Economic Update Philadelphia 2012

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  • Please contact:AARON ROSENBAUM at Aaron.Rosenbaum@phil.frb.orgfor updated maps each month
  • Please contact:AARON ROSENBAUM at Aaron.Rosenbaum@phil.frb.orgfor updated maps each month
  • UNLINKED
  • UNLINKED
  • UNLINKED
  • http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120125.pdf (Figure 2)
  • http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120125.pdf (Figure 2)
  • http://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20120125.pdf (Figure 2)
  • *NOTE: The implied 10-year spot inflation rate (FIN10) is the 10-year TreasuryYield at Constant Maturity (FCM10) minus the 10-year inflation-indexedTreasury Yield Constant Maturity (FII10). It is the implied inflation rateover the next 10 years.

Transcript

  • 1. Economic UpdateThe Entrepreneurship InstituteAnnual Presidents’ Forum of Philadelphia June 6, 2012 Luke A. Tilley FEDERAL RESERVE BANK OF PHILADELPHIA
  • 2. Today’s Agenda• National Economy• Regional Economy• International• Monetary Policy
  • 3. FOMC Forecast - Real GDP Growth 5.0 2.5 0.0Percent (%) Real GDP y/y -2.5 Real GDP -5.0 q/q -7.5 -10.0 Long 2007 2008 2009 2010 2011 2012 2013 2014 2015 Run Source: Bureau of Economic Analysis Federal Reserve Board, FOMC Minutes , April 2012
  • 4. Real Personal Consumption Expenditure Growth 4 3 Q/Q Annualized Change (%) 2 1 0 -1 -2 09 10 11 12 13Source: Federal Reserve Bank of Philadelphia, Survey of Professional ForecastersLast Point Plotted: Historical 2012:Q1, Forecast 2013: Q2
  • 5. Personal Consumption & Retail Sales 15 10 Retail SalesYear-over-Year Change (%) 5 0 Personal Consumption “The Consumer” -5 -10 -15 00 02 04 06 08 10 12 Source: Census Bureau, Bureau of Economic Analysis Last Point Plotted: April 2012
  • 6. Fixed Investment Growth Forecast 15Q/Q Annualized Change (%) 5 -5 -15 -25 09 10 11 12 13Source: Federal Reserve Bank of Philadelphia, Survey of Professional ForecastersLast Point Plotted: Historical 2012:Q1, Forecast 2013: Q2
  • 7. Manufacturers’ New Orders & Shipments Nondefense Capital Goods 75 70 65 New OrdersBillions ($) 60 55 Shipments 50 45 40 00 02 04 06 08 10 12 Source: Census Bureau & Haver Analytics (NAICS) Last Point Plotted: March 2012
  • 8. Consumer and C&I Loans 2.0 1.5($trillions) C & I Loans 1.0 Consumer Loans 0.5 0.0 88 91 94 97 00 03 06 09 12Source: Haver Analytics with Break adjusted % Changes reported by FRBLast Point Plotted: April 2012
  • 9. FOMC Forecast – Labor Market 400 10 9 200Average Monthly Change (thous.) 8 0 Nonfarm 7 Percent (%) Payrolls -200 6 5 -400 Unemployment 4 Rate (%) -600 3 -800 2 Long 07 08 09 10 11 12 13 14 Run Source: Bureau of Labor Statistics Federal Reserve Board, FOMC Minutes , April 2012
  • 10. Monthly Private Employment Growth – U.S. 300 277 254 250 200 147 150 100 87 82 50 0 -50 2010 2011Source: Bureau of Labor StatisticsLast Point Plotted: May 2012
  • 11. FOMC Forecast – Inflation 6 PCE Price Index 4 Percent (%) 2 0 Core PCE -2 Long 07 08 09 10 11 12 13 14 RunSource: Bureau of Economic Analysis Federal Reserve Board, FOMC Minutes , April 2012
