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2013 forecast slide presentation

The economic outlook document provides the following key points: 1) The US economy is expected to expand in 2013 at a pace below trend, with moderate employment growth and a gradually lower unemployment rate. Inflation is expected to remain contained. 2) Several economic indicators, such as GDP, home prices, and stock markets, have improved since the recession but remain below pre-recession levels. 3) Forecasts anticipate GDP and employment growth will continue in 2013 and 2014, with inflation rising moderately but remaining below the Fed's 2% target through 2015.

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Economic Outlook Lake County Chamber of Commerce William Strauss Vernon Hills, IL Senior Economist February 19, 2013 and Economic Advisor Federal Reserve Bank of Chicago
What I said last year about 2012 •The outlook is for the U.S. economy to expand at a The US pace below trend •Employment is expected to rise moderately with the Employment unemployment rate edging lower •Slack in the economy will lead to a relatively contained inflation rate •Vehicle sales are anticipated to rise at a good pace •Growth in manufacturing output should be solid
The “Great Recession” ended in June 2009 and the economy expanded by 1.5% over the past year Real gross domestic product percent 10 8 Quarterly change (saar) 6 4 2 0 ‐2 Percent change from a year earlier ‐4 ‐6 ‐8 ‐10 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
The liabilities side of the Fed’s balance sheet shows large amount of excess reserves Liabilities of the Federal Reserve Billions of dollars 3,000 2,500 Treasury Balance 2,000 1,500 Deposits of Depository Institutions 1,000 500 Currency in Circulation 0 2007 2008 2009 2010 2011 2012
Existing home prices fell by over 30%, but have begun to rise Median sales price ‐ existing single family home 3‐month smoothed $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $130 000 $110,000 $90,000 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
The stock market has improved since March 2009 2009, but remains below previous levels S&P 500 stock index Index: 1941‐43 = 10 1,600 1,400 1,200 1,000 800 600 400 200 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
GDP is forecast to grow slightly above trend in 2013 and somewhat above trend in 2014 Real gross domestic product percent Blue Chip GDP Forecast p 10 Actual Forecast         8 2012                2013     2014 Quarterly change (saar) 6 1.5                   2.4         2.9         4 2 0 Q4‐2012 ‐2 Percent change from a year earlier ‐4 ‐6 ‐8 ‐10 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
The FOMC expects GDP to grow somewhat above trend over the next three years Real gross domestic product percent change from a year earlier 6 5 4 3 2 FOMC 1 0 FOMC Central Tendency (December 2012) ‐1 2013 0 3 2.3 – 3.0 3 30 ‐2 2 2014 3.0 – 3.5 ‐3 2015 3.0 – 3.7 ‐4 Longer run 2.3 – 2.5 ‐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 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
The path of the current recovery is restrained compared with past deep recession recovery cycles Business cycle recovery path index ‐ business cycle trough  = 100 122 120 1981‐82 118 average annualized growth: 5.4% 116 1974‐75 114 average annualized growth: 5.3% 112 110 average annualized growth: 2.1% 108 106 2008‐09 104 102 100 98 ‐8 ‐7 ‐6 ‐5 ‐4 ‐3 ‐2 ‐1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 quarters before trough quarters after trough
Employment fell by over 8.7 million jobs between December 2007 and February 2010 2010, since then it has added just over 2.0 million jobs over the past 12 months Total employment percent 6 4 2 0 ‐2 4 ‐4 Percent change from a year earlier ‐6 Monthly change (saar) ‐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 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
After peaking in October 2009, p g the unemployment rate has fallen by 2.1 percentage points Unemployment rate percent 11 10 9 8 7 6 5 4 3 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
The unemployment rate is forecast to edge lower Unemployment rate percent Blue Chip Forecast 10 Q4‐2012 8 6 4 2 0 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
The FOMC forecasts that the unemployment rate will remain above the natural rate through the end of 2015 Unemployment rate percent 11 FOMC Central Tendency (December 2012) 10 2013 7.4 – 7.7 2014 6.8 – 7.3 9 2015 6.0 – 6.6 8 Longer run g 5.2 – 6.0 FOMC 7 6 5 4 3 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
Inflation has moderated Personal consumption expenditure ‐ chain price index percent change from a year earlier 6 5 4 3 2 1 0 ‐1 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
