Dudley: Economy Mending Despite Housing Woes

NEW YORK CITY-Nationally and regionally, the economy is on the mend despite fresh evidence of a weak housing market, the head of the Federal Reserve Bank of New York said Monday at a quarterly press briefing. He also put in a positive word for the Treasury’s $600-billion second round of quantitative easing, claiming that it “helped to ease financial conditions, thereby stimulating economic activity.”

In prepared remarks, William Dudley, president and CEO of the New York Fed, credited QE2 as one of “several notable forces” that led to a pick-up in economic growth in the latter half of 2010. Other factors were the lagging effects of previous Fed measures and greater availability of debt. “While the absolute level of lending standards remains tight, banks did begin to ease standards somewhat in the second half of ’10,” said Dudley.

However, Dudley observed, home prices have softened once again and construction activity remains “stuck at a very low level.” He said it might take as much as another year for demand to stimulate “a meaningful recovery” in residential construction.

Dudley noted that interpreting the most recent employment report poses a challenge. Only 36,000 non-farm payroll jobs were added in January, a number that fell “well below expectations,” but at the same time the unemployment rate took another 400-basis point drop to 9%.

“Neither the disappointingly slow job growth nor the welcome steep drop in unemployment seems to paint the full picture,” Dudley said. “The truth lies somewhere in between. Despite the stronger job growth that we expect in the months ahead, we will continue to have a substantial amount of slack in our labor markets that will take time to absorb.” He added, “The economy is healthier, but it is not yet well” and will need to grow at “a considerably faster rate than we have seen so far in this recovery.”