E conomic Update and Outlook September 18, 2014

Tracking the RecoveryNovember 21, 2014

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-1

0

1

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5

6

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

2

Q33.5%

Real Gross Domestic Product

Source: Bureau of Economic Analysis via Haver Analytics & Federal Reserve Board

Percent change from previous quarter at annual rate

FOMC Projection

Note: Projection is the central tendency from the September 2014 Summary of Economic Projections. Projections of change in real gross domestic product (GDP) are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

Q3 Q4 Q1 Q2 Q3

CHANGE FROM PREVIOUS QUARTER AT COMPOUND ANNUAL RATE [Percent]:

Gross Domestic Product 4.5 3.5 -2.1 4.6 3.5

Personal Consumption Expenditures 2.0 3.7 1.2 2.5 1.8

Nonresidential Fixed Investment 5.5 10.4 1.6 9.7 5.5Structures 11.2 12.8 2.9 12.6 3.8Equipment 4.7 14.1 -1.0 11.2 7.2Intellectual Property Products 2.8 3.6 4.6 5.5 4.2

Residential Fixed Investment 11.2 -8.5 -5.3 8.8 1.8

Exports of Goods & Services 5.1 10.0 -9.2 11.1 7.8Imports of Goods & Services 0.6 1.3 2.2 11.3 -1.7

Final Sales to Domestic Purchasers 2.3 2.7 0.7 3.4 2.7

LEVEL IN QUARTER AT SEASONALLY ADJUSTED ANNUAL RATE [Billions of Chained (2009) Dollars]:

Change in Private Inventories 95.6 81.8 35.2 84.8 62.8

Net Exports of Goods & Services -424.6 -384.0 -447.2 -460.4 -409.9

2013 2014

Government Consumption Expenditures & Gross Investment

0.2 -3.8 -0.8 1.7 4.6

3

Real Gross Domestic Product

Source: Bureau of Economic Analysis via Haver Analytics

4

75

80

85

90

95

100

105

75

80

85

90

95

100

105

2007 2008 2009 2010 2011 2012 2013 2014 2015

2007 = 100

October100.6

Industrial Production Index: Manufacturing

Source: Board of Governors via Haver Analytics

Sep. Oct. Sep. Oct.

Purchasing Managers Index 56.6 59.0 Non-Manufacturing Index 58.6 57.1

Production 64.6 64.8 Business Activity 62.9 60.0

New Orders 60.0 65.8 New Orders 61.0 59.1

Employment 54.6 55.5 Employment 58.5 59.6

Supplier Deliveries 52.2 56.2 Supplier Deliveries 52.0 49.5

Inventories 51.5 52.5 Inventories 52.0 49.5

Prices 59.5 53.5 Prices 55.2 52.1

Backlog of Orders 47.0 53.0 Backlog of Orders 52.0 51.5

New Export Orders 53.5 51.5 New Export Orders 57.5 53.5

Imports 53.0 54.5 Imports 52.5 56.0

MANUFACTURING BUSINESS: NON-MANUFACTURING BUSINESS:

5

DIFFUSION INDEXES: Numbers above 50 percent indicate more favorable responses towards economic activity.

ISM: Business Survey Indexes

Source: Institute for Supply Management via Haver Analytics

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

-14

-12

-10

-8

-6

-4

-2

0

2

4

6

8

10

12

2007 2008 2009 2010 2011 2012 2013 2014 2015

6

12 Month % Change

Retail Sales

Note: Retail sales includes food services. Source: Census Bureau via Haver Analytics

October4.1%

Aug. Sep. Oct.Total 0.6 -0.3 0.3x Gasoline 0.8 -0.2 0.5

Month over Month % Change

4

6

8

10

12

14

16

18

20

4

6

8

10

12

14

16

18

20

2008 2009 2010 2011 2012 2013 2014 2015

7

Autos and Light Trucks

Light Trucks

Autos

October16.5 mil.

