Could it be that Utah will be insulated from the national recession?
If the recession is short, Utah likely will not feel any effects, according to Robert T. Parry, president of the Federal Reserve Bank of San Francisco, who came to Salt Lake City to meet with the board of directors of the Salt Lake branch.Parry said there is a reasonable chance the current economic weakness will be short-lived and by the end of 1991 "we'll look back to see some gains against inflation."
Speaking to a group of community and business leaders in the Marriott Hotel Thursday, Parry said Utah's economic picture appears bright because unemployment remains at 4.4 percent, 1.5 percent below the national average.
Other factors in Utah's favor are continuing strong job growth, solid construction activity in the residential and commercial areas and increasing job creation in several sectors, Parry said.
Parry said it is easy to be pessimistic about the national economy because the situation in the Middle East has caused oil prices to fluctuate and unsettled financial markets and even though inflation surged several months ago now the economy is "contracting."
He said the Federal Reserve Board's actions since July to lower interest rates should help against a prolonged downturn. But he warned that policymakers face a wide range of possible developments this year because of the Middle East situation and consumer pessimism about the economy.
"We don't want to overreact to the current downturn and thereby lose or even reverse hard-won gains on inflation," he cautioned.
"Monetary policy affects the economy with a considerable lag. Recent actions to offset the current weakness in the economy will be felt mainly after midyear when strong exports and the dissipation of the oil shock could lead to relatively rapid growth. We want to be flexible enough to change the course of policy should the economy turn out to expand more rapidly than expected," Parry said.
Parry, who assumed his present position Feb. 4, 1986, said the sharp drop in the dollar and low levels of business inventories, especially in the manufacturing sector, as the bright spots in the today's generally gloomy environment.
The decline in interest rates since July should begin to boost the monetary aggregates and add strength to economic activity in the next few months. "A lower dollar makes our exports more attractive and should help to improve our trade balance," he said.
"Although the lower dollar is raising the cost of our imports and temporarily pushing up prices, improvements in underlying inflation should be felt by year-end," he said, citing a slowing of the growth of wages, salaries and benefits, which is probably due to recent slackening in labor markets.
During a press conference before the luncheon, Parry said there has been concern about the stability of banks after the publicity of some failures. The average depositor need not be concerned because the insurance system is such that the money will be safe, he said.