Transcript 3. Employment growth and month

U.S. Economic Conditions and
Outlook
Katharine Bradbury
Federal Reserve Bank of Boston
2009 Telergee CFO and Controllers Conference
October 15, 2009
U.S. Economic Conditions and Outlook
• Macroeconomic conditions – current recession in
historical context
–
–
–
–
GDP
Labor market
Housing markets
Disaggregate some statistics to look at regions, groups
• Stimulus program, focusing on funds for state and
local governments
– How much difficulty are state and local governments
facing in the current recession?
– Size and nature of stimulus funding and its effect on macro
economy
• Forecast and factors influencing it
Source: BEA
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
Q2
-0
9
-0
7
-0
5
-0
3
-0
1
-9
9
-9
7
-9
5
-9
3
-9
1
-8
9
-8
7
-8
5
-8
3
-8
1
-7
9
-7
7
-7
5
-7
3
-7
1
-6
9
The current recession is severe
quarterly percent change at an annual rate
20
15
10
5
0
-5
-10
Drop in real GDP to date is larger than in most
post-WWII recessions
real GDP index = 1 at pre-recession peak quarter
1.04
1.02
1
0.98
0.96
Q4-1973
Q1-1980
Q3-1981
Q3-1990
Q1-2001
Q4-2007
0.94
-2
Source: BEA
-1
0
1
2
3
4
quarters before (-) or after (+) peak
5
6
7
8
Employment losses are especially large . . .
and ongoing
400
200
0
-200
-400
-600
Se
p00
Se
p01
Se
p02
Se
p03
Se
p04
Se
p05
Se
p06
Se
p07
Se
p08
Se
p09
-800
Source: BLS
U.S. Employment Indexed
1.06
Index: employment at pre-recession peak = 1
600
Monthly employment change
(000s of jobs)
1.04
1.02
1
0.98
0.96
0.94
Dec-68
Jul-90
Nov-73
Mar-01
Jan-80
Dec-07
Jul-81
0.92
-6
0
6
12
18
24
30
Months before (-) or after (+) peak
36
Severity varies across the U.S., but 49 of 50 states
have lost jobs in the last 12 months.
Percent change in employment from a year earlier
6
4
2
0
-2
-4
California
-6
Massachusetts
Michigan
Texas
United States
Aug-06
Aug-07
-8
-10
Aug-00
Source: BLS
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-08
Aug-09
Most industries (>80%) have been cutting jobs;
some are now turning around.
Diffusion Indexes
percent
90
80
1-month
3-month
6-month
12-month
70
60
50
40
30
Diffusion indexes: percent of 278 industries
experiencing employment increases from 1,
3, 6, or 12 months earlier
20
10
Source: BLS
p09
Se
p08
Se
p07
Se
p06
Se
p05
Se
p04
Se
p03
Se
p02
Se
p01
Se
p00
Se
p99
Se
p98
Se
p97
Se
p96
Se
p95
Se
p94
Se
p93
Se
p92
Se
Se
p91
0
p69
Se
p71
Se
p73
Se
p75
Se
p77
Se
p79
Se
p81
Se
p83
Se
p85
Se
p87
Se
p89
Se
p91
Se
p93
Se
p95
Se
p97
Se
p99
Se
p01
Se
p03
Se
p05
Se
p07
Se
p09
Se
U.S. unemployment rate is at its highest level since 1982
12
10
8
6
4
2
0
Source: BLS
Unemployment rate differences among states have
widened as rates rose
percent
16
14
12
California
Massachusetts
Michigan
Texas
United States
10
8
6
4
2
0
Aug-00
Source: BLS
Aug-01
Aug-02
Aug-03
Aug-04
Aug-05
Aug-06
Aug-07
Aug-08
Aug-09
Unemployment disparities among groups have also
widened—recessions fall unevenly.