In large part due to the movement of oil prices. g p p Adjusted for inflation, current oil prices are below the levels that existed thirty years ago Real West Texas Intermediate oil price dollars per barrel. 2012 dollars 160 140 120 100 80 60 40 20 0 1970 '75 75 '80 80 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
Natural gas prices remain low Real natural gas price dollars per mmbtu (2012 dollars) 16 14 12 10 8 6 4 2 0 1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Expenditures on energy are below their historical average Energy goods and services expenditures as a share of percent total consumption 10 9 8 80s 60s 70s 7 1960‐2012 6 5 10s 10 90s 00s 4 3 1960 '65 65 '70 70 '75 75 '80 80 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
Removing the volatile food and energy g gy components from the PCE, “core” inflation remains low Personal consumption expenditure ‐ less food and energy ‐ percent change from a year earlier chain price index 5 4 3 2 1 0 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Inflation is anticipated to rise 1 9% this year 1.9% and 2.2% next year Consumer price index percent 8 Quarterly change (saar) 6 4 2 0 Q4‐2011 ‐2 Percent change from a year earlier ‐4 Blue Chip CPI Forecast ‐6 Actual Forecast      2012               2013     2014 ‐8 1.9             1.9         2.2 ‐10 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
The FOMC anticipates that PCE inflation will remain below two percent through 2015 Personal consumption expenditure ‐ chain price index percent change from a year earlier 6 FOMC Central Tendency (December 2012) 5 2013 1.3 – 2.0 2014 1.5 – 2.0 2015 1.7 – 2.0 4 Longer run 2.0 20 3 2 FOMC 1 0 ‐1 1990 '92 92 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '14 14
The FOMC anticipates that “core” PCE inflation will also remain below two percent through 2015 Personal consumption expenditure ‐ less food and energy ‐ percent change from a year earlier chain price index 5 FOMC Central Tendency (December 2012) 4 2013 1.6 – 1.9 2014 1.6 – 2.0 2015 1.8 – 2.0 3 2 FOMC 1 0 1990 '92 92 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '14 14
Industrial output in manufacturing fell quite sharply during the recession but has risen strongly over recession, the past forty-three months, averaging 5.5% and has recovered 80.5% of the loss during the recession Industrial production ‐ manufacturing percent 40 Monthly change (saar) 30 Percent change from a year earlier 20 10 0 ‐10 ‐20 ‐30 ‐40 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
And while manufacturing jobs have been rising, gj g adding 490,000 jobs, they have only recovered 21.4% of the jobs lost during the downturn Manufacturing employment percent 15 10 5 0 ‐5 ‐10 Percent change from a year Percent change from a year earlier ‐15 ‐20 Monthly change (saar) ‐25 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
Declines in manufacturing output were g p broad-based during the Great Recession – especially in vehicle and primary metals manufacturing Industrial output: December 2007  ‐ June 2009 percent change ‐60 60 ‐50 50 ‐40 40 ‐30 30 ‐20 20 ‐10 10 0 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products  Primary Metals Fabricated Metal Products  Machinery M hi Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products  Miscellaneous Durable Goods Nondurable Manufacturing g Food, Beverages, and Tobacco F dB dT b Textile and Product  Mills Apparel and Leather Goods Paper Printing and Related Support  Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products  Other Manufacturing h f
The recovery has also been broad-based with y vehicle and primary metals manufacturing leading the way Industrial output: June 2009  ‐ January 2013 percent change ‐20 20 0 20 40 60 80 100 120 140 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products  Primary Metals Fabricated Metal Products  Machinery M hi Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products  Miscellaneous Durable Goods Nondurable Manufacturing g Food, Beverages, and Tobacco F dB dT b Textile and Product  Mills Apparel and Leather Goods Paper Printing and Related Support  Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products  Other Manufacturing h f
Midwest manufacturing has been outperforming the U.S. during the recovery Industrial output ‐ manufacturing percent change from a year earlier 20 Midwest 15 10 United States 5 0 ‐5 ‐10 ‐15 ‐20 ‐25 ‐30 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Industrial production is forecast to rise p at a slightly above trend pace this year and improve to somewhat above trend in 2014 Total industrial production percent 10 Quarterly change (saar) 5 0 Q4‐2012 ‐5 Percent change from a year earlier ‐10 Blue Chip IP Forecast p Actual Forecast             ‐15 2012           2013       2014 2.8           2.8           3.6       ‐20 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
