Economist speaks at Newnan Rotary luncheon
by Wes Mayer
Dr. Thomas J. Cunningham, vice president, economist and executive with Federal Reserve Bank of Atlanta, gave his personal state of the U.S. economy address at the Newnan Rotary Club luncheon Friday.
At the luncheon held at the Newnan Country Club, Cunningham gave a brief but information-filled talk on what he thinks is going to happen to the U.S. economy over the next few years. Cunningham, who has worked with the Federal Reserve Bank since 1985 and has a career in economics education, said he knew from experience what the appeal of giving an economics lecture after lunch was.
Cunningham began with his expectations that the economy will experience a 3 percent growth this year, with even higher expectations for next year. However, he said we should not be alarmed, but the 2014 first quarter gross domestic product will look pretty bad – possibly below two percent.
This is because of the weather, Cunningham said. This year, approximately two thirds of the U.S.’s largest economic areas were hit by heavy winter weather – and when an economy is practically shut down for a few days, it has many negative effects. The next two quarters, he said, will likely be very strong, though, to make up for the first.
Cunningham also talked about how the government has acted as a headwind against the economy over the last few years.
“We’ve been getting false starts for the last three years,” he said. “If we took the government out of the equation entirely, our growth percentage would be much higher.”
In recent years, the government was responsible for many unanticipated layoffs which damaged the U.S.’s economic growth. Without this, the growth may have been closer to 3.4 percent rather than only around 2 percent.
One piece of good news is that Europe, as a whole, the largest economy in the world, is now out of its recession, Cunningham said. This means a bright outlook on trade between Europe and the U.S., and a decrease in importation costs for the U.S.
Personal consumption accounts for about 70 percent of the economy, Cunningham said. But in order for Americans to consume goods, they need an income. And in order to earn an income, there needs to be employment. Unfortunately, there has not been a surge of employment since the end of the recession, he said.
Cunningham said that every month, about four and a half to five million Americans become employed. However, about the same number of Americans lose their jobs. There is also a seasonal factor on top of this – when it’s cold, less people become employed; when it’s warm, more people become employed.
“You have to remember that the U.S. economy is very large and very dynamic.”
One thing occurring which economists don’t want to see is the inflation rate running below expectations and continuing to go down. However, Cunningham said there does not seem to be a response from the market to this.
Cunningham said that one thing economists note is that as goods slowly fall in price, and income increases, there is a higher consumption of durable goods, goods which have a long lifespan, and services. Non-durable goods, such as food, gas and clothing, do not usually see a large increase in this case.
Right now, economists are seeing a decrease in the consumption of durables, a slow increase in the consumption of services and the consumption of non-durables is jumping around.
“We are becoming a progressively service-dominated economy,” Cunningham said. “All of you,” he said at the end of his talk, “when you go – buy stuff. It is your obligation to the economy.”