Fed official forecasts modest growth ahead

By Ryan Cornell

WINCHESTER — While many economists are expecting the momentum to carry over from an unexpected growth spurt at the end of last year, one senior official is less optimistic about the economic outlook for 2014.

Speaking to a packed Shenandoah University auditorium on Tuesday, Federal Reserve Bank of Richmond President Jeffrey Lacker predicted a cautious growth and a static employment rate.

Lacker said that real gross domestic product grew by 2 percent in 2011, 2 percent in 2012 and 1.8 percent in the first half of 2013, and he doesn’t expect that figure to nearly double as others have predicted.

“My suspicion is that we will see growth subside this year to closer to 2 percent, about the rate we’ve seen since the Great Recession,” he said.

Although consumer spending seemed to surge last fall, he said businesses appear reticent to hire and invest. He predicted employment growth to remain close to 1 percent.

According to the U.S. Bureau of Labor Statistics, the unemployment rate in November measured 7 percent nationwide, the lowest since 2008. That same month, the unemployment rates in Shenandoah County (5.2 percent), Warren County (4.9 percent) and Frederick County (4.2 percent) were also dropping.

“It’s clear there’s a lot of workers out there that don’t have a lot of skills that are needed,” Lacker said. “Some of them are unemployed, others employed at below their potential.”

Two reasons for this, he explained, are a slowed growth in the size of the working age population and a decline in the labor force participation rate.

“So there are a number of reasons to doubt that employment growth will return soon to the strong pace we saw during the Great Moderation [from 1983-2007],” he said.

He concluded his speech with a hopeful note.

“But our economy is by no means stagnating,” he said. “Productivity is rising, incomes are growing and innovation is occurring.”

The Federal Reserve Bank of Richmond is one of 12 central banks in the U.S.

Lacker called the Winchester region “an often overlooked part” of his district, which runs from Maryland and West Virginia to South Carolina.

The presentation was part of the university’s Distinguished Lecture Series.

Contact staff writer Ryan Cornell at 540-465-5137 ext. 164, or rcornell@nvdaily.com