Atlanta Fed's Lockhart: Economic Picture Somewhat Mixed; Slow Growth

Atlanta Federal Reserve Bank President Dennis Lockhart Tuesday painted the picture of an economy that is neither firing on all cylinders nor regressing, with the worry remaining that expectations for stronger growth next year may again turn out to be wrong.

Most Fed officials are not fixated on a single data point, Lockhart said during a question and answer session following a speech in Montgomery, Ala. Instead, he said they are trying to get an overall sense of the health of the economy by looking a "dozens" of different elements.

"The picture at the moment is somewhat mixed," he said, "it's not decidedly positive nor is it in any respect negative. It's a slow-growth picture."

There is slack in the U.S. economy, estimated to be at 4%, which suggests that "we could have a spurt of growth that would exceed the longer term trend rate of growth in the economy, which may very well be in the range of say 2.5%, by getting 3% or 3.5% growth," Lockhart continued.

He remains cautious, however, noting that similar predictions made over the last three years have not come to pass. "I've seen this movie before," Lockhart said, "that's one of the reasons ... . I'm sort of cautious about my outlook for next year."

In his earlier prepared remarks, he forecast a 2014 growth rate in the range of 2.5% to 3%, but stressed that "next year's economic outcomes will swing importantly on fiscal drag and consumer spending."

He later said that there is a chance the forecast could be wrong, "and the economy might not pickup."

Lockhart said the major thing that would undermine the outlook for the economy is "consumer cautiousness - consumers not willing to spend."

This will depend in a great way on the health of the labor market. While the October jobs data was "pretty encouraging," Lockhart stressed that it was the report for just one month.

But with the prior months' numbers also being revised upwards, "there's indication that the employment markets are gaining a little bit of momentum relative to where they were relative to the summer," he said. "That's all very encouraging but you never want to bank of one or two months' data to really tell you what the underlying trend is."

However, Lockhart predicted that is the labor markets continue to have a positive tone, then the consumer might gain enough confidence for there to be a pickup in spending.

But if there are disappointing data, or mass layoffs, or increased pessimism about future employment prospects, "that could undermine my forecasts and create a repeat of what we have been seeing - which is growth around 2%," he said.

Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.

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