Post on 24-Jul-2020
Economic Outlook
William Strauss
Senior Economist
and Economic Advisor
Federal Reserve Bank of Chicago
Lake County Chamber of Commerce
Lake Forest, IL
January 13, 2016
The “Great Recession” ended in June 2009 and
GDP expanded by 2.1% over the past year
-10
-8
-6
-4
-2
0
2
4
6
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Real gross domestic product
percent
Quarterly change (saar)
Percent change from a year earlier
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Monthly
Chicago Fed National Activity Index
Three month average
The Chicago Fed National Activity Index
3-month average is below zero
-10
-8
-6
-4
-2
0
2
4
6
8
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Real gross domestic product
percent
Quarterly change (saar)
Percent change from a year earlier Q3-2015
Blue Chip GDP Forecast
Actual Forecast 2014 2015 2016 2017
2.5 2.1 2.6 2.4
GDP is forecast to have grown around trend in 2015
and expected to grow slightly above trend in 2016
The Federal Open Market Committee (FOMC)
expects GDP to grow slightly above trend this year
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Real gross domestic product
percent change from a year earlier
FOMC
FOMC Central Tendency (December 2015)
2015 2.1
2016 2.3 – 2.5
2017 2.0 – 2.3
2018 1.8 – 2.2
Longer run 1.8 – 2.2
95
100
105
110
115
120
125
130
135
95
100
105
110
115
120
125
130
135
-8 -6 -4 -2 0 2 4 6 8 10 12 14 16 18 20 22 24
Business cycle recovery pathindex - business cycle trough = 100
1981-82
2008-09
1974-75
quarters before trough quarters after trough
The path of the current recovery is restrained
compared with past deep recession recovery cycles
average annualized growth: 4.8%
average annualized growth: 4.3%
average annualized growth: 2.2%
The “Midwest” economy’s performance has slowed
-5
-4
-3
-2
-1
0
1
2
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Midwest Economy Index (MEI)
Midwest Economy Index
Relative MEI
Employment grew by 2.65 million jobs in 2015
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Total employment
percent
Quarterly change (saar)
Percent change from a year earlier
With the exception of Illinois,
employment growth in the other District states
are close to the national average
-10
-8
-6
-4
-2
0
2
4
6
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
MI
Total employmentpercent change from a year earlier
US
IL
IN
IA WI
3
4
5
6
7
8
9
10
11
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Unemployment ratepercent
The unemployment rate has fallen to 5.0%
Unemployment rates for most of the Midwest
states are close to or below the nation’s
0
2
4
6
8
10
12
14
16
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
MI
Unemployment ratepercent
USIL
INIA
WI
The labor force participation rate fell
to a level last seen in 1977
58
59
60
61
62
63
64
65
66
67
68
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Labor force participation ratepercent
Civilian Labor Force Participation Rate
and Population Share 16 and Older
by Age Category, United States, 2007 and 2015
Labor Force Participation Rate (%) Population Share (%)
Change Change
2015 2007 ‘07-’15 2015 2007 ‘07-’15
Population
16 and older 62.7 66.1 -3.4 100.0 100.0 0.0
16 to 24 55.0 59.4 -4.4 15.4 16.1 -0.7
25 to 34 81.0 83.3 -2.3 17.1 17.1 -0.1
35 to 44 82.1 83.8 -1.7 15.8 18.3 -2.5
45 to 54 79.5 82.0 -2.5 17.0 18.8 -1.8
55 to 64 63.9 63.8 0.1 16.2 14.0 2.2
65 plus 18.9 16.0 2.9 18.5 15.6 2.9
The share of those unemployed more
than 6 months remains significantly high
0
5
10
15
20
25
30
35
40
45
50
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Unemployed for 27 weeks or morepercent
Employees working part time for
economic reasons remains elevated
0
1
2
3
4
5
6
1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Unemployment rate - part-time workers for economic reasons(3 month moving average)percent
Wages and benefit costs continue to increase
at a very slow pace
0
1
2
3
4
5
6
7
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Employment cost indexpercent change from year ago
benefit costs
