Full Employment or Bust

Transcription

1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

2 When will the Fed s rates go back to normal? Nominal federal funds rate and core inflation¹ (percent per annum and % ch. from 1 months earlier) 16 1 Core PCE chain price inflation ( % ch. from 1 months earlier) Nominal federal funds rate ¹ Chain price index for personal consumption expenditures excluding food and energy. Source: Federal Reserve Board. Updated through October 31, 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

3 Where are bond yields headed? Components of the -year Treasury yield five years in the future (percent per annum) Five-year forward Treasury yield ( x ) Five-year forward real Treasury yield ( x TIPS) Five-year forward inflation expectations plus inflation risk premium ( x breakeven) Source: Federal Reserve Board. Updated through October 31, 1. 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

4 Can credit spreads narrow further? High yield spread (basis points), Ibbotson Associates J.P. Morgan Securities LLC high-yield index, 1,8 1,8 1,6 1,6 1, 1, 1, 1, 1, 1, Sources: Federal Reserve Board, JPMorgan. Updated through November 7, 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

5 Whither stocks? Fairly valued to current earnings... Wilshire (Dec 31, 197 = 83.7) After-tax GDP profits (billions of dollars) 36, 3, 3, 3, 8, 6,,,, 18, 16, 1, 1, 1, 8, 6,,, Note: Since 19, the Wilshire P/E climbs to 1 times earnings near cyclical peaks, excluding the unprecedented multiples during , and that would occur when the line floats at the upper boundary of earnings. Line represents the Wilshire index (left scale) Shaded area represents after-tax GDP profits (right scale) Forecast,8,6,,, 1,8 1,6 1, 1, 1, 8 6 Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 1. Sources: US Department of Commerce; Dow Jones. Updated through 1 Q3 (profits) and Nov. 6, 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

6 ... but what about tomorrow s? Wilshire (Dec 31, 197 = 83.7) After-tax GDP profits (billions of dollars) 36, 3, 3, 3, 8, 6,,,, 18, 16, 1, 1, 1, 8, 6,,, Note: Since 19, the Wilshire P/E climbed to 1 times earnings near cyclical peaks, excluding the unprecedented multiples during , and that would occur when the line floated at the upper boundary of earnings. Line represents the Wilshire index (left scale) Shaded area represents after-tax GDP profits (right scale) Forecast,8,6,,, 1,8 1,6 1, 1, 1, 8 6 Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 1. Sources: US Department of Commerce; Dow Jones. Updated through 1 Q3 (profits) and Nov. 6, 1. 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

7 Powering Up... No Surprise Real GDP, selected developed economies (ratio to 1997 Q, US dollars, PPP basis) United States Japan Q3 8-member European Union Sources: US Dep. of Commerce; Haver Analytics; JPMorgan Chase & Co. Updated through 1 Q3. 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

8 And there s nothing artificial about this Labor force and selected measures of employment (thousands) 18, 16, 1, 1, 1, 18, 16, 1, 1, 1, 138, 136, 13, 13, 13, Labor force Household employment adjusted for breaks in the population Household employment adjusted to match the concepts and coverage of nonfarm payrolls 18, Nonfarm payrolls , 16, 1, 1, 1, 18, 16, 1, 1, 1, 138, 136, 13, 13, 13, 18, Source: US Department of Labor. Updated through October 1. 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

9 Those who know, know Real GDP (percent change from quarters earlier) Jobless claims (thousands weekly, scale reversed) Jobless claims (right, scale is reversed) Real GDP growth (left) Real GDP growth forecast Sources: US Deps. of Labor and Com. Updated through 1 Q3 (GDP) and November, 1 (claims). 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

10 Recovery and time heals House prices (January = 1) 17 1 Note: The red zone represents an estimate ($87 billion) of the aggregate amount of remaining under-water mortgages, before chargeoffs CoreLogic measure of house prices Scenario above assumes that house prices rise % annually in the future Source: CoreLogic. Updated through 1 Q. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

11 That s why they re moving to the front of the line... Nonfarm employment in selected areas (ratio to Q level) US California Forecast Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 11 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

12 ... and why you will be Nonfarm employment in selected areas (ratio to Q level) Arizona Forecast US Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

13 The economy and the motion of the ocean The economic cycle, unemployment rate (percent of the labor force) 1 Nairu (where we want to be) Forecast Official unemployment rate (U-3) Official unemployment plus part-timers plus job-force exits under 9 years of age (U-3 ++) Source: US Department of Labor. Updated through October Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

14 The unemployment rate doesn t know everything... Unemployment rate (percent) Proved to be premature and the Fed backed down Horizontal bars denote the Fed's view (central tendency) about the near-term and sustainable unemployment rate (often referred to as the Nairu, or nonincreasing inflationary rate of unemployment) ¹ Note: The red boxes identify the first step in each Fed tightening sequence Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated through October 1 (unemployment) and September 17, 1 (FOMC forecast). 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

