Economic Update Baker College - Flint

Transcription

1 Economic Update Baker College - Flint Federal Reserve Bank of Chicago January 10, 2017 Paul Traub Senior Business Economist

2 Main Economic Indicators Year-over-year Comparison Actual GDP Annual Growth Rate 1 2.4% 2.2% 1.6% Unemployment Rate 2 6.2% 5.3% 4.9% Participation Rate % 62.7% 62.8% Nonfarm Job Growth 3 251, , ,800 PCE Core Inflation Yr. / Yr % 1.4% 1.7% 1. Year-over-year 2015 & 2016, Q3/Q3 2. Annual Average 3. Monthly Average 4. Annual Average, January through November Source: U.S. Bureau of Economic Analysis, Census Bureau and Bureau of Labor Statistics 1

3 U.S. Real GDP Billions Chained $2009, % Change Q/Q at SAAR $ Billions 18,000 17,000 Q3 16 $16, , , % , , ,000 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 ' Source: U.S. Bureau of Economic Analysis 2

4 U.S. Real GDP GDP and Contribution to Change, Q/Q at SAAR Q1 '14 Q2 Q3 Q4 Q1 '15 Q2 Q3 Q4 Q1 '16 Q2 Q3 PCE Private Investment Net Exports Government GDP Source: U.S. Bureau of Economic Analysis, September 2016 Blue Chip Economic Indicators. 3

5 Real Personal Consumption Expenditures Billions Chained $2009, % Change Q/Q at SAAR $ Billions 12,500 12,000 11,500 11,000 10,500 Q3 16 $11, ,000 9,500 9,000 8,500 8,000 7,500 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 3.0% Source: U.S. Bureau of Economic Analysis 4

6 Real Personal Consumption Expenditures Index, Q = 100 Index Q '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Durables Nondurables Services Source: Author s calculations using data from the BEA 5

7 Real Retail Sales Excluding Food Services - % Change Yr./Yr % % Nov 16 YTD 2.5% Nov % 0.0 '14 M M J S N '15 M M J S N '16 M M J S N % Chg Yr/Yr Annnual Average % Change Source: Bureau of the Census 6

8 Internet Users & E-Commerce User per 100 People and E-Commerce as % of Total Sales '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Internet Users % User Penetration E-Commerce Q % Source: World Bank and Bureau of the Census 7

9 Real Gross Private Domestic Investment Billions Chained $2009, % Change Q/Q at SAAR $ Billions 3, ,000 2,750 2,500 2,250 2,000 1,750 1,500 1,250 1,000 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Q3 16 $2, % Source: U.S. Bureau of Economic Analysis 8

10 Real Domestic Fixed Investment Billions Chained $2009, Index 2005 = 100 Index Q '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Fixed Investment Nonresidential Residential Source: U.S. Bureau of Economic Analysis 9

11 New Orders & Industrial Production Index 2012 = Nov New Orders Industrial Production Note: Manufacturers New Orders Nondefense Capital Goods Excluding Aircraft. 10

12 ISM Purchasing Managers Index Manufacturing and Composite, SA - Greater than 50 = Expansion Index 60.0 Dec Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-16 Manufacturing Composite Source: Institute for Supply Management, Haver Analytics and FRED 11

13 U.S. Housing Starts In Thousands of Units (SAAR) November Average YTD Data (000) s 2,400 2,000 2,080 1,827 1,600 1,370 1, ,103 1, '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Note: The United States averaged 1.5 million housing starts per year 1990 to Source: U.S. Census Bureau 12

14 U.S. Housing Starts & Household Formation In Thousands of Units Averages by Decade 2,000 1,800 1,600 1,400 1,200 1, ,758 1,512 1,550 1,498 1,537 1,407 1,372 1,331 1,210 1,104 1, 's 1970's 1980's 1990's 2000's 2010's Starts Formation Source: U.S. Census Bureau Single Family Starts and Households by Age 13

15 Households by Age of Total, Index 1960 = 100 Index Values Index % Under to to years and older % 12.6% 25.3% Source: U.S. Census Bureau Table HH-3, Households by Age 14

16 Median Age of Householder Annual Average 1960 to 2016 Index Source: U.S. Census Bureau Table HH-3, Households by Age 15

17 Good Time to Buy / Sell Fannie Mae Home Purchase Sentiment Survey Nov '11 '12 '13 '14 '15 '16 Good Time to Buy Good Time to Sell of respondents that say it is a good time to buy / sell. Source: Fannie Mae and Haver Analitics 16

18 Single Family Home Prices S&P CoreLogic Case-Shiller Index, January 2000 = SA Nov '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 National Detroit Area Detroit-Warren-Dearborn, Metropolitan Statistical Area (MSA) Source: Fannie Mae and Haver Analitics 17

