FRBNY Chief Less Than Sanguine About Unemployment; White House Predicts Stronger Growth in ’14
- Mar 11, 2014
Federal Reserve Bank of New York chief Bill Dudley said late last week, in a speech at Brooklyn College in New York, that the “decline of the unemployment rate significantly overstates the degree of improvement in the labor market.” How so? Dudley continued: [The] decline in the unemployment rate was driven in large part by a decline in the labor force participation rate…. Researchers have shown that the aging of the population is playing a role, as are changes in behavior. But our own analysis suggests that the cyclical weakness of demand for labor is an important contributing factor.”
The still-elevated unemployment rate, along with the drop in the labor force participation rate, “suggest that there continues to be a substantial underutilization of both labor and capital resources,” the central banker noted. “This implies, in turn, that the current, highly accommodative stance of monetary policy will remain appropriate for a considerable time to come.” In other words, never mind the drop in the headline unemployment rate, the Fed still has work to do in stimulating the economy.
Yet Dudley’s optimistic that things will turn around eventually. “If our assessment is correct, at some point an improving labor market should cause the labor force participation rate to stabilize or rise a bit, as currently discouraged workers begin looking for work,” he told the audience.
White House Predicts Stronger Growth in ’14
The White House released its forecast for U.S. economic growth in 2014, predicting better growth than during last year, and an even better year in 2015. According to the forecast – which counts as a partisan document, not strictly an economic one – the country’s economy will experience an expansion of 3.1 percent this year, compared with 1.7 percent last year. It also predicts growth of 3.4 percent in 2015.
That compares optimistically with other predictions for the year, including the nonpartisan Congressional Budget Office, which foresees 2.7 percent growth in 2014, and the internationally oriented World Bank, which predicts 2.8 percent. The Blue Chip Economic Indicators survey, which polls 50-plus corporate economists, puts growth at 2.9 percent this year.
The Obama administration also predicts that unemployment will average out at 6.9 percent for 2014. For now, at least, the official rate is already below that, reaching 6.6 percent in January, and edging up to 6.7 percent in February. The Blue Chippers were more optimistic, predicting 6.6 percent unemployment for this year, while the CBO was a little less optimistic than the White House, predicting 6.8 percent for the year.
Wall Street experienced a mild down day on Monday, with the Dow Jones Industrial Average losing 34.04 points, or 0.21 percent. The S&P 500 edged down a mere 0.05 percent, and the Nasdaq likewise dropped a tiny 0.04 percent.