Economist speaks to Steubenville Rotary
STEUBENVILLE – Guhan Venkatu, a Federal Reserve economist based in Cleveland, told members of the city Rotary Club during their Friday luncheon meeting at the city YWCA that the forecast for the national economy is very slow growth.
Venkatu outlined the reasons the Federal Reserve still is cautiously optimistic on the general state of the economy in the long term, and there still are several areas of concern, six years after the collapse on Wall Street and the housing market. He said lingering unemployment is one of the Federal Reserve’s biggest concerns, despite improvements in employment numbers since 2008.
“Unemployment fell sharply in April,” said Venkatu, adding although that is a positive sign, it is unclear whether there was real growth in the labor market or more people had given up looking for work. “The decline in the labor force (could have caused the drop). It’s a little suspicious. But we are getting closer to the ‘natural’ unemployment number, which some people say is 5 to 6 percent.”
One reason the Federal Reserve has been reluctant to raise interest rates is because the longevity of those unemployed during the recovery is unprecedented, Venkatu added. He did say this year unemployment has declined faster than in previous years, and the current national unemployment rate is now 6.7 percent.
“There is slow healing in the labor force,” said Venkatu, adding the employment numbers are getting closer to what they were before the economic recession. “There’s still a lot of healing needed in the labor market.”
Venkatu said real wage growth is another matter, and that “wage gains (during the recovery) have been pretty flat – essentially zero. It shows the stresses households continue to face.”
The lack of growth in wages is another reason why consumers and businesses aren’t spending money, and there’s been “no real wage gains during the recovery. Consumers have been unwilling to spend. It’s stagnant, but we’re hoping that will improve.”
The housing market had been slowly improving during the past several years, but there’s been a curious drop in the housing market in the last two months, said Venkatu, adding members of the Federal Reserve are puzzled as to why. He said the housing market appears to be cooling “when we were really hoping the economy would be taking off.”
Venkatu said the Federal Reserve is forecasting gross national product will increase to 3 percent per year – an improvement from 2 percent a year during the last few years and a number he called “average” growth. He added the Federal Reserve was “optimistic, but cautious.”
The reserve has declined at this time to increase interest rates, and most on the board don’t see interest rates increasing until the latter part of 2015, and any increase would be about a modest 1 percent, said Venkatu.
Locally, Venkatu said the Steubenville Metropolitan Area has lost about 30 percent of its job base in the past several years, and unemployment in Jefferson County is 8.1 percent, well above the national average. He speculated this is due to the decline in manufacturing locally and the gas shale boom hasn’t yet come to Jefferson County. He also said the Wheeling area had seen an increase in employment recently, which he again speculated was due to shale and gas exploration.