  • 12. SPF: Inflation Expectations 8 6 10-yr CPI Inflation Expectation 4Percent (%) 2 Y/Y CPI Inflation 0 -2 88 91 94 97 00 03 06 09 12Source: BLS, Philadelphia Fed Survey of Professional ForecastersLast Point Plotted: BLS - 2012:Q1; SPF’s 10 yr. CPI Forecast - 2012-2021
  • 13. Summary of the FOMC Near-Term Forecasts• GDP – Expected growth rate of 2.1% - 3.0% in 2012, 2.4% - 3.8% in 2013, and 2.9% - 4.3% in 2014• Unemployment Rate - Expected rate of 7.8% - 8.2% in 2012, 7.0% - 8.1% in 2013, and 6.3% - 7.7% in 2014• Inflation - Expected to remain contained 1.8% - 2.3% in 2012, 1.5% - 2.1% in 2013, and 1.5% - 2.2% in 2014
  • 14. Today’s Agenda• National Economy• Regional Economy• Monetary Policy
  • 15. Philadelphia Fed Current Economic Activity Indexes Three month Annualized Growth – April 2012 > 4% 3% to 4% 2% to 3% 0.5% to 2% -0.5% to 0.5% -2% to -0.5% -3% to -2% <-3%
  • 16. Philadelphia Fed Leading Economic Activity IndexesPredictions of change in Philadelphia Fed Current Economic Activity Indexes over next 6 months – April 2012 > 4% 3% to 4% 2% to 3% 0.5% to 2% -0.5% to 0.5% -2% to -0.5% -3% to -2% <-3%
  • 17. Third District Manufacturing – General Activity Index 80 6 Month Expected 60 May „12= 15.0 40Diffusion Index 20 0 -20 Current Activity May „12 = -5.8 -40 -60 00 02 04 06 08 10 12Source: Business Outlook Survey – Philadelphia FedLast Point Plotted: May 2012
  • 18. National & Regional Unemployment 10 U.S. 8 8.2% PA 7.5% 6 4 2 0 90 92 94 96 98 00 02 04 06 08 10 12Source: Bureau of Labor StatisticsLast Point Plotted: U.S. – April 2012 ; PA – March 2012
  • 19. Year-over-Year Job Growth by Sector PA, NJ, DE – April 2012 45.8 40 Total Jobs = 86.9Y/Y Job Growth (thousands) Total Private Jobs = 104.7 19.1 20 12.1 8.3 6.7 8.1 3.0 4.2 0 -10.0 -17.3 -20Source: BLS
  • 20. Pennsylvania Housing Starts 60 50Housing Starts (thousands) 40 30 20 10 0 89 93 96 00 04 08 12Source: Bank of Tokyo Mitsubishi UFJ – Housing StartsLast Point Plotted: 2012: Q1
  • 21. Regional Home Prices 20Y/Y Change in FHFA Home Price Index (%) 15 10 Philadelphia Metro Division 5 Pennsylvania 0 -5 -10 92 96 00 04 08 12Source: Federal Housing Finance AgencyLast Point Plotted: PA - 2012: Q1; Phila Metro Division – 2012:Q2
  • 22. Mortgage Delinquencies – 90+ and in Foreclosure April 2008Source: LPS Applied Analytics
  • 23. Mortgage Delinquencies – 90+ and in Foreclosure April 2012Source: LPS Applied Analytics
  • 24. Today’s Agenda• National Economy• Regional Economy• International• Monetary Policy
  • 25. Euro Area GDP Share and Growth Share of Euro Area GDP 2011Q1 Real GDP Growth Greece, 2.3 2012Q1 All Others, 14.5 (%) q/q Euro Area 17 0.07 Germany, 28.2 Netherlands, 6. Germany 2.06 5 France 0.18 Spain, 11.1 Italy -3.21 Spain -1.28 France, 20.9 Netherlands -0.63 Italy, 16.6Source: EuroStat
  • 26. China Manufacturing Index 65 60 55Index 50 45 40 35 06 07 08 09 10 11 12Source: China Federation of Logistics & PurchasingLast Point Plotted: May 2012
  • 27. Exchange Rate Regimes Chinese Yuan (¥/$) 8.50 8.00 7.50 Floating-Peg Soft-Pegged Floating-Peg Rate Rate Rate 7.00 Recent Depreciation 6.50 6.00 05 06 07 08 09 10 11 12Source: Federal Reserve BoardLast Point Plotted: June 1, 2012
