Economic Outlook C.F.A. West Michigan Society Luncheon

Transcription

1 Economic Outlook C.F.A. West Michigan Society Luncheon Federal Reserve Bank of Chicago Detroit Branch May 22, 2012 Paul Traub

2 Overview Economy - GDP The U.S. Consumer Home Prices Inflation Employment U.S. Automotive Industry The F.O.M.C. 1

3 Global Economic Data Real GDP Annual Percent Change Year over Year Difference from April '11 April '12 Projections WEO Projections World Output Advanced Economies U.S European Union Japan United Kingdom Canada Emerging Economies Russia China India Brazil Mexico Source: IMF World Economic Outlook April,

4 U.S. Real GDP Billions Chained $2005, % Change Q/Q at SAAR $ Billions 14,000 13,500 Q4 07 $13,326 Q1 12 $13,502 Percent ,000 Declined $685B (Peak to Trough, -5.1%) ,500 Q2 09 $12,663 Q % , ,500 11,000 Q % '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '

5 U.S. Real GDP Contribution to Percent Change Q Other Change in Inventories 0.0 (0.6) -1.0 GDP Consumption Investment Net Exports Government 4

6 U.S. Real GDP by Sector Billions Chained $2005, % Change Q/Q at SAAR $ Billions 10,000 9,500 Personal Consumption Percent $ Billions Q ,400 9, ,200 Private Domestic Investment Q1 06 2,266 Percent 60.0 Q1 12 1, ,000 8, % ,000 1, % ,000 7,500 Declined $ 314 Billion 0.0 1, ,400 Declined $ 869 Billion ,000 2,600 2,300 2,000 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 $ Billions Imports and Exports Imports Q1 12 2, ,200 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 $ Billions Government Consumption 2,600 2,500 2,400 Q1 12 2, Percent ,700 1,400 Exports Q1 12 1,821 2,300 2, , '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 5 2,100 2, % '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '

7 U.S. Gross Private Domestic Investment - Residential Billions Chained $2005, % Change Q/Q at SAAR $ Billions Q3 05 $783.3 Percent Change (Peak to Trough) -59.0% Q % Percent Q % '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Q1 12 $

8 U.S. Exports by Category Real $ Index, 2007 = 100 Category Petroleum / Energy Related Agriculture - Nonfood Stuff Metal Related Materials an Products Agriculture - Food Stuff Jewerly, Art and Gems Chemicals Machinery and Equipment Houshold Goods and Electrical Lumber and Wood Supplies Textiles Transportatin Equipment and Parts Glass-plate Computers and Electrical Equipment and Parts Military Note: Categories deflated using GDP price deflator for export goods. 7

9 U.S. Real GDP Percent Change Yr / Yr Consensus of the Blue Chip by Month Mar '11 Apr May Jun Jul Aug Sep Oct Nov Dec Jan '12 Feb Mar Apr May

10 Closing the Output Gap Actual / Forecast GDP and Potential GDP $ Billions 15,500 Q1 14 Q1 15 Q ,500 13,500 12,500 11,500 10,500 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Potential Actual 2% Growth 3% Growth 4% Growth 5% Growth 9

11 The U.S. Consumer 10

12 Income and Savings Rate Percent Change Yr/Yr, Percent of DPI Percent Mar % Mar % '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 May 22, 2012 Federal Reserve Bank of Chicago 11

13 Consumer Credit Percent of Disposable Personal Income Percent Mar Apr '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 Note: Includes Revolving and Nonrevolving Credit. May 22, 2012 Federal Reserve Bank of Chicago 12

14 Stock Market Value S & P 500 Index Monthly Average Index 1,800 1,600 1,400 Apr 12 1,386 1,200 1, '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 May 22, 2012 Federal Reserve Bank of Chicago 13

15 Home Prices Case-Shiller 20 City Home Price Index, 2000 = 100 Index Apr Feb '00 '02 '04 '06 '08 '10 '12 May 22, 2012 Federal Reserve Bank of Chicago 14

