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Atlanta Fed's Lockhart On Headwinds And Tailwinds
Atlanta Fed's Lockhart is out with another prepared speech (and this week we will get over ten of these; keep in mind this is all talk - when it comest to voting, Hoenig was the only man who actually could not be accused of hypocricy). Lockhart weighs economic headwinds and tailwinds and comes to a net positive outlook for the rest of 2011 and 2012. Headwinds holding back economic recovery include continued declines in home prices, higher food and energy prices, crises abroad, and fiscal adjustments. Favorable forces—tailwinds—that are pushing the economy forward include improved household finances, moderate employment and income growth, and corporate profitability and ample liquidity. Per Dennis, the financial system continues to heal, supporting growth, although lenders remain conservative and some businesses and consumers still have only limited access to credit. Lockhart foresees continuation of moderate growth, gradually declining unemployment, and the settling of price movements around an inflation rate that is consistent with the Federal Reserve's price stability objective. While short-term measures of inflation have accelerated in the last few months, in Lockhart's view this trajectory will not continue. Lockhart believes that growth in overall consumer prices—at around 2 percent per year through a period of three or four years—is consistent with the Federal Reserve's price stability mandate. He continues to see this objective as attainable. Lockhart remains satisfied with the current stance of monetary policy but is prepared to support a change of policy if evidence accumulates that the low and stable inflation objective is at risk. In other words, Lockhart most certainly saw subprime as contained back in 2006. The kicker from Lockhart's speech: "contrary to popular opinion, Fed officials actually do eat
and fill up their gas tanks." That's admirable: is it with banker money though?
From the Atlanta Fed:
Headwinds and Tailwinds
Rotary Club of Atlanta
Atlanta, Ga.
March 28, 2011
Today I will talk about the state of the
national economy and the forces acting on it. Since we are only a few
days away from March 31, my talk today will amount to a stocktaking of
the economy at the close of the first quarter of 2011.
It's important for me to emphasize that I am speaking for myself
only. My views may not be shared by my colleagues on the Federal Open
Market Committee (FOMC) or in the Federal Reserve System.
Our economy is constantly changing and evolving. Change occurs across four principal dimensions and on different timelines.
Demographic changes occur gradually. Trends like the retirement of
the baby boomers, for example, exert a profound influence on what gets
produced and consumed.
The industrial composition of the economy can shift on a shorter
timeline. The bursting of the housing bubble in 2007 resulted in a big
drop in homebuilding and construction employment. Meanwhile, health care
and education continued to grow.
Relative geographic strength can ebb and flow with industry
conditions. For example, the Southeast—including Atlanta—is lagging
other regions because before the recession, the Southeast was more
dependent on construction activity, which is currently quite depressed.
And the job composition of the economy is continuously adjusting to the makeup of sectoral, industrial, and geographic movement.
The point is the economy is never static. Certainly, the economy is
never static from the point of view of growth or its opposite,
contraction. The recent recession began in the fourth quarter of 2007
and ran for seven quarters. Recovery began in the summer of 2009, and,
including the first quarter of this year, the economy has been expanding
for seven quarters.
At any given time there are conditions—both domestic and global—that
hold back growth. Call these headwinds. And there are favorable forces
(also both domestic and global) that push the economy forward and
contribute to growth. Call these tailwinds. In taking stock of the
economy at this juncture—the end of March 2011—I'm going to survey the
headwinds and tailwinds currently in force. These are the primary
factors I see shaping the outlook for the near and medium term.
Let me say in advance that the meteorological metaphor of tailwinds
and headwinds is useful only up to a point. In economics, winds don't
blow totally in one direction or another. Winds blow in both directions
and produce a net effect either helping or holding back expansion.
As an organizing device, I will talk first about tailwinds and then
headwinds and under each I'll comment on consumer spending, business
investment, and a third rubric that includes things like exports and
government spending.
Consumer spending tailwinds
Consumer spending increased last year after two years of declines.
Consumer spending continues to grow both as cause and effect of
improving economic conditions. There are a number of tailwinds
bolstering consumer activity.