  • 28. Today’s Agenda• National Economy• Regional Economy• International• Monetary Policy
  • 29. Fed Transparency: A Long Process1994 – First announcement of policy decision (policy changes only)2000 – Regular post meeting statements, regardless of policy2002 – Post meeting statements include voting information2004 – FOMC minutes released after three weeks (from six)2007 – Economic projections of FOMC participants released2009 – Economic projections include long-run tendencies2011 – Chairman starts giving quarterly press conferences2012 – Statement of long run goals and strategy Start releasing assessments of appropriate policy
  • 30. FOMC Statement of Longer-Run Goals and Policy Strategy • The FOMC is committed to statutory mandate to promote • Maximum employment, stable prices, moderate long-term interest rates • Longer run inflation is mainly influenced by monetary policy, so a nominal target is appropriate • Sets an inflation target of 2 percent in annual change of PCE price index • Maximum employment determined by non-monetary factors, so a nominal target is not appropriate • Determined by labor force dynamics, fiscal policies, and more • Inflation and employment goals are generally complementary • When they are not, the FOMC takes a balanced approachSource: FOMC Statement of January 25, 2012
  • 31. Federal Funds Effective Rates & Limits 6 5 4 Fed Funds Effective Rate 3 2 Fed Funds Rate 1 Upper & Lower Limits 0 06 07 08 09 10 11 12Source: U.S. Treasury Department, Haver AnalyticsLast Point Plotted: Week Ending April 25th, 2012
  • 32. FOMC Projections of Appropriate Policy Appropriate Timing of Policy Firming: Year of first increase in federal funds rate 8 7 January 2012 7 April 2012 Number of Participants 6 5 5 4 4 4 3 3 3 3 3 2 2 1 0 2012 2013 2014 2015 2016Source: FOMC Statements of Jan 2012 and April 2012FIG. 2 Overview of FOMC Participants’ Assessments of Appropriate Monetary Policy
  • 33. FOMC Projections of Appropriate Policy Appropriate Pace of Policy Firming: Percent Year-end federal funds rate 6 5 4 3 2 1 0 2012 2013 2014 Longer RunSource: FOMC Statement of April 25, 2012FIG. 2 Overview of FOMC Participants’ Assessments of Appropriate Monetary Policy
  • 34. QuestionsLuke A. Tilley, Ph.D.Regional Economic Advisorluke.tilley@phil.frb.orgFollow us on Twitter: @philadelphiafed @philfedresearchLike us on Facebook:
  • 35. FEDERAL RESERVE BANK OF PHILADELPHIA
  • 36. The Federal Reserve’s Tools for Monetary Tightening• Higher interest on Bank Reserves• Reverse Repurchase Agreements• Term Deposits• Redemption and sales of long term assets: Treasuries, Agency Debt, MBS
  • 37. Year-over-Year Job Growth by Sector Pennsylvania – April 2012 20 16.9 14.2Y/Y Job Growth (thousands) 10 7.8 7.1 6.1 3.5 0.9 0.4 0 -1.5 -10 Total Jobs = 45.7 Total Private Jobs = 63.0 -16.8 -20Source: BLS
  • 38. SPF: Long Term Inflation Expectations 8 6 10-yr CPI Inflation ExpectationPercent (%) 4 2 y/y CPI Inflation 0 -2 88 91 94 97 00 03 06 09 12Source: BLS, Philadelphia Fed Survey of Professional ForecastersLast Point Plotted: 2012: Q2
