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 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 said at a press briefing on Friday, according to a prepared text of the speech 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% 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,” he added.
“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,” Dudley said.