15 ... but what it knows is getting better... Duration of unemployment spells (thousands) 11, 11% 1, 1% 9, 9% 8, 8% 7, 7% 6, 6%, %, 3,, 1, Unemployed for less than 7 weeks (left scale) Percent of the labor force unemployed for less than 7 weeks (right scale) % 3% % 1% % Source: US Department of Labor. Updated through October 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

16 ... that long-term unemployed are getting jobs too Duration of unemployment spells (thousands) 7, 7% 6, 6%,, Unemployed for more than 7 weeks (left scale) Percent of the labor force unemployed for more than 7 weeks (right scale) % % 3, 3%, % 1, 1% % Source: US Department of Labor. Updated through October Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

17 Demographics are in the background but are just a footnote Selected elderly populations (percent of the population)....1 The projected five percentage point rise in the fraction of the population over the age of 6 represents an increase of about 16 million people in today's terms. That represents an average increase of one million annually when spread out over the next 1 years The percentage of the population over the age of Source: US Department of Labor. Updated through July Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

18 Involuntary part-timers are called employed... not so Involuntary part-time (thousands) (percent of the labor force) 1, 9, Percent of the labor force (right scale) 1.% 9.% 8, 8.% 7, 7.% 6, 6.%,.%,.% 3,, Number of people (left scale) 3.%.% 1, 1.% % Source: US Department of Labor. Updated through September Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

19 Dropouts are nowhere... but they aren t retiring Participation rate for selected age groups (percent of the respective population) to year olds (left scale) to 3 year olds (left scale) to year olds (left scale) to year olds (right scale) Source: US Department of Labor. Updated through October Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

20 Thinking outside the unemployment box... th inning Selected unemployment rate measures (percent of the labor force) U-6 (official plus involuntarily part-time plus marginally attached) 16 1 Official unemployment plus part-timers plus job-force exits under 9 years of age (U-3 ++) 1 13 Official unemployment plus one half of above-normal number of part-timers (U-3 +) Official unemployment rate (U-3) Forecast Source: US Department of Labor. Updated through September 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

21 We don t live in silos Output gap in selected regions (actual less potential real GDP as a percent of potential real GDP) Japan EU-8 US Australia Canada Sweden Source: US Department of Commerce; JPMorgan. Updated through 1 Q3. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

22 The proof is in the tasting... hourly compensation... Hourly wage & salary rates (percent change from four quarters earlier) ECI, private-sector compensation, excluding incentive-based pay ECI, privae-sector compensation Sources: US Departments of Commerce and Labor. Updated through 1 Q. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

23 ... inflation... all of it looks and feels like the th inning Core PCE chain price index (percent change from 1 months earlier) Overall PCE inflation¹ The range of FOMC's forecast for PCE chain price inflation, including its longer-run goal 8 6 Core PCE inflation¹ ¹ Chain price index for personal consumption expenditures. Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through October 1 (inflation) and September 17, 1 (FOMC forecast). 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

24 Meanwhile there s still a lot for equity markets to digest After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income) Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 1 Q3. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

25 Doing Well, Despite All,... Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

26 Powering Up Real GDP, selected developed economies (ratio to 1997 Q, US dollars, PPP basis) United States Japan Q3 8-member European Union Sources: US Dep. of Commerce; Haver Analytics; JPMorgan Chase & Co. Updated through 1 Q3. 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

27 There s nothing artificial about this Labor force and selected measures of employment (thousands) 18, 16, 1, 1, 1, 18, 16, 1, 1, 1, 138, 136, 13, 13, 13, Labor force Household employment adjusted for breaks in the population Household employment adjusted to match the concepts and coverage of nonfarm payrolls 18, Nonfarm payrolls , 16, 1, 1, 1, 18, 16, 1, 1, 1, 138, 136, 13, 13, 13, 18, Source: US Department of Labor. Updated through October 1. 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

28 Those who know, know Real GDP (percent change from quarters earlier) Jobless claims (thousands weekly, scale reversed) Jobless claims (right, scale is reversed) Real GDP growth (left) Real GDP growth forecast Sources: US Deps. of Labor and Com. Updated through 1 Q3 (GDP) and November, 1 (claims). 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

29 If it s over at Ground Zero, it s over Nonfarm employment in selected areas (ratio to Q level) US California Forecast Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

30 ... ditto... Nonfarm employment in selected areas (ratio to Q level) Forecast Florida US Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

31 ... double ditto... Nonfarm employment in selected areas (ratio to Q level) Arizona Forecast US Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 31 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

32 ... triple ditto Nonfarm employment in selected areas (ratio to Q level) Nevada US Forecast Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

