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ECONversations - June 25, 2014

Despite a disappointing start to 2014, economic growth should rebound in the current quarter, said Research Director Dave Altig. About 250 bankers tuned in for the ECONversations webcast, during which Altig shared his take on the economic landscape for the rest of the year and fielded questions from viewers.

After first-quarter blip, economy back on track
The June 25 webcast came on the heels of a steeper than expected drop in gross domestic product (GDP) in the first quarter. Some unique circumstances were behind the 2.9 percent annual decline, including unusually severe winter weather and a sharp drop in health care spending, Altig noted.

Incoming data, meanwhile, are signaling stronger growth in the second quarter. The general view calls for growth closer to 3 percent for the balance of the year, and “so far, it looks like we’re on track,” he said.

Business investment poised for rebound
A key element of that forecast is a rebound in business investment, which includes spending by firms on equipment and software. Although capital expenditures made a strong contribution to GDP growth early in the recovery, they’ve come in below average in recent years, Altig noted. However, feedback from the Atlanta Fed’s business contacts suggests there may be quite a bit of pent-up demand for such purchases.

On other topics, Altig noted:

  • Home sales and construction data have softened, but the data have been stronger on the price side. Meanwhile, the Atlanta Fed’s monthly survey of residential builders and brokers indicates tighter credit and rising construction prices may be inhibiting stronger growth in the housing market.
  • Consumer spending has held up in the face of stagnant wage growth, largely due to rising net household wealth as consumers shed debt and benefit from advancing home and equity prices. Relatively flat wage growth, meanwhile, is a symptom of residual weakness in the labor market.
  • On a year-over-year basis, price levels are still south of the Federal Open Market Committee’s (FOMC) 2 percent objective, but the near-term numbers are tracking closer to that goal. Despite the recent bump-up in inflation, other measures such as the Atlanta Fed’s business inflation expectations survey are not signaling a substantial pickup in pricing pressures.

ECONversations webcasts occur twice a year and are geared toward banking professionals.

 

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