The Global Economic Pulse Quickens. The Global Economic Pulse Quickens

Transcription

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2 The global economy s pulse quickens Real GDP in selected regions (percent change from four quarters earlier) Forecasts 1 9 China 7 India 6 5 All others Global (shaded grey region) -2 US (thick line) -3 - Japan member European Union Sources: World Bank; US Dep. of Commerce; JPMorgan Chase & Co. Updated through 213 Q2. 2

3 The US is doing relatively well Real GDP, selected developed economies (ratio to 1997 Q, 25 US dollars, PPP basis) United States 1. Japan 1. EU Sources: US Dep. of Commerce; Haver Analytics; JPMorgan Chase & Co. Updated through 213 Q2. 3

4 Three Key Developments

5 (1) Business is financial strong After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income) Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 213 Q2. 5

6 (2) The market sees and monetizes recovery hopes Wilshire 5 (Dec 31, 197 = 3.27) After-tax GDP profits (billions of dollars) 2,2 1,9 1,1 16,16 1,1 12,12 1,1, 6,6, 2,2 Line is the Wilshire 5 index (left scale) Shaded area is after-tax GDP profits (right scale) ,71 1,52 1,33 1, Note: scales aligned to the historical 1.6 times price-earnings average (for these measures) ex. the 199s. Sources: US Department of Commerce; Dow Jones. Updated through 213 Q2 (profits) and Sep.,

7 (3) Layoffs are back to normal Real GDP (percent change from four quarters earlier) Jobless claims (thousands weekly) 1 9 Jobless claims (right, scale is reversed) Real GDP growth (left) Forecast Sources: US Deps. of Labor and Com. Updated through 213 Q2 (GDP) and September 21, 213 (claims). 7

8 P.S. That echoes a broad jobs recovery... Nonfarm payroll employment Percent change from 12 months earlier Monthly change in thousands of jobs Line represents the percent change in nonfarm payroll employment over the most recent 12 months (left scale) Bars are monthly change in nonfarm payroll employment, thousands of jobs per month (right scale) Source: US Department of Labor. Updated through September 213.

9 ... across the country Employment (ratio to December 27 level) 1.7 US Forecast TX DC US AK SD UT Wva NY OK MA CO LA NE MT MD MN VA IA WY CA DE HI VT AR CT GA ID IL KS IN KY WA ME MS NH NM PA TN OR FL AZ MI MO NJ NC SC OH RI AL NV WI Source: US Dep. of Labor. Updated through 213 Q3. 9

10 Excesses Addressed 1

11 With excesses corrected... it s back Residential building (contribution to US real GDP over the most recent four quarters) Forecast Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through 213 Q2. 11

12 Builders cleared the glut... New housing starts (thousands at an annual rate) Unsold homes (months worth of sales) 2, 16 2,2 2, 1, 1,6 1, 1,2 1, 6 Total housing starts (left) Unsold single family houses (right) Forecast Source: US Department of Commerce. Updated through August

13 ... even at Ground Zero... New housing starts in the US and California (ratio to July 199 level of starts) US California 1.5 Forecast Source: US Department of Commerce. Updated through August

14 A script only Made in America Household income and house prices (ratio to 197) CoreLogic house price index (ratio to 197) Gross nominal income per household (ratio to 197) Forecast (assumes nominal income and the population grow 5% and 1% annually, respectively in the coming decade's economic recovery) Sources: US Dep. of Commerce; CoreLogic. Updated through 213 Q2 (income) and 213 Q2 (house prices). 1

15 It didn t unfold like most anticipated Nominal consumer spending (percentage of nominal GDP) Source: US Department of Commerce. Updated through 213 Q2. 15

16 The vehicle industry is back, with credit channels reopened Sales of motor vehicles (millions at an annual rate) Source: US Department of Commerce. Updated through August

17 Debt was written off, debt service pared... Debt service (percent of monthly income) Household debt (ratio to income) 25 Financial obligations (left) 2 Debt service (left) Household debt (right) Source: Federal Reserve Board. Updated through 213 Q2. 17

18 ... and net worth restored Personal saving (percent of disposable income) Household net worth (ratio to income) Household saving rate (left) Ratio of household net worth to income (right scale is reversed) Sources: US Dep. of Com.; FRB. Updated through August 213 (saving) and 213 Q2 (net worth). 1