After rising by 13% in 2012 vehicle sales are predicted 2012, to rise over 5% this year and 4% next year Vehicle sales millions of units 18 17 16 15 14 Blue Chip Light‐Vehicle 13 Sales Forecast 12 Actual  Forecast          2012             2013        2014 11 14.4 15.2         15.8 10 1980 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
The forecast calls for a gradual recovery in housing Housing starts thousands 2,500 2 500 2,000 1,500 1,000 Blue Chip Housing Starts Forecast (thousands) 500 Actual Forecast             2012          2013         2014 781             948         1,158 0 1980 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
Credit spreads between Corporate High Yield securities and Corporate Aaa securities have been edging lower Credit spreads between Corporate High Yield and Corporate Aaa percent 18 16 14 12 10 8 6 4 2 0 JanApr Jul Oct JanApr Jul Oct JanApr Jul Oct JanApr Jul Oct Jan Apr Jul Oct JanApr Jul Oct Jan Apr 2007 2008 2009 2010 2011 2012 2013
Monetary policy has been very aggressive, aggressive keeping the Fed Funds near zero since December 2008 Fed Funds rate percent 9 8 7 6 5 4 3 2 1 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 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
The Federal Funds Rate is anticipated to remain very low over the forecast horizon Target Federal Funds Rate percent 9 8 7 6 5 4 3 2 1 FOMC 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
The asset side of the Fed’s balance sheet has expanded in size and in composition Assets of the Federal Reserve Billions of dollars 3,000 Term Asset‐Backed Securities k d Loan Facility 2,500 Maiden Lane II & III 2,000 AIG Support AIG Support Central Bank Swaps 1,500 Commercial Paper Facility 1,000 Maiden Lane Term Auction Credit Securities Held Outright 500 0 2007 2008 2009 2010 2011 2012
The money supply (M2) is nearly 4 times bigger than the monetary base Monetary expansion 2007‐current period billions of dollars 12,000 M2 10,000 8,000 6,000 4,000 2,000 monetary base 0 2007 '08 08 '09 09 '10 10 '11 11 '12 12
The Fed’s expansion of the monetary base p y has allowed the money supply to continue rising, compared with what took place during the 1930s Monetary expansion 1929‐1935 Monetary expansion 2007‐current period index: Jan 1929 = 100 index: Jan 2007 = 100 350 350 300 300 monetary base 250 250 200 200 monetary base 150 150 M2 CPI 100 100 CPI M2 50 50 1929 '30 '31 '32 '33 '34 '35 2007 '08 '09 '10 '11 '12 '13
The federal government’s top tax rate has g p varied widely over the past 80 years – although government receipts has been relatively stable Federal government receipts and expenditures as a share of GDP Federal government top tax rate and receipts as a share of GDP percent percent 35 105 30 90 25 75 20 60 receipts ‐ left axis 15 45 10 30 top tax rate ‐ right axis 5 15 0 0 1930 '40 '50 '60 '70 '80 '90 '00 '10
Federal government expenditures are the highest outside of the World War II period Federal government receipts and expenditures as a share of GDP percent 35 30 expenditures 25 20 receipts 15 10 5 0 1930 '40 '50 '60 '70 '80 '90 '00 '10
Federal government receipts have never exceeded 21% and has averaged 18.3% over the past 52 years Federal government receipts and expenditures as a share of GDP percent 26 expenditures dit 25 24 23 22 21 20 19 18 receipts 17 16 15 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
The per capita share of the federal debt is nearly $53,000 Per capita share of real federal debt 2012 real dollars $55,000 $45,000 $35,000 $25,000 $15,000 $5,000 ‐$5,000 1950 '60 '70 '80 '90 '00 '10
Summary •The outlook is for the U.S. economy to expand at a pace around trend in 2013 and above trend in 2014 •Employment is expected to rise moderately with the unemployment rate edging lower •Slackness in the economy will lead to a relatively contained inflation rate •Growth in manufacturing output should be around trend this year and somewhat above trend next year
www.chicagofed.org www chicagofed org www federalreserve gov www.federalreserve.gov

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2013 forecast slide presentation

  • 1.
    Economic Outlook Lake CountyChamber of Commerce William Strauss Vernon Hills, IL Senior Economist February 19, 2013 and Economic Advisor Federal Reserve Bank of Chicago
  • 2.
    What I saidlast year about 2012 •The outlook is for the U.S. economy to expand at a The US pace below trend •Employment is expected to rise moderately with the Employment unemployment rate edging lower •Slack in the economy will lead to a relatively contained inflation rate •Vehicle sales are anticipated to rise at a good pace •Growth in manufacturing output should be solid
  • 3.
