Economic Assessment
description
Transcript of Economic Assessment
![Page 1: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/1.jpg)
Economic Assessment
William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago
Not So Silent Partners:Libraries and Local Economic DevelopmentChicago, ILJuly 13, 2009
![Page 2: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/2.jpg)
The economy entered a recession in the first quarter of 2008
-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
Real gross domestic productpercent
Quarterly change (saar)
Percent change from a year earlier
![Page 3: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/3.jpg)
The personal savings rate increased sharply
-3-2-10123456789
10
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Personal savings as a percent of disposable personal incomepercent
![Page 4: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/4.jpg)
GDP growth is forecast to be quite weak this year,but then grow close to trend in 2010
-8
-6
-4
-2
0
2
4
6
8
2000 01 02 03 04 05 06 07 08 09 10
Real gross domestic productpercent
Quarterly change (saar)
Percent change from a year earlier
Q1-2009
Blue Chip GDP Forecast
Actual Forecast 2008 2009 2010-0.8 -1.1 2.7
![Page 5: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/5.jpg)
Potential Historical Context
Historical1Blue Chip
Forecast for Current Episode
Average Range Consensus
Duration (months) 11 6 to 16 18-24
Change in GDP2 -1.7 -0.4 to -3.1 -3.63
Maximum Unemployment Rate
7.8 6.1 to 10.8 10.1
Change in payroll employment2 -2.1 -1.3 to -3.1 -5.0 to -5.34
1. Calculated over the 1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, and 2001 recessions. 2.Percent change from peak to trough of GDP.3.Starting from the peak of GDP in the second quarter of 2008.4.My guess. – through June 2009 employment is down 4.7%
![Page 6: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/6.jpg)
-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
Monthly
Chicago Fed National Activity Index
Three month average
The Chicago Fed National Activity Indexbottomed in January 2009 and has begun to rise
![Page 7: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/7.jpg)
Inflation has reversed its upward trajectory
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
Personal consumption expenditure - chain price indexpercent change from a year earlier
![Page 8: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/8.jpg)
In large part due to the movement of oil prices
0
20
40
60
80
100
120
140
1970 '75 '80 '85 '90 '95 '00 '05
West Texas Intermediate oil pricedollars per barrel
![Page 9: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/9.jpg)
Adjusted for inflation - current oil prices are well below early 1980s prices
0
20
40
60
80
100
120
140
1970 '75 '80 '85 '90 '95 '00 '05
Real West Texas Intermediate oil pricedollars per barrel. 2008 dollars
![Page 10: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/10.jpg)
Expenditures on energy increased over the past few years,and they are currently well below the historical average
4
5
6
7
8
9
10
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Energy goods and services expenditures as a share oftotal consumptionpercent
4
5
6
7
8
9
10
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Energy goods and services expenditures as a share oftotal consumptionpercent
60s 70s80s
90s 00s
1960-2009
![Page 11: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/11.jpg)
Removing the volatile food and energy components from the PCE,
“core” inflation has remained in the “comfort zone”
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
Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier
![Page 12: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/12.jpg)
Inflation is anticipated to moderate this yearand then rise by just under two percent in 2010
-10
-8
-6
-4
-2
0
2
4
6
8
2000 01 02 03 04 05 06 07 08 09 10
Consumer price indexpercent
Quarterly change (saar)
Percent change from a year earlier Q1-2009Blue Chip CPI Forecast
Actual Forecast 2008 2009 2010
1.5 0.7 1.9
![Page 13: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/13.jpg)
Employment has fallen by nearly 6.5 million jobssince December 2007
-7-6-5-4-3-2-101234
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Total employmentpercent
Quarterly change (saar)
Percent change from a year earlier
![Page 14: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/14.jpg)
The unemployment rate has risen tothe highest level since August 1983
3
4
5
6
7
8
9
10
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Unemployment ratepercent
![Page 15: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/15.jpg)
The unemployment rate is forecast to peak at 10.1%early next year and then begin to edge lower
0
2
4
6
8
10
12
2000 01 02 03 04 05 06 07 08 09 10
Unemployment ratepercent
Unemployment ratepercent
Q2-2009
Blue Chip UR Forecastpeaks at 10.1% in Q1-2010
![Page 16: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/16.jpg)
Real disposable personal incomes are anticipatedto continue to rise a moderate pace
-10-8-6-4-202468
1012
2000 01 02 03 04 05 06 07 08 09 10
Real disposable personal incomepercent
Quarterly change (saar)
Percent change from a year earlier
Q1-2009
Blue Chip DPI Forecast
Actual Forecast 2008 2009 2010
0.8 2.7 2.3
![Page 17: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/17.jpg)
Consumer spending is expected toedge down in the second quarter of this year
and then begin to rise
-6
-4
-2
0
2
4
6
8
2000 01 02 03 04 05 06 07 08 09 10
Real personal consumption expenditurespercent
Quarterly change (saar) Percent change from a year earlier
Q1-2009
Blue Chip PCE Forecast
Actual Forecast 2008 2009 2010-1.5 0.9 2.2
![Page 18: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/18.jpg)
89
10111213141516171819202122
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Light vehicle salesmillions of units (saar)
Light vehicle sales collapsed