16 Household Net Worth Billions of Dollars, Q1 80 to Q ,000 70,000 60,000 -$8.4 Trillion 50,000 40,000 30,000 20,000 Total Decline Q4 07 Q1 09 -$16.4 Trillion 10,000 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Home Equity Financial and Other 15

17 Consumer Sentiment University of Michigan Index January Apr '82 '86 '90 '94 '98 '02 '06 '10 May 22, 2012 Federal Reserve Bank of Chicago 16

18 Home Prices 17

19 Home Prices Home Price Index - Q1, 2000 = 100 Index Q Q Q Q '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 U.S. Case-Shiller MI FHFA U.S. FHFA Source: S&P Case-Shiller U.S. National Index, FHFA All Transactions Price Index U.S. & Michigan May 22, 2012 Federal Reserve Bank of Chicago 18

20 Total Homeowner Real Estate Equity Homeowner Equity $Trillions 15.0 Q1 06 $ Q4 11 $ '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, Federal Reserve Bank of Chicago

21 Total Mortgage Liability Household and Nonprofit Mortgage Liability $Trillions 12.0 Q1 08 $ Q4 11 $ '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, Federal Reserve Bank of Chicago

22 Total Homeowner Real Estate Value Homeowner Equity + Home Mortgages $Trillions 25.0 Q4 06 $ Q4 11 $ '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, Federal Reserve Bank of Chicago

23 Value of Structures Household structures replacement cost at current cost basis $Trillions Q4 07 $14.5 Q4 11 $ '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, 2012 Federal Reserve 22 Bank of Chicago

24 Home Ownership Premium Total Homeowner Value Value of Structures $Trillions Q1 06 $9.1 '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 Q4 11 $1.8 May 22, Federal Reserve Bank of Chicago

25 Home Ownership Premium Ratio Home Ownership Premium / Total Real Estate Value Percent Q Q '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, Federal Reserve Bank of Chicago

26 Home Ownership Premium Ratio Home Ownership Premium / Total Real Estate Value Percent Q Q '52 '55 '58 '61 '64 '67 '70 '73 '76 '79 '82 '85 '88 '91 '94 '97 '00 '03 '06 '09 May 22, Federal Reserve Bank of Chicago

27 Residential Construction New Privately Owned Housing Units Under Construction Thousands 1,600 1,400 Jan ,200 1, Apr '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 May 22, Federal Reserve Bank of Chicago

28 Inflation 27

29 Inflation Price Indexes for PCE Percent Change Yr / Yr Percent PCE - All Items Mar % '80 '85 '90 '95 '00 '05 '10 PCE Core Mar % May 22, 2012 Federal Reserve Bank of Chicago 28

30 Inflation Expectation & CPI Current Expectation versus Actual Percent 'During the next 12 months, do you think that prices in general will go up, or go down, or stay where they are now?' and 'By what percent do you expect prices to go up, on the average, during the next 12 months?' U of M Survey Data Percent Change Yr/Yr Apr Apr Jan '10 Jan '11 Jan '12 U of M Survey CPI - All Items Source: U of M, Expected Change in Prices During Next 12 Months and BLS 29

31 Producer Price Index Crude Materials Percent Change Yr / Yr Percent '80 '85 '90 '95 '00 '05 '10 Apr % May 22, 2012 Federal Reserve Bank of Chicago 30

32 Producer Price Index Intermediate Goods Percent Change Yr / Yr Percent Apr % '80 '85 '90 '95 '00 '05 '10 May 22, 2012 Federal Reserve Bank of Chicago 31

33 Producer Price Index Finished Goods Percent Change Yr / Yr Percent '80 '85 '90 '95 '00 '05 '10 PPI Finished Goods Apr % PPI Finished Goods - Less Food & Energy Apr % May 22, 2012 Federal Reserve Bank of Chicago 32

34 Productivity & Utilization Total Industrial Utilization and Output Per Person Mfg. Percent 85 Percent Chg. Y/Y '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Productivity Capacity Utilization May 22, 2012 Federal Reserve Bank of Chicago 33

