The Outlook for the U.S. Economy

Transcription

1 The Outlook for the U.S. Economy John V. Duca Associate Director of Research and Vice President Federal Reserve Bank of Dallas Danforth/Lewis Professor of Economics Oberlin College January 2018 The views expressed are those of the speaker and should not be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System. Thanks to Laton Russell for excellent research assistance.

2 Outline Economic outlook and policy: the usual suspects: Real activity Labor markets Inflation Important background on income and housing Conclusion

3 Real Activity

4 Investment and manufacturing have revived some, service sector growth moderately strong Business investment sagged in 2015 and 2016, mainly owing to the energy bust. Revived some with turnaround in mining activity. Partly aided by fading energy bust, manufacturing growth firming. Manufacturing still subject to currency, trade policy, and foreign growth developments. Service sector firmed in the first half of 2017, still strong more recently. ISM surveys consistent with GDP growth near or above 2 percent in the near term. Nominal consumption (PCE) growth solid.

5 It took several years for high unemployment to fall from its Great Recession highs SA, Percent Unemployed Dec '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Sources: Bureau of Labor Statistics and NBER (shaded areas denote NBER recessions).

6 GDP growth choppy on a quarterly basis, a little above 2 percent growth is expected in Percent change Qtr./Qtr. Year/Year 17:Q :Q Blue Chip forecast Sources: Bureau of Economic Analysis and Blue Chip Survey.

7 Growth in leading economic indicators reviving, suggests moderate near-term growth 6-month Annualized Change U.S. fiscal scares Nov. 17 (6.1) Euro Debt China Slows Credit Controls of 1980 Credit Crunch & Panic of '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 '14 '17 Sources: Conference Board, author s calculations, and NBER (shaded areas denote NBER recessions).

8 Weakness in business investment was largely in mining, mining investment seems to be stabilizing Billions, 2009 US$ Billions, 2009 US$ 2, ,000 Nonresidential Fixed Investment 250 1, ,200 Structures & Equipment Other Sectors Structures & Equipment Mining-related Structures & Equipment SOURCE: Bureau of Economic Analysis. 0

9 Rig count leads oil investment by one quarter Percent change, year/year Petroleum and Natural Gas Structures and Equipment Investment U.S. Rig Count 1-Quarter Lead '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Percent change, year/year, SAAR NOTES: Shaded areas indicate recession. Petroleum and natural gas equipment series begins after SOURCES: Baker Hughes; Energy Information Administration; author's calculations; NBER

10 ISM surveys consistent with two-quarter GDP growth at or above 2 percent in near term 3 mo. average, 50+ = Econ Expand 70 2-qtr annualized percent change Dec Rising Falling 45 ISM Manufacturing '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 NOTE: Shaded areas indicate recession. SOURCES: Institute for Supply Management, Bureau of Economic Analysis. -8

11 ISM surveys consistent with two-quarter GDP growth at or above 2 percent in near term 3 mo. average, 50+ = Econ Expand 70 2-qtr annualized percent change ISM Non-manufacturing Dec Rising Falling 45 ISM Manufacturing Dec '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 NOTE: Shaded areas indicate recession. SOURCES: Institute for Supply Management, Bureau of Economic Analysis. -8

12 ISM surveys consistent with two-quarter GDP growth at or above 2 percent in near term 3 mo. average, 50+ = Econ Expand 70 2-qtr annualized percent change Real GDP Growth ISM Non-manufacturing Dec Rising Q Falling 45 ISM Manufacturing Dec '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 NOTE: Shaded areas indicate recession. SOURCES: Institute for Supply Management, Bureau of Economic Analysis. -8

13 Year-over-year growth in consumer spending (PCE) solid - not surging Percent change year/year Nov '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 NOTE: Shaded areas indicate recession. SOURCES: Bureau of Economic Analysis; Census Bureau; NBER.

14 Labor Markets

15 Labor markets near or at full employment Payroll job gains modestly decelerate since 2015 as the jobless pool shrinks. Bounce-back after hurricanes. Headline unemployment dips below natural rate estimates Discouraged worker rate and part-time for economic reasons near pre-recession levels. Headline and broader unemployment rates now below pre-recession averages. Other positive signs: hiring rates and quit rates back to pre-recession levels. layoff rates are below pre-recession norms, job opening rates high consistent with shortages of skilled labor and the long-run need to improve workers skills.

16 Despite ebbing from 2015 pace, private payroll growth moderately strong enough to lower slack Private nonfarm payrolls, Chg, thousands Month Moving Average Dec Hurricane related ,000 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SOURCE: Bureau of Labor Statistics.

17 Declines in unemployment suggest labor market near full employment Percent Headline (U3) Unemployment Rate 5 Dec Median Policymaker Long-Run Unemployment Rate Natural Rate of Unemployment (NAIRU, Congressional Budget Office) 4 '14 '15 '16 '17 Sources: Bureau of Labor Statistics, Congressional Budget Office, Federal Reserve System.

18 Broader U6 unemployment rate low Percent :Q3 Average Headline Unemployment Rate U6 Unemployment Rate Dec. ' :Q3 Average NOTES: U6 Unemployment rate includes marginally attached and part-time for economic reasons workers. Gray shaded areas indicate NBER recessions. SOURCES: Bureau of Labor Statistics; NBER.