33 Shale activity is big but isn t the whole story... Nonfarm employment in selected areas (ratio to December 7 level) US Forecast US ND UT WY TX AK MT NV ID AZ HI AL AR CA CO CT DE DC FL GA IL IN IA KS KY LA ME MD MA MI MN MS MO NE NH NJ NM NY NC OH OK OR PA RI SC SD TN VT VA WA Wva WI Forecast Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 33 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

34 ... because just about everyone is swimming upstream Nonfarm employment in selected areas (ratio to December 7 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

35 All this, despite the real estate hangover Household income and house prices (ratio to 197) CoreLogic house price index (ratio to 197) Gross nominal income per household (ratio to 197) Forecast (assumes nominal income grows % annually in the coming decade's recovery) Sources: US Dep. of Commerce; CoreLogic. Updated through 1 Q (income) and 1 Q (house prices). 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

36 All this, despite the unprecedented fiscal swing Contribution of government spending (cont. to real GDP over -qtr spans, percentage points) Forecast Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 1 Q3. 36 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

37 All this, despite severe headwinds in Europe and Japan Real GDP in selected regions (percent change from four quarters earlier) China 8 7 India 6 All others Global (shaded grey region) - US (thick line) -3 - Japan Forecasts 8-member European Union Sources: World Bank; US Dep. of Commerce; JPMorgan Chase & Co. Updated through 1 Q3. 37 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

38 For us, despite Sandy s washout Nonfarm employment in selected areas (ratio to December 7 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV Source: US Department of Labor. Updated through September 1 (US) and September 1 (state). 38 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

39 ... And Probably Will Do Better in 1... Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 39

40 In the US, done with the slow... Real GDP (annualized percent change) Forecast (growth over the four quarters of the year) % change from the previous quarter % change from four quarters earlier % change over the four quarters of the year Source: US Department of Commerce. Updated through 1 Q3. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

41 Credit conditions are all good... High yield spread (basis points), Ibbotson Associates J.P. Morgan Securities LLC high-yield index, 1,8 1,8 1,6 1,6 1, 1, 1, 1, 1, 1, Sources: Federal Reserve Board, JPMorgan. Updated through November 7, 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

42 ... and vehicle sales prove it US vehicle sales and production (millions of units at an annualized rate) Sources: US Department of Commerce; Federal Reserve Board. Updated through October 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

43 ... But There s Room to Run Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 3

44 The unemployment rate doesn t know everything... Unemployment rate (percent) Proved to be premature and the Fed backed down Horizontal bars denote the Fed's view (central tendency) about the near-term and sustainable unemployment rate (often referred to as the Nairu, or nonincreasing inflationary rate of unemployment) ¹ Note: The red boxes identify the first step in each Fed tightening sequence Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated through October 1 (unemployment) and September 17, 1 (FOMC forecast). Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

45 ... but what it knows is getting better... Duration of unemployment spells (thousands) 11, 11% 1, 1% 9, 9% 8, 8% 7, 7% 6, 6%, %, 3,, 1, Unemployed for less than 7 weeks (left scale) Percent of the labor force unemployed for less than 7 weeks (right scale) % 3% % 1% % Source: US Department of Labor. Updated through October 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

46 ... that long-term unemployed are getting jobs too Duration of unemployment spells (thousands) 7, 7% 6, 6%,, Unemployed for more than 7 weeks (left scale) Percent of the labor force unemployed for more than 7 weeks (right scale) % % 3, 3%, % 1, 1% % Source: US Department of Labor. Updated through October 1. 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

47 Demographics are in the background but are just a footnote Selected elderly populations (percent of the population)....1 The projected five percentage point rise in the fraction of the population over the age of 6 represents an increase of about 16 million people in today's terms. That represents an average increase of one million annually when spread out over the next 1 years The percentage of the population over the age of Source: US Department of Labor. Updated through July 1. 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

48 December 3, 1 What it doesn t know (hidden unemployment) is improving Change 9 since Steady-state peak the peak assumptions Excess vs steady state Sep 1 Oct 1 Unemployment (thousands) 1,3-6,37 8,9 8,16 7, ,96 9,6 8,99 % of the labor force 1.% (.%) (.%) (.%) (at.%) (at.%) (at.%).9%.8% Unemployed fewer than 7 weeks 9,781-3, ,37 6, % of the labor force 6.% (3.7%).%.% Unemployed 7 weeks or more,63 -,77 1,17 1,7,9,916 % of the Labor force 3.7% (.7%) 1.9% 1.9% Part-time for economic reasons ( ) 8,979-1,9,676 3,16,31 3,11 7,13 7,7 % of the labor force.9% (3.%) (.%) (at 3.%) (at.%).6%.% Work is slow (thousands) 6,681 -,67,186,8,16,1.% (1.%).7%.7% Full-time work not available (thousands), ,6,6,7 1.3% (.6%) 1.6% 1.6% - to 9-yr old dropouts (thousands),797-1,67,7,67 -year olds 1, - 1,163 1,193 1,163 3-year olds year olds 1,7-1,31 1, 1,31 Memo: 16- to 19-year olds Note: Blue-shaded area marks the components of hidden unemployment. Commercial Banking Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 8

