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Lockhart spoke Monday morning at a creative leadership summit sponsored by the Louise Blouin Foundation.
Lockhart’s remarks focused on a perceived loss of American economic dynamism – a unique American trait, he said, especially in comparison to other advanced economies.
In fact, Lockhart asked, “Is America losing its economic mojo?”
Fed Speeches: What Happened to the U.S. Economy?
One area he focused on to survey America’s “mojo” is employment.
He did claim the Fed made “significant progress” with unemployment over the past four years of recovery. Unemployment, which peaked at around 10%, now sits at 7.3%, which is higher than the 5.3% to 6% range that the Fed would consider to be “full employment.”
Lockhart made reference to employment dynamics, the constant churn of workers entering and exiting the workforce, as companies eliminate headcount in some areas while adding to it in others. Lockhart said this dynamism was “a good thing.”
He said “job reallocation,” the simultaneous creation and elimination of jobs, amounted to 16% of total private sector employment per quarter in the 1990s.
However, since the early 2000s, job reallocation has slowed to around 12% per quarter.
Lockhart said this might not be a bad thing if productivity grows without all the churning of jobs – but as Lockhart pointed out, there’s been low growth in productivity over the course of recovery.
Lockhart didn’t touch on any specific reasons why unemployment remains high, choosing instead to stick to the big picture.
He said the current environment is one “in which fewer firms are expanding employment, and each expanding firm is adding fewer jobs on average than in the past. At the same time, fewer firms are shrinking, and each is downsizing by less on average. Fewer people are laid off or are quitting their jobs, and firms are hiring fewer people. In other words, the employment dynamics of the U.S. economy are slower.”
Lockhart closed his remarks on employment with mention of the shift from full-time to part-time employment. The number of people who report they are working part time when they would like to be working full time rose sharply during the recession and remains high now.
He concluded that “the unemployment rate does not capture the true underutilization of labor resources today in our economy.”
Lockhart rounded out the economic “mojo triad” with productivity growth and new business formation. He admitted that productivity was “a bit of a puzzle.”
He said he had observed, anecdotally, an increase in productivity-oriented investment – investment in software, automation, and robotics. He said this should enhance productivity within firms. But the “between-firm” aspect of productivity, in which resources shift from less- to more-productive sectors, has been a big driver of productivity growth. Nevertheless, Lockhart said that he has found resource reallocation to be on the decline in recent years.
Lockhart noted the steep slowdown in new business formation, which is a good indicator of the overall entrepreneurial spirit in the United States. Businesses start up, and some fail while others succeed. Lockhart said the data he’s seen suggests very slow growth in the number of businesses being launched since the recession. He attributed this to an atmosphere of uncertainty and scarce availability of credit. Would-be entrepreneurs find themselves unable to access the same amounts of capital and credit as they have in years past.
Lockhart said that the Atlanta Fed has been trying to learn all it can about the “entrepreneurial ecosystem,” especially those components that foster the growth of small business.
He called on public policymakers to remove obstacles to growth and entrepreneurship, obstacles “such as policies that discourage new business formation [and provide a] disincentive to invest.”
These comments were ironic, given that we’ve seen Fed policies that damage corporate investment.
Lockhart said “the public sector can contribute with positive, pro-growth actions that address economic fundamentals, such as investment in human capital and critical, productive infrastructure.”
Concluding his remarks, Lockhart said that at least some of the depressed activity we’re seeing is cyclical in nature and that it should reverse itself.
But beyond that, he called for the application of creative leadership to get America’s “mojo” back.
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