Household finances have improved substantially. Personal net worth
has increased as equity prices have rebounded. By the end of last year
consumers had recouped nearly half of the massive wealth losses brought
on by the recession and the financial crisis. Consumer debt, including
mortgages and credit cards, fell in 2010 for the second consecutive
year. Consumer debt levels have declined as people paid down their debts
and banks wrote off bad loans. As a result, at year-end 2010, the
portion of personal income going to debt payments reached the lowest
level in a decade. All this is putting consumers in a better position to
increase spending.
Consumer credit availability has improved somewhat. Auto loan
securitization has been robust and lending terms have improved. This has
helped auto sales, which have increased significantly over the past
year and were up nearly 30 percent in February from a year ago.
Employment has been growing gradually and incomes have been rising.
Private payrolls have been increasing since February of last year. As a
result, aggregate income—which includes wages but also other sources of
income—has grown in line with the recovering economy.
I want to make another point about employment growth, but this is a
bit more speculative. In 2009, in pursuit of increased efficiency,
businesses cut payrolls and met production needs with a smaller
workforce. In contrast, over the past year, the scope for big efficiency
or productivity gains seems to have narrowed. Going forward, to meet
production goals in response to growing demand may more and more require
hiring additional workers. Expanded employment should, in turn, provide
a further boost to total income, consumer confidence, and spending.
Business investment tailwinds
Business spending and investment also demonstrate tailwinds.
Investment in equipment and software has been rather strong, although
much of this capital spending has up to now been aimed at productivity
enhancement or necessary replacement and maintenance, not growth.
Corporate profits have recovered to pre-recession levels, thanks
partly to efficiency gains achieved. The financial position of
businesses—generally speaking—has strengthened, and firms are better
positioned for growth.
Credit markets and banks are healthier, and business access to credit
is improving for most company categories. This improvement has allowed
companies to refinance their debt and lower debt service costs.
Large corporations are cash rich. U.S. businesses have nearly $2
trillion in cash (and cash equivalents) that has not yet been deployed.
With rising confidence, I would expect businesses to start making use of
that liquidity by increasing investment and boosting hiring.
One more tailwind: foreign growth has increased demand for U.S.
exports, especially for manufactured goods. Demand from major emerging
economies has been favoring U.S.-made high-value-added goods, such as
computers, aircraft, and communications equipment. Last year, the export
sector made its largest proportional contribution to GDP growth since
1946.
Consumer spending headwinds
Let me now turn to headwinds. And again I'll start with the consumer
sector. Consumers see a yellow light, not a green light. Measures of
consumer confidence remain well below levels typical for a growing
economy.
Despite the improvements I mentioned, U.S. households are still
burdened by a "wealth gap," by which I mean a substantial shortfall from
the wealth levels that existed prior to the recession.
Home prices remain under pressure. Nationally, home prices have
dropped more than 30 percent since 2006 and continue to decline in
certain markets. These declines are holding back repair of household
balance sheets. More than one-fifth of U.S. households with mortgages
owe more on their homes than those homes are worth, adding to the
financial vulnerability of consumers and their caution about spending.
Increases in the cost of gasoline and food are forcing adjustments in
household budgets. Since last August, the cost of groceries is up about
2.5 percent, and gasoline costs are up about 25 percent.
Back-of-the-envelope calculations suggest that over the past six months,
the rising cost of groceries and gasoline has added just over $50 a
month to the average household's expenses. Tighter budgets can mean less
spending on more discretionary items.
Foreign developments can influence consumer attitudes. Uncertainty
breeds caution, and consumers have been reminded in recent weeks that we
live in an uncertain world. I am referring, of course, to the
earthquake and tsunami in Japan and unrest in the Middle East and North
Africa.
Business investment headwinds
Businesses are also feeling some headwinds, so let me comment on these.
The banking system and credit markets, while much stronger, are not
fully back to health. Credit is available for most segments, but lenders
remain conservative and are very carefully moving to relax the
risk-averse stance they assumed in reaction to the recession.
New business formation is constrained by tight credit. Early-stage
businesses—a major source of jobs—are often financed in ways other than
direct loans. Continuing difficulties getting home equity loans—related
to lower home values, of course—and tighter credit card availability are
holding back some entrepreneurs.
Commercial real estate continues to be a stressed sector.
