Economic Outlook Global Automotive Aftermarket Symposium Rosemont, IL May, William Strauss Senior Economist and Economic Advisor The Great Recession ended in June, but the economy expanded by.% over the past year Real gross domestic product Quarterly change(saar) ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' The liabilities side of the Fed s balance sheet shows large amount of excess reserves The personal savings rate has moved lower Liabilities of the Federal Reserve Billions of dollars,,, Deposits of Depository Institutions,, Treasury Balance Currency in Circulation 7 Personal savings as a of disposable personal income ' '7 '7 ' ' ' ' ' ' ' Existing home prices fell by over % The stock market has improved since March, but remains below previous levels Median sales price existing single family home month smoothed $, $, $, $, $7, $, $, $, $, ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' S&P stock index Index: =,,,, ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' Economic Outlook
GDP is forecast to grow near trend in and slightly above trend in The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles Real gross domestic product Blue Chip GDP Forecast Quarterly change(saar)...7 Q ' ' ' ' ' ' '7 ' ' ' ' ' ' Business cycle recovery path index business cycle trough = average annualized growth:.% 7 7 average annualized growth:.% average annualized growth:.% Blue Chip forecast recovery path 7 7 quarters before trough quarters after trough Employment fell by over.7 million jobs between December 7 and February, but began to rise and has added. million jobs over the past months Total employment Monthly change (saar) ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' After peaking in October, the unemployment rate has fallen by. age points Unemployment rate 7 '''''''7''''''''''7''''' Okun s Law: for every age point that GDP growth deviates from its trend leads to a half age change in the unemployment rate in the opposite direction The unemployment rate is forecast to edge lower Changes in Real GDP and the unemployment rate since Change in unemployment rate Q/Q,,age points Unemployment rate Blue Chip Forecast Q Change in Real GDP Q/Q, age points ' ' ' ' ' ' '7 ' ' ' ' ' ' Economic Outlook
Inflation has risen Personal consumption expenditure chain price index change from a year earlier ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' In large part due to the movement of oil prices. However, adjusted for inflation, current oil prices are below the levels that existed thirty years ago Real West Texas Intermediate oil price dollars per barrel. dollars 7 '7 ' ' ' ' ' ' ' Natural gas prices have fallen sharply Expenditures on energy are below the historical average Real natural gas price dollars per mmbtu ( dollars) ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' Energy goods and services expenditures as a share of total consumption s 7s 7 s s s s ' '7 '7 ' ' ' ' ' ' ' Removing the volatile food and energy components from the PCE, core inflation remains low Inflation is anticipated to rise. this year and next year Personal consumption expenditure less food and energy change from a year earlier chain price index ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' Consumer price index Quarterly change (saar) Q Blue Chip CPI Forecast... ' ' ' ' ' ' '7 ' ' ' ' ' ' Economic Outlook
Housing starts fell to a post WWII low The forecast calls for a very gradual recovery in housing Housing starts thousands,,,, ' '7 '7 ' ' ' ' ' ' ' Housing starts thousands,,,, Blue Chip Housing Starts Forecast (thousands) 7 7 7 ' ' ' ' ' ' Industrial output in manufacturing fell quite sharply during the recession, but has risen strongly over the past thirty-three months, averaging.7% and has recovered 7.% of the loss during the recession Industrial production manufacturing Monthly change (saar) ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' Manufacturing capacity utilization has been rising since June Capacity utilization manufacturing 7 7 7 7 7 '''''''7''''''''''7''''' Manufacturing capacity fell by 7., but it has begun to rise again And while manufacturing jobs have been rising, they have only recovered.% of the jobs lost during the downturn Capacity manufacturing change from a year ' ' ' ' ' '7 '7 '7 '7 '7 ' ' ' ' ' '7 ' ' ' ' ' Manufacturing employment Quarterly change (saar) '''''''7''''''''''7''''' Economic Outlook
