Consumers are still saving the day for the U.S. economy, an observer states, but other indicators of business activity bear watching before nagging concerns over the potential for a downturn can be shelved.
That was among the central messages delivered Wednesday by Esther George. The Faucett, Missouri, native represents a seven-state Kansas City region on the Federal Reserve Bank. George, who is the region’s president, spoke before an audience of about 270 people gathered at Missouri Western for the 2019 St. Joseph Chamber of Commerce Economic Development Summit.
George’s opinions were expressed under the title “Economic Conditions and the Economy.” This year, she serves as a voting member with the Federal Open Market Committee. The panel deliberates monetary policy and weighs the merits of adjusting interest rates based on a best read of existing economic factors.
Researching those major decisions includes sounding out groups such as labor and agriculture that are integral to a more than $20 trillion economy. George said the agricultural sector continues a struggle that germinated in 2014 with a drop-off in peak commodity prices. The impasse between the U.S. and China on trade matters is flowing down to farmers’ livelihoods, with no end in sight.
“Losing an export market like China is going to hurt the ag economy,” George told the chamber members. “We hear that regularly.”
She said farmers do obtain some assistance from subsidies for their operations, but would rather rely on finding markets for their exports. Economists in the Reserve’s Omaha, Nebraska, office are closely monitoring activity in the rural economy, she added.
Despite such concerns, George said her overall picture of the economy is favorable, and bases that appraisal on the health of one other sector.
“The economy looks pretty good,” she said. “How is the consumer faring? That is what drives the U.S. economy. We’re buying long-term goods and houses. Right now, by and large, the consumer is confident.”
The economy should keep growing this year by 2 percent, she said, and inflation is staying slow and stable during the expansion. Yet a sluggish global economy could impinge the domestic gains.
“The rest of the world is slowing down,” said George. “That reduces the demand for our exports.”
In another area, employment, low numbers of joblessness still require a careful review.
“Our work force is shrinking,” said George, noting a lack of a sizable replacement pool that will become a policy issue.
“It looks like we’re going to have a tight labor market for some time to come,” she said. “Productivity has not been very high as in the past.”
Stalled trade talks between the U.S. and China are contributing to the global economic decline. George stated that the U.S. should remain immune to those consequences as long as consumers keep spending. Any slowdown in consumer spending could result from concerns over the vibrancy of pensions and retirement plans.
The Fed’s action in late July, cutting the benchmark policy rate a quarter of a point to a range of 2% to 2.25%, met with dissent from George, who viewed the move as premature given her assessment of the economy.
“I did not think it was necessary to pull the trigger,” she told the chamber.
Business interests have told her that lowering the interest rate doesn’t ease their uncertainty.
“The other thing we increasingly hear is businesses are having to deal with an uncertainty associated with trade policy in the United States,” she said. Re-route and find other markets. Or they are simply waiting to see how this will be resolved. For now, businesses are slowing down.”
The Fed will meet again in mid-September to once again ponder what may need to happen with interest rates.