Nonresidential private construction has plunged over the past two years
and is unlikely to bounce back any time soon.
Uncertainty is still a restraining factor for businesses. Global
uncertainty has loomed large in recent weeks. The unrest in the Middle
East and North Africa, which I commented on a moment ago, has raised
worries about availability of oil supplies and higher energy and
petroleum-based input costs. The natural disaster in Japan has shaken
financial markets and raised concerns about supply chain disruption. And
uncertainty persists about the resolution of sovereign debt problems in
Europe.
The political process associated with continuing federal budget
resolutions and the debt limit is also an uncertainty factor at the
moment. The federal government has been funded based on a series of
temporary spending measures since September 2010 instead of an annual
budget. The latest continuing resolution has been passed to fund the
government until early April. Meanwhile, the debt limit is likely to be
reached between mid-April and the end of May.
Necessary fiscal compromises will unavoidably result in spending
cuts. Fiscal adjustment at the federal, state, and municipal levels of
government represents a direct headwind to economic growth. Government
spending cutbacks at all levels need to be offset by private demand.
This year and next, the government sector is likely to be in
contractionary mode for the first time since 1994.
Growth outlook and inflation
Weighing all these economic tailwinds and headwinds, I come to a net
positive outlook for the economy for the rest of 2011 and 2012.
Notwithstanding headwinds and risks, a self-reinforcing virtuous circle
of final demand is increasingly becoming established. Our base case
forecast at the Federal Reserve Bank of Atlanta sees continuation of the
storyline of moderate growth, gradually declining unemployment, and the
settling of price movements around an inflation rate that is consistent
with the Federal Reserve's price stability objective.
Inflation risk
I know inflation is on everyone's mind at the moment. It's worth
taking some care to explain current circumstances as regards inflation.
In the summer of last year, there were widespread signs of disinflation
in price data and there was legitimate concern of a deflationary cycle
becoming established. Financial markets had priced in more than a 30
percent chance of deflation over five years, about twice the probability
indicated in the spring. That trend has been reversed in recent months.
Starting in the fall of last year and running through the most recent
readings, prices have been firming, and this is bringing trend
inflation closer to the desired levels for the longer term. By trend
inflation I mean the average rate of inflation measured over a time
frame long enough to allow the factoring out and dismissal of monthly
noise and one-off signals in the data. Historically, food and energy
prices have been volatile and not necessarily indicative of the broad
inflation trend in a given period. Food and energy prices have been
moving up strongly over the last few months. But broader measures of
prices have been growing as well at a rate that would not be acceptable
if sustained for very long. This price growth is largely attributable to
increases in food and energy prices, but even so-called core measures
of inflation rose at a higher-than-desirable pace in February.
For the time being, I think the risk of deflation has retreated. For a
variety of reasons, many commodity-based prices have risen sharply. I
expect these strongly accelerating upward movements of commodity prices
to be short-lived, and, in fact, many of these prices have either
moderated somewhat or leveled off in the past month. Nonetheless, in
such circumstances, it's understandable to be somewhat apprehensive
about the inflation climb path we're on, and whether or not it will
level off.
In light of these developments, let me make three observations.
First, inflation pressures associated with rising commodity prices will dissipate if, as currently expected, the rate of growth
in these prices slows. Let me emphasize that this is not a prediction
that the prices of gasoline or groceries will actually fall. I'm
distinguishing here between the rate of inflation and the level of
prices. These higher costs are a result of real growth in emerging
economies, developments in the Middle East and North Africa, and the
fallout from natural disasters around the world, be they droughts,
floods, or earthquakes and tsunamis. The pain of having to allocate a
larger share of your income to driving your car or preparing dinner may
well persist.
Second, contrary to popular opinion, Fed officials actually do eat
and fill up their gas tanks. The FOMC's mandate, as I see it, is to
control the inflation rate we all experience—so-called headline
inflation. In other words, I interpret the Fed's price stability mandate
as requiring the FOMC to manage the growth rate of the average of all
prices, including food and energy.
