In February of this year John Williams, head of research at the San Francisco Federal Reserve, gave a speech at Stanford in which he asserted the US economy had finally recovered, with 2011 real GDP expected to expand by 4.00% and then by 4.5% in 2012. (see: The Fed’s John Williams: recovery has achieved “liftoff”, Reuters 4 February 2011). Unfortunately, at the very same moment Mr. Williams was speaking in Palo Alto, data on California food stamp participation and employment was sending out a warning that America’s largest state was going back into recession. From the Williams’ speech:
…after what was perhaps the worst recession of the postwar era and a recovery that proceeded in fits and starts, the economy finally seems to be attaining escape velocity. That is to say, the recovery appears increasingly to be becoming self-sustaining, driven primarily by private-sector demand rather than relying so much on government support.
In contrast to Mr Williams’ assertions total employment in California had just registered, in both November and December of 2010, new post crisis, post 2008 lows. In the chart below, one does not find either the “escape velocity” or the promise of 4.00% GDP in Mr. Williams’ home state of California. | see: California Employment in Millions (seasonally adjusted) 2000-2011.
As documented repeatedly here at Gregor.us, California with its outsized exposure to gasoline consumption entered a renewed phase of economic risk in Q3 and Q4 of 2010, as oil prices rose and its economy stagnated. My November 2010 post, Poverty Soars in California, put the various pieces together. While we know that the Federal Reserve is historically very poor at economic forecasting, publicly available data should have dissuaded FRB research departments from their 1H 2011 optimism.
For example, let’s examine the chart of rising oil prices set against Food Stamp participant growth in Los Angeles County. Note that as of the most recent data for July 2011, LA County is only 1500 persons shy of the 1 million mark for Food Stamp recipients. | see: Los Angeles County SNAP Users vs. Price of Oil 2007-2011.
One would think the Department of Research at the San Francisco Federal Reserve would be more cognizant of actual, on the ground economic conditions in the Region over which it presides. This only serves to underscore, however, that the Federal Reserve as a whole is decreasingly empirical in its messaging, as it strives instead to act politically and manage public perceptions.
Update: The chart of California employment has been updated to add the latest employment data for August, from the State EDD of California. There were no revisions of previous months, with today’s release.