![Page 19: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/19.jpg)
In an attempt to keep inventories in line with falling saleslight vehicle production has been cut back quite severely
3456789
1011121314
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Light vehicle productionmillions of units (saar)
![Page 20: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/20.jpg)
Consumer attitudes about buying a vehicle is very low
3
4
5
6
7
8
9
10
11
12
1980 '85 '90 '95 '00 '05
Consumer attitudes - plan to buy automobile in six monthspercent of respondents
![Page 21: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/21.jpg)
Increases in new domestic production sharehas offset losses in Detroit-3 market share
0102030405060708090100
0102030405060708090
100
1980 '83 '86 '89 '92 '95 '98 '01 '04 '07
Share of light vehicle salespercent
Detroit-3
new domestics
imports
percent
![Page 22: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/22.jpg)
Residential investment fell off sharply beginning in 2006
-40-35-30-25-20-15-10
-505
10152025
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Real residential investmentpercent
Quarterly change (saar)
Percent change from a year earlier
![Page 23: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/23.jpg)
Residential investment as a share of GDP is very low
2
3
4
5
6
7
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Residential investment as a share of GDPpercent
![Page 24: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/24.jpg)
The supply of new single family homes is extremely high
3456789
10111213
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Months supply of new single family homesmonths
![Page 25: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/25.jpg)
Housing starts have been cut-back sharply
-60-50-40-30-20-10
010203040
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Housing starts3-month smoothed - percent change from a year earlier
![Page 26: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/26.jpg)
Housing starts have fallen to a new post WWII low
0
500
1,000
1,500
2,000
2,500
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Housing startsthousands
![Page 27: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/27.jpg)
When you take into account the growth of households,it is an even more dramatic decline
0
5
10
15
20
25
30
35
40
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Housing starts per 1,000 households
![Page 28: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/28.jpg)
Mortgage rates are very low
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
Mortgage rate - 30-year fixedpercent
![Page 29: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/29.jpg)
Home price declines are large
-18-15-12
-9-6-30369
121518
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Median sales price - existing single family home3-month smoothed - percent change from a year earlier
![Page 30: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/30.jpg)
Home price have fallen by over seven percent over the past year with large differences across regions
![Page 31: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/31.jpg)
Housing affordability has improved dramatically
90
100
110
120
130
140
150
160
170
180
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Composite housing affordability indexindex=100 when median family income qualifies for an 80% mortgage
on a median priced existing single family home
![Page 32: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/32.jpg)
Yet, consumer attitudes for buying a home remain very low
0
1
2
3
4
5
6
1980 '85 '90 '95 '00 '05
Consumer attitudes - plan to buy a home in next six monthspercent of respondents
![Page 33: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/33.jpg)
Lending standards for mortgage loans remain tight
-20
0
20
40
60
80
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Senior Loan Officer Opinion Surveynet percentage of domestic respondents tightening mortgage loan standards
![Page 34: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/34.jpg)
Corporate High Yield rates increased beginning in June 2007
468
1012141618202224
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Corporate Aaa and Corporate High Yield ratespercent
2007 2008
High Yield
Corporate Aaa
2009
![Page 35: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/35.jpg)
Credit spreads between Corporate High Yield securitiesand Corporate Aaa securities rose by over 1,400 basis points,
but have been improving over the past several months
02468
1012141618
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Apr
May
Jun
Jul
Credit spreads between Corporate High Yield and Corporate Aaapercent
2007 2008 2009
![Page 36: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/36.jpg)
The Fed has been very aggressive, lowering theFed Funds rate by nearly 525 basis points
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
Fed Funds ratepercent
![Page 37: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/37.jpg)
The Fed’s balance sheet has expandedin size and in composition
0
500
1,000
1,500
2,000
2,500
Assets of the Federal ReserveBillions of dollars
Other Assets
Term Auction Credit
Securities Held Outright
Central Bank Swaps
Remaining Asset Facilities
Commercial Paper Facility
2007 2008 2009
![Page 38: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/38.jpg)
•The outlook is for the U.S. economy to struggle through most of this year and then grow at a solid pace next year
Summary
•Employment is expected to remain weak this year, leading to a continued rise in the unemployment rate
•Slackness in the economy will lead to a relatively low inflation rate over the coming year
•The volatile credit markets and the weak housing market are the biggest risk on the horizon for the U.S. economy
![Page 39: Economic Assessment](https://reader034.fdocuments.us/reader034/viewer/2022050723/56815ce2550346895dcae557/html5/thumbnails/39.jpg)
www.chicagofed.org www.federalreserve.gov