–Risk Takers Key to Economic Revitalization, Job Growth
–See Employment Growth of 200,000 a Month From April to December

By Heather Scott

WASHINGTON (MNI) – The current atmosphere of risk aversion among
lenders and increased regulation and supervision is posing a policy
dilemma, since risk lending is key for entrepreneurs who in turn are
vital to job creation, Atlanta Federal Reserve Bank President Dennis
Lockhart said Wednesday.

Employment growth continues to lag, and may take three years to get
to pre-recession levels, and at the same time new business creation,
which could fuel new jobs, is also a “particularly frustrating” feature
of the recovery, Lockhart said in a speech prepared for the National
Funding Association National Convention in Atlanta.

The “relatively muted employment growth” which added 1.5 million
jobs last year and in the first quarter “in part reflects
businesses’ continued reliance on higher productivity of existing
workers rather than on workforce expansion,” he said.

“My current forecast suggests job growth of around 200,000 per
month for the rest of the year, including April’s numbers, which will
come out on Friday,” he said.

At that pace, which implies payroll gains of 1.8 million through
year-end, “it may take three years before the size of the nation’s
workforce reaches prerecession levels, unless there is a significant
downshift in productivity gains and/or much stronger-than-expected
economic growth,” Lockhart said.

He noted that “there is virtually no net job creation resulting
from new business formation in recent quarters,” and said “The low level
of new business formation has been particularly frustrating in this

Lockhart cited research showing new firms added an average of three
million jobs a year form 1977 to 2005, making them key to a recovery.

But at the same time “from a systemwide perspective we are in a
period of de-risking. Heightened risk aversion and intensified
regulatory supervision are shaping the environment in which you as risk
lenders conduct your business.”

This situation presents “something of a dilemma for policymakers,
like me,” Lockhart said, since stronger supervision is justified, but
credit is necessary.

“Stronger regulation can and should, however, leave room for
lending that supports an active and healthy entrepreneurial sector,”
Lockhart cautioned. “I believe it would be unwise to contain and
constrain the credit industry to the point that servicing the
entrepreneurial sector on commercially reasonable terms becomes quite

Still, he said that is not happening yet, since loan demand remains

“As necessary reforms are implemented, I think all concerned must
take into account the importance of risk lending to the nation’s
economic fortunes. American society has a strong interest in promoting
entrepreneurial activity for the allied benefits of growth and job

“As a class, the borrowers you finance — the entrepreneurs, the
risk takers, the value creators — are quite likely to be a key element
of the country’s long-term economic revitalization.”

** Market News International Washington Bureau: 202-371-2121 **