19 Two New Economic Drivers 19

20 US manufacturing Selected trade weighted US dollar indexes (March 1973 = 1) Nominal tradeweighted dollar index versus G1 countries ( = 1) Broad real tradeweighted dollar index Source: Federal Reserve Board. Updated through August

21 The shale revolution Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) Petroleum price (WTI, $/barrel) Natural gas price converted to thermal equivalent price of oil in terms of price per barrel (6 times the $/mmbtu) Source: Oil & Gas Journal. Updated through September,

22 Aiming for the 2% Inflation Goal 22

23 But the employment situation says more demand coming Unemployment rate (percent) Proved to be premature and the Fed backed down Horizontal bars denote the Fed's view (forecast range) about the near-term and sustainable unemployment rate (often referred to as the Nairu, or nonincreasing inflationary rate of unemployment) ¹ Note: The red boxes identify the first step in each Fed tightening sequence Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated through August 213 (unemployment) and September 1, 213 (FOMC forecast). 23

24 Thinking about unemployment, visible and invisible Perspectives on the number of people not working (thousands) In Normal Currently Above Times¹ (Aug 213) Normal² Officially Classified as Unemployed 7,77 11,313 3,539 Unemployed for More than 26 Weeks 1,23,29 3,7 Unemployed for Fewer than 26 Weeks 6,531 7,23 92 Under-employed (Part Time for Economic Reasons),35 7,911 3,557 Number In the Labor Force Dropouts³ Calculation of Dropouts (Working Status by Age) 126, ,117, Year Olds 2,621 1, Year Olds,35 3, Year Olds 16,3 15, Year Olds 3,599 33, Year Olds 33,235 32, year Olds 35, 3,379 1,11 Memo: Over 55 32,195 33,75-1,2 ¹ Referring to 27 levels, before the recession. ² Excess unemployment in thousands. ³ Calculation based on what would have happened if the labor force participation rate remained at the 27 level. Source: US Department of Labor. Updated through August

25 The structural label for out-of-work long-term is a cop out Unemployment by duration (percent of the labor force).12.1 Unemployed for more than 26 weeks Unemployed for Less than 27 Weeks Source: US Department of Labor. Updated through August

26 Involuntary part time is equivalent to 2 million unemployed Part time for economic reasons (because they cannot find full-time jobs) (thousands) 1, 9,, 7, Number of people working part time for economic reasons as a percentage of the population (right scale (percent of the population)..3 6, 5,.2, 3, 2, 1, Number of people working part time for economic reasons (left scale) Source: US Department of Labor. Updated through August

27 Parents can tell you what the issue is Factors affecting the labor force (annualized percentage change) Population Growth 1. Actual Labor Force Growth.3 Contribution of Demographic and Cyclical Factors to Labor Force Growth from December 27 to August 213 Demographics: Impact of the Ageing Labor Force Average Age of the Work Force (Years) Actual Participation Rate (% of Population) Actual Labor Force (Thousands) 153,91 155,6 Demographically-adjusted Participation Rate (% of Population)¹ Fixed-Age Labor Force (Thousands) 153,91 15,21 Reduction in the Labor Force Due to Ageing (Thousands)² 3,335 Cyclical: Impact of Young Workers Dropping Out Dropouts Since Labor Participation Rates December 27³ (% of Respective Population) (thousands) Year Olds Year Olds Year Olds Year Olds Year Olds year Olds ,11 Over ,2 ¹ Counterfactual participation rate calculated as the weighted average of participation rates for selected ages based on the December 27 age profile. ² Estimate of what the labor force would have been had the age profile of the labor force remained unchanged from what it was in December 27. ³ "Dropouts" defined as the difference between the size of the current labor force and what it would be if the participation rate had not declined. Sources: US Department of Labor; JPMorgan Chase. Updated through August

28 So far, most laid off earlier are back on the job... Selected indicators of unemployment (percent of the labor force) National unemployment rate, including those with no work experience who do not qualify for unemployment insurance benefits Those laid off and collecting unemployment benefits from both regular (statefunded) programs and federal extended unemployment benefit programs Unemployment benefits from regular (state-funded) programs Sources: US Dep. of Labor.. Updated through August 213 (unemployment) and September 21, 213 (UI). 2

