Bloomberg Brief Q3 Economic Outlook

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Bloomberg Brief Q3 Economic Outlook

  1. 1. Bloomberg Brief: Economics U.S. Q3’ 2013 Economic Overview and Outlook Joseph Brusuelas | July 2013
  2. 2. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 2 <<<< Executive Summary Growth likely to modestly accelerate following sub 2% 1H’13 • Growth • Q3’13 growth in line with 2.2 percent cyclical trend • Keys to growth in second half of 2013 and 2014: • Is household deleveraging cycle finished? • Will policy decisions result in reduced drag from sequestration? • Will domestic manufacturing rebound? • Will investors change expectations of Fed policy? • Will rising rates impact residential investment? • Monthly job creation likely to hold near 175,000 per month. • Unemployment rate likely to move toward 7 percent.
  3. 3. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 3 <<<< Executive Summary • Monetary Policy • Pace of asset purchases likely to slow following September FOMC meeting. • Any tapering likely to be asymmetrical. • Tapering of treasuries likely to outweigh mortgage backed securities. • Fed to remain cautions on tapering purchases due to: • Prodigious labor slack, output and consumption gaps • External headwinds. • Tapering is not tightening. • Fed will hold off tightening rates until 2015.
  4. 4. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 4 <<<< Executive Summary • Fiscal Policy • Fiscal year ends September 30. • FY 2014 needs to be put in place. • Debt ceiling debate to influence FY 2014 policy. • Likely to determine the pace of sequestration. • Sequestration set to slow in FY 2014 • External Risks • Slower demand for durable and finished goods from Europe and China. • Chinese liquidity crunch. • German election and its aftermath.
  5. 5. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 5 <<<< Executive Summary • Long Term Future of U.S. Economy Improving • Natural resource revolution. • U.S. supplying 85% of own energy needs. • U.S. production starting to influence global oil prices. • Nascent manufacturing renaissance. • 3D printing • Policy needs to be put in place to support energy and manufacturing revolutions. • Major Challenges in Near Term • Underutilization of resources • Output gap of roughly 4%. • 25 million unemployed and underemployed. • Fiscal restraint likely to remain in place.
  6. 6. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 6 <<<< This is an exclusive presentation from Bloomberg Brief newsletters. Bloomberg BRIEF Economics is an award winning, groundbreaking publication written by leading economists in US, Europe and Asia, published by Bloomberg, the premier source of data and analytics in the financial world. Bloomberg BRIEF Economics is already read by thousands every morning and you’ll soon see why – the Economics Brief provides a clear, concise snapshot every morning of all the key information you need to know: • Valuable insight and independent analysis from our renowned economists who've spent decades on Wall Street including Joseph Brusuelas, Michael McDonough, Tamara Henderson, Richard Yamarone, David Powell and Niraj Shah. • Proprietary data and commentary that gets beneath the numbers with eye catching charts. • Guest columnists from top-tier firms. • Exclusive publications such as the Orange Book, Quarterly Economic Overviews, The Economist Notepad, Daily Economic Outlook Videos and much more! Your time is valuable. Maximize it by switching to Bloomberg BRIEF Economics today. Take a free 30 day trial today! www.bloombergbriefs.com for more information.