19 Inflation

20 Investment and manufacturing have revived some, service sector growth moderately strong Business investment sagged in 2015 and 2016, mainly owing to the energy bust. Revived some with turnaround in mining activity. Partly aided by fading energy bust, manufacturing growth firming. Manufacturing still subject to currency, trade policy, and foreign growth developments. Service sector firmed in the first half of 2017, still strong more recently. ISM surveys consistent with GDP growth near or above 2 percent in the near term. Nominal consumption (PCE) growth solid.

21 Core, trimmed mean inflation still shy of 2 percent Percent change, Year-over-year 5 4 Headline PCE Trimmed Mean PCE Core PCE Nov. 17 (1.7) (1.8) (1.5) -1-2 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SOURCES: Bureau of Labor Statistics, Bureau of Economic Analysis, and Federal Reserve Bank of Dallas.

22 Are any of the disinflationary effects of ACA on health care inflation dissipating? Percent change, Year-over-year Health care services price changes Nov. Trimmed (1.7) Mean PCE (1.4) ACA sign-ups start Start of ACA cost programs Insurance premium caps '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SOURCES: Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve Bank of Dallas, and Dolmas (2016).

23 Slower health care inflation restrains trimmed mean inflation from Percent change, Year-over-year Trimmed Mean PCE Trimmed Mean PCE ex. health care Nov. (1.8) (1.7) ACA sign-ups start Start of ACA cost programs Insurance prem. caps '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SOURCES: Bureau of Labor Statistics, Bureau of Economic Analysis, Federal Reserve Bank of Dallas, and Dolmas (2016).

24 Important background on income and housing

25 Important background on income and housing Consumer spending growth looks solid Wealth likely to support further consumer spending growth Mortgage crisis behind us, overall credit quality is good Housing demand finally kicking in may shift spending patterns toward housing-related consumer goods, sources of growth shifting away from autos. Labor markets back to near full employment Real income slower to recover, differs by age and education Consumer confidence high

26 Percent change year/year Year-over-year growth in retail control and PCE consumer spending solid Total Retail Sales Retail Control Nominal PCE '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 NOTE: Shaded areas indicate recession. SOURCES: Bureau of Economic Analysis; Census Bureau; NBER. Nov

27 Single-family housing permits boom, then bust, and slowly recover picking up a little in late 2017 Millions, units Billions, $ Real single-family construction (Q3) Single-family building permits (Nov.) '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Sources: Bureau of Economic Analysis, U.S. Census and author s calculations. 0 27

28 Single-family housing recovering slowly, while multi-family has already recovered Units, thousands SAAR Single-Unit Permits Multi-Unit Permits (3 mo. avg.) -400 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 NOTE: Shaded areas indicate recession. SOURCES: Census Bureau; NBER.

29 U.S. light vehicle sales recovered by 2015, not much scope for future growth ex. hurricane effects Millions of Units, SAAR 19 Annual Sales 17 Pace Tax Credit Nov. 17 (17.3) Hurricane related '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: Bureau of Economic Analysis.

30 Median household income by age of head of household Index, 2006 = to 24 Years 35 to 44 Years 45 to 54 Years 55 to 64 Years 65 Years and Over NOTES: Grey shaded areas indicate NBER recessions. SOURCE: Census Bureau; NBER.

31 Median household income by age of head of household Index, 1970 = to 24 Years 35 to 44 Years to 54 Years 55 to 64 Years Years and Over '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 NOTES: Grey shaded areas indicate NBER recessions. SOURCE: Census Bureau; NBER.

32 Median household income by education Index, 1991 = No Diploma High School Graduate Some College (no degree) Bachelor's Degree or More NOTES: Grey shaded areas indicate NBER recessions. SOURCE: Census Bureau; NBER.

33 Consumer sentiment and confidence recover from U.S. fiscal policy and euro debt scares Index Conference Board: Consumer Confidence (1985=100) Dec University of Michigan: Consumer Sentiment (Q1-66=100) 100 Debt Ceiling and Euro Crisis II Scares Euro- Crisis III Dec Euro- Crisis I Fiscal Cliff Gov t shutdown 20 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SOURCES: U. of Michigan Survey Research Council, Conference Board and NBER.

34 Concluding Comments GDP growth moderate as full employment roughly restored. Likely to overshoot full employment in 2017/18. Short-run factors delay return to 2 percent overall PCE inflation, medium-run outlook still points to 2 percent. U.S. economy ending 2017 with some momentum. Fiscal policy changes could firm medium-run outlook, but details and prospects unclear. Household spending patterns starting to shift away from autos to other items and housing. Some signs of asset price pressures. Against a good cyclical backdrop, the issue and ramifications of sluggish long-run growth remain.

35 Back-Up Slides: Regional Economies

36 Total Nonagricultural Employment by District Indexed to Advent of Great Recession Index, Jan. 2008= Oil price peak June 2014 Nov Dallas San Francisco Minneapolis Atlanta Sum of States New York U.S. Richmond Kansas City Boston St. Louis Chicago Philadelphia Cleveland SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Federal Reserve Bank of Dallas.

37 Index, Jun. 2014= Total Nonagricultural Employment by District Since Last Oil Price Peak Oil price peak June 2014 Nov San Francisco Atlanta Dallas Richmond St. Louis Sum of States New York U.S. Boston Kansas City Chicago Philadelphia Minneapolis Cleveland SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Federal Reserve Bank of Dallas.