Long-term unemployed
25 to 54
55 and over
20
15
10
5
Unemployment rate by education,
age 25 and older
Source: BLS
27 weeks or more
Average weekly hours
p09
34.5
34.3
34.1
33.9
33.7
33.5
33.3
33.1
32.9
32.7
32.5
Se
p08
Se
p07
Se
p06
Se
Se
Se
Se
p05
College degree
p04
Some college
p03
High school degree
p02
Less than high school
Se
Se
Se
p01
18
16
14
12
10
8
6
4
2
0
p00
percent
Se
p00
Se
p01
Se
p02
Se
p03
Se
p04
Se
p05
Se
p06
Se
p07
Se
p08
Se
p09
0
15 to 26 weeks
Se
p00
Se
p01
Se
p02
Se
p03
Se
p04
Se
p05
Se
p06
Se
p07
Se
p08
Se
p09
percent
20 to 24
40
35
30
25
20
15
10
5
0
Se
p00
Se
p01
Se
p02
Se
p03
Se
p04
Se
p05
Se
p06
Se
p07
Se
p08
Se
p09
16 to 19
25
percent of unemployed
Unemployment rate by age
30
Hours and wages for those still employed are also
affected as slack pervades the labor market
Employment cost index,
percent change from a year earlier
Average weekly & hourly earnings,
percent change from a year earlier
6
6
5
hourly
weekly
5
4
4
3
3
2
2
total compensation
wages & salaries
0
0
Source: BLS
Q2
-8
9
Q2
-9
1
Q2
-9
3
Q2
-9
5
Q2
-9
7
Q2
-9
9
Q2
-0
1
Q2
-0
3
Q2
-0
5
Q2
-0
7
Q2
-0
9
1
Se
p8
Se 9
p9
Se 1
p9
Se 3
p9
Se 5
p9
Se 7
p9
Se 9
p0
Se 1
p0
Se 3
p0
Se 5
p0
Se 7
p09
1
Slowdown in housing sales preceded the recession . . .
Now preceding the recovery?
8000
20
new homes sold
existing home sales
months' supply of new homes (right axis)
7000
17.5
6000
15
5000
12.5
4000
10
3000
7.5
2000
5
1000
2.5
Au
g8
Au 9
g9
Au 0
g9
Au 1
g9
Au 2
g9
Au 3
g9
Au 4
g9
Au 5
g9
Au 6
g9
Au 7
g98
Au
g9
Au 9
g0
Au 0
g0
Au 1
g0
Au 2
g0
Au 3
g0
Au 4
g0
Au 5
g0
Au 6
g0
Au 7
g0
Au 8
g09
0
Sources: Census Bureau and National Association of Realtors
0
U.S. home price decreases also started early.
Pace of decline is now moderating.
percent change from a year earlier
20
15
10
5
0
-5
-10
-15
FHFA
FHFA purchase-only
S&P/Case-Shiller
-20
Sources: FHFA and S&P/Case-Shiller
-0
9
Q2
-0
8
Q2
-0
7
Q2
-0
6
Q2
-0
5
Q2
-0
4
Q2
-0
3
Q2
-0
2
Q2
-0
1
Q2
-0
0
Q2
-9
9
Q2
-9
8
Q2
-9
7
Q2
-9
6
Q2
-9
5
Q2
-9
4
Q2
-9
3
Q2
-9
2
Q2
-9
1
Q2
-9
0
Q2
-8
9
Q2
Q2
-8
8
-25
More booms and busts in local housing markets
than nationwide
FHFA HPI, percent change from a year earlier
40
30
20
10
0
-10
California
Massachusetts
Michigan
Texas
United States
-20
Q2
-8
Q2 5
-8
6
Q2
-8
7
Q2
-8
8
Q2
-8
Q2 9
-9
0
Q2
-9
1
Q2
-9
2
Q2
-9
Q2 3
-9
4
Q2
-9
5
Q2
-9
6
Q2
-9
Q2 7
-9
8
Q2
-9
9
Q2
-0
Q2 0
-0
1
Q2
-0
2
Q2
-0
3
Q2
-0
Q2 4
-0
5
Q2
-0
6
Q2
-0
7
Q2
-0
Q2 8
-0
9
-30
Source: FHFA
U.S. foreclosure and serious delinquency rates
