NEW YORK (Reuters) - U.S. labor productivity has slipped and the trend in monthly new job creation appears to have slowed, a top U.S. Federal Reserve official said on Monday, warning that this was a call for action from public officials to reverse a worrying trend.
“Is America losing its economic mojo? There is some evidence to the affirmative,” Atlanta Federal Reserve President Dennis Lockhart told a conference on creative leadership.
Lockhart, who is not a voting member of the Fed’s policy-setting committee this year, also said monetary policy could aid economic dynamism by fostering favorable interest rates, provided that was “in a context of low and stable inflation.”
But he made clear that the central bank could only do so much, and the rest would be up to other public officials to come up with ways to improve the economic climate.
The U.S. central bank stunned financial markets last week by opting to continue its campaign of purchasing bonds at a $85 billion monthly pace. This is part of its aggressive action to spur U.S. growth and hiring after a severe 2007-2009 recession.
The decision, which contradicted widespread expectations that the Fed would opt to begin scaling back the purchase program, highlighted an underlying dissatisfaction among officials with the performance of the U.S. economy.
Political gridlock in Washington is another source of economic uncertainty, as lawmakers from the Republican and Democratic parties fight over a deal to avoid a government shutdown and raise the nation’s debt ceiling.
The Fed cited headwinds from tighter fiscal policy as part of the reason it did not start to taper bond buying last week.
Lockhart, a policy centrist whose views are often taken to reflect the prevailing mode of the committee, noted that U.S. unemployment of 7.3 percent in August showed the nation’s labor market had still not recovered.
“We’ve made a lot of progress, but there’s a way to go before the Fed can claim that the maximum employment objective has been achieved,” he said, referring to the central bank’s dual mandate from Congress, which also includes price stability.
Monthly U.S. non-farm job creation has slipped to an average of 148,000 in the past three months, versus 184,000/month in the last 12 months, while labor productivity growth was averaging “significantly below historic norms,” he said.
In addition, the drop in the unemployment rate has been driven in part by people leaving the labor market, as measured by lower labor force participation, which was not a good sign for the nation’s long-term economic health.
“Lower participation may mean somewhat lower potential for the economy. That’s a concern,” Lockhart told the audience.
This could prove to be a temporary spell of low productivity growth, which will correct itself as demand kicks into higher gear, Lockhart said.
But he also highlighted other signs of declining dynamism, including fewer new businesses being launched, and a decline in U.S. employment reallocation, with a smaller percentage of the workforce changing jobs every quarter.
“Against this backdrop of declines in the rates of job and worker reallocation, slower new business formation, and a sub par rate of productivity growth, is there a call to action? I think yes,” Lockhart said.
Reporting By Lucia Lopez, writing by Alister Bull; Editing by Chizu Nomiyama