    The “Great Recession”ended in June 2009 and the economy expanded by 1.5% over the past year Real gross domestic product percent 10 8 Quarterly change (saar) 6 4 2 0 ‐2 Percent change from a year earlier ‐4 ‐6 ‐8 ‐10 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
  • 4.
    The liabilities sideof the Fed’s balance sheet shows large amount of excess reserves Liabilities of the Federal Reserve Billions of dollars 3,000 2,500 Treasury Balance 2,000 1,500 Deposits of Depository Institutions 1,000 500 Currency in Circulation 0 2007 2008 2009 2010 2011 2012
  • 5.
    Existing home pricesfell by over 30%, but have begun to rise Median sales price ‐ existing single family home 3‐month smoothed $250,000 $230,000 $210,000 $190,000 $170,000 $150,000 $130,000 $130 000 $110,000 $90,000 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
  • 6.
    The stock markethas improved since March 2009 2009, but remains below previous levels S&P 500 stock index Index: 1941‐43 = 10 1,600 1,400 1,200 1,000 800 600 400 200 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
  • 7.
    GDP is forecastto grow slightly above trend in 2013 and somewhat above trend in 2014 Real gross domestic product percent Blue Chip GDP Forecast p 10 Actual Forecast         8 2012                2013     2014 Quarterly change (saar) 6 1.5                   2.4         2.9         4 2 0 Q4‐2012 ‐2 Percent change from a year earlier ‐4 ‐6 ‐8 ‐10 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
  • 8.
    The FOMC expectsGDP to grow somewhat above trend over the next three years Real gross domestic product percent change from a year earlier 6 5 4 3 2 FOMC 1 0 FOMC Central Tendency (December 2012) ‐1 2013 0 3 2.3 – 3.0 3 30 ‐2 2 2014 3.0 – 3.5 ‐3 2015 3.0 – 3.7 ‐4 Longer run 2.3 – 2.5 ‐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 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
  • 9.
    The path ofthe current recovery is restrained compared with past deep recession recovery cycles Business cycle recovery path index ‐ business cycle trough  = 100 122 120 1981‐82 118 average annualized growth: 5.4% 116 1974‐75 114 average annualized growth: 5.3% 112 110 average annualized growth: 2.1% 108 106 2008‐09 104 102 100 98 ‐8 ‐7 ‐6 ‐5 ‐4 ‐3 ‐2 ‐1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 quarters before trough quarters after trough
  • 10.
    Employment fell byover 8.7 million jobs between December 2007 and February 2010 2010, since then it has added just over 2.0 million jobs over the past 12 months Total employment percent 6 4 2 0 ‐2 4 ‐4 Percent change from a year earlier ‐6 Monthly change (saar) ‐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 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
  • 11.
    After peaking inOctober 2009, p g the unemployment rate has fallen by 2.1 percentage points Unemployment rate percent 11 10 9 8 7 6 5 4 3 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
  • 12.
    The unemployment rateis forecast to edge lower Unemployment rate percent Blue Chip Forecast 10 Q4‐2012 8 6 4 2 0 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
  • 13.
    The FOMC forecaststhat the unemployment rate will remain above the natural rate through the end of 2015 Unemployment rate percent 11 FOMC Central Tendency (December 2012) 10 2013 7.4 – 7.7 2014 6.8 – 7.3 9 2015 6.0 – 6.6 8 Longer run g 5.2 – 6.0 FOMC 7 6 5 4 3 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
  • 14.
    Inflation has moderated Personal consumption expenditure ‐chain price index percent change from a year earlier 6 5 4 3 2 1 0 ‐1 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 15.
    In large partdue to the movement of oil prices. g p p Adjusted for inflation, current oil prices are below the levels that existed thirty years ago Real West Texas Intermediate oil price dollars per barrel. 2012 dollars 160 140 120 100 80 60 40 20 0 1970 '75 75 '80 80 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
  • 16.
    Natural gas pricesremain low Real natural gas price dollars per mmbtu (2012 dollars) 16 14 12 10 8 6 4 2 0 1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
  • 17.
    Expenditures on energyare below their historical average Energy goods and services expenditures as a share of percent total consumption 10 9 8 80s 60s 70s 7 1960‐2012 6 5 10s 10 90s 00s 4 3 1960 '65 65 '70 70 '75 75 '80 80 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
  • 18.
