I recognize fully that there can be no return to pre-crisis business as usual – whether on the part of the financial sector or on the part of regulators like ourselves. We must learn from the economic catastrophe of the past few years so that the financial system is able to perform its essential role in supporting economic activity without being a source of instability for the economy as a whole. All in all, there is a lot to keep my colleagues and me quite busy – even in normal times. National economic conditions Now, what is the outlook for and risks to economic activity, employment and inflation in the nation? Since the recession ended in 2009, the economy has grown at a relatively modest pace. Economic growth in the first quarter of 2011 was somewhat softer than anticipated, with the  2  BIS central bankers’ speeches  advanced reading of real gross domestic product (GDP) – that’s the economic output of the economy – increasing at only a 1.8 percent annual rate. A number of factors contributed to the slowdown. Construction activity fell – likely reflecting the continued large supply of unsold homes – and government expenditures at the federal, state and local levels declined. In addition, real consumption growth (that is, spending on goods and services adjusted for price increases) in the first quarter was slower than in the last quarter of 2010.
These patterns suggest that households in the area are making progress on restoring their balance sheets, but they may not have completed the process. With regard to jobs, employment losses in the area during the 2008–09 downturn were steeper than in most of New York State, although less severe than for the Unites States as a whole. As of the first quarter of 2011, the Hudson Valley had yet to see a clear upturn in  BIS central bankers’ speeches  5  employment. The private sector has actually seen brisk job gains in the leisure and hospitality sector, and the professional and business service sector added jobs in the Poughkeepsie-Newburgh-Middletown metro area. And private-sector employment has held steady in the Kingston area over the past year. Both areas, however, have seen continuing job losses in retail trade and, especially, government employment. State and local government employment has declined by about 3.5 percent in the past year and has weighed down overall job growth in both areas. Unemployment rates in the mid-Hudson valley peaked at 8.4 percent in late 2009 – well below the national peak of 10 percent and moderately below the state-wide peak of 8.9 percent. Nevertheless, as in much of the region and the nation, jobless rates have not retreated much thus far and remain stubbornly high. Thus, the area was severely affected by the recession, but somewhat less so than the rest of the country. The recovery has begun, but some signs of distress remain in housing, credit and labor markets.