Transcripts of the monetary policymaking body of the Federal Reserve from 2002–2008.

Thank you, Mr. Chairman. Since the last meeting, aggregate economic activity in the Sixth District has expanded moderately. Employment momentum in most areas of the District continues to exceed that of the nation overall. Florida is our exception. Most areas of Florida now lag the nation. Similarly, the housing downturn, as measured by sales and permits, remains less severe in the District than for the nation, except for much of Florida. The housing downturn in Florida has shown little sign of bottoming out, as builders continue to expect even lower levels of construction. Permit issuance continues in steep decline, down over 50 percent from March a year ago. We are not inclined to suggest that there is significance for the nation as a whole in the Florida developments. We have heard anecdotal views from Florida that there was a run-up in speculative activity in the second-home market in 2004 and 2005. Buyers were bidding up prices in anticipation of flipping properties at higher prices. So Florida is idiosyncratic. It is idiosyncratic also in the state’s ongoing insurance cost problem related to hurricane risk. However, in the Atlanta region, the conversations we’ve had with homebuilders about the housing market raised concern of a steepening decline in sales of new homes. Atlanta has generally tracked the nation, so we are carefully watching housing-sector developments in Georgia, particularly in Atlanta.

Despite these negatives in the housing sector, we continue to find only limited evidence of spillover from the residential real estate adjustment to other sectors of the regional economy. Labor markets appear to have remained very tight in the District. The measured unemployment rate is around 4 percent for the District versus 4.4 percent nationally. Even the demand for skilled building tradesmen appears strong, as builders—and this may be relevant to the earlier discussion—seem to be taking the opportunity to upgrade the quality of their staffs. Trends in state sales tax revenue support the view that consumer spending has been relatively unaffected by the housing downturn. Again, the exception is Florida, where sales tax revenues in the first quarter were substantially below year-ago levels.

Our perspective on the national economy is that significant uncertainty remains about the overall outlook for 2007 and for the path of inflation. Our economic staff uses three models to forecast the key macroeconomic measures. Our average forecast for real GDP growth is generally in line with the Greenbook forecast, and neither suggests that a recession is a risk. There are minor differences between our composite forecast and the Greenbook on unemployment. The only significant difference is the declining path of inflation in the Greenbook versus our inflation forecast that holds steady around 2.3 percent for the forecast period. So, to summarize, we harbor greater doubt than the Board staff that the inflation rate will come down as projected in 2007.

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