The Economic Outlook

Thank you for inviting me to join you again this year to discuss the economic outlook. You have heard the news, no doubt, that most economists have declared that the recession is over. What they mean, however, is merely that the contraction has come to an end, not that all of our economic challenges are behind us. Having said that, I do agree that the national economy has hit bottom and that a recovery is solidly underway, and my remarks today will be focused on the outlook for that recovery. Before I begin, however, I should note that these are my own views and should not be attributed to any other person in the Federal Reserve System.1 The backdrop to our current situation is that we have experienced one of the steepest economic contractions on record, driven by the plunge in housing market activity that followed the ten-year housing boom that ended in 2005. During the boom home prices almost tripled, but by the middle of this decade evidence began to signal that the boom had gone too far. Vacancy rates began to hit record highs, and measures of home construction and sales activity began to fall precipitously. Home prices also began to decline, reducing equity values and household wealth, and leading to rising defaults and foreclosures. After residential investment began to decline, the rest of the economy slowed and the expansion officially ended in December 2007. The recession that followed was longer and deeper than any we have experienced since the 1930s. I could cite a boatload of dismal statistics, but I'll confine myself to one in particular – the number of people employed has fallen by 7.3 million since it peaked at the end of 2007.