewhat disappointing. Both core and headline measures of inflation show that "we're not really budging off of the track of about 1.5 percent inflation annually," Altig noted.
ECONversations webcasts occur twice a year and provide a high-level briefing on policy and economic conditions.