Over April and May, the average monthly gain in employment in the private service-providing sector has been well maintained at 175,000. In contrast, employment in the manufacturing sector and the federal government declined a combined 20,000 per month. And the resulting uncertainty is, I believe, an important contributing factor behind the relatively sluggish pace of business investment spending. My best guess is that growth for all of 2013, measured on a Q4/Q4 basis, will be about what it has been since the end of the recession. But I believe a strong case can be made that the pace of growth will pick up notably in 2014. The private sector of the economy should continue to heal, while the amount of fiscal drag will begin to subside. I also see some indications that growth prospects among our major trading partners have begun to improve; for example, the rise in the June euro area composite Purchasing Managers’ Index. And this combination of events is likely to create an environment in which business investment spending will gather strength. Finally, I believe this tug-of-war analogy is useful in explaining the recent inflation dynamics. As is well known, total inflation, as measured by the personal consumption expenditures (PCE) deflator, has slowed sharply over the past year and is now running below the FOMC’s expressed goal of 2 percent. Softness in energy prices, resulting from the weakening of global growth mentioned earlier combined with increased energy production here in the U.S. has contributed to the slowing of total inflation.
Although the sector has shed jobs over the past two years, it remains an important and valuable component of the local economy. There are also numerous corporate headquarters in the county and a notable manufacturing presence, particularly in the pharmaceuticals, electrical equipment and aerospace industries. In addition, the whole tri-state region has benefited from its proximity to New York City, where the rebound in the economy – and also in employment – has been much stronger. Fairfield County’s connection to New York City is not quite as strong as Long Island’s or the lower Hudson Valley: About 7 percent of working residents in the county commute to New York City compared to about 20 percent in those areas. Still, the city’s strong pace of job creation during the current recovery is supporting incomes in the county. Turning to the recent performance of the economy, this area is growing pretty much in line with the nation, at least in terms of employment. That’s a bit of an improvement from 2012 when, after solid gains in 2010 and 2011, job creation in both Fairfield County and Connecticut had stalled. Some sectors, such as education, health, and professional and business services were adding jobs; but those were offset by job losses not only in finance, but also in the goods-producing and distributing sectors. And at the end of October, Superstorm Sandy hit the region, causing major damage and disruption.