  7. 7. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 7 <<<< Bloomberg Consensus: Survey of Forecasters Q1 13 Q2 13 Q3 13 Q4 13 Q1 14 Q2 14 Real GDP 1.8% 1.7% 2.3% 2.60% 2.8% 2.9% CPI 1.70% 1.4% 1.5% 1.5% 1.7% 2.0% Core PCE 1.28% 1.1% 1.3% 1.45% 1.6% 1.70% Unemployment 7.7% 7.57% 7.40% 7.35% 7.2% 7.10% Central Bank Rate 0.25% 0.25% 0.25% 0.25% 0.25% 0.25% 2-Year Rate 0.24% 0.36% 0.36% 0.45% 0.55% 0.65% 10-Year Rate 1.85.% 2.49% 2.27% 2.41% 2.59% 2.70% EUR/USD $1.28 $1.30 $1.28 $1.27 $1.26 $1.25
  8. 8. U.S. Q3’ 2013 Economic Overview and Outlook
  9. 9. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 9 <<<< US Hiring Settles in Near 200,000 Per Month -975 -875 -775 -675 -575 -475 -375 -275 -175 -75 25 125 225 325 2007 2008 2009 2010 2011 2012 2013 Private Payrolls 12 Month Moving Average 6 Month Moving Average 3 Month Moving Average Source: Bloomberg
  10. 10. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 10 <<<< Growth Drivers • Consumer • Upper two quintiles of households account for 63% of overall spending. • Falling oil and gasoline prices provide relief to households down the income ladder. resulting in modestly improved personal disposable income. • Interest rate sensitive sectors • Housing • Reduced supply supporting price appreciation. • Lack of supply hindering purchases in some areas. • Shift in buyer preference toward new construction. • Transportation • Historically low rates and aggressive discounting by auto dealers. • Age of auto fleet supports improved total vehicle sales. • Auto sales settles in above 15 million on annualized pace • Civilian aircraft orders on pace double that of 1H’12 2012
  11. 11. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 11 <<<< U.S. Home Price Appreciation -25 -20 -15 -10 -5 0 5 10 15 20 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Index Case-Shiller Home Price Index FHFA Home Price Index Source: Bloomberg SPCS20Y%, HPIMYOY% INDEX<GO>
  12. 12. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 12 <<<< Falling Supply Supports Home Price Appreciation 1 1.25 1.5 1.75 2 2.25 2.5 2.75 3 3.25 3.5 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 HomesForSale:Millions Source: Bloomberg EHSLMP, EHSLHAFS INDEX<GO>
  13. 13. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 13 <<<< Improving Employment Picture Supports Rising Auto Purchases 8 10 12 14 16 18 20 224 5 6 7 8 9 10 11 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 U.S. Unemployment Rate Total Vehicle Sales Source: Bloomberg SAARTOTL, USURTOT INDEX<GO>
  14. 14. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 14 <<<< Global Oil Pricing Starting to Reflect U.S. Production -5 0 5 10 15 20 25 30 2010 2011 2012 2012 SpreadPerBarrel Brent/WTI Spread Source: Bloomberg
  15. 15. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 15 <<<< Condition of the Consumer • Are Households Ready to Drive Growth • Cash flow following tax hike still an issue for lower income groups. • Modest wage growth. • Inflation adjusted 1.1% on a year ago basis. • June 0.4% M/M increase in average hourly and average weekly earnings very encouraging. • Inflation adjusted spending 1.8% on a year ago basis. • Income gains still asymmetrically tilted toward wealthy. • Household deleveraging. • Household debt as a percentage of GDP still near danger level of 85%. • Financial obligations ratio to 15.5%. • Debt service ratio 10.3%.
  16. 16. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 16 <<<< Upper Income Earners Driving Spending 8.9 12.9 17.1 23.1 38.0 Lowest 20% Second 20% Third 20% Fourth 20% Highest 20% Source: BLS Consumer Expenditure Survey
  17. 17. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 17 <<<< US Household Deleveraging 85 90 95 100 105 110 115 4 5 6 7 8 9 10 11 12 13 Percentage Trillions Other Student Loan Credit Card Auto Loan HE Revolving Mortgage Household Debt % of PI Source: New York Fed, Bloomberg
  18. 18. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 18 <<<< Inflation Adjusted Spending Remains Muted -4 -3 -2 -1 0 1 2 3 4 5 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Real Personal Consumption Expenditures Source: Bloomberg PCE CHY& INDEX<GO>
  19. 19. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 19 <<<< US Household Deleveraging 75 80 85 90 95 100 105 Q1'09 Q2'09 Q3'09 Q4'09 Q1'10 Q2'10 Q3'10 Q4'10 Q1'11 Q2'11 Q3'11 Q4'11 Q1'12 Q2'12 Q3'12 Q4'12 US Household Debt to GDP Ratio Source: St. Louis Fed
  20. 20. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 20 <<<< Financial Conditions Overview • Financial conditions narrowing in aftermath of June FOMC • Remain supportive of U.S. growth. • Financial easing via asset purchases appropriate and necessary in Europe. • Conditions tightening in Asia. • Tapering is not tightening.
