Financial Update (Third Quarter 2003)


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Guynn Sees Stronger Growth in Second Half of 2003 and Into 2004

Photo of Jack Guynn
Jack Guynn

While acknowledging the presence of conflicting economic data midway through 2003, Jack Guynn, president and chief executive officer of the Federal Reserve Bank of Atlanta, said that he sees a growing list of positive signs pointing to stronger economic growth for the remainder of this year and continuing in 2004. In a July speech to the Construction Industry Institute in Orlando, Fla., Guynn discussed several economic uncertainties — most notably, investment spending and employment — before touching on what he believes are more promising signs for the economy.

Investment spending
When the history of the 2001 recession is written, “it will describe the downturn as an investment-spending bust,” according to Guynn. After “getting ahead of ourselves in the late 1990s,” he said that businesses suddenly applied the brakes late in 2000, and today investment spending still lags by historical standards. Capacity utilization for manufacturing, in fact, is hovering around 74 percent, nearly 7 percentage points below its 1972–2002 average.

“For the last two and a half years, businesses have overhauled their operations. The result has been a wave of plant closings, write-downs and write-offs, mergers and bankruptcies,” said Guynn. Even with these challenges, he is seeing progress: Spending on computers and software has been growing for the last six quarters, companies in many sectors have begun reporting higher profits, and even commercial real estate developers report they are now getting their calls returned.

Job growth sluggish
Guynn said the other big uncertainty is employment, which has been mired in a slump for 28 months, but he is not surprised that employment growth has been lagging “since demand for goods and services in the economy has been growing slowly in recent quarters.” He cited several factors that have discouraged job creation, including the rapidly rising cost of health care and the need for many companies to begin contributing again to pension plans.

Accentuate the positive
But several underlying forces should propel future growth, Guynn said. Among those he listed are accommodative monetary policy, stimulative fiscal policy, bolstered consumer and investor confidence coming out of the Iraq war, and supportive financial markets. In conclusion, Guynn said that he is expecting increases in investment spending, production and employment in the latter part of this year, which will help improve economic growth.

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