Economic Update Adrienne C. Slack March 2017

Transcription

1 Economic Update Adrienne C. Slack March 2017 The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

2 2 The Fed s Dual Mandate The Fed is pursuing two objectives as given to us by Congress maximum employment and price stability. The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market, although a stronger economy does help with job creation. The Federal Open Market Committee (FOMC) has chosen an inflation target of two percent year-over-year growth over the longer term.

3 3 Summary of the Economic Environment: The March 2017 FOMC Policy Statement Information received since the Federal Open Market Committee met in February indicates that the labor market has continued to strengthen and that economic activity has continued to expand at a moderate pace. Job gains remained solid and the unemployment rate was little changed in recent months. Household spending has continued to rise moderately, while business fixed investment appears to have firmed somewhat. Inflation increased in recent quarters moving close to the Committee's 2 percent longer-run objective.

4 4 Summary of the Economic Environment: The March 2017 FOMC Policy Statement, continued: The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will expand at a moderate pace, labor market conditions will strengthen somewhat further, and inflation will stabilize around 2 percent over the medium term. Near-term risks to the economic outlook appear roughly balanced. The Committee continues to closely monitor inflation indicators and global economic and financial developments.

5 Source: Bureau of Economic Analysis through Q4-16 Contributions to Real GDP Growth Contributions to Real GDP quarterly, percent, seasonally adjusted annualized rate Intellectual Property Products Government Net Exports Nonresidential Equipment & Software Private Inventory Investment Residential Investment Nonresidential Structures Consumer Spending Real GDP

6 Real Personal Consumption Expenditures 4% Real Personal Consumption Expenditures year-over-year percent change, SA 3% 2% 1% 0% Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Source: Bureau of Economic Analysis through January

7 Source: Federal Reserve Board; Institute for Supply Management Data through February The Dollar and the Manufacturing Sector The Dollar and the Manufacturing Sector Index, Jan-97=100 SA, 50+ = Expansion Nominal Broad Trade-Weighted Exchange Value of the US$ (left axis) ISM Manufacturing: PMI Composite Index (right axis)

8 Source: U.S. Census Bureau through January International Trade International Trade monthly, seasonally adjusted Imports Exports percent change, year to year

9 Business Fixed Investment: Business Cycle Graph Business Fixed Investment: Business Cycle Graph Index=100 at business cycle peak Business cycles (length of line is equal to the number of quarters between peaks ): q4 1990q3 1973q4 1960q2 2001q1 1981q3 1969q Latest GDPNow estimate Quarters since business cycle peak Source: BEA, FRBA calculations 9

10 10 The Employment Picture Job gains remained solid in February. Ø In February, U.S. employers added 235,000 net jobs to payrolls. Over the 12 months ending in February, monthly job gains averaged 195,800. Ø The unemployment rate fell to 4.7 percent from 4.8 percent in January. Ø The labor force participation ticked up to 63.0 in February from 62.9 in January. Since February 2016 over 1.2 million people have reentered the labor force.

11 Source: Bureau of Labor Statistics through February 2017 Unemployment and Labor Force Participation Rates Unemployment and Labor Force Participation Rates monthly, percent, seasonally adjusted Broad Unemployment Rate (U6) (left axis) Civilian Unemployment Rate (U3) (left axis) Labor Force Participation Rate (right axis)

12 Source: Bureau of Labor Statistics through February Measures of Labor Utilization percent, monthly Measures of Labor Utilization 7.2 ppts 7.2 ppts Part-time for economic reasons (PTER) Marginally Attached Official Unemployment Rate (U3) ppts 4.5 ppts 3.5 ppts 3.5 ppts 9.9 ppts 9.9 ppts ppts ppts ppts ppts

13 Source: Bureau of Labor Statistics; FRBA February Average Hourly Earnings Average Hourly Earnings 5.0% 4.5% 4.0% Wage Measures year-over-year change, SA Average Hourly Earnings: Total Private Industries (SA, $/Hour) % Change - Year to Year Wage Growth Tracker, 3-month moving average of median wage growth 3.5% 3.0% 2.5% 2.0% 1.5% 1.0%

14 14 The Inflation Picture In January 2012, the FOMC set an inflation target of 2 percent over the long run as measured by the overall price index of personal consumption expenditures. For the past 4 years, inflation has remained below that target. Market-based measures of inflation compensation remain low; most survey-based measures of longer-term inflation expectations are little changed, on balance.

15 Personal Consumption Expenditure (PCE) Price Index Personal Consumption Expenditure (PCE) Price Index year-over-year percent change, monthly 3.5 PCE Core PCE Trimmed Mean PCE FOMC Inflation Objective Sources: Bureau of Economic Analysis; Federal Reserve Bank of Dallas through January

16 16 The Monetary Policy Response: In view of realized and expected labor market conditions and inflation, the Committee decided to raise the target range for the federal funds rate from 3/4 to 1 percent. The stance of monetary policy remains accommodative, thereby supporting some further strengthening in labor market conditions and a sustained return to 2 percent inflation. In determining the timing and size of future adjustments to the target range for the federal funds rate, the FOMC will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including: Ø Labor market measures Ø Inflation pressures and expectations Ø Readings on financial and international developments

17 Atlanta Fed s Business Inflation Expectations Survey Atlanta Fed s Business Inflation Expectations Survey 2.5 year-ahead unit cost expectations percent, monthly Jun-12 Dec-12 Jun-13 Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Source: Atlanta Fed Business Inflation Expectations Survey For more information, visit: March

18 Sources: The Conference Board, Reuters/University of Michigan through February Consumer Confidence Indices Measuring Expectations Consumer Confidence Indices Measuring Expectations Conference Board: Expectations - 6 Month Outlook (SA, 1985=100) University of Michigan: Consumer Expectations - 1 to 5 Year Outlook (NSA, Q1 1966=100)

19 19 Conclusion Atlanta Fed s Outlook The economy appears to be expanding at a moderate pace. Since the U.S. election, business optimism, consumer confidence, and equity markets have all risen markedly. However, we have seen little in the economic data (so far) that suggests improved sentiment is translating into increased spending and business activity. Recent labor market indicators are consistent with an economy that is closing in on full employment.

20 Don t forget to check out the Atlanta Fed s vibrant new online magazine, Economy Matters. (frbatlanta.org) The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System. 20