49 Involuntary part-timers are called employed... not so Involuntary part-time (thousands) (percent of the labor force) 1, 9, Percent of the labor force (right scale) 1.% 9.% 8, 8.% 7, 7.% 6, 6.%,.%,.% 3,, Number of people (left scale) 3.%.% 1, 1.% % Source: US Department of Labor. Updated through September 1. 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

50 Dropouts are nowhere... but they aren t retiring Participation rate for selected age groups (percent of the respective population) to year olds (left scale) to 3 year olds (left scale) to year olds (left scale) to year olds (right scale) Source: US Department of Labor. Updated through October 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

51 Thinking outside the unemployment box... th inning Selected unemployment rate measures (percent of the labor force) U-6 (official plus involuntarily part-time plus marginally attached) 16 1 Official unemployment plus part-timers plus job-force exits under 9 years of age (U-3 ++) 1 13 Official unemployment plus one half of above-normal number of part-timers (U-3 +) Official unemployment rate (U-3) Forecast Source: US Department of Labor. Updated through September 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

52 It s no surprise that Europe is disinflating Output gap in selected regions (actual less potential real GDP as a percent of potential real GDP) Japan EU-8 US Australia Canada Sweden Source: US Department of Commerce; JPMorgan. Updated through 1 Q. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

53 Hourly pay trends don t feel like the 9 th inning... Hourly labor compensation (percent change from four quarters earlier) 1 8 Nonfarm business sector (unweighted), from the Productivity & Costs report ECEC (unweighted version of the Employment Cost Index (fixed-weighted Employment by industry and occupation) Cost Index) Sources: US Departments of Commerce and Labor; Updated through 1 Q. 3 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

54 ... incentive-based pay is behind the latest comp wiggle Hourly labor compensation (percent change from four quarters earlier) ECI, private-sector compensation, excluding incentive-based pay ECI, privae-sector compensation Sources: US Departments of Commerce and Labor; Updated through 1 Q. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

55 ... incentive-based pay is behind the latest wage wiggle Hourly wage & salary rates (percent change from four quarters earlier) ECI, private-sector compensation, excluding incentive-based pay ECI, privae-sector compensation Sources: US Departments of Commerce and Labor; Updated through 1 Q. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

56 ... ditto for hourly wage rates Hourly labor compensation (percent change from four quarters earlier) Average hourly earnings, production and nonsupervisory workers (thin black line)¹ Average hourly earnings, total private industries (thick black line)¹ ECI for private wages (orange line) ¹ Average hourly earnings for produduction workers are shown only up until March 6 in order to provide historical context for the newer measure of average hourly earnings for all workers. The measure for all private -sector workers is available only since March Source: US Department Labor; Updated through 1 Q3 (ECI) and Oct. 1 (average hourly earnings). 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

57 Not all wage shifts are about wages Hourly average wages (percent change from four quarters earlier) AHE, production and non-supervisory workers AHE, all private-sector workers¹ ECI, hourly private sector wage rates Source: US Dep. of Labor; Updated through 1 Q3 (ECI) and October 1 (wages). 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

58 Inflation doesn t look like the 9 th inning, and it rules Core PCE chain price index (percent change from 1 months earlier) Overall PCE inflation¹ The range of FOMC's forecast for PCE chain price inflation, including its longer-run goal 8 6 Core PCE inflation¹ Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through August 1 (inflation) and June 18, 1 (FOMC forecast). 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

59 It s Not News (Nor Interesting) that the Fed will Tighten and Rates Will Go Up Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 9

60 It would be news if it delayed Forecasts of the federal funds rate (percent) Dashes & Columns: Range of FOMC forecasts (lighter columns) Central tendency of FOMC forecasts (darker columns) Median FOMC forecast (horizontal line) Lines: Current market forecast (solid blue line)¹ Glassman, midpoint of range rounded to the next 1/ point (dotted line) Source: Federal Reserve Board; Bloomberg. Updated through November 7, 1. 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

61 The outlook for long-term interest rates Decomposition of 1-year Treasury yield (percent per annum) Estimated term premium embedded in a 1-year Treasury zero-coupon yield Estimated average level of zero-coupon short-term interest rates anticipated over the subsequent 1 years Average level of expected short-term interest rates plus an assumed term premium of basis points Average level of zero-coupon short-term interest rates anticipated over the subsequent 1 years (based on the assumed fed funds path, the dashed line) Federal funds rate path (actual to date and assumed after that) Source: Federal Reserve Board. Updated through October 31, Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

