Here’s What’s Holding the Economy Back

Source: Thinkstock

Source: Thinkstock

The economy has been on a roller coaster in the last six months. Gross domestic product contracted by 2.9 percent in the first-quarter (due in part to crippling weather), a massive gut-floating plunge, but by June the economy started showing signs of recovery. Manufacturing output, generally indicative of overall economy activity, has increased consistently and the headline unemployment rate fell to 6.1 percent in June.

There’s more to the picture than just euphoria over a falling unemployment rate. Claims for unemployment insurance are down, consumer spending is generally (though modestly) improving, and exports are up. But on the other hand, long-term unemployment is still pervasive and there are very real concerns about financial stability as quantitative easing heads to a close.

With a set of such mixed data, it is difficult to accurately predict anything about the growth trajectory of the economy in the coming months. Many growth estimates for economic growth in the coming quarters have been modest, and most were revised lower when the final first-quarter GDP growth estimate came in so low.

But this difficulty did not dissuade Jeffrey Lacker, president of the Federal Reserve Bank of Richmond. On Tuesday, Lacker gave an update on the economic situation as he sees it.

“Since the end of the recession, real GDP has grown at an average annual rate of just 2.1 percent. In contrast, in the 60 years before the recession, real GDP grew at an average annual rate of 3.5 percent,” Lacker explained. “Based in part on that long track record, many forecasters, myself included, were expecting growth to pick up to a more robust pace. More recently, however, I have come to the conclusion that a sustained acceleration of growth to something over 3 percent in the near future is unlikely. Given what we know, it strikes me as more likely that growth will continue to average somewhere between 2 and 2 1/2 percent.”