BANGOR, Maine — Economic growth in Greater Portland has been strong in recent years, but the head of the Federal Reserve Bank of Boston said that lopsided development stands to hamper Maine’s economic progress.
“Finding strategies for some of the areas that aren’t doing as well as the Greater Portland area is something that deserves more attention,” Eric Rosengren, president and chief executive officer of the regional arm of the country’s central bank, told the Bangor Daily Newsin an interview Tuesday at Husson University.
As Maine’s gross domestic product has grown steadily since 2001, and more slowly since the recession, the Portland area has continued to make up more than half of the state’s production.
The recommendation to Maine follows the bank’s efforts to boost the economies of former mill towns and smaller cities in Massachusetts. The Working Cities Challenge, led by the bank, solicited applications from Massachusetts cities and towns for a portion of nearly $1.8 million, including funds from the Boston Fed and government and nonprofit sources, to support community development projects. Rosengren, a graduate of Colby College, said the Boston Fed may consider replicating the effort in Maine or across the region, but nothing is planned.
Rosengren’s recommendation comes against a backdrop of uncertainty about just how deep the recession that started in late 2007 cut into the country’s economy. During a talk to the university’s College of Business, Rosengren said that sectors of the national economy are showing signs of what he called “scarring.”
Households, nonfinancial businesses and nonprofits are building cash reserves beyond pre-recession saving levels. That, he said, demonstrates people and companies are more averse to financial risk, which stands to slow economic growth. Uncertainty over the depth of that “scarring” leaves open the question of whether the economy will return to previous patterns in employment and consumer spending or have longer-lasting impacts.
He said other metrics also point to weaknesses in the economy. While unemployment in Maine and northern New England remains lower than the national average, the percentage of people seeking full-time jobs and finding only part-time work has stayed high since the recession.
“This recession is very unusual,” Rosengren said, adding that the number of people unable to find full-time work is “dramatically higher than even the worst of the last recession.”
In Maine, figures going back to 2003 show that while the standard measure of unemployment peaked at an annual average of 8.1 percent in 2010 and then declined, the measure of unemployment that includes people wanting to work full-time did not begin to decrease until 2012, when 15 percent of the work force was either unemployed or underemployed.
The anomalies in this last recession are part of the reason Rosengren recommends the nation’s central bank not back off its stimulus efforts until unemployment and inflation level out.
Rosengren said the Fed should promise to keep its short-term interest rates low until the economy is one year away from reaching full employment, which he estimated at 5.25 percent, and 2 percent inflation. The national unemployment rate was last below 6% in July 2008.
Rosengren expects the economy to continue growing at around 3 percent annually for the next two years, a rate that according to what Rosengren called a “back of the envelope calculation” — called Okun’s Law — would bring the country to 5.25 percent unemployment by February 2017. If that projection is off by half a percentage point, which Rosengren said is not uncommon, that same calculation holds it would take until January 2020 to reach that unemployment level.
Rosengren was an outspoken advocate against the Fed backing off its monthly purchase of around $85 billion in bonds in December. The central bank has gradually reduced those purchases by $10 billion at recent meetings, to $55 billion in March.