william strauss, senior economist and economic advisor...

William Strauss, Senior Economist and Economic AdvisorFederal Reserve Bank of Chicago

Economic Summit 1

Economic Insights

William Strauss

Senior Economist

and Economic Advisor

Federal Reserve Bank of Chicago

Paper & Plastics Recycling ConferenceChicago, ILOctober 19, 2016

GDP expanded by 1.3% 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 '16

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 '16

Monthly

Chicago Fed National Activity Index

Three month average

The Chicago Fed National Activity Index3-month average remains below zero


Economic Summit 2

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 2015 2016 20171,107 1,179 1,282

The forecast calls for a very gradual recovery in housing

The real value of the stock market has reached new highs

50

100

150

200

250

300

350

400

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

Real S&P 500 stock indexIndex: 1990 = 100

The Federal Open Market Committee (FOMC) expectsGDP to grow around trend over the next three years

‐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 '19

Real gross domestic product

percent change from a year earlier

FOMC

FOMC Central Tendency (September 2016)

2016 1.7 – 1.92017 1.9 – 2.22018 1.8 – 2.12019 1.7 – 2.0

Longer run 1.7 – 2.0


Economic Summit 3

95

100

105

110

115

120

125

130

135

140

95

100

105

110

115

120

125

130

135

140

‐8 ‐6 ‐4 ‐2 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28

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 restrainedcompared with past deep recession recovery cycles

average annualized growth: 4.5%



Employment grew by over 2.4 million jobsover the past 12 months

‐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 '16

Total employment

percent



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

Unemployment ratepercent

The unemployment rate has fallen to 5.0%


Economic Summit 4

The labor force participation rate fellto 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 Rateand 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-’15Population16 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 -0.725 to 34 81.0 83.3 -2.3 17.1 17.1 -0.135 to 44 82.1 83.8 -1.7 15.8 18.3 -2.545 to 54 79.5 82.0 -2.5 17.0 18.8 -1.855 to 64 63.9 63.8 0.1 16.2 14.0 2.265 plus 18.9 16.0 2.9 18.5 15.6 2.9

The share of those unemployed morethan 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 27weeks or morepercent


Economic Summit 5

Employees working part time for economic reasons remains somewhat 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 '16

Unemploymentrate ‐ part‐time workers for economic reasons(3 month moving average)percent

Wages and benefit costs continue to increaseat 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 '16

Employment cost indexpercent change from year ago

benefit costs

wages and salaries

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 '19

Unemployment ratepercent

FOMC

The FOMC forecasts that the unemployment ratewill be just below the natural rate through 2019


2016 4.7 – 4.92017 4.5 – 4.72018 4.4 – 4.72019 4.4 – 4.8



Economic Summit 6

Slow productivity growth helps explain why relatively strong employment growth has not translated into higher wages

‐1

0

1

2

3

4

5

1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Productivtypercent change (20‐qtr ra te)

A large part of the weakness in productivity growthhas been the weak pace of investment

‐30

‐20

‐10

0

10

20

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

Real private nonresidential fixed investment

percent



‐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

Personal consumption expenditure ‐ chain price index


Inflation is very low


Economic Summit 7

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, 2015 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 '16

Real natural gas pricedol lars per mmbtu, 2015 dollars

Natural gas prices have also declined and remains low

3

4

5

6

7

8

9

10

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

Expenditures on energy arewell below the historical average

3

4

5

6

7

8

9

10

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

60s

70s

80s

90s 00s

1960‐2015

10s


Economic Summit 8

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 '16

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

The FOMC anticipates that PCE inflationwill be just under their two percent target by the end of 2019

‐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


FOMC


2016 1.2 – 1.42017 1.7 – 1.92018 1.8 – 2.0 2019 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 inflationwill remain below two percent through 2019


2016 1.6 – 1.82017 1.7 – 1.92018 1.9 – 2.02019 2.0


Economic Summit 9

Blue Chip International Consensus Forecasts

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 2.6 1.5 2.2 0.1 1.2 2.3 ‐ ‐ 0.30 0.80

Canada 1.1 1.3 2.0 1.1 1.6 2.0 1.32 1.28 0.75 1.01

Mexico 2.5 2.2 2.4 2.7 2.9 3.3 18.59 18.35 4.38 5.08

Japan 0.6 0.6 0.8 0.7 ‐0.2 0.4 103.5 107.9 ‐0.05 ‐0.02

South Korea 2.6 2.7 2.6 0.7 0.9 1.5 1,156 1,189 1.32 1.34

United Kingdom 2.2 1.8 0.6 0.0 0.7 2.1 1.30 1.29 0.34 0.38

Germany 1.5 1.7 1.4 0.1 0.4 1.4 1.11 1.08 ‐0.26 ‐0.14

France 1.2 1.3 1.1 0.1 0.3 1.2 1.11 1.08 ‐0.26 ‐0.14

Euro Zone 1.6 1.6 1.4 0.0 0.2 1.2 1.11 1.08 ‐0.26 ‐0.14

Brazil ‐3.8 ‐3.3 0.9 9.0 8.6 5.7 3.41 3.46 13.91 11.60

Russia ‐3.7 ‐0.7 1.1 15.5 7.2 5.3 65.8 64.1 10.34 8.04

China 6.9 6.6 6.2 1.4 2.0 2.0 6.75 6.90 2.83 2.86

India 7.5 7.5 7.6 4.9 5.3 5.3 68.0 69.2 6.81 6.66

Blue Chip Economic Indicators Forecast October 10, 2016

Manufacturers’ Purchasing Managers Indexes

Recently the real trade-weighted dollar increased by 19.7%,but has fallen by 3.3% since January

