The pace of overall economic growth is likely to slow in the U.S. this year but remain stronger in the South, a Federal Reserve economist told Chattanooga business leaders Tuesday.
David E. Altig, the chief economic adviser at the Federal Reserve Bank of Atlanta, said the widely predicted economic downturn never materialized last year and inflation has moderated even while the pace of economic growth increased last year.
Buoyed by fiscal stimulus measures adopted during the pandemic and restrained by a series of 11 interest rate hikes by the Federal Reserve Board in 2022 and the first half of 2023, the U.S. economy last year grew at a healthy 3.1% rate while inflation dropped from 3.1% to 2.6%, Altig said. In the second half of 2023, inflation as measured by personal consumption expenditures actually declined to be within the Federal Reserve's target of 2% overall inflation, he said.
"Things worked out pretty well even though it wasn't supposed to work out that way," Altig said.
Traditional economic theory suggests inflation doesn't usually cool down when the economy is gaining steam.
"Any textbook you open says this does not happen," Altig said, referring to last year's trend of higher GDP growth with lower inflation. "The forecast of almost every economist last year is that we would not grow much, if at all (after the Federal Reserve rate increases)."
U.S. unemployment has remained below 4% for more than two years since the national economy rebounded from the COVID-19 pandemic.
The jobless rate has been even lower in the Chattanooga area. Last year, unemployment in the six-county Chattanooga metropolitan area fell to an all-time low of 2.6% in April and ended the year with a jobless rate in December of 2.9% after Chattanooga area employers added 4,525 more jobs during 2023, according to the Tennessee Department of Labor and Workforce Development.
"Our employment numbers for the metropolitan area are the highest that they have ever been and we are doing well," Chattanooga Area Chamber of Commerce President Charles Wood said Tuesday during the economic forum. "There certainly is a lot of work to do, and there a lot of things for us to navigate, but we have a lot of great things coming, and our economic pipeline remains strong."
But higher interest rates have taken some toll on housing and other interest-sensitive industries in the region. Home sales in the Chattanooga area in 2023 were down 12.5% from the previous year, falling to the lowest level since 2018. Major carpet manufacturers in the region also reported lower profits last year and warned that sales in the first half of this year are likely to be down from year-ago levels.
Altig also noted the average workweek has shortened while inflation ticked up last month to start 2024, creating new challenges for the economy and inflation in the new year.
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"Progress on the inflation rate is real, but sustainable attainment of the 2% goal (established for inflation by the Federal Reserve) may not be complete," Altig said. "The most recent projections indicate that we are not quite there yet."
The latest projection by the Federal Open Markets Committee calls for inflation to remain above the 2% target again in 2024, although overall prices are expected to rise a bit slower than last year.
Altig said the consensus forecast by the Federal Open Markets Committee is for a slower rate of economic growth in 2024 than last year. But Altig said he thinks Southern states like Tennessee will outperform the country due to continued in-migration of workers and businesses. Even with more people moving to Tennessee, there were still 1.63 open jobs for every unemployed worker in Tennessee near the end of 2023, which was nearly the rate in states like California and New York.
(READ MORE: Westside development grows)
Wood said major new developments planned on the Westside and Southside of Chattanooga by developers of The Bend and a new Lookouts stadium are likely to give the local economy with potentially up to $3 billion of new investment in Chattanooga to boost the economy and provide more needed housing in the region.
Contact Dave Flessner at dflessner@timesfreepress.com or 423-757-6340.