ROANOKE, Va. - Richmond Federal Reserve President Jeffrey Lacker Monday said there is a possibility economic growth in the United States might be below trend for a sustained period, especially as many businesses remain reluctant to increase the size of their workforce -- despite rising demand -- due to uncertainty about the strength of the recovery.
In remarks prepared for delivery at the Southern Growth's 2011 Chairman's Conference in Roanoke, Virginia, Lacker did not comment on current monetary policy, instead focusing primarily on the evolution of manufacturing the South. He did give his views on the state of the economy.
"The recovery to date has been tepid at best," Lacker declared, noting that since it began in the second half of 2009, it has yet to produce a sustained period of above-trend growth.
He added that while last year ended with household spending showing renewed strength, that strength abated early this year.
"Although the factors affecting the first quarter slowdown -- including high energy prices, bad weather and natural disasters around the globe -- may prove temporary, the inability so far of the expansion to gain more traction has been frustrating," Lacker said.
The Richmond Fed chief went on to warn that "one striking observation that may be relevant to the possibility that growth underperforms for a sustained period is the apparent reluctance of many employers to add workers in the face of rising demand."
Lacker noted that in conversations with manufacturers within the Richmond Fed's district, a recurring theme is that "manufacturers are determined to keep their head count down as much as possible, whether through increasing productivity or extending hours or just working harder."
Even where manufacturers are seeing increasing orders, Lacker said "their uncertainty about the strength and sustainability of this recovery as well as the future regulatory and tax environment appears to be holding them back from hiring."
However, one bright spot since the end of the recession has been manufacturing, Lacker said, noting that the average growth rate of manufacturing production in this recovery has been over 6% per year, compared to less than 3% from 2002 through 2007.
Lacker also said employment and output trends in U.S. manufacturing over the last decade are consistent with an economy that is increasingly becoming a supplier of higher cost, high-tech goods. The decline in manufacturing employment over that time period, even as output continued to rise, suggests a transition to less labor-intensive production -- one that involves a greater use of capital and technology in production.
"While the adjustments brought about by these trends have been difficult for many firms, workers and communities, the transition of U.S. manufacturing ultimately places it in a better position for the years ahead," Lacker said.
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