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Surveying the National Economy Transcript

December 2010

Moderator: Welcome to the Federal Reserve Bank of Atlanta's EconSouth Now podcast. Today, we're joined by Julie Hotchkiss of the Atlanta Fed's research department. She'll be speaking about the national economy. Thank you for joining us today, Julie.

Photo of Julie HotchkissJulie Hotchkiss: You're welcome, Tom. It's good to be here.

Moderator: Julie, the United States and, indeed, the rest of the world, are still emerging from a serious financial crisis. In the wake of the crisis, how has economic performance nationally compared with emergence from past recessions?

Hotchkiss: Well, it's not unusual for growth to come in fits and starts when recovering from a recession, and this recent recession was particularly deep and wide, so we might expect the recovery to be even more bumpy than usual. We've just come through the longest contraction since the Great Depression. It actually lasted 8 months longer than the average of the 11 previous recessions since WWII.

Now, on most typical measures of aggregate economic performance, the current recovery lies close to the bottom of performances coming out of other recent recessions. However, while the current GDP growth lies well below the average during other recent recoveries, it is higher than we experienced by this time coming out of the 1991 and 2001 recessions.

Moderator: Interesting. Julie, let me turn your attention to labor markets. You study the labor market in great detail. What are your observations on employment? Do you think a structural change has taken place in regards to the labor market, or is this performance more cyclical?

Hotchkiss: Well, it's not unusual for there to be frictions in the labor market after a recession. People and jobs need to find each other again, and this has been a particularly long period of not connecting, suggesting it will take even longer to work out the kinks. But the weak GDP numbers, the modest consumer spending, and the continuing tight credit suggest that the overwhelming factor in the weakness of this labor market is that the demand is just not there and firms are skittish about ramping up production. It's of interest to note, however, that while still above average, the current unemployment rate has fallen farther from its peak at this point in the recovery than it had fallen by this time from the peak during the 1991 and 2001 recessions.

Moderator: Julie, on a more regional note, does the performance of the southeastern economy in 2010 and going into 2011 differ significantly from that of the United States overall?

Hotchkiss: The southeastern economy faces a couple of unique challenges not shared by other states in the U.S. For example, Florida, which is a big driver of the southeastern economy, was hit particularly hard by the housing bust, and Georgia produced the most bank failures since the beginning of the financial crisis than any other state in the U.S.; they've had 46 in all.

Moderator: Well, staying with the regional economy: What sectors of the Southeast economy might be strong performers in 2011?

Hotchkiss: Well, as unusual as it might sound, automobile manufacturing could prove to be quite a boon for the Southeast in the coming years. Volkswagen is scheduled to open its Chattanooga plant in 2011. Now, this plant has the capacity to build 150,000 vehicles per year and is expected to employ about 2,000 people. And Toyota is expected to provide the same number of jobs at their Blue Springs, Mississippi, plant that will begin producing Corollas in late 2011.

Now, longer term, the region will host production of the Nissan Leaf, which has been imported to the U.S. since late 2010, but will eventually be produced in Smyrna, Tennessee, by late 2012.

Moderator: The Leaf is the electric car, right?

Hotchkiss: That's correct.

Moderator: Yeah, I know there's a lot of excitement about that car. Julie, for years, international markets have provided a boost to the region's exporters. How have exports rebounded from the recession, and what are exports' prospects in the near term, given the difficulty some other nations have had kick-starting growth?

Hotchkiss: Well, exports is one of the greatest areas of uncertainty going into the next year. There is a chance that the financial difficulties of Greece and Ireland and some other small European countries will drag the European economy even further down. If these problems become severe, it would likely weaken the euro against the dollar, making U.S. exports much more expensive in Europe. Now, the lower consumption of U.S. goods abroad that would result could cut off an important source of demand for U.S. products, which would, in turn, threaten our recovery as well. Now, this would be unfortunate as the level of exports has been a shining star so far in the recovery, relative to the level of exports coming out of other recent recessions.

Moderator: Julie, you touched briefly on housing before and I'm going to get you to elaborate on that industry a little. It appears unlikely that the Southeast's housing sector will return any time soon to the robust level of activity it had enjoyed. Do you see anything taking housing's place in the region?

Hotchkiss: Well, construction or housing represents a relatively small share of employment, but both in the region and nationally, construction has a tremendous spillover to other sectors of the economy. From the construction itself, to manufacturing of household items, such as cabinets and furniture, to landscaping activities, there are a lot of sectors that are hurting when construction is hurting. While there is clearly nothing that can take the place of construction, health care and education have proven to be quite resilient and are looking to be a strong area of growth for all regions going forward.

Moderator: Well, Julie, I want to thank you for sharing your time and your insights with us.

Hotchkiss: Thanks.

Moderator: Again, we've been speaking today with Julie Hotchkiss of the Atlanta Fed's research department. This concludes our EconSouth Now podcast on the national economy.

For more information, please see the fourth quarter 2010 edition of EconSouth. On our website, frbatlanta.org, you can read our article about the national economy. Thanks for listening, and please return for more podcasts. If you have comments, please send us e-mail at podcast@frbatlanta.org.