Third, it's our job to control that headline inflation over the
course of time. It's not feasible to exert such control day to day or
month to month or even quarter to quarter. But monetary policy can
control the rate of overall inflation over the medium term. In general
operational terms, I think growth in overall consumer prices at an
annual rate around 2 percent through a period shorter than the
proverbial "long term," say, a medium-term period of three or four
years, is consistent with the Fed's price stability mandate.
While short-term measures of inflation have accelerated in the last
few months, I hold to the view that this trajectory will not continue. I
continue to see the Federal Reserve's inflation objective I just
outlined as attainable.
That said, like my colleagues on the FOMC, I continuously monitor
performance against our price stability objective. This involves
monitoring not just inflation today but importantly the course of
inflation expectations, whether derived from surveys or pulled from
financial market prices. I am prepared to support a change of policy if
evidence accumulates that the low and stable inflation objective is at
risk.
For now, however, I remain satisfied that the current stance of
monetary policy is appropriately gauged for the current state of the
economy and the outlook from here.
»
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Joe the Plumber will not work until you and the Fed fix his liquidity position.
NO! THE FED NEEDS TO KEEP IT UP!!
QE3 PELASE!! SIZE BABY, QE3 with SIZE!!
Unfortunately there seem to be many other economists out there that don't eat or fill their gas tanks...but they do buy TVs...lots and lots of TVs.
http://www.planbeconomics.com/2011/03/28/brad-delong-and-fred-mishkin-on-inflation/
Oh yeah, and subprime is a contained problem...
Joe The Plumber wants silver pipes!
The Fed can't pay for his liquidity problem! They just don't have that many pipes!
And JPM Pipes&Co is all out of stock, they have a backorder 5 lightyear long!
Pardon me in advance for posting this a few times (I have no affiliation with the website), but here is a nice 30-minute read/summary of the creation and evil of the Fed (and fractional reserve banking) by the author of The Creature from Jekyll Island. It talks about the insidiousness of inflation and how the Fed and member banks actually want low interest rates. A good read, IMHO.
www.bigeye.com/griffin.htm
+3...one point for each time I've read it.
It's all bullish. Buy this dip before the rip.
Well, as long as the coporations are profitable, it's all good...
well of couse they eat and fill up thier limos, but do they ever look at the bill? I wonder when the last time a Fed Official ran a report on how much they spent in gas in 2010 vs. 2011, etc..
The only tail-wind (or is it tail wave or tail current) is a tsunami of liquidity. Oncoming is a tsunami of Biblical proportions on every front, socio-economic, political, geographical....name it, Le Clusterflock Tsunami.
This boat, our flawed, oily Noah's ark, is going down, all Jawboning aside.
ORI
http://aadivaahan.wordpress.com/2011/03/28/for-dis-believers/
It's interesting that all these guys think you can go from a QE mindset to one where it's lacking with little or no panic on the street. I hope they're right, but I doubt it.
yes...I expect a smooth and orderly transition. yeah
Emerging markets were all on hunger strikes until this year. That explains the rise in food prices.
I cannot believe that a Fed banker wrote this...much less delivered it in public. Then again, I am surprised yet again at the networks "news coverage" today! Yep, I am constantly shocked at just how dysfunctional MSM is...so never mind about my surprise that a Fed banker would write such stuff and say it out loud where other people could hear him...because clearly there is something wrong with me.
I did not know that Whole Foods and Netflix were the true headline news stories today.
Why remark on what is on the idiot box? You marvel that you are being lied to and placated? Yet you still watch. Only Americans are dumb enough to PAY to be propagandized to.
"Blow up your tv; throw away your paper; move to the country; and buy you a farm..." -Spanish Pipedream by John Prine
Looks to me pretty much all Western countries are paying to be propagandized to?! With the Netherlands and Belgium in spots 1 and 2.
http://www.nationmaster.com/graph/med_cab_tv_sub-media-cable-tv-subscribers
some more lite reading more up to date:
http://www.screendigest.com/reports/201081b/10_08_european_broadband_cab...
Notice old supply-side tenets aren't holding up so well: supply-side got stimulus, tax cuts, de-regulation, higher productivity, free trade, de-unionized workforce, and a full-court press on pumping capital markets. But very little bang for the TrillionBuck.
No, Cautious FishOva,
The real plan is working perfectly (except for the price of silver).
