1 Economic Update Platts Aluminum Symposium 2014 Ft. Lauderdale, Florida January 13, 2014 Chris Oakley Federal Reserve Bank of Atlanta January 2014
2 Summary of the Economic Environment 1. Economic growth appears to be continuing along a path that is broadly consistent with our earlier projections of a gradual acceleration. 2. Fluctuations in the pace of inventory accumulation among other factors are causing quarter-to-quarter swings in real GDP growth. However, indicators of underlying demand like real final sales growth show a more steady and consistent growth path. 3. Jobs growth has been good, overall, and our outlook anticipates continued improvement in employment. 4. The incoming price numbers continue to show subdued inflation now trending well under the longer-term 2% objective. An anticipated firming in inflation as the economy recovers has yet to materialize, although inflation expectations remain steady.
FOMC Economic Projections Central Tendency (Excludes the three highest and three lowest projections for each variable in each year) Source: Federal Reserve Board (percentage rates of change are from previous year to current year) 3 Variable 2013 2014 2015 2016 Change in Real GDP 2.2 to 2.3 2.8 to 3.2 3.0 to 3.4 2.5 to 3.2 Unemployment Rate 7.0 to 7.1 6.3 to 6.6 5.8 to 6.1 5.3 to 5.8 PCE Inflation 0.9 to 1.0 1.4 to 1.6 1.5 to 2.0 1.7 to 2.0 Core PCE Inflation 1.1 to 1.2 1.4 to 1.6 1.6 to 2.0 1.8 to 2.0
According to the third and final estimate released by the Bureau of Economic Analysis, real GDP rose 4.1 percent in the third quarter of 2013, following 2.5 percent growth in the second quarter. Private inventory investment was the biggest contributor to the third quarter GDP growth and accounted for most of the acceleration in growth from the second quarter. 6 Contributions to Real GDP Growth quarterly, percent, seasonally adjusted annualized rate 4 2 0-2 -4-6 -8-10 Government Net Exports Nonresidential Equipment and Software Private Inventory Investment Residential Investment Nonresidential Structures Consumer Spending Real GDP 07 08 09 10 11 12 13 Source: Bureau of Economic Analysis through Q3-13 4
Nonfarm payrolls grew by 203,000 in November. September was revised up by 12,000 (to 174,000) and October was revised down by 4,000 (to 200,000) resulting in an average of 193,000 over the past three months. In 2013, payroll growth has averaged 191,000. 600 Monthly Change in Payrolls thousands, seasonally adjusted 400 200 0-200 -400-600 -800 Private Public Total Nonfarm -1000 07 08 09 10 11 12 13 Source: Bureau of Labor Statistics through November 2013 5
Atlanta Fed Labor Market Progress Spider Chart: Viewed as a whole, the labor market picture is uneven. Leading Indicators Temporary help services employment Temp Payroll Payroll JOLTSOpens Vacancies (JOLTS)* Employer Behavior NFIBCantFill Difficult to fill (NFIB)* JOLTSHires Hires (JOLTS)* InitialClaims Initial claims NFIBHiringPlans NFIB Hiring Plans* Work part time PTER for economic reasons 2007q4=100 2009q4=0 Sept-11-Nov-11 Sept-12-Nov-12 Sept-13-Nov-13 Utilization Job finding rate UtoErate Marginally MarginAttachSA attached workers Unemployed Unemployed Quits (JOLTS)* JOLTSQuits Conference Board Job Availability ConfBoardJobAvail Confidence *Sept 2013 Nov 2013 value is Aug 2013- Oct 2013 Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board 6 through November 2013
Federal Open Market Committee (FOMC) Monetary Policy Response: 7 The FOMC indicates that economic activity is expanding at a moderate pace. Labor market conditions have shown further improvement; the unemployment rate has declined but remains elevated. Household spending and business fixed investment advanced, while the recovery in the housing sector slowed somewhat in recent months. The Committee decided to modestly reduce the pace of its asset purchases. Beginning in January, the Committee will add to its holdings of agency mortgage-backed securities at a pace of $35 billion per month rather than $40 billion per month, and longerterm Treasury securities at a pace of $40 billion per month rather than $45 billion per month.
Federal Open Market Committee (FOMC) Monetary Policy Response, continued: 8 If incoming information broadly supports the Committee s expectation of ongoing improvement in labor market conditions and inflation moving back toward its longer-run objective, the Committee will likely reduce the pace of asset purchases in further measured steps at future meetings. In addition, the very low range for the federal funds rate (0-.25%) will be appropriate: at least as long as the unemployment rate remains above 6.5 percent, inflation between one and two years ahead is projected to be no more than a half percentage point above the Committee's 2 percent longer-run goal, and longer-term inflation expectations continue to be well anchored.
Conclusion: Moderate Growth and Stable Inflation The baseline outlook calls for an improved economy in 2014, growing a bit faster than it has been. (2.5% to 3.0% compared to about 2.0% this year.) But that may not happen. There is a nontrivial chance that 2014 will look like 2013. This year's economic outcomes will swing importantly on fiscal drag and consumer spending. Even with better growth, at year-end 2014, broad inflation measures may still be too low and employment levels may be short of the FOMC s stated goal. While the recovery may gain some momentum in 2014, monetary policy will remain accommodative. 9
10 Economic Update Platts Aluminum Symposium 2014 Ft. Lauderdale, Florida January 13, 2014 Chris Oakley Federal Reserve Bank of Atlanta January 2014