Fed economist: U.S. economy strong, but too many being shut out from its benefits Fed economist: U.S. economy strong, but too many being shut out from its benefits

Boston Fed’s Jeff Fuhrer says all will gain if fruits of economic expansion are more broadly shared Boston Fed’s Jeff Fuhrer says all will gain if fruits of economic expansion are more broadly shared

June 27, 2019

The U.S. economy is continuing to perform well, propelled by factors including a resilient labor market and spending growth, but the benefits of the expansion remain out of reach for too many, according to Federal Reserve Bank of Boston economist Jeff Fuhrer.

Fuhrer spoke Wednesday in Hartford, Conn., to a gathering of leaders of statewide nonprofits. In his presentation, “A Tale of Two Economies,” Fuhrer outlined reasons for the ongoing economic expansion, but he also stressed the need to find ways to better share its fruits.

He noted, for instance, that even as corporate profits have soared to record highs, the number of working people who need government assistance to survive remains frustratingly high.

“It is a skewed sharing of overall prosperity,” said Fuhrer, an executive vice president and senior policy analyst at the Boston Fed.

“If we don’t solve this, we’ll have a loss of both human and economic potential that’s enormous,” he said.

Economy strong, but there are some “horses in the hospital”

The forum was hosted by the Connecticut Health and Educational Facilities Authority, a quasi-public agency that gives the state’s nonprofits access to grants and financing for infrastructure and other projects. CHEFA Executive Director Jeanette Weldon said her group wanted to present a topic that would be relevant to a range of nonprofits with differing goals.

“What came to mind was the economy, because obviously that’s the context for everything that we do,” Weldon said.

Fuhrer began his talk with a broad look at the U.S. economy, noting the labor market continues to create jobs, even with the unemployment rate at its lowest level since 1969. He also highlighted slowing but solid growth in consumer spending.

Still, he said, there’s confusion amid the good results due to a unique combination of conditions. Those include: ongoing trade disputes, lower than expected inflation and Treasury bond yields, signs of slowing growth, and volatility in financial markets over actual and anticipated Fed action on interest rates.

“It’s like a horse got loose in a hospital,” Fuhrer said. “If a horse gets loose in a hospital, you know something is going to happen, but you don’t know exactly what it is.”

“These are a set of events that we really haven’t ever seen before,” he said.

Too many working families need public assistance to survive

Fuhrer said as policymakers try to discern what’s ahead, they must pay attention to groups that haven’t benefited as much from the current growth. This trend isn’t new to the current expansion, Fuhrer said – since about 1970, low- to mid-income earners have seen little wage growth to match overall increases in productivity.

Meanwhile, he said, many working people today are surviving on “crushingly low” annual incomes. For instance, the average annual salary in 2016 for a U.S. household headed by someone who didn’t graduate high school is $26,000. Without public assistance many wouldn’t make it, Fuhrer said, pointing to statistics showing that 35 percent of those in New England who receive food stamps and 69 percent who benefit from the Medicaid and Children’s Health Program are working families.

“It’s a shockingly high fraction of the workforce that needs public assistance to survive, in my view,” he said.

More equitable sharing of prosperity is not a “zero-sum game”

Fuhrer also cited studies that indicate that where a person is born – even down to the neighborhood – can have a huge impact on their economic success. One source tracks incomes of current 30-year olds by place of birth. For white males born of low-income parents in two separate areas of suburban Arlington, Mass., the data show that by age 30, men from one neighborhood had double the household income of people born in another – even though the neighborhoods were just two miles apart.

Fuhrer called it “tragic,” and “insane” that the happenstance of one’s birthplace could have such an impact on future success. He added racism and the design of federal and state programs and institutions – some of which were explicitly designed to steer benefits away from certain groups – are important reasons behind the disparities. Fuhrer also said the Boston Fed is working to change things through initiatives such as the Working Cities Challenge, which emphasizes collaborative leadership, research, and data-driven solutions to tackle chronic problems.

It’s critical, Fuhrer said, for people to realize that equitable distribution of prosperity isn’t a “zero sum game,” where one person’s gain comes at the expense of another.

“It’s about getting people to live up to their potential and have good, sustainable, healthy lives,” he said. “When they do that, the overall size of the economy grows, the health of the economy grows. The pie gets bigger. And it’s better for everybody.”


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