62 Conclusion... Implications of th Versus 8 th Inning Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 6

63 Why it matters Actual and potential real GDP (9 chained dollars) 1, Potential real GDP =.% 1,,, 19, 19, 18, Potential real GDP =.1% 18, 17, 17, 16, 16, 1, Actual real GDP 1, 1, , Source: JPMorgan Chase & Co. Updated through 1 Q. 63 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

64 th inning means there s more of everything ahead Wilshire (Dec 31, 197 = 83.7) After-tax GDP profits (billions of dollars) 36, 3, 3, 3, 8, 6,,,, 18, 16, 1, 1, 1, 8, 6,,, Note: Since 19, the Wilshire P/E climbed to 1 times earnings near cyclical peaks, excluding the unprecedented multiples during , and that would occur when the line floated at the upper boundary of earnings. Line represents the Wilshire index (left scale) Shaded area represents after-tax GDP profits (right scale) Forecast,8,6,,, 1,8 1,6 1, 1, 1, 8 6 Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 1. Sources: US Dep. of Commerce; Dow Jones. Updated through 1 Q3 (profits) and Nov. 6, 1 (stocks). 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

65 Meanwhile there s still a lot for equity markets to digest After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income) Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 1 Q3. 6 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

66 Post Scripts Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 66

67 How Speculative Excesses Were Addressed Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 67

68 Builders had to under build... New housing starts (thousands at an annual rate) Unsold homes (months worth of sales), 16,, 1,8 Total housing starts (left) Forecast 1 1 1,6 1 1, 1, 1, Unsold single family houses (right) Source: US Department of Commerce. Updated through August 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 68

69 ... new and existing Housing sales and starts (ratio to June ) Housing starts Sales of new houses Sales of existing houses Source: US Department of Commerce. Updated through August 1. Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 69

70 Economic recovery and time Household income and house prices (ratio to 197) CoreLogic house price index (ratio to 197) Gross nominal income per household (ratio to 197) Forecast (assumes nominal income grows % annually in the coming decade's recovery) Sources: US Dep. of Commerce; CoreLogic. Updated through 1 Q (income) and 1 Q (house prices). 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

71 Rising prices are draining underwater mortgages House prices (January = 1) 17 1 Note: The red zone represents an estimate of the aggregate amount of under-water mortgages (see the note below) CoreLogic measure of house prices Scenario above assumes that house prices rise % annually in the future Source: CoreLogic. Updated through 1 Q. 71 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

72 Mark-to-market discipline Loan charge-offs (billions of dollars quarterly) 6 Cumulative charge-offs since 6 (billions of dollars) 7 3 Net chargeoffs by all FDIC institutions (left scale) Cumulative "excess" net chargeoffs of all FDIC institutions since 7 (right scale) Source: Federal Deposit Insurance Corporation. Updated through 1 Q. 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

73 That s how leverage got reduced Debt service (percent of monthly income) Household debt (ratio to income) Financial obligations (left) Debt service (left) 1 1 Household debt (right) Source: Federal Reserve Board. Updated through 13 Q3. 73 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

74 ... and household net worth is back in record territory Personal saving (percent of disposable income) Household net worth (ratio to income) Household saving rate (left) Ratio of household net worth to income (right scale, reversed) Forecast Sources: US Dep. of Com.; FRB. Updated through August 13 (saving) and 13 Q (net worth). 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

75 Which left little market on the consumer industry Nominal consumer spending (percentage of nominal GDP) Source: US Department of Commerce. Updated through 1 Q. 7 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

76 REITs stepping in as GSEs exit Credit provided by selected (percent of all credit provided) Federal Reserve System Life Insurance and Property Casualty Companies Private and Public Pension Funds Securities Brokers and Dealers, Finance Companies, Funding Corporations, and Holding Companies Money Market Mutual Funds Mutual Funds, Closed-End Funds, Exchange-Traded Funds, and REITs 1 GSEs, Mortgage Pools, and Issuers of Asset-Backed Securities Private Depository Institutions Source: Federal Reserve Board. Updated through 13 Q3. 76 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

77 The stagnant secular stagnation theory Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 77

78 Why the secular stagnation idea isn t interesting The economic cycle, unemployment rate (percent of the labor force) 1 Nairu (where we want to be) Forecast Official unemployment rate (U-3) Official unemployment plus part-timers plus job-force exits under 9 years of age (U-3 ++) Source: US Department of Labor. Updated through October Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

79 The US Structural Fiscal Challenge Is About Healthcare Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 79

80 What we see isn t what matters Federal deficit over the most recent 1 months (percent of nominal GDP) 3 Forecast Note: Black boxes denote the fiscal year end. Sources: Vertical bars denote NBER-designated recessions; US Treasury. Updated through July 1. 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

