Rotarians Hear They Need to Consume to Boost the Economy

Members of the Windward Rotary Club got a bit of an economics lesson and update from an economist with the Federal Reserve Bank of Atlanta this week.

Tom Cunningham, vice president, senior economist and regional executive for the Federal Reserve Bank said "the Southeast generally looks an awful lot like the rest of the country."

Over the last three decades, until 2007, the Southeast and Atlanta in particular has been growing a lot faster than the rest of the economy.

Even the jobless rate isn't quite as full of doom and gloom as is being stated in the media, Cunningham said at the Rotary's meeting at the Atlanta Marriott Alpharetta. Of the 550,000 people said to have just left the work force, approximately 200,000 are doing so naturally, as Baby Boomers reach retirement age.

"The whole trick to that is as you are growing faster than the economy grows, which happens to be the case, then you are bringing both human and physical capital in to the area, away from the rest of the country. And as you bring something in from the rest of the country you look like the rest of the country," Cunningham said.

If he had the same talk in the 1980s, there would be serious differences between the Southeast and the rest of the country. "That's really not true anymore," he said.

Last year had a little under 2 percent growth, while this year he expects 2.5 percent growth. What he said is important is that the forecast is not likely to be wrong on the low side.

"Yea, we're expecting a mediocre year ahead in the economy," he said.

Want to make a difference in the economy? Then get out there and consume, Cunningham said. Consumption is about 70 percent of the economy, and when consumers lose confidence and get scared, they spend less.

"The 70 percent number is higher than any other number on the planet, except for Greece," he said, "which is an unfortunate coincidence."

Some of the biggest recovery quarters in the economy have come right after a steep recession, he said. That isn't happening today.

An awful lot has been made of people dropping out of the labor force as something that has been holding the unemployment rate down, and certainly that is true. A problem, though, in interpreting that is that is in some sense supposed to be happening. That a big problem that the United States has right arond now is how the Baby Boomers are starting to age out of the labor force," he said.

Savings rates popping up is a very good thing in the long run, Cunningham said. But in the short-term recovery,

"In the short run, the fact that people are saving is something that's restrcting consumption and as the dominant thing in the economy, it's a problem," he said.

"It's one of those kind of short-term paradoxes. What you want in the long run is a lot of savings and a lot of productivity. But in the short run, both of those things constrain economic growth," Cunningham said.

It does look like single-family residential real estate is recovering, with construction numbers coming in positive. Even the places with underwater mortgages look better than they have in the recent past.