    Removing the volatilefood and energy g gy components from the PCE, “core” inflation remains low Personal consumption expenditure ‐ less food and energy ‐ percent change from a year earlier chain price index 5 4 3 2 1 0 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 19.
    Inflation is anticipatedto rise 1 9% this year 1.9% and 2.2% next year Consumer price index percent 8 Quarterly change (saar) 6 4 2 0 Q4‐2011 ‐2 Percent change from a year earlier ‐4 Blue Chip CPI Forecast ‐6 Actual Forecast      2012               2013     2014 ‐8 1.9             1.9         2.2 ‐10 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
  • 20.
    The FOMC anticipatesthat PCE inflation will remain below two percent through 2015 Personal consumption expenditure ‐ chain price index percent change from a year earlier 6 FOMC Central Tendency (December 2012) 5 2013 1.3 – 2.0 2014 1.5 – 2.0 2015 1.7 – 2.0 4 Longer run 2.0 20 3 2 FOMC 1 0 ‐1 1990 '92 92 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '14 14
  • 21.
    The FOMC anticipatesthat “core” PCE inflation will also remain below two percent through 2015 Personal consumption expenditure ‐ less food and energy ‐ percent change from a year earlier chain price index 5 FOMC Central Tendency (December 2012) 4 2013 1.6 – 1.9 2014 1.6 – 2.0 2015 1.8 – 2.0 3 2 FOMC 1 0 1990 '92 92 '94 94 '96 96 '98 98 '00 00 '02 02 '04 04 '06 06 '08 08 '10 10 '12 12 '14 14
  • 22.
    Industrial output inmanufacturing fell quite sharply during the recession but has risen strongly over recession, the past forty-three months, averaging 5.5% and has recovered 80.5% of the loss during the recession Industrial production ‐ manufacturing percent 40 Monthly change (saar) 30 Percent change from a year earlier 20 10 0 ‐10 ‐20 ‐30 ‐40 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
  • 23.
    And while manufacturingjobs have been rising, gj g adding 490,000 jobs, they have only recovered 21.4% of the jobs lost during the downturn Manufacturing employment percent 15 10 5 0 ‐5 ‐10 Percent change from a year Percent change from a year earlier ‐15 ‐20 Monthly change (saar) ‐25 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 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
  • 24.
    Declines in manufacturingoutput were g p broad-based during the Great Recession – especially in vehicle and primary metals manufacturing Industrial output: December 2007  ‐ June 2009 percent change ‐60 60 ‐50 50 ‐40 40 ‐30 30 ‐20 20 ‐10 10 0 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products  Primary Metals Fabricated Metal Products  Machinery M hi Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products  Miscellaneous Durable Goods Nondurable Manufacturing g Food, Beverages, and Tobacco F dB dT b Textile and Product  Mills Apparel and Leather Goods Paper Printing and Related Support  Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products  Other Manufacturing h f
  • 25.
    The recovery hasalso been broad-based with y vehicle and primary metals manufacturing leading the way Industrial output: June 2009  ‐ January 2013 percent change ‐20 20 0 20 40 60 80 100 120 140 Manufacturing Durable Goods Wood Products Nonmetallic Mineral Products  Primary Metals Fabricated Metal Products  Machinery M hi Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and Related Products  Miscellaneous Durable Goods Nondurable Manufacturing g Food, Beverages, and Tobacco F dB dT b Textile and Product  Mills Apparel and Leather Goods Paper Printing and Related Support  Activities Chemicals Petroleum and Coal Products Plastics and Rubber Products  Other Manufacturing h f
  • 26.
    Midwest manufacturing hasbeen outperforming the U.S. during the recovery Industrial output ‐ manufacturing percent change from a year earlier 20 Midwest 15 10 United States 5 0 ‐5 ‐10 ‐15 ‐20 ‐25 ‐30 1990 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 27.
    Industrial production isforecast to rise p at a slightly above trend pace this year and improve to somewhat above trend in 2014 Total industrial production percent 10 Quarterly change (saar) 5 0 Q4‐2012 ‐5 Percent change from a year earlier ‐10 Blue Chip IP Forecast p Actual Forecast             ‐15 2012           2013       2014 2.8           2.8           3.6       ‐20 2000 '01 01 '02 02 '03 03 '04 04 '05 05 '06 06 '07 07 '08 08 '09 09 '10 10 '11 11 '12 12 '13 13 '14 14
  • 28.