81 It s what is in our (the CBO s) mind s eye that s key Long-term revenue and spending projections (percent of GDP) 3 Revenues (shown holding at the historical average of 18.1% of nominal GDP) Debt service Other Medicare and Medicaid Social Security Source: Congressional Budget Office. Updated through October Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

82 The fiscal issue is a healthcare issue, not a fiscal issue Federal healthcare spending (percentage of GDP) Source: Congressional Budget Office. Updated through 1. 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

83 The Industrial Sector Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 83

84 The industrial sector has the wind at its back... Selected trade weighted US dollar indexes (March 1973 = 1) Nominal tradeweighted dollar index versus G1 countries ( = 1) Broad real tradeweighted dollar index Source: Federal Reserve Board. Updated through July 1. 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

85 Industrial activity is plodding along Real GDP and industrial output (percent change from 1 months earlier) Manufacturing output, line (left) Industrial Output, line (left) Real GDP, grey shaded area (right) Sources: FRB; Macroeconomic Advisers. Updated through June 1 (IP) and May 1 (GDP). 8 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

86 ISM sentiment surveys and the economy ISM indexes (+ = increasing) Real GDP (percent change from 1 months earlier) Manufacturing ISM, line (left) Nonmanufacturing ISM, line (left) Real GDP, grey shaded area (right) Source: Federal Reserve Board. Updated through July 1 (ISM) and May 1 (GDP). 86 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

87 ISM sentiment surveys and factory output ISM indexes (+ = inc) Manufacturing output (annualized percent change from 3 months earlier) Manufacturing output, grey shaded area (right) Manufacturing ISM, line (left) Nonmanufacturing ISM, line (left) Sources: Federal Reserve Board; ISM. Updated through June 1 (IP) and July 1 (ISM). 87 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

88 The business equipment sector Selected sectors (7 =1) 3 Energy High-tech equipment Nonenergy, non-tech output Manufacturing output (shaded area) Source: Federal Reserve Board. Updated through January Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

89 The energy sector is driving much now Selected sectors (7 =1) Crude oil extraction Natural gas liquid extraction Natural gas extraction Oil and gas well drilling Metal ore mining Petroleum and coal products Chemicals Coal mining Nonmetalic mineral mining Source: Federal Reserve Board. Updated through June Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

90 So is the motor vehicle sector Selected sectors (7 =1) Vehicle sales Domestic vehicle output Source: Federal Reserve Board. Updated through August 1 (output) and August 1 (sales). 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

91 Capital goods activity Capital goods orders and shipments (billions of dollars) Shipments of nondefense aircraft Shipments of nondefense capital equipment excluding aircraft Orders of nondefense capital equipment excluding nondefense aircraft (line) Source: US Department of Commerce. Updated through August Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

92 Backlogs of unfilled orders for capital goods Backlogs of unfilled orders (billions of dollars) 6 6 Backlogs of (military and nondefense) aircraft orders Backlogs of nondefense capital goods other than aircraft Source: US Department of Commerce. Updated through August 1. 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

93 Backlogs of unfilled orders for capital goods Backlogs of unfilled orders (months supply) 8 Backlogs of (military and nondefense) aircraft orders Backlogs of nondefense capital goods other than aircraft Source: US Department of Commerce. Updated through August Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

94 The industrial sector still has unused capacity Selected sectors (7 =1) Factory utilization rate (percent) Manufacturing output (left scale) Manufacturing capacity utilization (right scale) Source: Federal Reserve Board. Updated through June 1. 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

95 ... but it will look different Factory payrolls (millions) Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated through July 1. 9 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

96 The energy revolution has more up its sleeve... Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) 1 1 Petroleum price (WTI, $/barrel) Natural gas price converted to thermal equivalent price of oil in terms of price per barrel (6 times the $/mmbtu) Source: Oil & Gas Journal. Updated through May, Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

97 ... beyond the current account balance US current account deficit (percent of GDP) 1 Petroleum balance Current account balance Source: US Department of Commerce. Updated through 13 Q. 97 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

98 Consumer Outlook Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 98

99 Consumer trends now are powered by the cyclical recovery Real consumer spending and real disposable income (percent change from 1 months earlier) Real consumer spending Real disposable personal income Source: US Department of Commerce. Updated through July Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

100 Income growth is the key Real disposable income, real wages, and real consumption (percent change from 1 months earlier) Real consumer spending (shaded area) - Real disposable personal income - Real wages and salaries Source: US Department of Commerce. Updated through July 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