continue on a steep upward trajectory
Seriously delinquent mortgages
Foreclosures started, all loans
1.6
Foreclosures initiated in quarter, as a percent of
loans in pool
9
1.4
8
1.2
7
Mortgages with payments 90 days past due
plus inventory of mortgages in foreclosure,
as a percent of loans in pool
6
1
5
0.8
4
0.6
3
0.4
2
0
0
Q2
Q2
Q2
Source: Mortgage Bankers Association
-7
9
-8
2
Q2
-8
5
Q2
-8
8
Q2
-9
1
Q2
-9
4
Q2
-9
7
Q2
-0
0
Q2
-0
3
Q2
-0
6
Q2
-0
9
1
-7
9
Q2
-8
2
Q2
-8
5
Q2
-8
8
Q2
-9
1
Q2
-9
4
Q2
-9
7
Q2
-0
0
Q2
-0
3
Q2
-0
6
Q2
-0
9
0.2
Mortgage difficulties are more widespread in some
states than others
Seriously delinquent mortgages
Foreclosures started, all loans
2.5
Foreclosures initiated in quarter, as a percent of
loans in pool
Mortgages with payments 90 days past due
plus inventory of mortgages in foreclosure,
as a percent of loans in pool
12
10
2
8
1.5
6
1
4
0.5
2
0
California
Source: Mortgage Bankers Association
Massachusetts
Michigan
Texas
United States
-0
9
Q2
-0
8
Q2
-0
7
Q2
-0
6
Q2
-0
5
Q2
-0
4
Q2
-0
3
Q2
-0
2
Q2
-0
1
Q2
-0
0
Q2
-0
9
Q2
-0
8
Q2
-0
7
Q2
-0
6
Q2
-0
5
Q2
-0
4
Q2
-0
3
Q2
-0
2
Q2
-0
1
Q2
Q2
-0
0
0
Commercial real estate markets were much less affected
than residential until 2008. More deterioration expected.
Office vacancy rate,
national metropolitan areas
percent
Index:
Q1 1994=100
18
Commercial real estate price index,
office properties
350
16
300
14
250
12
10
200
8
150
6
100
4
50
2
-0
9
Q2
-0
6
Q2
-0
3
Q2
-0
0
Q2
-9
7
Q2
Q2
-0
9
Q2
-0
6
Q2
-0
3
Q2
-0
0
Q2
-9
7
Q2
-9
4
Q2
Sources: CB Richard Ellis and MIT Center for Real Estate
-9
4
0
0
Stimulus program uses five approaches to reduce
recession’s impact
American Recovery and Reinvestment Act Program Elements
Approximate
budget impact
($ billions)
Direct federal spending /
investment
Examples – programs
165
Infrastructure, science, energy, health care,
education and training
Tax cuts / incentives for
businesses
51
Energy tax credits, Work Opportunity tax
credit, COBRA subsidy, loss carryback, bonus
depreciation
Tax cuts for individuals /
households
237
Making Work Pay Tax Credit, EITC expansion,
Child Tax Credit expansion, AMT patch
Transfers to individuals /
households
100
Unemployment insurance payment and
extension, TANF, retirees, food stamps
Transfers to state and local
governments
234
Fiscal relief (medicaid and education), clean
water, transportation, housing assistance
Total
787
n.a.
Sources: Elmendorf (CBO), Irons & Pollack (EPI), Christina Romer (CEA). ARRA Quarterly Report (CEA).
