christine m cumming : macro overview of the united states remarks by ms christine m cumming, first vice president of the federal reserve bank of new york, at the european economics and financial centre, london, 15 february 2011. * * * it is a great pleasure to be here to speak to you today about recent developments in the u. s. economy. i ’ d like to thank professor hannah scobie and the european economics and financial centre for organizing the seminar in this beautiful historic setting, and thank the member of parliament, geoffrey clifton - brown, for presiding over and sponsoring this meeting. the views i will express are my own and do not necessarily reflect the views of the federal reserve bank of new york or the federal reserve system. i have organized my talk into six observations about the u. s. economy. first, in considering the nature of the recovery from the financial crisis and recession, which many call the “ great recession, ” it is important to take note of the severity of the downturn from which we are recovering. even though the united states has experienced six consecutive quarters of positive growth of real gross domestic product ( gdp ) since the official end of the great recession, the level of output remains well below the business cycle peak. the economic history of such combined financial crisis and recession experiences is that recovery is often slow and protracted ; this one seems no different. hours worked, closely tied to overall economic activity, and personal income excluding transfers ( charts 4 – 5 ) illustrate both the depth of the economic decline and the highly unusual nature of the recovery so far compared with all others in the post - world war ii period. the unemployment rate has declined, but to a large extent this reflects the decline of the labor force participation rate ( chart 6 ). ranges of estimates of unemployment including discouraged workers run as high as the high teens. had the participation rate remained at its business cycle peak level, the unemployment rate would be about 10. 5 percent. core inflation ( excluding energy and food prices ) has declined to a very low level, well below the range of 1 percent to 2 percent that market participants have associated with the fed ’ s desired, “ mandate consistent ” range. low rates of core inflation are of concern because economic research suggests that this is an important indicator of long - term trend headline inflation ( chart 7 ). economic history also suggests that recoveries from financial crisis and recession are fragile. indeed, one disappointment in 2010 was that an initially strong recovery weakened considerably in

, wyoming ( charts 17 – 20 ). the personal saving rate has risen to a level that is consistent with the historical relationship between that rate and household net worth relative to disposable income, reflecting the very large drop in household net worth from the combined impact of financial crisis and severe housing downturn ( charts 21 – 22 ). the household financial obligation ratio has declined to the level that prevailed in the mid 1990s, reflecting a combination of debt repayment, debt charge - offs and lower interest rates ( chart 23 ). households in all credit - quality quintiles are continuing to reduce their overall debt ( chart 24 ). banks tightened lending standards during the financial crisis and recession. bank lending standards, while tight in level terms, have begun to ease ( chart 25 ). commercial and industrial ( business ) loans on bank balance sheets and consumer credit ( nonmortgage ) have begun to expand ( chart 26 ). fourth, the u. s. economy still faces painful structural adjustments in the housing and government sectors that pose significant downside risks. the excess inventory of vacant homes, particularly single - family units, remains substantial ( chart 28 ). as a result, the number of housing starts has fallen to essentially frictional ( replacement ) levels and remain there ( chart 29 ). a large pipeline of loans in foreclosure and loans seriously delinquent still exists ( chart 31 ). the ratio of foreclosures to delinquencies over 90 days has fallen substantially, under the combined impacts of efforts to work out loan modifications with borrowers, decisions by lenders to slow foreclosures to avoid the deleterious impact of property vacancy, and the sheer volume of foreclosures relative to the legal and financial infrastructure designed to handle them. bis central bankers ’ speeches home prices have come under renewed downward pressure, a concern because of its impact on household net worth and spending ( chart 30 ). some signs that the market for distressed housing ( short sales and foreclosures ) is separating from the main housing market may be a positive indication that market forces are starting to work through the housing oversupply in a process similar to that usually seen for distressed real and financial assets. state and local governments have been cutting employment and will likely continue to do so over the year ahead ( chart 32 ). the federal fiscal stimulus sustained state and local governments through the severe revenue drops triggered by the recession. with the ebbing of the fiscal stimulus program,