101 The balance sheet and record net worth... December 3, 1 FIGURE 3. THE HOUSEHOLD BALANCE SHEET LOOKS IMPRESSIVE Seleceted assets and liabilities (billions of dollars, unless noted otherwise) /31 6/3 9/3 1/31 3/31¹ 6/3¹ 9/3¹ 1/31¹ Net Worth,66,788 3,89,79 1,318 1,8,9 6,793 9,33 3,97 3,7 38,313 3,189 3,88,336,6 9,6 6,1 6,38 67,331 67,73 7,18 8,9 63,3 6,763 7,863 8,66 7,88 7,3 77,71 8,66 81,6 83,1 8,68 87,63 Consisting of Real Estate ,,87 3,89,11,37,,686 6,77 6,738 7,37 8,78 9,68 1,63 11,7 1,98 1,16 1,9 1,766 9,69 8,69 8,19 8,31 1,73 1,6 11,7 11,6 1,18 1,6 1,8 13,8 13,31 13,8 Consisting of Financial Assets 1,66,311 3,11,67 7,831 11,39 16,89 1,18 3,713,88 8,39 31,7 3,816 3,177 3,767 33,763 38,33 3,7 7,3,8,986 7,911,61,93 6,33 6,9 68,39 63,31 63,779 6, 68,39 68,3 7,18 71,7 73,16 Memo: Ratio to Disposable Personal Income Net Worth Real Estate Net Worth Financial Net Worth Equity Net Worth Household Saving Rate (% of Disposable Personal Incom Assets,91 3,1,38 6,6 11,766 17,63,7 31, 3,76 36,38,9,13 9,96 1,38,31,787 9,1 67,11 7,71 8,793 8,17 71,7 7,97 77,13 78,33 8,61 9,19 87,631 88,99 91,399 9,19 9,9 96,991 99,7 11,91 Tangible Assets ,391,88, 6,789 9,7 11,11 11,1 11,997 1,7 13,793 1,978 16,9 18,7,3 1,918,99 8,3 9,81 8,,798 3,66 3,319 3,6, 7,71,79 6,8 6,97 7,71 7,87 7,8 8,16 8,37 Real Estate , 1,68 3,1,3 7,6 8, 8,839 9,3 9,89 1,793 11,8 13,1 1,89 16,91 17,983,817,18,98 3,377 19,86 18,687 18,36 18,19 19,78 1,996, 1,1 1,1 1,996,13,3,63,876 Equipment & Software Consumer Durable Goods ,377,39,,9,68,718,83,991 3, 3,36 3,7 3,679 3,899,18,31,76,79,88,87,76,88,11,898,937,97,11,8,86,13,161 Financial Assets 1,3,1,936,7 7,311 1,86 1,91,,767,383 7,8 3,71 3,967 3,31 33,8 3,73 37,333,17 6,166 1,1 3,97 6,69 9,38 3,811,68 9,7 66,99 61,837 6,87 6, 66,99 67, 69,16 7,91 7,71 Cash (Deposits) ,,6 3,38 3,6 3,38 3,77 3,7 3,93,133,68,99,,89,88 6,63 6,9 7,6 8,173 8,9 8,61 8,738 9,1 9,8 9, 9,133 9, 9,8 9,67 9,81 1,8 1,71 Bonds (Credit Market Instruments) ,71,377,383,,99,,668,6,71,68,89 3,91,3,1,37,18,6,87,9,61,6,99,67,66,6,6,6,6,6 Marketable Treasury Securities Municipal Securities ,3 1,61 1,636 1,67 1,71 1,88 1,87 1,87 1,6 1,617 1,67 1,67 1,67 1,617 1,617 1,617 1,617 1,617 Corporate Bonds ,3 1,167 1,63 1,3 1,11 1,961 1,99,31,9,7,61,793,6,66,66,793,793,793,793,793 Stocks ,133 1,,9,9 6,19 6,987 9,163 11,1 1,36 1,67 1,899 8, 11,8 1,773 13,968 16,89 17,8 1,191 13,8 1, 1,98 17,,8 19,11 19,8,91,8,97 3,63,3, Direct Holdings ,1 1,9 1,961 3,9,3,71 6,1 7,7 9,763 8,1 6,86,163 6,777 7,98 8,1 1,93 1,118,97 7,9 8,997 9, 1,338 13,86 11,63 11,78 1,7 13,86 13,9 1,3 1,76 1,188 Indirect Holdings ,3 1,77,7 3,19 3,7,773,3,73 3,39,71,7,816 6,97 7,167,6,9 6,7 6,8 6,886 8,98 7,79 7,83 8,368 8,98 9,31 9,9 9,6 9,837 Life Insurance Companies #N/A ,9 1,1 1,33 1, , 1,1 1,396 1,6 1,8 1,671 1,696 1,761 1,8 1,866 1,919 1,97,3 Private Pension Funds ,16 1, 1,68 1,63 1,3 1,16 1,96 1,83,61,179,76 1,371 1,79,117,1,9,96,38,616,79,96,981 3,66 3,16 3,7 Federal Government Retirement Funds #N/A #N/A #N/A #N/A #N/A #N/A Mutual Funds ,316 1,63,1 1,971 1,79 1,337 1,98,31,,98 3,79 1,8,6,779,3,89 3,93 3,1 3,316 3,633 3,93 3,976,9,9,331 Other 78 1, 1,3,37,16,698 8,178 1,176 1,7 11,79 1,11 1,96 13,631 1,69 1,8 16,3 17,737 19,98 1,733 3,3,61 3,138,,,7 7,391 9, 7,8 8, 8,6 9, 9,169 3,8 3,88 31,773 Liabilities ,7,368 3,69,71,3,6,77 6, 6,76 7,3 7,977 8,761 9,8 1,996 1,16 13,61 1,39 1,77 1, 13,77 13,69 13,98 13,76 13,3 13,6 13,688 13,76 13,83 13,891 13,99 1,7 Mortgage Loans ,,89 3,16 3,319 3,37 3,73,,31,813,3 6,8 6,99 7,89 8,91 9,99 1,61 1,77 1,17 9,97 9,678 9,3 9,37 9,388 9,361 9,38 9,37 9,361 9,3 9,339 9,39 Ratio to income Memo: Estimated Under Water Mortgages ,7 -,18 -,8 -,96-1,96 #N/A -1,81-1,3-911 #N/A #N/A #N/A #N/A #N/A Gross ,777 -,31 -,71-3,16 -,197-1,7 -,91-1,77-1,19-1, Chargeoffs of Real Estate Loans at FDIC Institutions #N/A 8 #N/A #N/A #N/A #N/A #N/A Percent of All Assets Portfolio Allocation Cash Bonds Stocks Real Estate Net Worth Allocation Percent of Net Worth Cash Bonds Stocks Real Estate Memo: Disposable Personal Income ,19,18 3,99,31,,33,83 6,19 6,61 6,876 7,1 7,7 8,99 8,87 9,3 9, 1,38 1,8 1,99 1,937 11, 11,787 1,6 1,77 1,97 1,17 1,68 1,6 1,78 1,811 1,97 13,8 Wilshire #N/A #N/A #N/A #N/A 1,,16 3,11,1 6,7 7,198 9,98 11,318 13,813 1,176 1,78 8,33 1,8 11,971 1,18 1,8 1,8 9,87 11,6 13,36 13,19 1,99 19,76 16,98 16,99 17,98 19,76 19,818,388,98 1,87 % change Dow Jones Industrial Average ,7,63 3,83,117 6,8 7,98 9,181 11,97 1,787 1, 8,3 1, 1,783 1,718 1,63 13,6 8,776 1,8 11,78 1,18 13,1 16,77 1,79 1,91 1,13 16,77 16,671 17,1 17,61 18,19 % change Source: Federal Reserve Board. Updated through 13 Q3. 11 Commercial Banking Weekly Insights on Markets and the Economy Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

