Speech

Economic Outlook, May 2012

Abstract: One factor holding back this recovery is the lingering sluggishness in new home construction. Another impediment to economic growth has been the deterioration in labor market conditions. A significant factor in this weakness has been the mismatch between the skills of unemployed workers and the skills sought by firms seeking to hire. Finally, the array of changes in tax and regulatory policies — both actual and anticipated — has made it difficult for businesses to evaluate the profitability of potential investments or hiring commitments. These impediments to economic growth are important, but they aren’t the whole story. There have been some positive developments. Business investment in equipment and software increased in 2010 and 2011, exports also increased in both of those years and the inflation outlook is reasonably good. Improvement in labor markets is forecasted for this year and is likely to continue in 2013, nudging gross domestic product growth higher. However, the impediments to growth mentioned before, as well as the uncertainty surrounding Europe’s economic challenges and the United States’ fiscal issues, are still exerting a drag on the economy and are unlikely to be effectively addressed by monetary policy. Additional monetary easing is unlikely to have much positive effect on economic growth, but could generate a sustained surge in inflation that would be costly to reverse.

Bibliographic Information

Provider: Federal Reserve Bank of Richmond

Part of Series: Speech

Publication Date: 2012-05-02