Sales of Automobiles & Light Trucks

Millions of Vehicles

Source: Autodata Corporation via Haver Analytics

1

1.5

2

2.5

3

3.5

4

1

1.5

2

2.5

3

3.5

4

2007 2008 2009 2010 2011 2012 2013 2014 2015

8

12 Month % Change

October2.0%

Average Hourly Earnings

Oct. 0.1%Sep. 0.0%Aug. 0.3%Jul. 0.0%

Monthly % Change

Source: Bureau of Labor Statistics via Haver Analytics

450

500

550

600

650

700

450

500

550

600

650

700

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

9

Q2.

Household Net WorthPercent of disposable personal income

Source: Z.1 Financial Accounts of the United States via Haver Analytics

2

3

4

5

6

7

8

9

10

2

3

4

5

6

7

8

9

10

2007 2008 2009 2010 2011 2012 2013 2014 2015

10

Personal Saving Rate


Percent of disposable personal income

September5.6%

Note: The personal saving rate was adjusted to remove tax-induced income shifting near the end of 2012.

11

2.5

3

3.5

4

4.5

5

5.5

2.5

3

3.5

4

4.5

5

5.5

2007 2008 2009 2010 2011 2012 2013 2014 2015

September4.5 mil.

Existing Single-Family Home Sales

Source: National Association of Realtors via Haver Analytics

Millions of Homes

Average Annual Existing Home Sales: 1990 through 1999

12

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2007 2008 2009 2010 2011 2012 2013 2014 2015

September0.47 mil.

Average Annual New Home Sales:1990 through 1999

New Single-Family Home Sales

Source: Census Bureau via Haver Analytics

Millions of Homes

0.2

0.4

0.6

0.8

1.0

1.2

1.4

0.2

0.4

0.6

0.8

1.0

1.2

1.4

2007 2008 2009 2010 2011 2012 2013 2014 2015

13

Private Single-Family Starts & Permits


Millions of Starts & Permits

Starts

Permits

1990 - 1999 Average Housing Starts

September

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

2007 2008 2009 2010 2011 2012 2013 2014 2015

14

Private Multi-Family Housing Starts & Permits


Millions of Starts & Permits

Starts

Permits

1990 – 1999 Average Multi-Family Starts

September

15

220

240

260

280

300

320

340

360

380

400

420

220

240

260

280

300

320

340

360

380

400

420

2007 2008 2009 2010 2011 2012 2013 2014 2015

2009$, Billions

Twelve-Month Moving Average

September

Real Private Nonresidential Construction Put In Place


Notes: Deflated using the price index for private fixed investment in nonresidential structures.

16

-40

-30

-20

-10

0

10

20

30

40

-40

-30

-20

-10

0

10

20

30

40

2007 2008 2009 2010 2011 2012 2013 2014 2015

Percent change from previous quarter at annual rate

Q37.2%

Real Investment in Equipment


17

45

50

55

60

65

70

75

45

50

55

60

65

70

75

2007 2008 2009 2010 2011 2012 2013 2014 2015

Current $, Billions

Shipments

September

New Orders

Core Capital Goods

Notes: Core capital goods are nondefense capital goods excluding aircraft.


1.1

1.2

1.3

1.4

1.5

1.6

1.7

1.1

1.2

1.3

1.4

1.5

1.6

1.7

2007 2008 2009 2010 2011 2012 2013 2014 2015

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Business Inventory/Sales Ratio

Percent

Retailers

Total Business

Manufacturers

September


19

-70

-65

-60

-55

-50

-45

-40

-35

-30

-25

-20

-70

-65

-60

-55

-50

-45

-40

-35

-30

-25

-20

2007 2008 2009 2010 2011 2012 2013 2014 2015

Current $, Billions

August-$40.1 bil.

Six-Month Moving Average

Balance of International Trade


75

85

95

105

115

125

135

75

85

95

105

115

125

135

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

20

Exchange Value of the USD

Index, March 1973 = 100

Source: Board of Governors via Haver AnalyticsNotes: Measured as the real broad trade-weighted exchange value of the United States Dollar.

October

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2007 2008 2009 2010 2011 2012 2013 2014 2015

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Quarterly average of monthly changes, thousands of persons

Oct.

