WASHINGTON (AFX) - Alfred Broaddus, president of the Federal Reserve Bank of Richmond, said the US economy may grow at a subdued pace in the months immediately ahead as consumer spending is slowing and with a lacklustre stockmarket.
"Some of the recent data suggest that while the recovery will continue, it may continue at a subdued pace in the months immediately ahead," Broaddus said in a speech prepared for delivery to the Washington Association of Money Managers..
Although durable goods sales had been strong, car sales softened in May and consumer spending "appears to be throttling down in the current quarter", Broaddus said..
"The stockmarkets' recent lacklustre performance may be reinforcing this trend." Although the recovery at this point "seems firmly in place ... how strongly and rapidly it will proceed from here is an open question in my view"..
Broaddus said the most immediate soft spot in the economy remains the labour market. Broaddus said the economy is enjoying higher productivity growth but over the near term this could extend the weakness in the job market. The relative strength of these two opposing forces will largely determine how robust the recovery is in the remaining weeks of the current quarter and over the next several quarters..
Broaddus said the US economy is currently enjoying what he considers "price stability" because fear of future inflation is not a factor in financial investment decisions. "My own view is that a longer term annual increase in the core personal consumption expenditures index (PCE) in the range of a half percent to one-and-a-half percent is a good working definition of price stability. "We are in that range now, and I would like to see us stay there. "Actually, I am pleased with the recent behaviour of the price level, and I should emphasise that I don't see either a near-term acceleration of inflation or a drop into deflation as a clear and present danger to the economy," he said..
In comments to reporters after his address, Broaddus said he sees no significant danger of a renewed US downturn. "I'm not one who believes we are in any significant danger of a renewed downturn. Broaddus said the recent rise in the price of gold is not due to inflation concerns. "There's an easier explanation for what is happening (with the gold price) ... There's a lot going in the world." On consumer spending he noted: "Consumer spending may be coming at a little bit slower rate than had been expected. If you are one who feels that this recovery may be more sluggish than robust, this is a piece of information supporting that view." In a speech a few years ago Broaddus, said one of his favourite leading indicators of economic activity is the rail traffic on a main north-south railroad line that he jogs over every morning. Asked what this indicator is showing at the moment, Braddus said: "Right now traffic is moderate. That is pretty much congruent with and in synch with what I sense the immediate current state of the economy is".