And where do you thik your 'TrillionBuck' is going but to surpress the physical market.
Blythe doesn't feel your pain.
...and they expect us to believe this sophistry? ("These aren't the droids you're looking for.")
I'd love to know how "ample liquidity" is helping 90% of this country.
You caught that too, huh?
Can you really say you care about 90% of the country?
These FED speeches by their Presidents (Head of Corruption) is quite the BS. Look, we all know they have lied to us for decades (especially Greenie Weenie). Most are so incompetent they hadn't a clue they were lying....now they know and they continue to lie...Because that's what the model says for them to do.
BULLSHIT!
Greenspan certainly knew he was lying. Witness the 'Irrational Exuberance' speech or encouragning mortgage buyers to take on ARM mortgages to save on payments.
Keep running this 'incompetance' idea in the face of reality, and I will junk you like JonNadler, RoboTrader, Harry Wanger and all the other dis-info trolls that can't get jobs on TV BS shows anymore. Because, some can smell BS at a distance.
Lockhart can:
http://www.youtube.com/watch?v=Le1VCtnOgrw&feature=related
"[C]ontrary to popular opinion, Fed officials actually do eat and fill up their gas tanks."
Indeed they do.
...On the taxpayers' dime.
https://eloqua.americanexpress.com/content/MyPA_Aus_Govt_index
Did anyone just see Brian Sullivan interview Randall Forsyth of Barron's on Fox Business News? Brian said that Ben Bernanke is set to answer questions on April 27th in a press conference. He said they didn't know the format, but he was hoping Bernanke would be asked tough questions on how he's going to get out of QE. Forsyth said he wishes Ron Paul could be a reporter at that conference. Brian responded that Barron's and Wall Street Journal could ask good questions. Forsyth said that he's afraid that they'd be too deferential. Interestingly, Brian agreed that the press can be too deferential.
Forsyth was talking about the effects of the Fed's monetary policy on food and gas prices.
All I know is I'm sitting UPWIND from this dude
The fed is like a DOG chasing its tail. Pathetically funny and pointless.
http://www.youtube.com/watch?v=GKHWYT2doek&NR=1
I look forward to seeing Thomas Hoenig speak at LSE on Wednesday at 630, enjoying my time in London so far
Same old tired lies. These rubes should be tarred and feathered and then sent out on the rail to peddle their garbage elsewhere. The FED lies. The Government lies. The Banksters lie and obfuscate. The Media lies.
Without the wherewithal to comb through the mountains of bs to realize the nuggets of truth that remain, the majority of the world is just thankful to eat another meal and make it to work the next day.
The only tailwind here is the smoke Lockhart's busy blowing up our arses.
Monetary policy is a systematic transfer of wealth through inflation. The debt is immaterial. It is the ownership of assets and by whom that is the scorecard worth reading.
When it is all said and done, how much does the average household OWN free and clear? As of last year, about 100,000 in total assets. Including housing- which is technically not theirs. Wake up and see past the curtain.
This nation needs a good old fashion tax revolt. It is the source of the Elites power. It is also their achilles heel.
Jessica Alba's husband is CASH WARREN!
http://content.hollywire.com/wp-content/uploads/2008/07/jessica-alba-cas...
http://tinyurl.com/669qqc7
Personally, I'll take gold. Like Buffett, Sr. ;)
----------
Back to the topic:
F*CK the FED!
Thanks Tyler, but I can't read this shit from these idiots.
Things are getting better, really?
Last I saw, the Fed is pumping 7 Billion a day into the system. Not only buying treasuries but equities.
The US Treasury is going to have to come up with another 1.5 Trillion this year.
The State and Local Govts. are going to have to come up with hundreds of billions more.
The overnight lending rate is as low as it can go.
The banks cash reserve requirements are as low as can be.
Savings rates are getting lower while commodities rise.
Housing prices are still falling- and only 200 K new houses expected to be built this year.
Things are most deffinitely getting better!
Ben said, "NO Bailouts for the States". Bless his kind heart.
This, After pouring untold trillions out of his keyster to save his banker buddies.
The market has almost reached its pre-recession levels after the "greatest recession since the Great Depression". Wallstreet has WON.