Nonfarm Payroll Employment

Oct. 214Sep. 256Aug. 203Jul. 243Jun. 267

Monthly Change


22

Millions of Persons

October139.7 mil.

Nonfarm Payroll Employment


128

130

132

134

136

138

140

1.50

1.75

2.00

2.25

2.50

2.75

3.00

99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14

Temp (left axis)

Total (right axis)

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8.5

9

9.5

10

10.5

11

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5

5.5

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Percent

October5.8%

Unemployment Rate

Source: Bureau of Labor Statistics & Board of Governors via Haver Analytics

Notes: FOMC projection is the central tendency for the Q4 levels, from the September 17, 2014 meeting.

FOMC Projection

3

5

7

9

11

13

15

17

19

3

5

7

9

11

13

15

17

19

1994 1997 2000 2003 2006 2009 2012 2015

Official Unemployment Rate (U3)

Plus Involuntarily Part-Time (U6)

Plus Discouraged and Marginally Attached (U5)

24

Percent

October

Measures of Labor Utilization


57

58

59

60

61

62

63

64

65

66

67

68

57

58

59

60

61

62

63

64

65

66

67

68

1948 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

25

Percent of Population

October

Labor Force Participation


Expenditure Price Indexes [Percent Change from Previous Month at Annual Rate]:

Aug. Sep. YoY %Personal Consumption Expenditures -0.6 0.9 1.4

Core (excludes Food and Energy) 0.9 1.4 1.5

Consumer Price Indexes [Percent Change from Previous Month at Annual Rate]:

Aug. Sep. YoY %All Items -2.4 1.0 1.7

Core (excludes Food and Energy) 0.2 1.7 1.7

Producer Price Indexes [Percent Change from Previous Month at Annual Rate]:

Aug. Sep. YoY %Finished Goods -4.6 -2.9 2.1

Core (excludes Food and Energy) 0.6 1.9 2.0Core Intermediate Goods 3.1 1.8 1.6

Crude GoodsCrude Goods -33.4 7.1 -0.1

Spot Commodity Price Index

Sep. Oct. YoY %CRB Spot Commodity Price Index -1.0 -2.9 0.8

[Percent Change from Previous Month]:

26

Gauges of Inflation

Source: BEA, BLS, & Commodity Research Bureau via Haver AnalyticsNotes: Core PCE Price Index includes expenditures on food services.

27

-1.5

-1

-0.5

0

0.5

1

1.5

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-1.5

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-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

5

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

September1.4%

FOMC Projection

Personal Consumption Expenditure Price Index12 Month % Change

Notes: FOMC projection is the central tendency for Q4/Q4 percent changes, from the September 17, 2014 meeting. Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics

2% Longer-run Target

28

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8

10

12

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-6

-4

-2

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2

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2007 2008 2009 2010 2011 2012 2013 2014 2015

All Finished Goods

Core Finished Goods

September

Producer Price Indexes12 Month % Change

All Finished Goods 2.1%Core Finished Goods 2.0%

September (percent)


29

-35

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

30

35

40

45

-21

-18

-15

-12

-9

-6

-3

0

3

6

9

12

15

18

21

24

27

30

2007 2008 2009 2010 2011 2012 2013 2014 2015

PPI Core Intermediate

Goods(Left Axis)

Commodity Research Bureau Spot Commodity

Price Index(Right Axis)

12 Month % Change

Commodity Price Indexes12 Month % Change

Source: Bureau of Labor Statistics & Commodity Research Bureau via Haver Analytics

Price Indexes September OctoberPPI Core Intermed. Goods 1.6% ---CRBS Spot Commodities 1.3% 0.5%

September

30

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

0

10

20

30

40

50

60

70

80

90

100

110

120

130

140

150

1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Spot Price

November 17th

Crude Oil Prices

Current $/ Barrel

Source: Financial Times & New York Mercantile Exchange via Haver Analytics & Bloomberg

Futures Price

Notes: Spot and Futures Prices are for Brent Crude Oil.