  21. 21. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 21 <<<< Bloomberg Financial Conditions Indices -6 -5 -4 -3 -2 -1 0 1 2 3 2010 2011 2012 2013 BFCIAXJ Index US Financial Conditions Index BFCIAXJ Index EU Financial Conditions Index BFCIAXJ Index Asian Financial Conditions Index Source: Bloomberg BFCIUS, BFCIEU, BFCIAXJ INDEX<GO>
  22. 22. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 22 <<<< Private Credit Creation Improving -5% -3% -1% 1% 3% 5% 7% 9% 11% 13% 15% 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008 2013 YearOverYearPercentageChange Total Private Credit Creation & Nominal GDP Nominal GDP Total Credit Creation Private Financial Instiutions Source: Federal Reserve, Bloomberg Adjusted R2=.64
  23. 23. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 23 <<<< Image pageU.S. Rates Overview Bloomberg consensus forecast indicates higher 10- and 30-year rates. Current Rates: • 2-Year: .37 percent. • 10-year: 2.63percent. • 30-year: 3.64 percent. End of Fourth Quarter Consensus Survey Rate Forecast • 2-Year: .45 percent. • 10-year: 2.51 percent. • 30-year: 3.49 percent.
  24. 24. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 24 <<<< Projected Path of Long- and Short-Term Rates -0.5 0.5 1.5 2.5 3.5 4.5 5.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 2007 2008 2009 2010 2011 2012 2013 2014 2015 Percent Percent US 10-Year (LHS) U.S. 3-Mo. 2-Years Forward Source: Bloomberg USGG10YR INDEX, G0025 2Y3M BLC2CURNCY<GO> Forward Market Estimate of 10-Year Yields in 2-Years' Time FOMC Implied Forecast of 3-Mo. Rates in 2-Years' Time
  25. 25. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 25 <<<< Long-Term Rates During Era of Quantitative Easing 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2008 2009 2010 2011 2012 2013 Percentage Long Run Asset Purchase Programs US 10-Year Yield Source: Bloomberg QE 1 QE 2 Op Twist 1 & 2 QE 3
  26. 26. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 26 <<<< U.S. Long Term Yields Likely to Decline In Near Term 1.40 1.60 1.80 2.00 2.20 2.40 2.60 40 50 60 70 80 90 100 110 120 2012 2013 Merrill Lynch Option Volatility Index US 10-Year Yield Source: Bloomberg
  27. 27. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 27 <<<< U.S. Economic Surprise Index & 10-Year Treasury Yields -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2 -1.2 -0.8 -0.4 0.0 0.4 0.8 1.2 2010 2011 2012 2013 Percentage Z-Score Bloomberg Economic Surprise Index(LHS) US 10-Year Yield(RHS, 6-Mo. Basis Point Change) Source: Bloomberg ECSURPUS, USGG10YR INDEX<GO>
  28. 28. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 28 <<<< U.S. Economic Surprise Index & U.S. Equity Markets -60% -40% -20% 0% 20% 40% 60% -1.2 -0.8 -0.4 0.0 0.4 0.8 1.2 2010 2011 2012 2013 Index(PercentageChange) Z-Score Bloomberg Economic Surprise Index(LHS) S&P 500 (RHS,6-mo. % chg.) Source: Bloomberg ECSURPUS, SPX INDEX<GO>
  29. 29. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 29 <<<< Central Bank Policy Outlook and Overview • Reduction of asset purchases likely in September or December • Why reduce pace of purchases? • Disruption to asset markets. • Costs outweigh marginal benefit of further purchases. • Improving economy. • Risks • Economy remains stuck in liquidity trap producing 2 percent growth amidst substantial labor and economic slack. • Asymmetry in Pace of Reduction • Continue to purchase mortgage backed securities at a faster pace than treasuries.