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 '16

Trade‐weighted exchange value of the U.S. dollar (real)index: March 1973=100


Economic Summit 10

‐25

‐20

‐15

‐10

‐5

0

5

10

15

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

Industrial production ‐manufacturing

percent



Manufacturing output is just below itslevel compared with a year earlier

‐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 '16

Manufacturing employment

percent



Manufacturing employment is alsobelow the level of a year earlier

62

64

66

68

70

72

74

76

78

80

82

84

86

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

Capacity utilization ‐manufacturingpercent

Capacity utilization has been edging lower


Economic Summit 11

The recovery has also been broad-based withmotor vehicles, computer and electronic components,

primary metals and machinery manufacturing leading the way

‐50 ‐25 0 25 50 75 100 125 150 175

ManufacturingDurable GoodsWood Products

Nonmetallic Mineral ProductsPrimary Metals

Fabricated Metal ProductsMachinery

Computer and Electronic ComponentsElectrical Eqpt, Appliances & Components

Motor Vehicles and PartsAerospace & Miscellaneous Transport Equip

Furniture and Related ProductsMiscellaneous Durable GoodsNondurable Manufacturing

Food, Beverages, and TobaccoTextile and Product Mills

Apparel and Leather GoodsPaper

Printing and Related Support ActivitiesChemicals

Petroleum and Coal ProductsPlastics and Rubber Products

Other Manufacturing

Industrial output: June 2009 ‐ September 2016

percent change

The supply managers’ composite index is just above 50

30

35

40

45

50

55

60

65

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

Purchasing managers' index ‐ compositenet percent reporting increases

Current 3 Month Moving Average Growth is:Above Trend and Accerating

Above Trend and DeceleratingBelow Trend and AcceleratingBelow Trend and Decelerating

Contracting but ImprovingContracting and Deteriorating

5-year Trend 2010 2011 2012 2013 2014 2015 2016Manufacturing 1.2%

Wood Products 2.9%

Nonmetallic Mineral Products 2.9%

Primary Metals -2.1%

Fabricated Metal Products 0.5%

Machinery -0.4%

Computer and Electronic Components 4.0%

Electrical Eqpt, Appliances & Components 0.9%

Motor Vehicles and Parts 7.5%

Aerospace & Misc. Transport Equip 2.6%

Furniture and Related Products 1.7%

Miscellaneous Durable Goods 0.8%

Food, Beverages, and Tobacco 0.8%

Textile and Product Mills 0.8%

Apparel and Leather Goods -4.4%

Paper -0.6%

Printing and Related Support Activities -0.2%

Chemicals -0.7%

Petroleum and Coal Products 0.8%

Plastics and Rubber Products 2.3%

Manufacturing Industries Activity ChartGrowth (3-month moving average)

compared with the most recent 5-year trend

The industrial sector’s growth remains soft


Economic Summit 12

Industrial production is forecast to improve this yearbut expand at a pace 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


Percent change from a year earlier Q3‐2016

Blue Chip IP Forecast

Actual Forecast 2015 2016 2017‐1.6 0.3 2.2

Light vehicles sales set a record in 2015 andyear-to-date sales in 2016 are 0.5% higher than a year earlier

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 '16

Light vehicle salesmil lions of units (saar)

Year-to-date light truck sales are 7.1% higherwhile passenger car sales are 8.0% lower

3

4

5

6

7

8

9

10

11

12

13

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

Passenger car and light truck salesmil lions of units (saar)

light trucks

passenger cars


Economic Summit 13

Alternative powered vehicles (including hybrids)are a very small fraction of total vehicle sales

0

10

20

30

40

50

60

70

80

90

100

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

Power‐Typepercent of total sales

Alternative

Gasoline and Diesel

Alternative powered vehicles (including hybrids)market share barely exceeded 4%

and have been declining over the past two years

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 '16

Alternative Powered Vehiclespercent of total sales

Light vehicle production has reached pre-recession levels

3

4

5

6

7

8

9

10

11

12

13

14

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

Light vehicle productionmil lions of units (saar)


Economic Summit 14

Vehicle sales rose 5.8% last yearand are anticipated to edge lower this year and next 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 17.2 17.1

While the probability of recession within the next 6 months has increased,

it remains below the level that has beenassociated with a recession

0

10

20

30

40

50

60

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

Probablility of a recession ‐ two quarters ahead (Survey of Professional Forecasters)percent

Credit spreads between Corporate High Yield securitiesand Corporate Aaa securities have been moving lower


Economic Summit 15

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

Fed Funds ratepercent

Monetary policy has been very aggressive,keeping the Fed Funds near zero since December 2008

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 '19

Target Federal Funds Ratepercent

FOMC

The Federal Funds Rate is expected to remainbelow the neutral rate through 2019


2016 0.6 – 0.92017 1.1 – 1.82018 1.9 – 2.82019 2.4 – 3.0


•The outlook is for the U.S. economy to expand at a

pace around trend through 2019

Summary

•Employment growth is expected to slow with the

unemployment rate remaining below the natural rate

•Disappearing slack in the economy will lead to a gradual

rising inflation rate

•Light vehicle sales are anticipated to edge lower

•The housing market is anticipated to continue to improve

through 2017


Economic Summit 16

www.chicagofed.org www.federalreserve.gov

william strauss, senior economist and economic advisor...

Documents