–Recovery To Date ‘Has Been Tepid At Best’
–Inability Of Economic Expansion To Gain More Traction ‘Frustrating’

ROANOKE, Va. (MNI) – Richmond Federal Reserve President Jeffrey
Lacker Monday said there is a possibility economic growth in the United
States might be below trend for a sustained period, especially as many
businesses remain reluctant to increase the size of their workforce —
despite rising demand — due to uncertainty about the strength of the
recovery.

In remarks prepared for delivery at the Southern Growth’s 2011
Chairman’s Conference in Roanoke, Virginia, Lacker did not comment on
current monetary policy, instead focusing primarily on the evolution of
manufacturing the South. He did give his views on the state of the
economy.

“The recovery to date has been tepid at best,” Lacker declared,
noting that since it began in the second half of 2009, it has yet to
produce a sustained period of above-trend growth.

He added that while last year ended with household spending showing
renewed strength, that strength abated early this year.

“Although the factors affecting the first quarter slowdown —
including high energy prices, bad weather and natural disasters around
the globe — may prove temporary, the inability so far of the expansion
to gain more traction has been frustrating,” Lacker said.

The Richmond Fed chief went on to warn that “one striking
observation that may be relevant to the possibility that growth
underperforms for a sustained period is the apparent reluctance of many
employers to add workers in the face of rising demand.”

Lacker noted that in conversations with manufacturers within the
Richmond Fed’s district, a recurring theme is that “manufacturers are
determined to keep their head count down as much as possible, whether
through increasing productivity or extending hours or just working
harder.”

Even where manufacturers are seeing increasing orders, Lacker said
“their uncertainty about the strength and sustainability of this
recovery as well as the future regulatory and tax environment appears to
be holding them back from hiring.”

However, one bright spot since the end of the recession has been
manufacturing, Lacker said, noting that the average growth rate of
manufacturing production in this recovery has been over 6% per year,
compared to less than 3% from 2002 through 2007.

Lacker also said employment and output trends in U.S. manufacturing
over the last decade are consistent with an economy that is increasingly
becoming a supplier of higher cost, high-tech goods. The decline in
manufacturing employment over that time period, even as output continued
to rise, suggests a transition to less labor-intensive production — one
that involves a greater use of capital and technology in production.

“While the adjustments brought about by these trends have been
difficult for many firms, workers and communities, the transition of
U.S. manufacturing ultimately places it in a better position for the
years ahead,” Lacker said.

** Market News International **

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