American Consequences - June 2017

Annotation

Speech (cont.)

26. Translation: “Just between you, me, and the lamppost, we at the Fed don't have a clue.”

be overstating the strength of the labor market. While it is encouraging that the share of employees who work part time for economic reasons has continued to move down, there may well be slack remaining along this margin. 26 And another key measure—the prime-age employment-to-population ratio— remains more than 1 percentage point below pre-crisis levels, and further improvement there would be welcome. The Outlook Looking at economic activity more broadly, although first- quarter gross domestic product (GDP) was soft, the data so far suggest a rebound in the second quarter. 27 The weak Q1 reading follows a recurring pattern in recent years, with the first quarter of the year often weaker than subsequent quarters. Moreover, below the top-line number, 28 there were some encouraging signs of strength: Residential construction posted a double-digit increase and contributed 1/2 percentage point to first-quarter GDP growth. 29 Drilling for oil and natural gas is rebounding sharply, 30 and nonresidential construction contributed 3/4 percentage point to first- quarter GDP growth. Business spending on equipment 31 and intangibles, 32 which fell slightly in 2016, rebounded to a 7 percent annualized increase in the first quarter and contributed another 3/4 percentage point to the overall increase. A key reason overall GDP was so weak last quarter was consumer spending, which rose only 0.6 percent at an annual rate. Nonetheless, there are good reasons to think that the first-quarter weakness in consumer spending will not persist. 33 Household incomes should continue rising with the continued strengthening in employment and wages, home prices should be contributing through improved household balance sheets, and consumer sentiment remains upbeat. 34 Recent changes in financial conditions have, overall, been supportive of further gains in the real economy. 35

27. This being what the Fed

said before the first quarter.

28. Translation: “The

numbers we give you are meaningless. But that's ok, we'll give you some other numbers. 29. Steve Sjuggerud gives Gov. Brainard props for noticing, at last, what he's been talking about for months. 30. Translation: “Despite every effort that the president who appointed me made to stifle it.”

31. The copier broke.

32. Lame attempts at Twitter marketing campaigns.

33. Spend! Spend! Spend!, you consumer suckers. 34. After 6 p.m. when the consumers have been drinking.

35. As opposed to the pretend economy?

40 | June 2017

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