wages and salaries
Slow productivity growth helps explain why relatively strong
employment growth has not translated into higher income
-1
0
1
2
3
4
5
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Productivtypercent change (60 month smoothed average)
Education matters
-4
-3
-2
-1
0
1
2
3
4
1992 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14
Employment change from a year earlier (25 years or older)
mil lions
high school graduate or less than high school diploma (34.2%)
More than high school degree (65.8%)
percentages in parenthesis are the share of total workers 25 years or older in 2014
The unemployment rate is close to the natural rate
0
2
4
6
8
10
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Unemployment rate
percent
Unemployment rate
percent
Q4-2015
Blue Chip Forecast
3
4
5
6
7
8
9
10
11
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Unemployment ratepercent
FOMC
The FOMC indicates that the unemployment rate
is close to the natural rate
FOMC Central Tendency (December 2015)
2016 4.6 – 4.8
2017 4.6 – 4.8
2018 4.6 – 5.0
Longer run 4.8 – 5.0
-2
-1
0
1
2
3
4
5
6
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Personal consumption expenditure - chain price index
percent change from a year earlier
Inflation is very low
0
20
40
60
80
100
120
140
160
1970 '75 '80 '85 '90 '95 '00 '05 '10 '15
Real West Texas Intermediate oil pricedol lars per barrel, 2014 dollars
In large part due to the collapse of energy prices
0
2
4
6
8
10
12
14
16
1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Real natural gas pricedol lars per mmbtu, 2014 dollars
Natural gas prices have also declined and remains very low
0
1
2
3
4
5
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier
Removing the volatile food and energy
components from the PCE,
“core” inflation remains low
-10
-8
-6
-4
-2
0
2
4
6
8
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Consumer price index
percent
Quarterly change (saar)
Percent change from a year earlier
Q3-2015
Blue Chip CPI Forecast
Actual Forecast 2014 2015 2016 20171.2 0.5 2.0 2.3
Prices are forecast to have increased 0.5 percent in 2015
and will rise 2.0 percent in 2016
The FOMC anticipates that PCE inflation
will be just under two percent by the end of 2018
-2
-1
0
1
2
3
4
5
6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Personal consumption expenditure - chain price index
percent change from a year earlier
FOMC
FOMC Central Tendency (December 2015)
2015 0.4
2016 1.2 – 1.7
2017 1.8 – 2.0
2018 1.9 – 2.0
Longer run 2.0
0
1
2
3
4
5
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier
FOMC
The FOMC anticipates that “core” PCE inflation
will remain below two percent through 2018
FOMC Central Tendency (December 2015)
2015 1.3
2016 1.5 – 1.7
2017 1.7 – 2.0
2018 1.9 – 2.0
Inflation Exchange Rate
Real GDP % change Against Interest Rates
% change Annual US Dollar 3-Month
Annual Consumer Prices End of Year End of Year
2015 2016 2017 2015 2016 2017 2016 2017 2016 2017
United States 2.5 2.5 2.5 0.2 1.6 2.3 - - 0.70 1.70
Canada 1.3 1.9 2.2 1.0 2.0 2.0 1.34 1.29 0.89 1.63
Mexico 2.4 2.7 3.1 2.8 3.2 3.2 16.78 16.25 3.95 4.33
Japan 0.6 1.1 0.8 0.8 0.6 1.7 123.5 124.5 0.10 0.13
South Korea 2.6 2.8 3.0 0.7 1.5 2.0 1,216 1,198 1.64 2.03
United Kingdom 2.4 2.2 2.2 0.1 1.1 1.8 1.49 1.52 1.02 1.51
Germany 1.5 1.8 1.8 0.3 1.1 1.6 1.09 1.04 -0.02 0.01
France 1.1 1.4 1.5 0.1 0.8 1.4 1.09 1.04 -0.02 0.01
Euro Zone 1.5 1.7 1.8 0.1 0.9 1.5 1.09 1.04 -0.02 0.01
Brazil -3.3 -2.4 1.1 8.9 7.6 5.7 4.18 4.13 13.79 12.11
Russia -3.8 -0.4 1.7 15.0 8.1 6.1 67.1 65.3 8.60 7.46
China 6.9 6.4 6.2 1.5 1.8 2.2 6.63 6.60 2.84 3.00
India 7.4 7.6 7.7 5.1 5.5 5.3 67.6 67.0 7.07 7.09
Blue Chip Economic Indicators Forecast January 10, 2016
Blue Chip International Consensus Forecasts
The real trade-weighted dollar has increased 17.2%
over the past 16 months
80
85
90
95
100
105
110
115
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Trade-weighted exchange value of the U.S. dollar (real)index: March 1973=100
62
64
66
68
70
72
74
76