  30. 30. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 30 <<<< Central Bank Policy Outlook and Overview • U.S. policy rate to remain effectively at zero until 2015. • 6.5 percent employment threshold likely to be achieved in 9-12 months. • Inflation expectations remain well behaved. • ECB and Japan Likely to Become More Aggressive • Japan: Debt-Deflation, growth and structural. • Europe: Post German election, asymmetrical business cycle, labor crisis. .
  31. 31. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 31 <<<< The Long Road Ahead Slow Grind Back To Full Employment Scenario 1: Structural Break Scenario 2: Cyclical Recovery 6.5% Full Employment 6.5% Full Employment 5.5% Full Employment 5.5% Full Employment Monthly Job Gains 200,000 200,000 200,000 200,000 Labor Force Participation Rate 63.50% 63.50% 63.50% 63.50% Average Annual Population Growth 0.92% 0.50% 0.92% 0.50% Years to Full Employment 2 Years 1 Years 4 Years 2 Years
  32. 32. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 32 <<<< Long Term Inflation Expectations Remain Soft 1.75 2.00 2.25 2.50 2.75 3.00 3.25 3.50 3.75 2008 2009 2010 2011 2012 2013 Percent Fed 5 Year Forward 200-2012 Average Source: Bloomberg FED5YEAR INDEX<GO>
  33. 33. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 33 <<<< Mortgage Backed Primary Secondary Spread -20 0 20 40 60 80 100 120 140 160 2005 2006 2007 2008 2009 2010 2011 2012 2013 BasisPoints:30DayMovingAverage Start Dates of Fed MBS Purchase Programs QE 1 QE 3 Source: Bloomberg
  34. 34. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 34 <<<< Global Money Supply Set to Rapidly Accelerate 20 30 40 50 60 70 80 Q1'04 Q1'05 Q1'06 Q1'07 Q1'08 Q1'09 Q1'10 Q1'11 Q1'12 Q1'13 M2Trillions Global Money Supply: Q1'13 $63 Trillion Source: Bloomberg Q2'07:Fed Begins Response to Financial Crisis ECB 3-Yr Term LTRO BOJ Liquidity Operations to Support Abenomics
  35. 35. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 35 <<<< Europe: Monetary Policy at the Zero Bound -6 -4 -2 0 2 4 6 8 10 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 PolicyRate(Percent) ECB Rate Core Euro Area Non-Core Euro Area Source: Bloomberg
  36. 36. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 36 <<<< Expansion of Monetary Base Carries Long Term Inflation Risk 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 2000 2001 2002 2002 2003 2004 2004 2005 2006 2006 2007 2008 2008 2009 2010 2010 2011 2012 Ratio of Monetary Base to GDP (Euro Area) Ratio of Monetary Base to GDP (U.S.) Source: Bloomberg
  37. 37. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 37 <<<< Economic Challenges Targeted by Policymakers • Substantial Output Gap. • Labor Market Slack. • Low Wage Bias in Hiring. • Consumption Gap.
