Better days ahead for middle class
Federal Reserve Bank economist says recovery might finally reach more people.
(As seen on WZZM TV 13) In 2015, the economic recovery might finally reach the middle and lower class, according to a Federal Reserve Bank economist who visited Grand Rapids recently.
Rick Mattoon, who is a senior economist with the Federal Reserve Bank, addressed supply chain professionals during the 12th annual Midwest Supply Chain Management Conference, held at Grand Valley State University’s Eberhard Center earlier this month.
His presentation included insights into the national economy as well as the Midwest regional economy.
Mattoon said the national economy did well in 2014, with two exceptional quarters, and he also expects 2015 to be a pretty good year.
He noted the top story for 2014 was the labor market, which added 3 million new jobs — its best performance since 1999.
The stock market also did well, adding wealth to households and spurring consumer spending. Mattoon noted, however, that wealth was distributed unevenly and many middle- and lower-income families have yet to see much evidence of the economic recovery that has been going on for the past five years.
“Households without assets have not seen an improvement,” he said.
Mattoon thinks 2015 will be the year where the recovery will finally start to spread into middle-income households.
One area where middle-income and lower-income households are seeing a boost in their wealth is at the gas pump, thanks to falling oil prices, resulting in more consumer spending from these households.
Despite the growth in jobs, Mattoon said the quality of those jobs is still in question. Many people are still struggling to find full-time employment and frustration has led some workers to drop out of the labor market altogether.
“People are leaving the labor market at a high rate,” Mattoon said.
In addition to the discouraged set, other exits have come from baby boomers who, now that their assets are back on the rise, have decided to retire rather than continue to look for employment.
Mattoon expects wages and salaries to play an important role in 2015. If meaningful wage and salary increases occur, it will have a positive impact on the economy; if not, the outlook might not be so rosy.
Wage and salary increases will have the most substantial impact on lower and middle class households, he said.
In comparison with previous recoveries, the current recovery is still moving slowly, with only 2.3 percent annualized growth. That is compared to 5 percent annualized growth following the 1981-82 recession and 4.3 percent annualized growth following the 1973-74 recession, Mattoon said.
One of the key contributors to the slow recovery is the accumulation of cash assets.
Mattoon said while banks weren’t doing much lending previously, they are trying to lend again, which should lead to greater deployment of cash assets into the economy.
A robust stock market and lower oil prices have resulted in consumer confidence reaching its highest point since February 2008.
Mattoon said casual dining restaurants, such as Olive Garden, are starting to get busier, which suggests that middle-income families are feeling better.
Another strong indicator is what Mattoon calls the “quit rate,” which refers to the number of people quitting jobs. When people have more confidence in the economy and labor market they are more likely to leave a job.
Mattoon said the “quit rate” has gone up slightly.
The strength of the dollar could dampen exports in 2015, he said, especially if foreign economies remain weak.
Mattoon singled out Japan, China and Europe as problem areas.
He said China in particular may struggle with any deceleration of its economy, given the country has grown at better than 10 percent for three decades.
Mattoon expects minimal GDP growth for the next two years and minimal decreases in the unemployment rate within the United States.
He noted in 2014 the U.S. GDP grew by 2.4 percent. He expects to see growth of 2.6 percent to 3 percent in 2015 and 2.5 percent to 3 percent in 2016.
Unemployment is currently at 5.5 percent and could drop to 5.2 percent this year and 5 percent in 2016, he said.
Within the Midwest region specifically, Mattoon said recovery would continue throughout 2015.
He credited the manufacturing industry, which he called a “hallmark of strength,” for much of the recovery so far.
He said contraction within that sector could occur, but it’s hard to predict right now whether that will be the case.
Another area that is experiencing some growth, which indicates further recovery for the region, is in the business and professional services industry.
He noted these jobs are big drivers for metro areas.
There is also still promise that re-shoring might bring jobs back to the Midwest boosting the economy.
The reason is the cost of doing business abroad is rising and natural disasters have upset supply chains, resulting in companies making changes regarding the locations of their manufacturing plants.
In comparison to its neighbors, Mattoon called Michigan a “success story.”