102 ... encourages less saving and more spending Nominal disposable income and nominal wages and salaries (percent change from 1 months earlier) Household saving rate (left) Ratio of household net worth to income (right scale is reversed), includes a 13 Q estimate and 1 forecasts, based on the Wilshire as of February 1, Source: US Department of Commerce. Updated through February 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

103 When savings go up, saving falls and spending rises Personal saving (percent of disposable income) Household net worth (ratio to income) Household saving rate (left) Ratio of household net worth to income (right scale, reversed). Forecast Sources: US Dep. of Com.; FRB. Updated through April 1 (saving) and 1 Q1 (net worth). 13 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

104 Retail trends have lost some momentum... Retail sales (percent change from 1 months earlier) Year-over-year percent change Annualized change from three months earlier Source: US Department of Commerce. Updated through August 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

105 ... core sales too Retail sales other than auto and gasoline purchases (percent change from 1 months earlier) Year-over-year percent change Annualized change from three months earlier Source: US Department of Commerce. Updated through August 1. 1 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

106 But FedEx and UPS are happy Non-store retail sales (percentage of nonauto retail sales) Electronic shopping and mail order purchases E-commerce sales Sources: US Dep. of Com.; ICSC. Updated by Feb. 13 (electronic shopping) and Feb. 13 (ecommerce). 16 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

107 Cars have fully recovered Sales of motor vehicles (millions at an annual rate) Source: US Department of Commerce. Updated through August Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

108 Business Capital Spending Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1. 18

109 ... and invest in the future... Business fixed investment, structures and equipment (percent change from four quarters earlier) 1 Forecast Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 13 Q. 19 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

110 ... capital investment... Business investment on structures, equipment, and intellectual products (% ch from quarters earlier) Shaded area denotes overall business fixed investment Nonresidential structures Intellectual property products Equipment and software Forecast Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 13 Q. 11 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.

111 Global Economic Outlook Issues, 1 st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 1.