Consumer confidence key to robust economy

Grant D. Crawford | Daily Press

Federal Reserve Bank of Kansas City President Esther George delivered a presentation on the economy during at Northeastern State University Friday.

TAHLEQUAH, Okla. — Federal Reserve Bank of Kansas City President Esther George told a local audience Friday that former U.S. Sen. Robert Owen's role in helping establish the chartered institutions played a major role in why she visited Tahlequah: He spent time in Tahlequah and Muskogee before serving in Congress.

"Thanks in part to Robert Owen, we ended up with a structure that I think has served our nation well," said George. "We have 12 regional Federal Reserve Banks. We are not government agencies. We are, in fact, independent, chartered institutions. We have private individuals who serve on our board of directors and we operate under the oversight of a government agency in Washington."

As George spoke to a crowd at Northeastern State University, she detailed the structure of the Federal Reserve System. It's controlled by a Board of Governors appointed by the U.S. president and confirmed by the Senate. There are 12 regional banks, as well the Federal Open Market Committee.

George serves on the Federal Open Market Committee and is a voting member this year. The Federal Reserve District of Kansas City, of which she is the president, includes seven states: Oklahoma, Kansas, Colorado, Nebraska, Wyoming, and portions of Missouri and New Mexico. She said based on financial numbers, the national economy is now in its 11th year of expansion.

"It is one of the longest, continuous periods of growth in the United States that we have seen," she said.

She cited job numbers among Americans, saying the unemployment rate in September fell from 3.7 to 3.5 percent. She also said the economy is performing well and mentioned that the "record-low unemployment" has also come with little inflation.

"Mostly what contributes to that is the consumer," said George. "In the United States, what you and I spend every day contributes to 70 percent of how we measure how well this economy does. We call it GDP."

Consumers have been spending due to the fact that they have jobs and that wages have been rising more rapidly than the rate of inflation, according to George. It results in more confidence among consumers, who are not as worried about the future for the moment.

"By and large, we see a confident consumer that's spending and driving our economy forward," George said.

Another aspect staff at the Federal Reserve consider is business spending. Generally, when the population is spending, it creates more demand for businesses to spend money. However, businesses in the past year have reportedly pulled back on expenditures.

"There are a couple reasons for that," said George. "If you are in a sector that has been affected by trade policy, if you are in a commodity-based sector - [agriculture] or even energy - you may have flattened out your spending right now, either until you see some greater certainty about how trade policy will be resolved, or until you see commodity prices go in different direction."

Because what businesses decide to spend impacts the national economy, some people might wonder if a problem is forthcoming. George said the biggest complaint among business owners is that they cannot find enough people to either help them expand, or to fill current jobs to maintain operations.

"It's caused some businesses to begin to invest more in technology and capital, instead of people," she said. "It's caused businesses to get very creative about what they allow employees to do or the conditions under which they work. And so you can go back almost 50 years in the business surveys that we look at, and you will not see a time when employment has been consistently the No. 1 issue for businesses, and that is broadly across the country."

Although the labor market is tightening, policy makers feel somewhat comfortable that the U.S. economy is still in good shape. George said as long as consumers continue to spend, the economy is positioned to grow more over the next year.

However, part of George's job is to assess the risks that could throw off the forecast. One of the first details she pays attention to is consumer confidence, which she said has dipped in recent months. She said the second risk she considers is how the rest of the world is not growing as rapidly as she thought it would a year ago.

"The rest of the world is beginning to slow, and it's slowing pretty significantly," said George. "A lot of that comes from China. China is slowing and has a number of issues with its economy. When China slows, Japan is affected, Australia is affected, and Europe is affected, and those are big economies, when you look at them collectively. The question, is will any of that spill over to the United States? Will any of that cause the economy and the demand for our products to slow down?"

There is also another uncertainty businesses and consumers are talking about, which is trade policy. Up until now, the tariffs imposed on the U.S. have been on goods for which businesses and individuals can find other sources. But starting in the fourth quarter this year, tariffs of 30 percent are going to hit products like clothing, shoes, and cellphones, many of which are bought out of China.

"The question is, will the consumer get worried by that? Will they see those prices pop up in way that might feed back? So having a confident consumer, having the rest of the world continue to grow, and having some resolution to uncertainties are all key to how the economy in the future unfolds," said George.

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