35 Crude Oil and Natural Gas Monthly Average Index, 2007 = 100 Index Crude Oil - WTI Apr '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 ' Natural Gas Price: Henry Hub, LA May 22, 2012 Federal Reserve Bank of Chicago 34

36 PCE on Energy Goods Percent of Total PCE, Q1 60 to Q1 12 Percent s 1970 s 1980 s s 2000 s 2010 s 1.0 '60 '63 '66 '69 '72 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 '11 Note: Consists of gasoline and other energy goods and of electricity and gas. May 22, 2012 Federal Reserve Bank of Chicago 35

37 Inflation Consumer Price Index Percent Change Yr / Yr Percent CPI - All Items Apr % CPI Core Apr % '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 May 22, 2012 Federal Reserve Bank of Chicago 36

38 Employment 37

39 Employment Gains / Losses Nonfarm Payroll In Thousands Thousands Apr (200.0) (400.0) (600.0) -8, ,745 = -5,034 (800.0) (1,000.0) Jan '07 '08 '09 '10 '11 '12 38

40 Weekly Initial Unemployment Claims Monthly Average In Thousands Thousands Mar Apr '82 '86 '90 '94 '98 '02 '06 '10 Note: Week ending April 21 claims were 338,000 and the 4 week moving average was 381,

41 Initial Unemployment Claims and Job Creation Monthly Average Initial Unemployment Claims and Change in Employment 1967 to Present - In Thousands Average Jobs Created > < 250 May 22, 2012 Federal Reserve Bank of Chicago 40

42 Unemployment & Participation Rates United States - SA Percent Apr % Apr '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 ' U.S. Participation Rate May 22, 2012 Federal Reserve Bank of Chicago 41

43 Participation Rate by Age Bracket Index, January 2007 = 100 Percent yrs Total yrs '07 '08 '09 '10 '11 '12 Total yrs yrs yrs yrs. 55+ yrs. 42

44 Expected Age at Retirement Percent Age 66 or Older + Never Retire Percent % % % % % % '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Age 66 or Older Never Retire Source: Employment Benefit Research Institute, The 2011 Retirement Confidence Survey 43

45 Job Creation and the Unemployment Rate Total Household Employment Millions Sep 14 Sep 13 Nov % 6.5% 7.5% 8.5% 9.5% 10.5% Unemployment Rate '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 400K / Mo. 300K / Mo. 200K / Mo. Year End Unemployment Rate at Different Levels of Job Growth K Jobs Per Month K Jobs Per Month K Jobs Per Month May 22, 2012 Federal Reserve Bank of Chicago 44

46 Automotive 45

47 U.S. Light Vehicle Sales Millions of Units Source: Ward s Automotive 46

48 U.S. Light Vehicle Sales Seasonally Adjusted Annual Rate Millions Cash for Clunkers Aug Apr MMA Apr Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 47

49 Retail Gasoline Price Monthly Average All Grades, All Formulations $/Gallon Apr 12 $ '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 May 22, 2012 Federal Reserve Bank of Chicago 48

50 Gasoline Price Volatility Monthly Seasonal Factors Peak to Trough 20% swing in gasoline price. '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 49

51 Average Fuel Efficiency U.S. Light Vehicles Sales Weighted MPG '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Car Light Truck Total Improvement 00 to % 15.0% 16.1% 50

52 U.S. Light Vehicle Sales Annual Sales 15.5 Consensus of the Blue Chip by Month Jun '11 Jul Aug Sep Oct Nov Dec Jan '12 Feb Mar Apr May 2012 Forecast 2013 Forecast 51

53 Auto Recession Cycles Quarterly Cycle Index, Trough = 100 Index Cash for Clunkers Japan Earth Quake 80 T-4 T-2 T-0 T-2 T-4 T-6 T-8 T-10 T-12 Quarters, T-0 = Trough Q1 '09 Trough '09 Trend 70 - '91 Average Average Trend 52

54 Determinates of Trend Vehicle Demand Three Determinants of a stock adjustment model 1. Replacement of scrapped vehicles Scrap Rates 2. Change in population Employment 3. Change in demand Vehicles per Person Trade-in Cycles Miles Driven 53

