Jax Daily

The Fed: Struggles continue in 2009

Mon, Jan 5, 2009 by Austin Cassidy

As expected, consumer spending slowed in early 2008 amid declines in real estate values and the run-up in energy prices. A tax rebate stimulus temporarily boosted spending in the second quarter, but growth in consumer spending remained restrained.

Slowing economic activity led to weakening labor markets. Nonfarm payroll employment began to decline in January as firms increasingly held back on hiring, raising the unemployment rate. Layoffs were widespread, and employment in residential construction and parts of the manufacturing sector bore the brunt. The American economy slipped ever deeper into a full-blown recession.

But sometimes it’s easy to be optimistic that the start of a new year will be new opportunities and a fresh start. To those who might think that way, the Federal Reserve Bank of Atlanta offers up a dose of hard reality. The Fed seems to think that the Southeast is in for “more of the same” for 2009, in terms of our region’s overall economic health. A direct path to recovery is unlikely, and, as we have seen, events will arise to knock us off the path to a more stable economic environment.

The Jacksonville Business Journal reports…

In its EconSouth publication, [the Fed] suggested employment levels in the Southeast could get worse before improving. And it’s probable consumer spending and personal income will remain held back until employment picks up.

Energy markets remain uncertain, EconSouth noted. Prices, which fell as sharply in the latter half of 2008 as they rose in the first half, could go up again if global economic conditions improve and spur business and consumer demand.

Housing activity has shown some recent signs of stabilizing, but recovery is unlikely to occur quickly, EconSouth said.

But plans for expansion in auto and aerospace manufacturing should help bolster the region’s economy in 2009. Notably, a new Kia plant will open in West Point, Ga. It began training workers in March 2008 and will begin production in late 2009.

In 2008, the Southeast’s economy struggled with financial market turmoil, housing market and credit crises, rising food and energy costs and job losses. By the third quarter, the unemployment rate was at its highest level since the 1991 recession. Consumer spending slumped as consumers felt the pinch of soaring energy and food prices, the credit crunch and uncertainty about the economy.

The rate of home foreclosures was high in Georgia during 2008, particularly in metro Atlanta. Real estate loan problems also led to the failure of five of the state’s banks last year.