The Economic Outlook

Transcription

1 The Economic Outlook Nigel Gault Group Managing Director North American Macroeconomic Services FTA Revenue Estimating Conference Portland, Oregon September 8, Copyright Global Insight, Inc. U.S. Growth Is Cooling (Annualized rate of growth) 8 7 -Q -Q -Q -Q 7-Q 8-Q Real GDP Consumer Spending Copyright Global Insight, Inc. 9/

2 Residential Construction Is Turning Down. (Residential fixed investment, percent of GDP) Copyright Global Insight, Inc. 9/ Housing Affordability Has Deteriorated A higher index means homes are more affordable Affordability Index for Existing Single-Family Homes Source: National Association of Realtors Copyright Global Insight, Inc. 9/

3 And Is Becoming a Major Problem in Some Regions A higher index means homes are more affordable West North East South Mid West Source: National Association of Realtors Copyright Global Insight, Inc. 9/ Home Inventory Is Now Rising Sharply Relative to Demand (Months supply at current selling rate, single-family homes) New Homes Existing Homes Copyright Global Insight, Inc. 9/

4 The Housing Downturn (Million units) (Year/year percent change) Housing Starts (Left scale) Average Existing Single-Family Home Price (Right scale) Copyright Global Insight, Inc. 9/ 7 Consumer Spending Won t Outpace Income Growth Forever (Percent growth, real) 7 8 Real Consumption Real Disposable Income Copyright Global Insight, Inc. 9/ 8

5 Oil Prices Are A Wild Card Dollars per barrel, West Texas Intermediate 7 8 Base High Low Copyright Global Insight, Inc. 9/ 9 Impact of a $ Rise in Oil Prices On the U.S. Economy in the Global Insight Model (Percent deviation from baseline) Year One Year Two Year Three Real GDP Real Consumption CPI Copyright Global Insight, Inc. 9/

6 The Business Capital Spending Cycle: Construction To Take The Lead (Percent change from a year earlier, real spending) Equipment and Software Buildings Copyright Global Insight, Inc. 9/ U.S. Export Growth Is Catching Up With World Trade Growth Helped By The Falling Dollar (Percent change, real) U.S. Export Growth World Import Growth (Excluding U.S.) Copyright Global Insight, Inc. 9/

7 Core CPI Inflation Is Moving Well Above %. (Ex-food and energy: percent change from a year earlier) Core CPI Core Consumption (PCE) Price Index Copyright Global Insight, Inc. 9/ Homeowners Rent Has Driven Most Of the Pick- Up in Core CPI Inflation (-month moving average; annualized rate of inflation) Core CPI Owners Equivalent Rent Other Copyright Global Insight, Inc. 9/ 7

8 Are Labor Costs Actually Rising Or Not? (Percent change, year-on-year) - - Official Unit Labor Costs Alternative Using the Employment Cost Index Copyright Global Insight, Inc. 9/ The Fed May Have A Bit More Work to Do But We Expect It To Cut Rates in 7 7 (Percent) Federal Funds -Year Treasury Yield Copyright Global Insight, Inc. 9/ 8

9 The Federal Budget Deficit Is Doing Much Better Than Expected (Percent of GDP) Global Insight President's FY7 Budget Copyright Global Insight, Inc. 9/ 7 The Profits Boom Is Nearing Its End (Book profits, NIPA basis, percent change on year earlier) Copyright Global Insight, Inc. 9/ 8 9

10 Bottom Line Growth is slowing towards % Consumption & housing momentum are weakening But core inflation is still edging higher; the Fed may not yet be done raising rates U.S. dollar to fall further Risks (): Stubbornly above-comfort-zone inflation might mean that rates have to rise above our.% federal funds peak Risks (): Housing downturn may turn into a rout Risks (): Vulnerability to another energy shock remains high Copyright Global Insight, Inc. 9/ 9 U.S. Economic Growth by Sector (Percent change unless otherwise noted) 7 8 Real GDP.... Consumption.... Light Vehicle Sales (Millions).9... Residential Investment Housing Starts (Millions) Business Fixed Investment Government.9... Exports Imports Copyright Global Insight, Inc. 9/

11 U.S. Economic Growth by Sector (Percent change unless otherwise noted) 7 8 Employment.... Unemployment Rate (%)..7.. CPI Inflation Oil Prices (WTI, US$/bbl) Core CPI Inflation...7. Federal Funds Rate year Government Bond Yield $ (Major Currency Index, =) Copyright Global Insight, Inc. 9/