In order to train these workers, local junior colleges and high schools must work with local businesses to provide training opportunities in order to close this “skills gap.” There are approximately 46 million members of the labor force in this country with a high school education or less. It is our view at the Dallas Fed that, due to technology-enabled disruption, these workers are increasingly finding that their jobs are being restructured or eliminated.
Unless they have sufficient levels of math and reading capability and/or are retrained, these workers are likely to struggle to adapt to the changing nature of the job market. The financial health of the household sector is crucial because the consumer comprises approximately 70 percent of GDP.
As a result, they are likely to see their incomes and productivity decline. Since the Great Recession, the household sector in the U. In 2008, the household sector was historically highly leveraged relative to their incomes.
Improving math, reading and science capabilities, improving college readiness and beefing up the availability of skills training for potential workers will likely be essential to improving our workforce productivity, reducing the number of discouraged workers and contributing to higher GDP growth in the U. When assessing the level of debt in the economy, Dallas Fed economists look at debt held by the household sector, the business sector and the U. It was not as apparent because household assets, particularly home prices, were elevated and appeared to support higher leverage. consumer has deleveraged since the Great Recession, business debt as a percentage of GDP has increased, and U. government debt levels have increased substantially. While increased business debt is likely manageable, U. government debt held by the public is now 75 percent of GDP, and the present value of underfunded entitlements is now approximately $49 trillion. There is a legitimate concern that the projected path of U. government debt relative to GDP is unlikely to be sustainable. However, the debt-financed tax cuts included in the legislation are likely to temporarily stimulate demand, with effects that will peak in 2018, and gradually fade in 20.
Kansas City Fed economists estimate that approximately 43 percent of all jobs in the U. are so-called “middle-skills” positions. These include pipe fitters, automotive technicians, registered nurses, IT specialists and so on.
Every one of these jobs that goes unfilled means a lost opportunity for higher GDP.
The Federal Open Market Committee (FOMC) in its January meeting decided to leave the federal funds rate unchanged in a range of 125 to 150 basis points. We also expect business investment to be stronger than in 2017, and we believe that improved global growth could also help support economic growth in the U. Our forecast reflects the positive near-term impact of the recent tax legislation. We also expect U-6—a measure of labor slack that tracks the number of unemployed plus “marginally attached workers” (workers who indicate that they would like a job but have stopped looking for one) plus those working part time for economic reasons—to decline from 8.2 percent to well below 8 percent.
In our FOMC statement after the meeting, the committee explained that it expects “economic conditions will evolve in a manner that will warrant further gradual increases in the federal funds rate.” The purpose of this essay is to briefly discuss my views regarding economic conditions, the implications for monetary policy and address a few of the fundamental challenges facing the U. It is our view that the bulk of this impact will be felt in 2018 and to a lesser extent in 20. It is the judgment of Dallas Fed economists that current levels of headline unemployment as well as U-6 are indicative of an economy that is either at or has moved past the level of full employment.
I also believe we’ll see firming in the Dallas Fed Trimmed Mean measure of core inflation, which excludes extreme price movements (both high and low) in goods and services.
This measure continues to be the Dallas Fed’s preferred gauge of underlying inflation in the U. Based on these expectations, I believe the Federal Reserve should be gradually and patiently raising the federal funds rate during 2018.