1 Economic Update Air & Waste Management Association Georgia Chapter The views expressed here are not necessarily those of the FOMC, the Federal Reserve Bank of Atlanta, or the Federal Reserve System. Michael Chriszt Federal Reserve Bank of Atlanta October 4, 2013
2 Our narrative for the economy... Economic activity is expanding at a moderate pace. Labor market conditions have shown some improvement in recent months, but the unemployment rate remains elevated. Household spending and business fixed investment have advanced, and the housing sector has been strengthening, yet mortgage rates have risen and fiscal policy is restraining economic growth. Inflation has been running below the Fed s longer-run objective, but longer-term inflation expectations have remained stable.
Sources: Blue Chip, Federal Reserve Board 3 Real GDP forecasts for 2013 sit in the 2.0 to 2.3 percent range. Period Q4/Q4 Real GDP Growth (in percent) 2010 2.4 2011 2.0 We remain stuck around 2% 2012 1.7 Selection of 2013 forecasts Blue Chip Private Forecasters (September 10) 2.1 (consensus) FOMC Participants (September 18) 2.0 to 2.3 (central tendency)
Recent tracking estimates for Q3 real GDP suggest a slowdown from last quarter. 4 Real GDP Component Tracking Estimate and Forecast Q1 actual Q2 actual FRB Atlanta Tracking Forecast MA Forecast Annualized Real GDP Growth 1.1 2.5 1.9 1.8 Sources: Bureau of Economic Analysis, Macroeconomic Advisers, Action Economics, Moody s Analytics, and Wall Street Journal Downside risks seem to be concentrated on Washington: The play-out of deliberations in Congress on the debt ceiling and other fiscal matters could contribute to a weaker scenario by influencing business and consumer confidence. I don't think the risk of a fiscal confidence shock is negligible. FRBA President Dennis Lockhart
Economic policy uncertainty declined in early 2013 as the fiscal cliff was avoided. Though gradually approaching prerecession levels, the index increased slightly in August, its first increase since March 2013. 250 230 210 Aug 1985 = 100 Economic Policy Uncertainty Index 190 3-year average 170 150 130 110 90 70 50 2007 2008 2009 2010 2011 2012 2013 Source: PolicyUncertainty.com through August 2013 5
Consumers are regaining their optimism. Both the Conference Board s and University of Michigan s survey of consumer confidence have trended upward. 150 Consumer Confidence Indices Measuring Current Situation monthly, Q1 1966=100 125 100 75 50 25 0 Conference Board: Present Situation University of Michigan: Current Economic Conditions 02 03 04 05 06 07 08 09 10 11 12 13 Sources: The Conference Board, Reuters/University of Michigan through August 2013 6
7 The single-family market has been a sign of strength in the recovering U.S. economy. The months supply of available existing homes edged up in August to five months, perhaps reflecting increased optimism among potential sellers. Sales and Months' Supply of Existing Single-Family Homes thousands, SAAR 7,000 Existing single-family home sales continued to rise in August, reaching their highest level since February 2007. Months Supply months, nsa 12 11 6,000 10 Existing Sales 9 8 5,000 7 6 4,000 5 4 3,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 3 Source: National Association of Realtors through August 2013
Most states are seeing growth in home prices. In the Sixth District, the strongest gains are seen in parts of Florida, Georgia, and Tennessee. Source: CoreLogic 8 July 2013 Year-over-year percent change
Source: CoreLogic 9 Comparisons to July 2008 are telling. July 2008 Year-over-year percent change
The slow growth environment we have experienced for the last several years has led to measured increases in employment and a gradually declining unemployment rate. 10 The overall employment situation continues to be a major concern. Despite pretty steady job creation since 2010, unemployment remains high. The national unemployment rate is currently 7.3 percent, down from the October 2009 peak of 10.0 percent. Gradual progress in workforce utilization has been reflected in the indicators of labor market conditions. Payroll employment gains for the past 12 months have averaged 184,000 jobs per month, but recently there appears to have been some slowing. The monthly average for the most recent three months is 148,000.
Since the end of the recession, the unemployment and labor force participation rates have declined steadily (with labor force participation on a decline since the 2000s). The unemployment rate reached 7.3 percent in August, its lowest level since November 2008. The labor force participation rate ticked down 0.2 percentage point in August to reach 63.2 percent. Unemployment Rate Unemployment and Labor Force Participation Rates monthly, percent, seasonally adjusted Participation Rate 12 68 10 67 Labor Force Participation Rate 8 66 7.3 6 65 4 Civilian Unemployment Rate (U3) 64 63.2 2 63 00 02 04 06 08 10 12 Source: U.S. Bureau of Labor Statistics through August 2013 11
Federal Open Market Committee (FOMC) Monetary Policy Response: The FOMC sees improvement in economic activity and labor market conditions since it began its asset purchase program. But the FOMC would like more evidence that progress will be sustained before adjusting the pace of its purchases. Accordingly, the committee reported after its meeting on September 18, 2013, that it will continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month. 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. 12
The year-ahead inflation expectations of businesses in the region rose to 2.0 percent in August, according to the Atlanta Fed s most recent business inflation expectations (BIE) survey. 3 Business Inflation Expectations percent, monthly 2.5 2 1.5 1 Year-Ahead Unit Cost Expectations Uncertainty (variance) 0.5 0 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Source: Atlanta Fed Business Inflation Expectations Survey through August 2013 13
There are some encouraging signs in the overall regional economic picture. 14 Recent survey data suggest that businesses expect growth to pick up over the next two to three years, citing the following factors as driving activity: Positive signs of an accelerating business investment Increasing clarity with tax and regulatory policies and costs Benefits of productivity enhancements Improving access to credit/capital Business contacts reported that the employment picture is improving (though lagging the pace of sales). Contacts continued to report increases in sales, particularly in autos.