1965 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
United States
Homeownership ratepercent
Midwest
The forecast calls for a very gradual recovery in housing
0
500
1,000
1,500
2,000
2,500
1980 '85 '90 '95 '00 '05 '10 '15
Housing starts
thousands
Blue Chip Housing StartsForecast (thousands)
Actual Forecast 2014 2015 2016 20171,001 1,114 1,254 1,370
Since the beginning of the expansion manufacturing output
has been increasing at a 3.5% annualized rate
and has recovered 93.8% of the output during the recession
-40
-30
-20
-10
0
10
20
30
40
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Industrial production - manufacturing
percent
Monthly change (saar)
Percent change from a year earlier
While manufacturing jobs have been rising,
they have only recovered 38.3% of the jobs
lost during the downturn
-20
-15
-10
-5
0
5
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Manufacturing employment
percent
Quarterly change (saar)
Percent change from a year earlier
Purchasing managers’ continue to report declines in activity
30
35
40
45
50
55
60
65
70
75
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Chicago
Purchasing managers' index - compositenet percent reporting increases
United States
Industrial production is forecast
to have edged lower last year but improve this year
and grow just below its historical rate
-25
-20
-15
-10
-5
0
5
10
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Total industrial production
percent
Quarterly change (saar)
Percent change from a year earlier
Q3-2015
Blue Chip IP Forecast
Actual Forecast 2014 2015 2016 20174.4 -0.2 2.5 2.5
Light vehicles sales set a record last year
89
10111213141516171819202122
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Light vehicle salesmil lions of units (saar)
Vehicle sales rose 5.8% last year
and are anticipated to rise 1.6% this year
10
11
12
13
14
15
16
17
18
1980 '85 '90 '95 '00 '05 '10 '15
Vehicle sales
mil lions of units
Blue Chip Light-VehicleSales Forecast
Actual Forecast 2015 2016 201717.4 17.7 17.5
0
1
2
3
4
5
6
7
8
9
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15
Fed Funds ratepercent
The Federal Reserve increased the
Federal Funds rate by 0.25% in December 2015
after seven years of near zero interest rates
0
1
2
3
4
5
6
7
8
9
1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Target Federal Funds Ratepercent
FOMC
The Federal Funds rate is expected to remain
below the neutral rate through 2018
FOMC Central Tendency (December 2015)
2016 0.9 – 1.4
2017 1.9 – 3.0
2018 2.9 – 3.5
Longer run 3.3 – 3.5
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Assets of the Federal ReserveBi l lions of dollars
Term Auction Credit
Securities Held Outright
Central Bank Swaps
Maiden Lane II & III
Commercial Paper Facility
2007 2008 2009
Term Asset-Backed SecuritiesLoan Facility
AIG Support
Maiden Lane
2010 2011 2012 2013 2014 2015
The asset side of the Fed’s balance sheet
has expanded in size and in composition
The money supply (M2) is 3 times
bigger than the monetary base
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2007 '08 '09 '10 '11 '12 '13 '14 '15
Monetary expansion 2007-current periodbi l lions of dollars
monetary base
M2
50
100
150
200
250
300
350
400
450
500
2007 '08 '09 '10 '11 '12 '13 '14 '15
Monetary expansion 2007-current periodindex: Jan 2007 = 100
monetary base
M2
CPI
50
100
150
200
250
300
350
400
450
500
1929 '30 '31 '32 '33 '34 '35 '36 '37
Monetary expansion 1929-1936index: Jan 1929 = 100
monetary base
M2 CPI
The Fed’s expansion of the monetary base
has allowed the money supply to continue rising,
compared with what took place during the 1930s
•The outlook is for the U.S. economy to expand at a
pace slightly above trend in 2016
Summary
•Employment is expected to rise moderately with the
unemployment rate edging lower
•Slackness in the economy will lead to a relatively
contained inflation rate
•Vehicle sales are anticipated to rise to a record level this year
•Manufacturing output is expected to increase at a rate
slightly below trend in 2016
www.chicagofed.org
www.federalreserve.gov