31

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

-1.5

-1

-0.5

0

0.5

1

1.5

2

2.5

3

3.5

4

2009 2010 2011 2012 2013 2014 2015

November 7th

5-Year

5-Year5 Years Ahead

TIPS Inflation Compensation

Source: Board of Governors Research Series via Haver Analytics

Percent

32

-3

-2

-1

0

1

2

3

4

5

6

-3

-2

-1

0

1

2

3

4

5

6

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

October

Real Federal Funds RatePercent, effective Fed funds rate - lagged year over year change in core PCE price index

Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics

33

FOMC Statement

Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace. Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate. On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. Household spending is rising moderately and business fixed investment is advancing, while the recovery in the housing sector remains slow. Inflation has continued to run below the Committee's longer-run objective. Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee expects that, with appropriate policy accommodation, economic activity will expand at a moderate pace, with labor market indicators and inflation moving toward levels the Committee judges consistent with its dual mandate. The Committee sees the risks to the outlook for economic activity and the labor market as nearly balanced. Although inflation in the near term will likely be held down by lower energy prices and other factors, the Committee judges that the likelihood of inflation running persistently below 2 percent has diminished somewhat since early this year.

The Committee judges that there has been a substantial improvement in the outlook for the labor market since the inception of its current asset purchase program. Moreover, the Committee continues to see sufficient underlying strength in the broader economy to support ongoing progress toward maximum employment in a context of price stability. Accordingly, the Committee decided to conclude its asset purchase program this month. The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Source: Board of Governors

October 29, 2014

34

Continued…To support continued progress toward maximum employment and price stability, the Committee today reaffirmed its view that the current 0 to 1/4 percent target range for the federal funds rate remains appropriate. In determining how long to maintain this target range, the Committee will assess progress--both realized and expected--toward its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial developments. The Committee anticipates, based on its current assessment, that it likely will be appropriate to maintain the 0 to 1/4 percent target range for the federal funds rate for a considerable time following the end of its asset purchase program this month, especially if projected inflation continues to run below the Committee's 2 percent longer-run goal, and provided that longer-term inflation expectations remain well anchored. However, if incoming information indicates faster progress toward the Committee's employment and inflation objectives than the Committee now expects, then increases in the target range for the federal funds rate are likely to occur sooner than currently anticipated. Conversely, if progress proves slower than expected, then increases in the target range are likely to occur later than currently anticipated.

When the Committee decides to begin to remove policy accommodation, it will take a balanced approach consistent with its longer-run goals of maximum employment and inflation of 2 percent. The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Stanley Fischer; Richard W. Fisher; Loretta J. Mester; Charles I. Plosser; Jerome H. Powell; and Daniel K. Tarullo. Voting against the action was Narayana Kocherlakota, who believed that, in light of continued sluggishness in the inflation outlook and the recent slide in market-based measures of longer-term inflation expectations, the Committee should commit to keeping the current target range for the federal funds rate at least until the one-to-two-year ahead inflation outlook has returned to 2 percent and should continue the asset purchase program at its current level.

Source: Board of Governors

October 29, 2014

35

S&P 500

Source: BofA Merrill Lynch & Board of Governors via Haver Analytics

Index, 1941-43 = 10

1000

1200

1400

1600

1800

2000

2200

1000

1200

1400

1600

1800

2000

2200

10 11 12 13 14

36

CBOE Volatility Index (VIX)

Source: CBOE via Haver Analytics

Imputed volatility

0

20

40

60

80

100

0

20

40

60

80

100

04 05 06 07 08 09 10 11 12 13 14

37

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

0.5

1.5

2.5

3.5

4.5

5.5

6.5

7.5

8.5

9.5

10.5

2009 2010 2011 2012 2013 2014 2015

November 14th

10-Yr. Treasury Bond Rate

Corporate BBB Bond Rate

30 Year Conventional Mortgage Rate

Corporate AAA Bond Rate

Capital Market Rates

Percent


38

0

1

2

3

4

5

6

7

8

0

1

2

3

4

5

6

7

8

2009 2010 2011 2012 2013 2014 2015

10 Year Average Risk Premium

Risk Premium


Percent, BofA Merrill Lynch Corporate BBB - 10 Yr. Treasury Yield

November 14th

Comments/Questions

E conomic Update and Outlook September 18, 2014

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