NEW YORK – The economic strength seen at the end of 2011 was a result of temporary factors and the pace of growth seen in the last quarter of the year won’t carry into 2012, as growth will remain moderate, according to Federal Reserve Bank of New York President and Chief Executive Officer William C. Dudley.
Consumer spending was stronger, mostly as a result of motor vehicle sales, he said, which gained because sales were stunted in mid-2011 as a result of supply chain disruptions following the earthquake and tsunami in Japan.
“Moreover, for goods and services other than durable goods, the rate of growth of consumer spending has been rather tepid. The picture that emerges—up to now—is of a consumer who continues to be cautious,” Dudley Dudley said at a press briefing on Friday, according to prepared text of the speech, which was released by the Fed.
On the positive side, labor markets are firmer and there has been a partial recovery in consumer confidence recently, he added.
“Despite some improvements, the economy continues to operate with significant excess slack,” Dudley said. “Less than 59 percent of the U.S. working-age population has a job. This is unacceptably low—just about the same share as in late 2009 and well below the levels in 2006 and 2007.”
The slack “is putting downward pressure on trend inflation. After a brief run-up during the second quarter of 2011—reflecting the pass-through from higher commodity prices and supply-chain disruptions—inflation has retreated and may be headed down further.”
Besides the temporary factors that boosted the economy in the fourth quarter, other “significant impediments” to recovery include: global financial and economic conditions; contractionary fiscal policy; and the depressed housing market.
“Inflation is likely to be below our objective for several years,” he said. “Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability.”
Dudley concluded his remarks on monetary policy, saying, “monetary policy has done and will continue to do its part in supporting the recovery—but it is not all-powerful. Other complementary policy actions in housing, fiscal policy and structural adjustment or rebalancing of the economy will be essential if we are to achieve the best available recovery.”
Regarding the region, Dudley said, growth slowed in New York in the last half of 2011, “falling well short of the national rate, although New Jersey kept pace.”