"The economy is healthier, but it's certainly not well yet," said William Dudley. Consumers are still feeling the effects of lost wealth and tighter credit, and the lower unemployment rate is more a sign that some people have given up looking for work than that job numbers are higher, he said.
Dudley spoke at the Fed's quarterly regional economic press briefing for the New York region.
Gains in professional and business service jobs and in education and health care have not been enough to offset job losses in retail and manufacturing, according to Dudley. Still, he noted that such pauses are not unusual in economic recoveries, and that the New York area could be poised for faster growth.
One thing that could spur that is consumer spending, but that depends on whether consumers are ready to save less and borrow more again. As in any recession, people have been borrowing less, saving more and paying down their debt - all of which is good for individul consumers. But if that caution continues, Dudley said it would drag on the economy.
Long Island's debt-to-income ratio has been the highest in the metropolitan area, which includes New York City and the outlying suburbs, and is above the national ratio, said Richard Deitz, regional economics officer for the New York Fed. The Island's debt per capita has dropped by more than $3,600 in the past two years - more than that of other parts of the metropolitan area, but less than the national average.
The percentage of delinquent loans - which include all types of consumer loans - is high on Long Island, although it's lower than New York City's.
The reason for the high level of debt on Long Island is mostly the result of the area's high level of residential foreclosures, said Rae Rosen, a senior economist for the New York Fed. She said those foreclosures - and higher debt levels - were concentrated in seven relatively low-income communities: Hempstead, Roosevelt, Wyandanch, Brentwood, Central Islip, Mastic Beach and Mastic.
What happens next depends, in part, on what consumers decide to do. If those who are still carrying a lot of debt continue to focus on getting that under control, it's going to hold down economic growth, Dudley said. "I don't know if that process is complete," he said.
He noted that auto loans are increasing, and that's a good sign because buying a car is a hefty piece of discretionary spending.
"That drag seems to be diminishing," Dudley said.
To be sure that the economy is finally moving forward, Dudley said, he'd need to see signs that private industry is hiring again. And if the labor market improves, that will encourage people who have dropped out to participate again.
Governmental job cuts will be damaging, but New York Fed senior economist Jason Bram said he was hopeful that business hiring "could swamp governmental losses."