19 The U.S. Dollar & The Trade Deficit Trade Weighted Dollar- Index 2010 = 100, Trade Deficit Index 2010 = 100 Index Trade Weighted Dollar Index Trade Deficit Stronger Dec 28, Q Weaker '10 '11 '12 '13 '14 '15 ' '10 '11 '12 '13 '14 '15 '16 Source: Federal Reserve Board and Haver Analytics 18

20 Global Outlook for 2016 & 2017 IMF Forecast for Growth, % Chg. Yr./Yr. 6.0 Change 2016 / 2015 Change 2017 / World Advanced Emerging 0.0 World Advanced Emerging January October Forecast Month January October Forecast Month Source: IMF World Economic Outlook 19

21 U.S. Real GDP Blue Chip Forecast Annual Change Chained $ Bottom 10 Average Top 10 Source: Blue Chip Economic Indicators 20

22 Fiscal Stimulus Likely, But Large Uncertainties President elect s plan includes large tax cuts and increased spending - Details still lacking in many areas - Final package depends on Administration and Congressional priorities Estimates of fiscal impact range from 0.5 to 1.0 percent on level of GDP by end of 2018, falling to zero by 2020 Potential offsets to long-run growth from other policies - Trade restrictions - Immigration legislation - Affordable Care Act - Federal Reserves response to stronger demand and higher inflation 21

23 U.S. Consumer 22

24 Income and Savings Rate Change and of DPI 10.0 Real DPI - % Chg. Yr./Yr., $ Personal Saving Rate - % of DPI 8.0 Pre-recession 3.1% Post recession Average 5.9% 4.0 Nov % Nov % Post Recession % Pre-recession average 4.0% '00 '02 '04 '06 '08 '10 '12 '14 '16 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: U.S. Bureau of Economic Analysis 23

25 Real DPI & Personal Savings Rate As of Personal Income Real Disposable Personal Income - $ Personal Savings Rate of DPI '60's '70's '80's '90's '00's '10's 0.0 '60's '70's '80's '90's '00's '10's Source: U.S. Bureau of Economic Analysis 24

26 Consumer Credit and Interest Payments As a of Disposable Personal Income Revolving & Non-revolving Credit Oct % Personal Interest Payments % 1.5 Nov 16 % 16.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 Total Credit Total Less Government Held Student Loans 1.0 '00 '04 '08 '12 '16 Source: Federal Reserve Bank - Board of Governors January 10, 2017 Federal Reserve Bank of Chicago 25

27 Inflation PCE & CPI Price Index Change Yr / Yr 6.0 PCE Price Indexes 6.0 CPI Price Indexes Nov % 1.4% Nov % 1.7% '07 '08 '09 '10 '11 '12 '13 '14 '15 ' '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 All Items Core All Items Core Source: U.S. Department of Labor: Bureau of Labor Statistics data. 26

28 Unemployment Rate of Labor Force Oct % Dec % 0.0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Source: U.S. Bureau of Labor Statistics 27

29 Initial Unemployment Claims Monthly Average as of Nonfarm Employment '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 '12 '15 Source: U.S. Bureau of Labor Statistics 28

30 Real Household Net Worth Home Equity and Financial & Other - Index 2007 = 100, $2009 Index Index Q2 16 $Trillions $66.2 $77.7 $ '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Source: Author s calculations using Federal Reserve data. Home Equity Financial & Other Total Note: Total Household Net Worth in Current Dollars is $85.9 Trillion. 29

31 Consumer Sentiment University of Michigan Index January Dec '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: Thomson Reuters / University of Michigan January 10, 2017 Federal Reserve Bank of Chicago 30

32 Monetary Policy Employment & Inflation 31

33 F.O.M.C Statement December 21, Information since the F.O.M.C. met in November indicates that the labor market has continued to strengthened and that economic activity has been expanding at a moderate pace since mid-year. 2. Job gains have been solid in recent months and the unemployment rate has declined. 3. Household spending has been rising moderately but fixed investment has remained soft. 4. Inflation has increased since earlier this year but is still below the Committee s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. 5. Market-based measures of inflation compensation have moved up considerably but are still low; most surveyed based measures of longer-term inflation expectations are little changed, on balance, in recent months. 32

34 Unemployment Rate & PCE Inflation Unemployed, PCE % Change Yr./Yr Unemployment 3.0 PCE Inflation % Nov % Dec % '09 '10 '11 '12 '13 '14 '15 ' '09 '10 '11 '12 '13 '14 '15 '16 Actual Target Annual Actual Target Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve 33

35 U.S. Nonfarm Payrolls Monthly and Annual Average Job Change In Thousands Thousands YTD Monthly Actual Annual Average Dec Source: U.S. Department of Labor: Bureau of Labor Statistics 34

36 Underutilization of Labor U6 Unemployment Rate - SA Dec % '00 '02 '04 '06 '08 '10 '12 '14 '16 Includes total unemployed plus marginally attached workers plus employed part-time for economic reasons. Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve 35