    After rising by13% in 2012 vehicle sales are predicted 2012, to rise over 5% this year and 4% next year Vehicle sales millions of units 18 17 16 15 14 Blue Chip Light‐Vehicle 13 Sales Forecast 12 Actual  Forecast          2012             2013        2014 11 14.4 15.2         15.8 10 1980 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
  • 29.
    The forecast callsfor a gradual recovery in housing Housing starts thousands 2,500 2 500 2,000 1,500 1,000 Blue Chip Housing Starts Forecast (thousands) 500 Actual Forecast             2012          2013         2014 781             948         1,158 0 1980 '85 85 '90 90 '95 95 '00 00 '05 05 '10 10
  • 30.
    Credit spreads betweenCorporate High Yield securities and Corporate Aaa securities have been edging lower Credit spreads between Corporate High Yield and Corporate Aaa percent 18 16 14 12 10 8 6 4 2 0 JanApr Jul Oct JanApr Jul Oct JanApr Jul Oct JanApr Jul Oct Jan Apr Jul Oct JanApr Jul Oct Jan Apr 2007 2008 2009 2010 2011 2012 2013
  • 31.
    Monetary policy hasbeen very aggressive, aggressive keeping the Fed Funds near zero since December 2008 Fed Funds rate percent 9 8 7 6 5 4 3 2 1 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 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
  • 32.
    The Federal FundsRate is anticipated to remain very low over the forecast horizon Target Federal Funds Rate percent 9 8 7 6 5 4 3 2 1 FOMC 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
  • 33.
    The asset sideof the Fed’s balance sheet has expanded in size and in composition Assets of the Federal Reserve Billions of dollars 3,000 Term Asset‐Backed Securities k d Loan Facility 2,500 Maiden Lane II & III 2,000 AIG Support AIG Support Central Bank Swaps 1,500 Commercial Paper Facility 1,000 Maiden Lane Term Auction Credit Securities Held Outright 500 0 2007 2008 2009 2010 2011 2012
  • 34.
    The money supply(M2) is nearly 4 times bigger than the monetary base Monetary expansion 2007‐current period billions of dollars 12,000 M2 10,000 8,000 6,000 4,000 2,000 monetary base 0 2007 '08 08 '09 09 '10 10 '11 11 '12 12
  • 35.
    The Fed’s expansionof the monetary base p y has allowed the money supply to continue rising, compared with what took place during the 1930s Monetary expansion 1929‐1935 Monetary expansion 2007‐current period index: Jan 1929 = 100 index: Jan 2007 = 100 350 350 300 300 monetary base 250 250 200 200 monetary base 150 150 M2 CPI 100 100 CPI M2 50 50 1929 '30 '31 '32 '33 '34 '35 2007 '08 '09 '10 '11 '12 '13
  • 36.
    The federal government’stop tax rate has g p varied widely over the past 80 years – although government receipts has been relatively stable Federal government receipts and expenditures as a share of GDP Federal government top tax rate and receipts as a share of GDP percent percent 35 105 30 90 25 75 20 60 receipts ‐ left axis 15 45 10 30 top tax rate ‐ right axis 5 15 0 0 1930 '40 '50 '60 '70 '80 '90 '00 '10
  • 37.
    Federal government expendituresare the highest outside of the World War II period Federal government receipts and expenditures as a share of GDP percent 35 30 expenditures 25 20 receipts 15 10 5 0 1930 '40 '50 '60 '70 '80 '90 '00 '10
  • 38.
    Federal government receiptshave never exceeded 21% and has averaged 18.3% over the past 52 years Federal government receipts and expenditures as a share of GDP percent 26 expenditures dit 25 24 23 22 21 20 19 18 receipts 17 16 15 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
  • 39.
    The per capitashare of the federal debt is nearly $53,000 Per capita share of real federal debt 2012 real dollars $55,000 $45,000 $35,000 $25,000 $15,000 $5,000 ‐$5,000 1950 '60 '70 '80 '90 '00 '10
  • 40.
    Summary •The outlook isfor the U.S. economy to expand at a pace around trend in 2013 and above trend in 2014 •Employment is expected to rise moderately with the unemployment rate edging lower •Slackness in the economy will lead to a relatively contained inflation rate •Growth in manufacturing output should be around trend this year and somewhat above trend next year
  • 41.
    www.chicagofed.org www chicagofed org wwwfederalreserve gov www.federalreserve.gov