Finally, a Federal Reserve official has spoken out on the so-called recovery in the American economy. He’s Eric S. Rosengren, the president of the Boston Federal Reserve Bank. [The Fed has its headquarters in D.C. and regional banks that provide input to the Fed’s monetary policy.] Rosengren is known as a maverick by Fed-watchers, and his remarks delivered today in Boston confirm this.
Why is he a maverick? Because he’s not toeing the Fed/Janet Yellen party line about low unemployment and the state of the recovery. For example, at today’s conference sponsored by the Boston Fed he said: “This recovery has been full of surprises, most of which have not been good.” [My emphasis.]
You can read the full text of his speech here, however, you can cut to the chase by using the same link to download his presentation slides and reviewing his highly informative graphs.
I recommend starting with slide 5; it’s about real GDP growth and unemployment over the past three recessions. You’ll see how in this ‘recovery’ GDP growth has been anemic, especially when compared to 1991. However, the unemployment rate looks good – but it’s not what it seems.
The next slide (6) explains why: the unemployment rate is low because so many Americans have dropped out of the workforce. Even after the 2008-2009 recession, labor participation by prime working age men (age 25-54) has kept dropping. It’s been down for women too, but not as dramatically, as women have a higher tendency to be employed in the service sector.
Slide 6 is an amazing admission of failure. While I realize Rosengren cannot speak to President Obama’s economic and domestic policies, this graph is proof those polices have failed.
Hop to slide 13 for another whopper: a ten-year Treasury bond has an effective rate that’s below zero. To put it another way, if you want to own a T-bill, you have to pay for the privilege. Here’s why: the money you’ll get in 2026 when you redeem the bill will be worth less in purchasing power compared to what you paid in 2016.
Considering slide 13, you have to wonder about the Fed’s implicit prediction for the state of the U.S. economy in 2026. I’m betting on gloomy.
Before you run to the drinks cabinet, there are a couple of slides with not so bad news.
Slide 15 shows residential housing rental prices remain reasonable, if not low (good news if you’re a renter, bad news if you own rental housing). The next has commercial real estate prices rising at a healthy clip (good news if you own commercial real estate, bad news for renters).
Slide 17 shows real estate capitalization (an indicator of real estate construction) as low, but this seems to be a result of overbuilding in those crazy days of the last decade when building loans were easy to get. (During the 1991 recession, unoccupied office buildings were called ‘see through buildings’ because you could look at a floor with a clear view to the other side, due to the lack of cubicles.) Considering how banks rely on real estate construction loans as assets, this graph is bad news, but as an issue, it will work itself out naturally – if the economy recovers.
The final slide, 20, contains Rosengren’s quote that I mentioned previously.
In sum, Boston Fed President Rosengren deserves kudos for speaking the truth about the real state of the U.S. economy. But I don’t expect Caroline Kennedy to give him a ‘Profiles in Courage’ award, as I doubt the White House is best pleased by his observations.