As the U.S. Department of Labor reported Friday another strong month of job gains, the president of the Federal Reserve Bank of Richmond said that the Maryland economy is rebounding, joining the national economic expansion that prompted the Fed to raise interest rates last month.
Jeffrey R. Lacker said he expects the growth to continue this year, as consumer spending and business investment rise and the housing market improves. In Maryland, a new federal budget deal that lifts spending caps could alleviate some of the constraints of the past few years, he said.
"It's just very noteworthy that Maryland picked up in the course of the past year after softness in 2014," he said. "How much of the budget deal passes through to activity in Maryland people will have to see. There is a heavy defense presence here so that might augur well."
Last year's 2.2 percent economic growth is strong, given other trends, added Lacker, who said the Fed expects to continue raising interest rates gradually over the next year.
"I think growth has been good," said Lacker, speaking Friday at a Maryland Bankers Association forum in Baltimore. "Given the much lower population growth we have now, given the downshift in productivity growth, I think 2.2 percent is something we should look at as a very substantial accomplishment."
American employers added a robust 292,000 jobs in December, the Labor Department reported Friday, suggesting that the U.S. economy is so far defying global weakness and growing solidly.
The unemployment rate held steady at 5 percent for a third straight month, as nearly 1 million more Americans have begun seeking jobs since September. That influx has kept the number of unemployed nearly unchanged at 7.9 million.
In Maryland, the labor market's rebound comes as firms recover from the "shock" generated by the sequester and constrained federal spending, said R. Andrew Bauer, a Baltimore-based economist for the Federal Reserve Bank of Richmond. State-level jobs data will be released later this month.
Bauer said he expects Maryland to continue to match — or exceed — national growth rates this year.
He also said he is skeptical about economic predictions based on historic cycles that anticipate a recession returning in the next few years. The economic booms of this expansion aren't large enough for their busts to have widespread effect, he said.
"This recession-recovery is unique," Bauer said. "This is probably the most optimistic I've been in a couple years."
The strong hiring in December underscored the resilience of the United States at a time of financial turmoil stemming from China's slowing economy and plummeting stock market. Despite the strong jobs news, U.S. markets continued to swoon, with the Dow Jones Industrial Average slipping again Friday to end the week down 6.2 percent at 16,346.45.
Lacker said China's market turmoil should have limited impact on the U.S. economy and is not as strong an indicator of that country's overall economic health as similar disruption here would be.
"It is of limited direct import for the U.S. and U.S. growth," he said. "I think we have to be careful not to overreact without evidence of significant effects."
Last month, industries focused on domestic, rather than overseas, demand hired robustly, with gains in construction and professional and business services. That is helping offset weak gains in manufacturing.
Even as demand for workers grew, average pay slipped a penny in December to $25.24 an hour. Still, average pay has risen 2.5 percent in the past year, only the second time since the Great Recession ended in mid-2009 that it's reached that level. At the same time, pay growth remains below the roughly 3.5 percent pace typical of a healthy economy.
Lacker said he expects wage growth to accelerate.
"There's a clear upward trend in place for average hourly earnings," he said. "We're seeing more and more evidence accumulate of wage pressures that in a sense matches up with anecdotal information we've been receiving for over a year now."