Transcript Midwest Economic Outlook - Saint Xavier University

Economic Outlook
Saint Xavier University
Graham School of Management
Chicago, IL
March 6, 2015
William Strauss
Senior Economist
and Economic Advisor
Federal Reserve Bank of Chicago
The “Great Recession” ended in June 2009 and
GDP expanded by 2.4% last year
Real gross domestic product
percent
8
Quarterly change (saar)
6
4
2
0
-2
-4
Percent change from a year earlier
-6
-8
-10
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The Federal Open Market Committee (FOMC)
expects GDP to grow somewhat above trend
over the next three years
Real gross domestic product
percent change from a year earlier
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
FOMC Central Tendency (December 2014)
2015
2016
2017
2.6 – 3.0
2.5 – 3.0
2.3 – 2.5
Longer run
2.0 – 2.3
FOMC
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
The path of the current recovery is restrained
compared with past deep recession recovery cycles
Business cycle recovery path
i ndex - business cycl e trough = 100
135
135
1981-82
130
130
average annualized growth: 4.9%
125
120
125
120
average annualized growth: 4.3%
1974-75
115
110
115
110
2008-09
105
105
100
100
average annualized growth: 2.3%
95
-8
-6
-4
-2
0
quarters before trough
2
4
6
8
10 12 14 16 18
quarters after trough
95
20
22
Employment grew by over 3.2 million jobs
over the past 12 months
Total employment
percent
6
4
2
0
-2
-4
Percent change from a year earlier
-6
-8
Monthly change (saar)
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
After peaking in October 2009,
the unemployment rate has fallen by
4.3 percentage points
Unemployment rate
percent
11
10
9
8
7
6
5
4
3
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
However, the labor force participation rate fell
to a level last seen in 1977
Labor force participation rate
percent
68
67
66
65
64
63
62
61
60
59
58
1950
'55
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
Civilian Labor Force Participation Rate
and Population Share 16 and Older
by Age Category, United States, 2007 and 2014
Labor Force Participation Rate (%) Population Share (%)
Change
Change
2014
2007
‘07-’14
2014
2007
‘07-’14
Population
16 and older
62.9
66.1
-3.2
100.0
100.0
0.0
16 to 24
25 to 34
35 to 44
45 to 54
55 to 64
65 plus
55.0
81.2
82.2
79.6
64.1
18.6
59.4
83.3
83.8
82.0
63.8
16.0
-4.4
-2.1
-1.6
-2.4
0.4
2.6
15.6
17.0
16.0
17.3
16.0
18.1
16.1
17.1
18.3
18.8
14.0
15.6
-0.5
-0.2
-2.3
-1.5
2.0
2.5
The share of those unemployed more
than 6 months remains significantly high
Unemployed for 27 weeks or more
percent
50
45
40
35
30
25
20
15
10
5
0
1950
'55
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
'15
Employees working part time for
economic reasons remains elevated
Unemployment rate - part-time workers for economic reasons
percent
6
5
4
3
2
1
0
1994
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
Wages and benefit costs have increased over the past year,
but still remains relatively low
Real - Employment cost index
percent change from year a go
5
benefit costs
4
3
2
1
0
-1
wages and salaries
-2
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
The FOMC forecasts that the unemployment rate
will be at the natural rate at the end of this year
Unemployment rate
percent
11
10
9
8
FOMC Central Tendency (December 2014)
2015
2016
2017
5.2 – 5.3
5.0 – 5.2
4.9 – 5.3
Longer run
5.2 – 5.5
7
6
5
FOMC
4
3
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Inflation is declining
Personal consumption expenditure - chain price index
percent change from a year earlier
6
5
4
3
2
1
0
-1
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
In large part due to the collapse of energy prices
Real West Texas Intermediate oil price
dol lars per barrel, 2014 dollars
160
140
120
100
80
60
40
20
0
1970
'75
'80
'85
'90
'95
'00
'05
'10
'15
Natural gas prices have also declined and remains low
Real natural gas price
dol lars per mmbtu, 2014 dollars
16
14
12
10
8
6
4
2
0
1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Expenditures on energy are
well below the historical average