State-local government sector is pro-cyclical
percent change from a year earlier
15
State and Local Tax Revenues
10
5
State FY2009 gaps: estimated
nationwide total $110 billion
• $47b before budgets passed
• $63b developed mid-year
0
-5
-10
-15
-20
-25
Budget gaps: shortfalls of revenue
relative to spending
States required to balance budgets
state individual income
state general sales
local property tax
total state taxes
total local taxes
-30
Q2-08
Source: Census Bureau
Q3-08
Q4-08
Q1-09
Q2-09
Gap-closing strategies:
• Cut spending
• Raise taxes
• Draw down reserves
+ Funds from federal
government
Gap estimates from Center on Budget and Policy
Priorities
State stimulus dollars for fiscal relief come mostly in late
2009 and 2010
ARRA Estimated Budget Outlays for Transfers to State and Local Governments
(billions of dollars)
Federal fiscal years
2009
2010
2011
2012
and
beyond
33.9
43.9
11.8
0.4
90.0
State Fiscal Stabilization Fund (education)
6.5
28.4
16.1
2.7
53.6
Fiscal Relief to State & Local Governments
40.4
72.3
27.9
3.1
143.6
Highway construction & other transportation
5.0
9.4
8.8
24.8
48.1
Education-related (beyond SFSF)*
1.2
11.9
10.9
1.1
25.2
Housing assistance, clean water, law enforcement
1.0
4.3
5.7
6.5
17.6
Earmarked Funds to State & Local Governments
7.3
25.6
25.4
32.5
90.7
♦Total Transfers to State & Local Governments
47.7
97.9
53.3
35.6
234.5
State-Local Programs
Total
20092019
♦ Somewhat flexible/fungible:
Medicaid/State Fiscal Relief
♦ Earmarked/specific purposes:
* including education for the disadvantaged and special education
Source: Douglas Elmendorf, Congressional Budget Office (March 2009)
Projected state gaps in FY2010 & 2011 are larger
than in FY2009 and larger than in last recession
Total state budget shortfall in each fiscal year, in billions
2002
Last recession
2003
2004
2005
2009
2010
2011
0
-$40
-$45
-$74
-50
-$75
-100
reported
to date
-$80
-$110
-150
-$168
Estimated total
-$180
-200
Source: Center on Budget and Policy Priorities. “New fiscal year brings no relief from unprecedented state budget problems.”
Updated September 3, 2009.
Consumer confidence / sentiment and stock prices
plunged and are now turning up
U.S. consumer confidence and
consumer sentiment
Index
160
Stock price indexes
Index: 1990 average = 1
6
140
S&P 500 Composite
Dow Jones Industrial Average
5
120
4
100
80
3
60
2
40
Consumer confidence (Conference Board)
20
1
Consumer sentiment (University of Michigan)
Sources: Conference Board, University of Michigan, Wall Street Journal
p09
Se
p05
Se
p01
Se
p97
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p93
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p89
Se
p85
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p81
Se
p09
Se
p05
Se
p01
Se
p97
Se
p93
Se
p89
Se
p85
0
Se
Se
p81
0
But household wealth took a hit and consumers are
saving more to improve their balance sheets
NIPA personal savings rate
20
14
15
12
10
10
percent
5
0
8
6
-5
-0
9
Q2
-0
5
Q2
-0
1
Q2
-9
7
Q2
-9
3
Q2
-8
9
Q2
Q2
-8
1
Q2
-0
9
Q2
-0
5
Q2
-0
1
Q2
Q2
Q2
Q2
Q2
Q2
Source: Federal Reserve Board
-9
7
0
-9
3
-20
-8
9
2
-8
5
-15
-8
5
4
-10
-8
1
percent change from a year earlier
Household wealth (net worth of
households and nonprofit organizations)
Recovery will be gradual
Economic projections of Federal Reserve Governors and Reserve Bank Presidents, June 2009
Source: Federal Reserve Board
Overview / recap
• Current recession is severe
• Affecting all regions and population subgroups
– But some areas hit harder than others: those that boomed
and those previously most distressed
– Disadvantaged population subgroups also more vulnerable
downturns
• Some sectors beginning to turn around
• Stimulus programs are working to reduce severity of
recession
– Five policy approaches in ARRA
– State budget gaps sizable in FY2009, 2010, and 2011 and
stimulus funds are helping to fill them.
• Most forecasters expect GDP to resume growth this
year, but labor market expected to continue
worsening into next year  gradual recovery.