37 Inflation Compensation 5 Year and 10 Year Inflation Expectations & 10 Year TIPS Minus 5 & 10 Year Treasuries- Constant Maturity Rate Dec % 1.85% '06 '08 '10 '12 '14 '16 5 Year Breakeven 10 Year Breakeven Source: Author s calculation using Federal Reserve System data. Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve 36

38 Yield Curve 10 Year 1 Year Treasuries in Basis Points Dec bps 164 bps 87 bps '12 '13 '14 '15 '16 10 Yr - 1 Yr T-Bill Spread 1 Year Treasury 10 Year Treasury Source: Board of Governors Federal Reserve System 37

39 Inflation Expectations Headline PCE Inflation Yr./Yr. & Q4/Q4 2.4 Survey of Professional Forecasters Q3 16 Forecast Q1 '16 Q2 '16 Q3 '16 Q4 '16 Q1 '17 Q2 '17 Q3 '17 Q4 ' Actual Expectations Source: Bureau of Economic Analysis and FRB Philadelphia Q1 16 Survey 38

40 Economic Projections Comparisons September 2015 versus September 2016 PCE Inflation - Annual PCE Core Inflation - Annual Longer run Sep '16 Dec ' Sep '16 Dec '16 Source: Board of Governors Federal Reserve System, September 2015 & September

41 Economic Projections Comparisons September 2015 versus September Unemployment Rate Q4 Est. 2.4 GDP - % Chg. Q4/Q Longer run Longer run Sep '16 Dec '16 Sep '16 Dec '16 Source: Board of Governors Federal Reserve System, September 2015 & September

42 Appropriate pace of policy firming Fed Funds Rate Year End Projections Long Run 41

43 Economic Projections Comparisons Real GDP Change Q4/Q4 Sep 15 versus Sep Longer run Dec '15 Projection Dec '16 Projection Source: Board of Governors Federal Reserve System, June 2016 & September 2016 Median Predictions 42

44 Labor and Productivity Growth Labor Force and Real Output Per Hour Average Annual Growth 3.5 Labor Force 3.5 Real Output Per Hour 's 60's 70's 80's 90's 00's 10's 's 60's 70's 80's 90's 00's 10's Source: U.S. Department of Labor: Bureau of Labor Statistics 43

45 Importance of an Independent Fed Policymakers, academics, and other informed observers around the world agree that the goals of monetary policy should be established by the political authorities, but the conduct of monetary policy in pursuit of those goals should be free from political influence.* The Fed has congressionally mandated goals of price stability, maximum employment, and moderate long-term interest rates. Many studies support that central banks able to conduct day-to-day monetary policy operations free of political pressure tend to deliver better inflation outcomes, without compromising economic growth. Achieving monetary goals can at times take substantial time, this requires that monetary policy makers take a longer-term perspective when making their decisions. * Source: Board of Governors of the Federal Reserve 44

46 Importance of an Independent Fed (con t) In contrast, short-term political influences may cause pressure to over stimulate the economy resulting in output and employment gains that exceed the economy s underlying potential. Such gains may look good at first, but they are not sustainable and will likely create an inflationary environment that is detrimental to longerterm economic growth. In short, monetary policy interference can generate boom-bust cycles with high inflation and less stable economic activity. Additionally, a government that controls the central bank could abuse the central bank s money-creation powers to help finance government budget deficits which would inevitably lead to high inflation and interest rates and a volatile economy. 45

47 U.S. Auto Industry 46

48 U.S. Light Vehicle Sales S.A.A.R Millions of Units Millions Dec / Cash for Clunkers Aug '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 SAAR Annual Average Note: Total 2016 Light Vehicle Sales: 17,465,020 / Including M/H: 17,866,260. Source: Ward s Automotive and BEA 47

49 U.S. Light Vehicle Incentives As of Transaction Price - SA Dec % '10 '11 '12 '13 '14 '15 '16 Source: Author s calculation using Ward s Automotive and J.D Power data. 48

50 Light Vehicle Transaction Price Annual Average & Change Yr./Yr. Dollars $32, $31, $30,000 $28, $26, $24,000 - $22,000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 ' % Chg. Yr/Yr (Right) Transaction Price (Left) -4.0 Source: Author s calculation using J.D Power data. 49

51 Finance Term Length of Loan in Months '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Source: J.D Power data. 50

52 Buying Conditions for Vehicles University of Michigan Index Dec '08 '10 '12 '14 '16 Source: Thomson Reuters / University of Michigan January 10, 2017 Federal Reserve Bank of Chicago 51

53 Reasons for Buying Conditions for Vehicles University of Michigan Good / Bad Reason: Why do you say so? Low Prices Prices Will Increase Low Interest Rates Rising Interest Rates Time's good Fuel Efficiency Prices High High Interst Rates Can't Afford Uncertain Future Gas Prices Poor Selection Note: May add to more than a 100 due to multiple mentions. Source: University of Michigan Survey of Consumers

54 Thank You!