Energy goods and services expenditures as a share of
percent
total consumption
10
9
8
80s
60s
7
70s
1960-2013
6
5
00s
90s
4
10s
3
1960
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
'15
Removing the volatile food and energy
components from the PCE,
“core” inflation remains low
Personal consumption expenditure - less food and energy chain price index
percent change from a year earlier
5
4
3
2
1
0
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The FOMC anticipates that PCE inflation
will remain below two percent through 2017
Personal consumption expenditure - chain price index
percent change from a year earlier
FOMC Central Tendency (December 2014)
6
2014
2015
2016
2017
5
4
1.2 – 1.3
1.0 – 1.6
1.7 – 2.0
1.8 – 2.0
Longer run
3
2.0
FOMC
2
1
0
-1
1990
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'16
The FOMC anticipates that “core” PCE inflation
will also remain below two percent through 2017
Personal consumption expenditure - less food and energy chain price index
percent change from a year earlier
5
FOMC Central Tendency (December 2014)
2014
2015
2016
2017
4
3
1.5 – 1.6
1.5 – 1.8
1.7 – 2.0
1.8 – 2.0
FOMC
2
1
0
1990
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'16
Blue Chip International Consensus Forecasts
United States
Canada
Mexico
Japan
South Korea
United Kingdom
Germany
France
Euro Zone
Brazil
Russia
China
India
Real GDP
% change
Annual
2014
2015
2016
2.4
3.2
2.9
2.4
2.3
2.3
2.3
3.3
3.8
0.6
1.0
1.4
3.4
3.5
3.6
2.6
2.6
2.5
1.5
1.4
1.8
0.4
0.9
1.3
0.8
1.2
1.6
0.2
0.3
1.7
0.2
-3.4
0.3
7.3
6.9
6.7
5.8
6.1
6.6
Inflation
% change
Annual
Consumer Prices
2014
2015
2016
1.7
0.4
2.3
2.0
1.2
2.1
3.9
3.6
3.6
2.7
1.2
1.4
1.4
1.4
2.1
1.5
0.7
1.7
0.9
0.5
1.4
0.7
0.5
1.1
0.5
0.0
1.1
6.3
6.4
5.6
7.6
12.4
7.0
2.1
1.7
2.2
7.0
5.5
5.7
Blue Chip Economic Indicators Forecast February 10, 2015
Exchange Rate
Against
US Dollar
End of Year
2015
2016
1.21
1.19
14.03 13.75
123.5 127.2
1,097 1,091
1.49
1.51
1.11
1.07
1.11
1.07
1.11
1.07
2.79
2.85
62.4
60.5
6.21
6.16
63.2
63.1
Interest Rate
3-Month
End of Year
The real trade-weighted dollar has increased 10%
over the past seven months
Trade-weighted exchange value of the U.S. dollar (real)
i ndex: Ma rch 1973=100
115
110
105
100
95
90
85
80
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Monetary policy has been very aggressive,
keeping the Fed Funds near zero since December 2008
Fed Funds rate
percent
9
8
7
6
5
4
3
2
1
0
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
The Federal Funds Rate is anticipated to
return to the neutral rate by the end of 2017
Target Federal Funds Rate
percent
9
8
7
6
5
FOMC Midpoint Values
(December 2014)
Longer run
3.75
4
3
2
1
FOMC
0
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
The asset side of the Fed’s balance sheet
has expanded in size and in composition
Assets of the Federal Reserve
Bi l lions of dollars
4,500
4,000
3,500
3,000
2,500
Maiden Lane II & III
Term Asset-Backed Securities
Loan Facility
AIG Support
2,000
Central Bank Swaps
1,500
Commercial Paper Facility
1,000 Maiden Lane
500
Securities Held Outright
Term Auction Credit
0
2007
2008
2009
2010
2011
2012
2013
2014
The money supply (M2) is nearly 3 times
bigger than the monetary base
Monetary expansion 2007-current period
bi l lions of dollars
12,000
M2
10,000
8,000
6,000
4,000
monetary base
2,000
0
2007
'08
'09
'10
'11
'12
'13
'14
'15
The Fed’s expansion of the monetary base
has allowed the money supply to continue rising,
compared with what took place during the 1930s
Monetary expansion 1929-1936
Monetary expansion 2007-current period
index:Jan 1929 = 100
index:Jan 2007 = 100
500
500
450
450
400
400
350
350
300
300
250
250
200
monetary base
150
monetary base
200
M2
150
100
CPI
100
CPI
M2
50
1929
'30
'31
'32
'33
'34
'35
'36
'37
50
2007
'08
'09
'10
'11
'12
'13
'14
'15
Summary
•The outlook is for the U.S. economy to expand at a
pace somewhat above trend in 2015 and 2016
•Employment is expected to rise moderately with the
unemployment rate edging lower
•Slackness in the economy will lead to a relatively
contained inflation rate
www.chicagofed.org
www.federalreserve.gov