  38. 38. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 38 <<<< Significant Output Gap Remains 7 8 9 10 11 12 13 14 15 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Trillions(2005Chained$) US Retains Substantial Output Gap Real GDP Real Potential Output Source: Bloomberg
  39. 39. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 39 <<<< Labor Slack and the American Economy 3 4 5 6 7 8 9 10 1158 59 60 61 62 63 64 65 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 Percent Percent Employment to Population Ratio (LHS, Inverted) Unemployment Rate (RHS) Source: Bloomberg USERTOT , USURTOT INDEX<GO> 11.7 Million Unemployed 12.7 Million Underemployed
  40. 40. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 40 <<<< Low Wage Bias in Hiring -50 -25 0 25 50 75 100 125 150 175 2010 2011 2012 2013 Low Wage Bias Driving Hiring Leisure and Hospitality Health Care and Social Assistance Temp Retail Trade Source: Bloomberg USRTTOT, USESTEMP, USEETOTS, USEHTOTS INDEX<GO>
  41. 41. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 41 <<<< Real Consumption on Lower Trend 8000 8500 9000 9500 10000 10500 11000 2005 2006 2007 2008 2009 2010 2011 2012 2013 Billions(Chained2005$) Real PCE Trend Prior to Recession Source: Bloomberg US.HHSPNR BEA INDEX<GO>
  42. 42. U.S. Q3’ 2013 Economic Overview and Outlook Email jbrusuelas3@bloomberg.net or call 212-617-7664 >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> SUBSCRIBE @BRIEF<GO> | 42 <<<< This is an exclusive presentation from Bloomberg Brief newsletters. Bloomberg BRIEF Economics is an award winning, groundbreaking publication written by leading economists in US, Europe and Asia, published by Bloomberg, the premier source of data and analytics in the financial world. Bloomberg BRIEF Economics is already read by thousands every morning and you’ll soon see why – the Economics Brief provides a clear, concise snapshot every morning of all the key information you need to know: • Valuable insight and independent analysis from our renowned economists who've spent decades on Wall Street including Joseph Brusuelas, Michael McDonough, Tamara Henderson, Richard Yamarone, David Powell and Niraj Shah. • Proprietary data and commentary that gets beneath the numbers with eye catching charts. • Guest columnists from top-tier firms. • Exclusive publications such as the Orange Book, Quarterly Economic Overviews, The Economist Notepad, Daily Economic Outlook Videos and much more! Your time is valuable. Maximize it by switching to Bloomberg BRIEF Economics today. Take a free 30 day trial today! www.bloombergbriefs.com for more information.
  43. 43. Joseph Brusuelas, Senior Economist Bloomberg, LP jbrusuelas3@bloomberg.net Bloomberg Joseph Brusuelas is an economist who writes for the Bloomberg Economic Brief. The observations he makes are his own. Bloomberg is a leading source of data, news, and analytics for financial and legal professionals, corporations, media organizations and private individuals around the globe. The BLOOMBERG PROFESSIONAL® service and Bloomberg’s media services provide real-time and historical pricing, indicative data, reporting, research, estimates, analytics, portfolio management tools, electronic trading and order management systems, multimedia events and electronic communications to Bloomberg clients in more than 150 countries, 24 hours a day. bloomberg.com Frankfurt London San Francisco Singapore Tokyo +49 69 9204 1210 +44 20 7330 7500 +1 415 912 2960 +65 6212 1000 +81 3 3201 8900 Hong Kong New York São Paulo Sydney +852 2977 6000 +1 212 318 2000 +55 11 3048 4500 +61 2 9777 8600 The BLOOMBERG PROFESSIONAL service, BLOOMBERG Data and BLOOMBERG Order Management Systems (the "Services") are owned and distributed locally by Bloomberg Finance L.P. ("BFLP") and its subsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the "BLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg L.P. ("BLP"). BLP provides BFLP with all global marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. The Services include electronic trading and order-routing services, which are available only to sophisticated institutional investors and only where the necessary legal clearances have been obtained. BFLP, BLP and their affiliates do not provide investment advice or guarantee the accuracy of prices or information in the Services. Nothing on the Services shall constitute an offering of financial instruments by BFLP, BLP or their affiliates. BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG BONDTRADER, BLOOMBERG TELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS and BLOOMBERG.COM are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries.

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