The President and CEO of Atlanta’s Federal Reserve Bank, Dennis Lockhart, in his speech on March 6, 2014, in Washington DC, spoke of the challenge of estimating full employment, and the implications for monetary policy.
In his speech, Lockhart first drew attention to the pace of economic recovery in the U.S. Since the recession of 2009, the gross domestic product (or GDP) grew just over 2.0% for three years, with the third and fourth quarters of 2013 finally showing an uptick, as annualized GDP growth averaged 3.25%. So 2014 began with high hopes for the U.S. economic recovery picking up its pace.
Lockhart went on to highlight certain economic indicator signals that have been mixed so far into 2014.
- Overall consumer spending has increased as per January estimates. This was mainly driven by an increase in home utility expenditures and chilly winter winds leading to a rise in power consumption.
- Auto sales have slowed sharply compared to 2013.
- Home sales and housing starts have also experienced a decline.
- Industrial activity slowed too after October 2013. Analysts have cited a decline in January’s manufacturing production as one of the main reasons for this fall. However, February factory orders still show a modest increase.
Most of these indicators have shown a negative trend that was mainly attributable to the bad weather, especially in the month of January. Research staff at Federal Reserve Bank of Atlanta estimate that bad weather may have caused the real GDP growth rate during the first quarter of 2014 to decline by 0.75% (annualized).
Though Lockhart expects improvement in business activity in the second quarter, leading to an uptick in GDP growth in the third and fourth quarters (just like last year), there’s still some ambiguity, as some of this quarter’s indicators signal renewed weakness.
The performances of popular exchange-traded funds (or ETFs) like the SPDR S&P 500 ETF (SPY), the iShares Core S&P 500 ETF (IVV), and the iShares S&P 100 ETF (OEF), which track large-cap equities of companies like Apple Inc. (AAPL) and Exxon Mobil Corp. (XOM), also show how the U.S. economy is faring.