Manufacturing has a long way to go in order to recover job losses Declines in manufacturing output were broad-based during the Great Recession especially in vehicle and primary metals manufacturing Manufacturing employment millions 7 '''''''7''''''''''7''''' Industrial output: December 7 June change Manufacturing Durable Goods WoodProd Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery 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 Food, Beverages, and Tobacco 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 The recovery has also been broad-based with vehicle and primary metals manufacturing leading the way The purchasing managers index remains above Industrial output: June March change Manufacturing Durable Goods WoodProd Products Nonmetallic Mineral Products Primary Metals Fabricated Metal Products Machinery 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 Food, Beverages, and Tobacco 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 Purchasing managers' index composite net reporting increases '''''''7''''''''''7''''' Industrial production is forecast to rise at a solid pace Light vehicle sales have markedly improved Total industrial production Quarterly change (saar) Q Blue Chip IP Forecast... ' ' ' ' ' ' '7 ' ' ' ' ' ' Light vehicle sales millions of units (saar) 7 '''''''7''''''''''7''''' Economic Outlook
Beginning in July for monthly data or :Q for quarterly data Latest month or quarter William Strauss, Senior Economist and Economic Advisor Prices for new vehicles continue to rise Increases in new domestic production share has offset losses in Detroit- market share Consumer price index new vehicles Monthly change (saar) ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' Share of light vehicle sales imports 7 7 new domestics Detroit ' ' ' ' ' ' ' ' '7 ' The share of foreign nameplate sales that are produced domestically has been rising Inventories are below desired levels, especially for passenger cars Share of foreign nameplates produced domestically ' ' ' ' ' ' '7 ' ' ' ' ' Passenger car and light truck days supply days light trucks 7 passenger cars '''''''7''''''''''7''''' Consumer attitudes to car buying remains low Economic indicators point to moderate growth for vehicles Key Economic Indicators for the Automotive Industry Consumer attitudes plan to buy automobile in six months of respondents From During the Since the end of the through 7:Q Recession Great Recession Great Latest Data Real GDP Average Q/ Q% @ AR. -... Real Consumption Average Q/ Q% @ AR. -... Index of Consumer Sentiment Average Index.. 7. 7. Employment Growth Average change in jobs (thous.). -. 7.. Unemployment rate Average %.... Corporate Profits Average Q/ Q% @ AR. -... ' ' ' ' ' ' ISM-Manufacturing Index Average Index.7... New and Existing Home Sales Average, Thousands,,,, Real Oil Prices - West Texas Intermediate Average $/ bbl ( prices). 7. 7.. PCE Inflation Average Y/ Y% Change.... Fed Funds Rate Average %.... Notes: January through June Economic Outlook
Vehicle sales are expected to rise this year and next year Credit spreads between Corporate High Yield securities and Corporate Aaa securities have been edging lower Vehicle sales millions of units 7 Blue Chip Light Vehicle Sales Forecast.7.. ' ' ' ' ' ' Credit spreads between Corporate High Yield and Corporate Aaa Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr 7 Monetary policy has been very aggressive, keeping the Fed Funds near zero since December The Federal Funds Rate is anticipated to remain very low over the forecast horizon Fed Funds rate 7 '''''''7''''''''''7''''' Target Federal Funds Rate 7 FOMC ' ' ' ' ' ' '7 ' ' ' ' ' ' ' ' ' '7 ' ' ' ' ' ' ' The asset side of the Fed s balance sheet has expanded in size and in composition The Fed s expansion of the monetary base has allowed the money supply to continue rising, compared with what took place during the s Assets of the Federal Reserve Billions of dollars, Term Asset Backed Securities Loan Facility, Maiden Lane II & III, AIG Support Central Bank Swaps, Commercial Paper Facility, Maiden Lane Term Auction Credit Securities Held Outright 7 Monetary expansion index: Jan = monetary base M ' ' ' ' CPI Monetary expansion 7 current period index: Jan 7 = monetary base M CPI 7 ' ' ' ' ' Economic Outlook 7
Summary The outlook is for the U.S. economy to expand at a pace below trend this year and slightly above trend in Employment is expected to rise moderately with the unemployment rate edging lower Slackness 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 www.chicagofed.org www.federalreserve.gov Economic Outlook