Given the key role that human capital plays in our nation’s growth, this is an important issue. We at the New York Fed will continue to monitor school finances and other education indicators in our region closely as this will, over time, affect our regional economy. Conclusion In summary, during the second half of 2011, growth slowed in New York, falling well short of the national rate, although New Jersey kept pace. It’s also important to note that the national labor market is showing more consistent signs of improvement, and the regional labor market has continued to make progress. However, at the national level, the pace of recovery remains sluggish by historical standards and is likely to slow somewhat in early 2012. Thus, unemployment, both nationally and locally, is likely to remain unacceptably high for some time. Also, inflation is likely to be below our objective for several years. Clearly, much work remains to achieve the Fed’s dual mandate of maximum sustainable employment in the context of price stability. The Great Recession has affected education financing in both New York and New Jersey, but New Jersey was hit harder. Through its impact on the education of the next generation, this situation could have troubling implications for the ability of the next generation to succeed in the demanding jobs of the future. I will now ask Jason Bram to provide additional details on the regional economy. 4  For more detail, see Chakrabarti, Rajashri and Elizabeth Setren. 2011.
Third, despite record low mortgage interest rates, the depressed housing market remains a significant impediment.1 While house prices are no longer overvalued by historical standards, restrictions on access to credit and the large number of homes in the foreclosure pipeline means that home prices remain under downward pressure. The ongoing weakness in housing makes achieving a vigorous economic recovery more difficult for several reasons:   The strong rebound in housing construction and related activities, such as furniture sales, that typically power economic recoveries following deep recessions is absent.   The decline in home prices has eroded household wealth, which then inhibits consumer spending. Since home values peaked in 2006, homeowners have lost more than half their home equity and many expect further declines.   The weakness in home prices has reduced credit availability because many households and small businesses use their homes as their primary source of collateral for loans. 1  See Board of Governors of the Federal Reserve System, 2012 White Paper, “The U.S. Housing Market: Current Conditions and Policy Considerations” and “Housing and the Economic Recovery” by William Dudley. 2  BIS central bankers’ speeches    The big drop in house prices has made it more difficult for borrowers to refinance, undercutting some of monetary policy’s ability to support demand. In a recent speech I discussed some policy interventions that could help to stabilize the housing market. I will not discuss this further as our focus today is on education.