55 Vehicle Scrap Rate U.S. Light Vehicles Percent '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 54

56 Vehicle in Operation 1997 to 2011 as of July 1 Millions Millions Change in VIO -1.5 '97 '99 '01 '03 '05 '07 '09 '

57 Average Vehicle Age From July 1 Each Year Total Passenger Light Light Year Cars Trucks Vehicle Source: R. L. Polk 56

58 Miles Per Vehicle Total Miles Traveled / Vehicles in Operation, Annual Average Thousands '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Source: R.L. Polk and Federal Highway Administration 57

59 U.S. L. V. Sales Per Nonfarm Employee Seasonally Adjusted Annual Rate 12 MMA Trend Light Vehicle Sales would be 15.9 Million at Current Employment and Trend Nonfarm VPE '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12 58

60 New and Used Vehicles Prices Percent Change Since January 2007 Percent Mar % 5.3% '07 '08 '09 '10 '11 '12 New Used Source: Bureau of Labor Statistics, CPI New Vehicles and Used Cars and Trucks 59

61 Comerica Auto Affordability Index Weeks of Median Family Income Needed to Buy a New Car Weeks Q '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 Source: Comerica Bank 60

62 U.S. Light Vehicle Industry Millions of Units 20,000 18,000 16,000 14,000 12, Blue Chip Consensus Trend , ,

63 Factors Supporting Light Vehicle Sales 1. Since 2007 light vehicle sales have been well below trend helping to create a large amount of pent-up demand. 2. The vehicle fleet is older than it has been since WW II. 3. Employment levels are slowly returning. 4. CPI for new vehicles is growing more slowly than for used vehicles. 5. Higher used vehicle prices means that buyers actually have quite a bit of equity in their used vehicle that they can use as a down payment. 6. Between 2007 and 2010 vehicles in operation (VIO) actually fell by 1.5 million units while the driving age population grew by 5.1 million people. 7. Higher fuel prices are being offset by more fuel efficient product offerings. 62

64 Economic Projections of FOMC April

65 April 25, 2012 F.O.M.C Meeting 1. Information received since the F.O.M.C. met in March suggests that the economy has been expanding moderately. 2. Labor market conditions have improved in recent months; the unemployment rate has declined in recent months but remains elevated. 3. Household spending and business fixed investment have continued to advance but the housing sector remains depressed. 4. Inflation has picked up somewhat, mainly reflecting higher prices of crude oil and gasoline. However, long-term inflation expectations have remained stable. 5. The committee expects to maintain a highly accommodative stance for monetary policy warranting exceptionally low federal funds rate at least through late The Committee decided to keep the target range for the federal funds rate at 0.0 to percent. 64

66 Real GDP Percent Change FOMC Members April 2012 Forecast Percent High Forecast Low Forecast '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Centeral Tendency Range Change in Real GDP L.R L.R. High Low

67 Unemployment Rate FOMC Members April 2012 Forecast Percent High Forecast Low Forecast '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Centeral Tendency Range Unemployment Rate L.R L.R. High Low

68 PCE Inflation FOMC Members April 2012 Forecast Percent High Forecast Low Forecast '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Centeral Tendency Range PCE Inflation L.R L.R. High Low

69 Core PCE Inflation FOMC Members April 2012 Forecast Percent High Forecast Low Forecast '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 Centeral Tendency Range Core PCE Inflation L.R L.R. High N/A N/A Low

70 Number of Participants Appropriate Timing of Policy Firming FOMC Members April 2012 Forecast

71 Target Federal Funds Rate at Year-End FOMC Members April 2012 Forecast Longer Run 70

72 Discount Rates Primary and Secondary Credit Rates Percent Secondary Credit Rate Primary Credit Rate '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Apr May 22, Federal Reserve Bank of Chicago

73 Monetary Policy Expectations Effective and Expected Federal Funds Rate Percent Effective Federal Funds Rate Expected Federal Funds Rate '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 May 22, Federal Reserve Bank of Chicago

74 Thank You!