A Federal Reserve Director of Regional Economic Information Network, Galina Alexeenko, recently spoke at the International Business Council (IBC) of the Chattanooga Chamber of Commerce. Alexeenko is an international economist headquartered in the Fed's Atlanta office and connected to its five branches in the Southeast region. She participated in an interactive discussion with fellow international economist Anton Demenchuk, president of the IBC. The meeting was supported by the Office of International Programs and the College of Business /University of Tennessee at Chattanooga (UTC) and sponsored by AIM/Career Link. Alexeenko shared her personal perspective on a wide range of fiscal and economic topics with the audience of educators, entrepreneurs, and civic leaders.
Alexeenko began by emphasizing the two key mandates of the Federal Reserve: 1.) Full employment and 2.) Economic stability. She explained that unemployment has returned to pre-Great Recession levels although that news is tempered by the many people who are employed only part-time or have stopped looking for work. Turning to the economy, Alexeenko explained that there was a slow down in the last quarter of 2015 and the first quarter of 2016, then growth picked up in April. There is consensus that the economy will grow 2% this year. The target of 2% inflation, a figure related to consumer spending, has not been reached, in part due to low gas prices.
Globally, Alexeenko noted that, "The USA is the best-looking kid on the block." Running through major economies around the world, she touched on China's slow growth and over capacity, although it's not as bad as expected. Africa has been hit hard with lower market prices for oil, as has Latin America. There is optimism among investors concerning India. Europe, our largest trading partner, is recovering from the Great Recession although a Brexit, United Kingdom exit from the European Union, remains the #1 threat to Western economies.
Alexeenko discussed the issue of productivity in the US workforce noting that productivity was increasing 2.5% prior to the Great Recession, the current rate of increase is only 0.5%. At the current rate, it will take 140 years to double our standard of living. There are conflicting theories accounting for the low productivity rate. Some assert that older workers are retiring, taking their skills with them and leaving younger, less experienced workers in their place. Others claim that older workers are increasing and are less productive. Some go out of their way to keep older workers, yet other companies encourage them to retire.
While the data indicates that under-investment in capital may be a factor in the slow growth in productivity, Alexeenko's on-the-ground discussions with individual companies show that, "They seem to be doing everything right." The availability of credit is no longer a problem for companies, whether established businesses or start ups. Further, many small business starts up are are owned by women who often prefer to rely on their own savings for capital. Yet, Alexeenko explained that small business formation has been declining for the past twenty years.
At this point, Demenchuk and the audience offered Chattanooga as a research model for small business start ups. The Southeast economy has done well relative to much of the US. Investments made by international manufacturing companies, particularly the automotive industry, have been a major component of the economic success in Tennessee. Unemployment in Chattanooga metropolitan area dropped to 4.1 % in April 2016, well below the nationwide rate, and is expected to drop further over the next year. As Chattanooga continues to grow its dynamic, innovative economy, the city emphasizes entrepreneurship through education, mentoring, financing, and promotion. Local civic organizations, schools, colleges, professional associations, incubators, nonprofits, foundations, and municipal agencies are involved in supporting entrepreneurs and start ups. Chattanooga looks forward to a lively exchange of ideas with the Federal Reserve.