  • 39. Bond Market Implied Inflation Expectations 3.0 2.0Percent (%) 10 Year Implied Inflation Rate 1.0 0.0 1/08 7/08 1/09 7/09 1/10 7/10 1/11 7/11 1/12Source: Haver Analytics Using Treasury Constant Maturity YieldsLast Point Plotted: April 2012
  • 40. Survey of Professional Forecasters: Treasury yields move up 9 8 BAA Corp 7 6 Percent (%) 5 4 AAA Corp 3 10 year T-note 2 3 month T-bill 1 0 00 02 04 06 08 10 12Source: Federal Reserve Board, Moody’s, FRB PhiladelphiaLast Point Plotted: 2012:Q1 (historical), 2013:Q2 (forecast)
  • 41. U.S. Home Sales and Starts 3.00 8.0 2.50 Existing Home Sales (right) 6.0 2.00 MillionsMillions 1.50 4.0 1.00 Housing Starts 2.0 0.50 (left) 0.00 0.0 80 84 88 92 96 00 04 08 12Source: National Association of REALTORS, Census BureauLast Point Plotted: Home Sales 2011:Q4, Housing Starts 2012:Q1
  • 42. US Dollar versus Major Currencies 120 110 100 March 1973=100 90 80 70 60 00 02 04 06 08 10 12Source: Federal Reserve BoardLast Point Plotted: March 2012
  • 43. Crude Oil Prices 150 125 100WTI $/barrel 75 50 25 0 07 08 10 12Source: Haver AnalyticsLast Point Plotted: Week of May 11, 2012
  • 44. Job Openings Labor Turnover Survey 4500 Hires / Separations 4250Thousands 4000 3750 Jan 11 Mar 11 May 11 Jul 11 Sep 11 Nov 11 Jan 12 Mar 12 Source: BLS/Haver Analytics Last Point Plotted: March 2012
  • 45. Weekly Initial Unemployment Insurance Claims 800Number of Claims (thousands) 650 Initial weekly claims 500 370 350 4 week moving average 200 00 02 04 06 08 10 12 Source: Department of Labor, BLS Last Point Plotted: Week of May 19, 2012
  • 46. Total Unemployed & Long Term Unemployed 41% Apr. „12 16Number of Unemployed People (millions) 12 17% Apr. „07 8 Unemployed 0-26 wks 4 Long-term Unemployed (over 27 wks) 0 00 02 04 06 08 10 12 Source: BLS, Department of Labor Last Point Plotted: April 2012
  • 47. Federal Reserve Balance Sheet: Selected Assets 3,000 GSE Securities 2,500 2,000Totals ($ Bill) GSE MBS 1,500 Liquidity Liquidity Swaps Programs Treasuries 1,000 Long-Term 500 Treasuries 0 Short-Term 07 08 09 10 11 12 Source: Federal Reserve Board Last Point Plotted: April 2012
  • 48. Federal Reserve Balance Sheet: Selected Liabilities 3,000 2,500 2,000Totals ($ Bill) Bank Reserves 1,500 Treasury Balance and Other Liabilities 1,000 500 Currency in Circulation 0 07 08 09 10 11 12Source: Federal Reserve BoardLast Point Plotted: April 2012
  • 49. Monetary Policy Normalization Expected Sequence of Key Elements 1. Cease reinvesting some or all payments of principal on the securities holdings in the SOMA 2. Modify forward guidance on the path of the federal funds rate and initiate temporary reserve-draining operations 3. Begin raising target for the federal funds rate, and make adjustments to interest on excess reserves and excess reserve levels 4. Commence sales of agency securities from the SOMA, communicated to public, and at a steady and gradual pace 5. Eliminate the SOMA’s holdings of agency securities over a period of three to five yearsSource: Minutes of the FOMC June 21-22, 2011