economic assessment and outlook
DESCRIPTION
Economic Assessment and Outlook. Midwest, Great Plains, and Western Outlook Conference Indianapolis, Indiana August 14, 2003. Rick Kaglic Senior Business Economist Federal Reserve Bank of Chicago. Growth in Q2 surprised many. Final sales were even stronger. - PowerPoint PPT PresentationTRANSCRIPT
Economic Assessmentand Outlook
Rick Kaglic Senior Business Economist Federal Reserve Bank of Chicago
Midwest, Great Plains, and Western Outlook ConferenceIndianapolis, IndianaAugust 14, 2003
Growth in Q2 surprised many
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Real gross domestic product
percent
Quarterly change (saar)
Percent change from year ago
Final sales were even stronger
-2
-1
0
1
2
3
4
5
6
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Real gross domestic product and final sales to domestic purchasers
percent change from year ago
Final sales to domestic purchasers
Gross domestic product
The CFNAI is signaling slow, but improving growth
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Chicago Fed National Activity Index
Monthly
Three-month average
Employers continue to delay hiring
-3
-2
-1
0
1
2
3
4
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Total employment
percent
Quarterly change (saar)
Percent change from year ago
The “job loss” recovery?
Employment growth
0.98
0.99
1.00
1.01
1.02
-24 -20 -16 -12 -8 -4 0 4 8 12 16 20 24
rece
ssio
n t
rou
gh
=1.0
0 1991
2001
Unemployment rates continued to trend up in Q2, but fell modestly in July
3
4
5
6
7
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Unemployment rate
percent
Productivity surged in Q2 as outputrose and worker hours fell
-6-5-4-3-2-10123456789
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Nonfarm business productivity
percent
Quarterly change (saar)Percent change from year ago
Benefits costs are rising, but productivity gains have kept unit labor costs in check
0
1
2
3
4
5
6
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Employment cost index
percent
Quarterly change (saar)Percent change from year ago
Headline consumer prices had been increasing...
-1
0
1
2
3
4
5
6
7
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Inflation - consumer price index
percent
Quarterly change (saar)Percent change from year ago
…largely due to higher energy costs
-20
-15
-10
-5
0
5
10
15
20
25
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Consumer price index - energy
percent change from year ago
Excluding food and energy, the core rate ofinflation continues to trend down
0
1
2
3
4
5
6
7
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Inflation - consumer price index - core rate
percent
Quarterly change (saar)
Percent change from year ago
Household spending has held up
Contributors:
Households
Business
Rest of the world
Government
Contribution to GDP growth
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
I-00 I-01 I-02 I-03
perc
ent
GDP
PCE
Retail spending picked up in July
Contributors:
Households
Business
Rest of the world
Government
11
12
13
14
15
16
17
18
19
20
21
22
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Light Vehicle Salesmillions of unit saar
Residential activity remains resilient
Contributors:
Households
Business
Rest of the world
Government
-50
-40
-30
-20
-10
0
10
20
30
40
50
60
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Housing starts
Midwest
U.S.
percent change from year ago, 3-month smoothed
Mortgage interest rates are rising, but are still low
5
6
7
8
9
10
11
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Mortgage rate - 30 year fixedpercent
Contributors:
Households
Business
Rest of the world
Government
Home price appreciation has been a boost
-2
0
2
4
6
8
10
12
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Existing single family home median sales price
Midwest
U.S.
percent change from year ago, 3-month smoothed
Contributors:
Households
Business
Rest of the world
Government
It is a buyer’s market
-3
-2
-1
0
1
2
3
4
5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Inflation - new vehicles
Percent change from year ago
Contributors:
Households
Business
Rest of the world
Government
Personal income growth held up from,in part due to tax cuts and transfers
-8
-6
-4
-2
0
2
4
6
8
10
12
14
16
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Real disposable personal income
percent
Quarterly change (saar)
Percent change from year ago
Contributors:
Households
Business
Rest of the world
Government
Equity markets have recovered somewhat
-30
-20
-10
0
10
20
30
40
50
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
S&P 500 stock indexpercent change from year ago
Contributors:
Households
Business
Rest of the world
Government
Consumer confidence improvedafter the war, but is still fragile
Consumer sentiment
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
1990 92 94 96 98 00 02
ind
ex U of Mich
Conf Board
Contributors:
Households
Business
Rest of the world
Government
Expectations are falling
Consumer expectations
0.0
20.0
40.0
60.0
80.0
100.0
120.0
140.0
160.0
1990 92 94 96 98 00 02
ind
ex
Conf Board
U of Mich
Contributors:
Households
Business
Rest of the world
Government
Business spending is displaying signs of life
Contributors:
Households
Business
Rest of the world
Government
Contribution to GDP growth
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
I-00 II III IV I-01 II III IV I-02 II III IV I-03 II
% c
on
trib
uti
on
GDP Consumption Investment
Manufacturing capacity utilization isnear the lowest level since 1983
Contributors:
Households
Business
Rest of the world
Government
70
72
74
76
78
80
82
84
86
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Capacity utilization - manufacturing
percent
Despite recent improvements,industrial output remains weak
Contributors:
Households
Business
Rest of the world
Government
-15
-10
-5
0
5
10
15
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Industrial output for manufacturing
Midwest
U.S.
percent change from year ago
Capital goods orders are trending up, but barely
Contributors:
Households
Business
Rest of the world
Government
30
35
40
45
50
55
60
65
70
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Nondefense capital goods, excluding aircraft and parts
Mfgs' Shipments
Mfgs' New Orders
Billions of dollars (SA)
Inventories are very low
Contributors:
Households
Business
Rest of the world
Government
-120
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Change in nonfarm private inventories
Billions of chained real dollars
Inventories are very low
Contributors:
Households
Business
Rest of the world
Government
1.8
1.9
2.0
2.1
2.2
2.3
2.4
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Inventory to Final Sales ratioratio
Corporate profits are improving
Contributors:
Households
Business
Rest of the world
Government
-50
-25
0
25
50
75
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Nonfinancial corporate profits
percent
Quarterly change (saar)
Percent change from year ago
Net exports are typically a drag on GDP growth
Contributors:
Households
Business
Rest of the world
Government
Contribution to GDP growth
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
I-00 I-01 I-02 I-03
pe
rce
nt
GDP
NetX
…both exports and imports fell in Q2
Contributors:
Households
Business
Rest of the world
Government
-15
-10
-5
0
5
10
15
20
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03
Real exports and imports
percent change from year ago
Imports
Exports
Government spending, particularlyat the federal level has helped
Contributors:
Households
Business
Rest of the world
Government
Contribution to GDP growth
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
I-00 I-01 I-02 I-03
per
cen
t
GDPGOVT
Most states continue to struggle with budget woes
States that cut spending after FY 2003 budgets were passed
Outlook
Economic improvement is broad-based. Final sales growth between 3.0% and 3.5% in second half of 2003.
Labor markets will improve, but modestly.
Price pressures remain subdued.
Business spending begins to pick up, particularly for inventories and equipment and software.
Government and rest of world will be a mixed bag.
Risks
Will businesses continue to focus on cost-cutting to improve profit margins?
Can households keep it up?
Will rising interest rates put a damper on the recovery?
What in the world is going on?
What impact will state and local spending cuts have?