29 ... and that means new entrants will get a break Nonfarm payrolls and unemployment beneficiaries (average mon. ch. over the most recent 12 months) 3 Gap denotes net hiring of new or re-entering job seekers Nonfarm Payrolls (Left Scale) Change in the Number Drawing Unemployment Benefits from All Programs (Right Scale is Reversed) Sources: US Department of Labor.. Updated through August 213 (payrolls) Sep. 1, 213 (beneficiaries). 29

30 So, here s what I d watch Employment-to-population ratios for selected populations to 55-year old population 16- to 5-year old population Civilian noninstitutional population Source: US Department of Labor. Updated through August

31 What s left to do... Selected employment reference points (thousands) 155, Official labor force plus 16-5-year old dropouts since December , Official labor force plus 16- -year old dropouts since December 27 15,.9m 7.7m 15,.2m 15, Employment = 95.5% of the labor force 15, 1, Current employment 6.6m 1, 135, 135, 13, 13, 125, , Source: US Department of Labor. Updated through August

32 ... and what it takes Selected employment reference points (thousands) 162, 16, 15, 156, 15, 152, 15, 1, 16, 1, 12, 1, 13, 136, 13, 132, 13, Official labor force plus 16-5-year old dropouts since December 27 Official labor force plus 16- -year old dropouts since December 27 Nonfarm employment needed to return the official unemployment rate to 5% Actual nonfarm employment 12, m 7.7m.9m 6.6m new jobs since the bottom 162, 16, 15, 156, 15, 152, 15, 1, 16, 1, 12, 1, 13, 136, 13, 132, 13, 12, Source: US Department of Labor. Updated through August

33 Ultimately the 2% inflation mandate rules Core PCE chain price index (percent change from 12 months earlier) The FOMC's forecast for PCE chain price inflation and longrun goal¹ Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce. Updated through July 213 (inflation) and September 1, 213 (FOMC forecast). 33

34 Things to know about the interest rate outlook, bonds... Nominal and inflation-adjusted 5-year Treasury yield 5 years in the future (percent) Five-year forward Treasury yield (5 x 5) Five-year forward inflation expectations plus inflation risk premium (5 x 5 breakeven) Five-year forward real Treasury yield (5 x 5 TIPS) Source: Federal Reserve Board. Updated through September 9,

35 There s no inflation volcano coming, no money flood... Monetary base (billions of dollars) M2 (billions of dollars) 3, 3,2 3, 2, 2,6 2, 2,2 2, 1, 1,6 Monetary base (left scale) The money stock (right scale) 1, 1,2 1, , 32, 3, 2, 26, 2, 22, 2, 1, 16, 1, 12, 1,, 6,, 2, Source: Federal Reserve Board. Updated through June

36 ... because it s just between us and the Fed Selected components of the monetary base (billions of dollars) 3, 3,2 3, 2, 2,6 2, 2,2 2, 1, 1,6 1, 1,2 1, 6 2 The monetary base = currency in circulation + required reserves + excess reserves (left) M2 (right scale) , 32, 3, 2, 26, 2, 22, 2, 1, 16, 1, 12, 1,, 6,, 2, Source: Federal Reserve Board. Updated through July

37 ... short-term rates Federal funds rate and nominal 1-year Treasury yield (percent) year Treasury yield 12 Federal funds rate Sources: Vertical bars denote recessions and are designated by the NBER; Federal Reserve Board. Updated through September 9,

38 October 2, 213 APPENDIXES Appendix 1. Fiscal Issues Commercial Banking 3

39 About America... Really? Source: The Week in Review, New York Times, March 3,

40 Cyclical deficits shrink with recovery but... Federal deficit (percent of nominal GDP) % of GDP (right scale) , -1,1-1,2-1,3 $ billions over the most recent 12 months (left scale) -1, -1, Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor; US Treasury. Updated through August 213.

41 ... structural ones don t Long-term revenue and spending projections (percent of GDP) Revenues (shown holding at the historical average of 1.1% of nominal GDP) Debt service Other Medicare and Medicaid 5 Social Security Source: Congressional Budget Office. Updated through September

42 The confusion sent Europe down a blind alley Central government deficits (percent of GDP) Denmark (dashed line) Germany France Greece Source: Eurostat. Updated through

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