Now they will sit back and watch us fight it out in the streets (and we will!).
They will laugh at sea out in their yachts with their hookers, blow and untold trillions in ill gotten gains.
America is a joke!
We are a 'conqured' nation
And if the Europeans decided to say no Bailouts for the States?
Ben didn't bail out the States, The Federal Govt did last year.
Austerity is here my friends- The county is live in just required every worker to take a 5% pay cut and before this the county was in the best fiscal position in the entire state.
The Housing bubble was huge, but the government took it over. The government bubble is so much more. Are we as a nation ready for Shock & Awe?
Yawn, I'll believe it when I see a vote. Talk is cheap. Deeds not words. So man up and crash the market. Talking inflation down won't work, been there done that. Wasn't alive but I'm guessing someone must remember the 70s.
Once again these "experts" are using last year's data and fail to see the big inflationary profit squeeze as evidenced by corporate tax collections registered at the Daily Treasury Statement:
Further proof may found in reports on corporate taxes collected by the Treasury, which have fizzled badly — the current quarter (through 3/24) was $35.75 billion versus YoY of $52.1 billion. By comparison, and to show just how rapidly this input-margin squeeze has materialized: 4Q 2010 registered a still-solid $60.04 billion, versus $56.58 billion YoY. I suspect employment layoffs are soon to follow. You can bet your bottom dollar that this will intensify the budgetary problems for states.
http://www.wallstreetexaminer.com/blogs/winter/?p=3785
And I wonder just what miniscule percentage of his income he has to use to pay for food and fuel compared to the rest of the population?
How do you recoup something that was never there to begin with? The so-called "wealth" was mostly a fiction, a bubble in RE created by the Fed. These guys need to hear laughter from the audience when spouting BS like this.
These idiots just do NOT get it do they?
They think that shares are THE thing that brings about wealth. When it is only for a tiny percentage of the people. People with savings are losing big time, people with only money in houses are losing big time, people who are lucky enough to have a job are losing big time because their wages are not keeping up with expenses and they are forced to use what savings they have to buy essentials.
As for those without a job... shares? Oh yeah they are very impressed with the stock market.......
lockhart is an out of touch obtuse buffoon with rose colored glass syndrome - he is fat dumb and happy therefore everyone else is....i'll look for him the next time i am at the west paces ferry & i75 gas station.
“The last duty of a central banker is to tell the public the truth.”
-Federal Reserve Board Vice Chairman Alan Blinder, Nightly Business Report, 1994
More insanity: Larry Kudlow -"I don't see debt as this new red menace out there."
Video: http://www.realclearpolitics.com/video/2011/03/28/kudlow_economic_growth...
I'd bet an Andrew Jackson that this Lockhart asshole makes his kids or wife fill the tank.
Apparently, those supplying UPS devices for all those thriving businesses out there do not believe that the commodity prices we're seeing are just temporary...
Letter to APC customers dated Feb 18:
"As previous announced, APC by Schneider Electric is making price changes effective March 1st, 2011 due to commodity cost increases."
The money quote is the following:
Lockhart foresees continuation of moderate growth, gradually declining unemployment, and the settling of price movements around an inflation rate that is consistent with the Federal Reserve's price stability objective
What this means is that it doesn't matter what the actual price data is, the Fed will keep to the official party line, which is "inflation is under control and at levels consistent with our mandate". Any thoughts that commodity inflation will cause a change in Fed policy are wrong.
Lockhart is a fucking idiot. No, there is no recovery you moron. And no, banks aren't lending because they know the dollar will look differently in 6 months. Anybody with cash better be buying Gold/Silver. Your window of opportunity is rapidly closing. There is no way the US Dollar survives everything going on the world. Japan is teetering on becoming non-existent. I felt a tickle in my throat today and it has me wondering.......
The Fed rubs the the lotion on the tax payer's skin.
http://www.youtube.com/watch?v=xEMMrUQOaGo&feature=related
+3 LOL
Video of the Fed Chopper luring unsesupecting Taxpayers into the open for the Dollar Rain, Bernanks' message "Get Sum, Get-Sum!"
http://www.youtube.com/watch?v=S06nIz4scvI
Taxpayers, "you just don't Lead-em so much!"