Former Federal Reserve Chairman Alan Greenspan said the U.S. economic rebound has been hindered by a slump in the construction industry.
“What we see is that construction is dead in the water,” Greenspan said Tuesday at an insurance conference hosted by KPMG in New York. That contrasts with other recoveries since World War II, as “every single one of them was led by construction or longer-lived assets,” he said.
The industry’s recovery from the 2008 slump has been challenged by slow wage growth and tight credit, which have put home ownership out of reach for some Americans. Housing starts were at a 1.09 million annualized rate in July, Commerce Department data show, compared with a 20-year average of about 1.35 million.
Greenspan, 88, led the Fed from 1987 to early 2006. He said today that doubts about the future, including where tax rates will be, have discouraged some businesses from deploying capital.
“What they are saying is ‘we are so uncertain about the distant future that we are not going to invest,’” Greenspan said.
The Fed has kept its benchmark rate near zero since 2008 to stoke economic growth. Greenspan said that interest rates and inflation will eventually rise and that he didn’t know when that would occur.
The cost of living in the U.S. climbed 0.1 percent in July from June, the slowest increase in five months, as sluggish global demand limits companies’ abilities to charge customer more. Fed Chair Janet Yellen told lawmakers in July that the central bank must press on with monetary stimulus with “significant slack” remaining in labor markets and inflation holding below the Fed’s goal.
“The reason inflation is dead in the water now and will be for the immediate foreseeable future is that we are operating at less than full capacity in the world,” Greenspan said today.
U.S. payrolls increased by 142,000 in August, the smallest advance this year. The participation rate, which indicates the share of working-age people in the labor force, decreased 0.1 percentage point to 62.8 percent, matching the lowest since 1978.
Greenspan also commented on China, the world’s second-largest economy, saying the country has had a remarkable run and may face slower growth. Innovation is difficult in a single-party state, he said.
© Copyright 2021 Bloomberg News. All rights reserved.