15 As contacts make projections over the medium term, their optimism increases significantly. What is your medium-term outlook (over the next two to three years) for the rate of growth in your business compared to current rates? 100% 90% 80% 70% 60% 50% 40% 30% June July September 80% 92% 76% 20% 19% 18% 10% 0% 6% 7% 1% 1% Lower Same Higher Source: FRBA Director Poll Note: Percentages may not sum to 100 due to rounding
Conclusion: Modest Growth and Stable Inflation Progress on bringing down unemployment will continue to be slow Our outlook for the economy calls for a pickup in real GDP growth over the balance of 2013, with a further step-up in economic activity as we move into 2014. We see encouraging developments in the economy, but more months of improving economic data (especially employment data), as well as a decline in fiscal drag and inflation moving back toward objective, would give us confidence that the economy is experiencing sustainable momentum. Although the national unemployment rate has dropped to 7.3 percent, broad labor market conditions remain mixed, with some indicators showing progress and others revealing little or no improvement. Meanwhile, we continue to believe that the Federal Open Market Committee s large-scale asset-purchase program remains justified. 16
Let s finish up by looking closer to home. Georgia s unemployment rate has trended down, but remains above the national rate. Broader measures of labor force underutilization remain high. 11 Unemployment Rates August 2013 Percent of labor force Georgia's U6 = 15.6% 10 9??? 8 7 6 United States 5 Georgia 4 3 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: U.S. Bureau of Labor Statistics 17
Atlanta s unemployment rate ticked up recently. Percent of labor force 11 Unemployment Rates August 2013 10 9 8 7 6 5 United States Georgia Atlanta 4 3 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: U.S. Bureau of Labor Statistics 18
But the real culprits are areas outside of the Atlanta metro area. All saw increases in the summer months. Percent of labor force 11 Unemployment Rates August 2013 10 9 8 7 6 5 United States Georgia Atlanta Georgia less Atlanta 4 3 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: U.S. Bureau of Labor Statistics 19
What about employment levels? Georgia has yet to recover all the jobs lost during the recession. But there s more to it than that... Feb 2008 Employment Peak = 100 102 Georgia Employment Indexes 100 98 96 94 92 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 20
Construction was hit hardest during the recession. If we take those jobs out of the state total, the recovery in state employment is clearer. Feb 2008 Employment Peak = 100 102 Georgia Employment Indexes 100 98 96 94 92 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total less Construction Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 21
Manufacturing was also hit hard. So if we look at services employment in Georgia, we are back to where we were before the recession began. Feb 2008 Employment Peak = 100 102 Georgia Employment Indexes 100 98 96 94 92 90 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total less Construction less Construction and Manufacturing Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 22
Where has the strength in the employment recovery been more recently? Business services is leading the way, as is health care and leisure and hospitality. Retail is also strong and even construction is increasing its momentum. 10 Improving Employment Momentum by Sector: Georgia August 2013 Expanding 8 Education and health care Business services 3-month average annualized percent change 6 4 2 0-2 -4 Federal government Local government Other services State government Wholesale trade Retail trade Financial services Construction Transportation/ Warehouse/ Utilities Leisure and hospitality -6 Manufacturing Information -8 Contracting Slipping -6-4 -2 0 2 4 6 8 10 Year-over-year percent change Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 23
Only Warner Robins has seen total employment levels return to prerecession levels. Some areas are closing in, like Atlanta, Augusta, and Macon. Dalton has a long way to go. Warner Robins Valdosta Savannah Rome Macon Gainesville Dalton Columbus Brunswick Augusta Atlanta Athens Albany Georgia Employment by Metro Area: Percent change since prerecession peak (February 2008 August 2013) -17.8-12.4 Atlanta services employment is back to prerecession levels. -20-18 -16-14 -12-10 -8-6 -4-2 0 2-7.9-6.4-5.9-4.5-3.8-3.0-3.2-2.2-2.0-1.2-0.9 0.5 Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 24
Where has the strength in the employment recovery been more recently in geographic terms? Atlanta, Atlanta, Atlanta is the story. Macon, Augusta, and Gainesville have also been strong. 6 Improving Employment Momentum Metro Area: Georgia August 2013 Expanding 4 Macon 3-month average annualized percent change 2 0-2 -4 Rome Albany Warner Robins Dalton Brunswick Savannah Augusta Columbus Valdosta Athens Gainesville Atlanta -6-8 Contracting Slipping -2-1 0 1 2 3 Year-over-year percent change Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 25
After experiencing a deeper recession and weaker recovery, Georgia is now outpacing the national rate of growth in economic activity. 4 Phil FRB: Coincident Economic Activity Index, United States % Change - Year to Year July 1992=100 Phil FRB: Coincident Economic Activity Index, Georgia % Change - Year to Year July 1992=100 4 2 2 0 0-2 -2-4 -4-6 -6-8 08 09 10 11 Sources: Federal Reserve Bank of Philadelphia /Haver Analytics 12 13-8 26
Conclusion... Georgia and Atlanta don t look all that bad going forward. Recovery in Georgia and Atlanta is helped by strengthening private industries. All levels of government are shedding jobs, manufacturing has come under strain, and construction employment is improving very slowly. Private services are keeping the recovery on track. Atlanta has made especially strong progress thanks to returning confidence among investors. Housing indicators are slowly improving as well. The presence of multiple growth engines and strong demographics will make Georgia and Atlanta an above-average performer in the long term. 27
28 Thank You Michael Chriszt Federal Reserve Bank of Atlanta October 4, 2013