(Photo courtesy of the Federal Reserve Bank of Atlanta)
David Altig, executive vice president and director of research at the Federal Reserve Bank of Atlanta, last spoke to the Baton Rouge Growth Coalition in 2011, when the nation’s recovery from the recession was just beginning. Interviewed before his return appearance to the Capital Region on May 11 at the Manship Theatre, Altig told Business Report that while the U.S. economy outperforms much of the world, consumers still aren’t spending as much as one would expect in a relatively healthy economy. —David Jacobs
What’s your assessment of the housing market in the southeast United States?
In one respect, the recovery has proceeded faster than I was thinking in 2011, in terms of the employment picture. But in terms of the housing market, the recovery has moved along at a pretty modest pace. I had been hoping for a more protracted acceleration. But we’re well off the trough at this point.
Why isn’t the housing market more robust?
Some combination of credit conditions and attitudes about home buying. People saw pretty serious dislocations during the crisis, and young people have been slower to buy houses.
So you’re saying there’s been a cultural shift among young people in response to the crisis, and buying a house is less of a priority?
I think there’s an element of that, for sure. The regulatory environment has changed a lot, and attitudes have changed a lot.
Why aren’t consumers more confident about the recovery?
The consumer confidence measures are not bad, but consumer spending is growing slower than those numbers would suggest. We have a bit of a mystery about how, when and why we’ll start to see consumer growth the way we’ve been anticipating. At various points during the recovery, it looks like we’re building steam, and then we have a weak quarter like the first quarter of this year.
Do you have a theory about why consumers aren’t spending more?
It gets back to this issue of, “Once bitten, twice shy.” You have people who really want to see a protracted period of acceleration. For example, you might think that falling energy prices would translate back into more actual spending. But it could be the case that people are more risk-averse than before the crisis. It’s certainly the case that personal savings levels are higher than they were pre-crisis.
Should employers expect to pay higher wages in the near future?
We’ve been hearing, for a good year, a shift in tone from employers, more preparing for the fact that they’re going to have to raise wages than actual reports of widespread wage increases. Lately, we have begun to see it spread into areas beyond the highly skilled pockets of the labor force. Some sectors are showing signs of life, but we’re still below pre-recession levels.
Many people assume that interest rates will be raised this summer. Do you?
If anybody thinks they know exactly what month it’s going to be, you ought to rethink that. The assumption at the Atlanta Fed has been that mid-summer is not an unreasonable date. Whether it’s June or September, I think that’s still up in the air. But we do think it’ll be this year.
And I assume you expect small, cautious moves?
I don’t think it will be like 2004, where the committee just steadily raised the interest rate target by a quarter of a percentage point every meeting. That does not seem to be the mindset of the committee now. The data will drive the response on a meeting-by-meeting basis.
Interview edited for space and clarity.
