1 U.S. Economic Update and Outlook Laurel Graefe, REIN Director Federal Reserve Bank of Atlanta October 2, 213
Following the deepest recession since the 193s, the economic recovery is well under way, though the pace of growth remains relatively subdued. 1 2 U.S. Economic Growth, 193-212 annual, year-over-year % change 1 1 1 15 1 While national economic growth fell significantly during the recent recession, comparisons to the Great Depression are exaggerated. 1 1 5 212 +2.2-1.9-5 -1 1932-13.% 1982-1.9% 29-3.1% -15 3 35 4 45 5 55 6 65 7 75 8 85 9 95 5 1 Source: U.S. Bureau of Economic Analysis 2
Economic activity accelerated in the second quarter of the year, as drag from government spending cuts and business investment in structures subsided. U.S. Economic Growth: Contributions to Real GDP Growth quarterly, annualized % change 6 5 4 3 Q2 213 2.5% 2 1-1 -2-3 -4 Jan.211 Apr.211 Jul.211 Oct.211 Jan.212 Apr.212 Jul.212 Oct.212 Jan.213 Apr.213 Consumer Spending Non-Residential Structures Non-Residential Equip. & Soft. Residential Investment Change in Inventories Net Exports Government Real GDP Source: U.S. Bureau of Economic Analysis 3
There are some encouraging signs in the overall regional economic picture 4 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: Improving export picture 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.
5 Business contacts continue to expect near-term growth to be sustained at or slightly above current levels. What is your outlook for the rate of growth in your business over the next three to six months compared to current rates? June July September 6% 53% 55% 5% 45% 5% 5% 44% 4% 3% 2% 1% % 3% % % Lower Same Higher Source: FRBA Director Poll Note: Percentages may not sum to 1 due to rounding.
6 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? 1% 9% 8% 7% 6% 5% 4% 3% June July September 8% 92% 76% 2% 19% 18% 1% % 6% 7% 1% 1% Lower Same Higher Source: FRBA Director Poll Note: Percentages may not sum to 1 due to rounding.
Nonfarm payrolls have been rising on the whole since 21. However, the pace of growth has lagged behind that of typical recoveries. 6 Nonfarm Payroll Employment monthly change, thousands 4 2 Aug = 169K -2-4 -6-8 -1 8 82 84 86 88 9 92 94 96 98 2 4 6 8 1 12 through August 213 Source: U.S. Bureau of Labor Statistics 7
Payroll employment increases in August were driven by increases in the retail sector with 44,, health care adding 33,, and professional and business services adding 23, payrolls. 6 Contributions to Change in Nonfarm Payroll Employment August 213, thousands, SA 4 2-2 -4-6 -8-1 Dec-7 Jun-8 Dec-8 Jun-9 Dec-9 Jun-1 Dec-1 Jun-11 Dec-11 Jun-12 Dec-12 Jun-13 Services* Construction Manufacturing Retail Trade Wholesale trade, transporation, utilities Financial Information Government Educ & Health Source: U.S. Bureau of Labor Statistics *Services include professional and business services, leisure and hospitality, and other services. 8
Despite slow progress in the unemployment rate, joblessness remains far too high. 2 18 percent Unemployment Rates Unemployed + Marginally Attached* + Part-time for Economic Reasons Rate August 213 = 13.7% 16 14 12 1 8 6 4 Civilian Unemployment Rate August 213 = 7.3% 2 Jan- Jan-1 Jan-2 Jan-3 Jan-4 Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 *Note: Marginally attached workers currently want a job and have looked for work within the last 12 months. This primarily includes discouraged workers (those not currently looking for work because they believe no work is available given their circumstance), and persons not now working due to family responsibilities, ill health, or because they are in school. Source: U.S. Bureau of Labor Statistics 9
The government and other services sectors are contracting in the region. Business services, construction, and leisure and hospitality industries are showing the most growth. 4 Improving Sixth District Employment Momentum by Industry August 213 Expanding 3 Financial services Business services Construction 3-month average percent change, annualized 2 1-1 -2 Other services Government Trade and transportation Information services Manufacturing Leisure and hospitality Education and health care -3 Contracting -2-1 1 2 3 4 Year-over-year percent change Slipping Sources: U.S. Bureau of Labor Statistics, Atlanta Fed 1
Real personal income growth has been trending a little below 2 percent for the past year and a half. However, disposable incomes took a hit following the payroll tax hike at the beginning of 213. 8% Real Personal Income and Real Disposable Personal Income seasonally adjusted, year-over-year percent change 6% 4% 2% % -2% Real Personal Income Real Disposable Personal Income -4% 1 2 3 4 5 6 7 8 9 1 11 12 13 Source: U.S. Bureau of Economic Analysis through March 213 11
Consumer confidence remains well below prerecession levels. However, wariness about the future continues to subside. 2 The Conference Board Consumer Confidence Index 1985 = 1, SA, through September 213 18 16 14 12 1 8 6 4 2 199 1992 1994 1996 1998 2 22 24 26 28 21 212 Consumer Confidence Present Situation Consumer Expectations Source: The Conference Board 12
Real consumer spending disappointed in July, as spending on durable goods (re: autos) slowed and spending on services continued to slip amid rather broadly based weakness. Still, the trend growth in overall consumer spending remains near 2 percent just a shade under its recovery average. 6 Real Personal Consumption Expenditures year-over-year % change, monthly 4 2-2 -4-6 1 2 3 4 5 6 7 8 9 1 11 12 13 Source: U.S. Bureau of Economic Analysis data through July 213 13
The U.S. housing market has been a particular source of strength recently. Home sales are on a gradual up-trend (though still about 16 percent under levels posted a decade ago). Home prices are now up 12 percent on a year-over-year basis. U.S. Single-Family Home Sales and CoreLogic Home Price Index Existing Home Sales monthly (thous., annualized) 7, 6, Home Prices (Y/Y % chng.) 2 15 5, 4, 3, 2, 1, Existing home sales (left axis) Home Prices (right axis) 1 5-5 -1-15 1 2 3 4 5 6 7 8 9 1 11 12 13-2 Sources: National Association of Realtors, CoreLogic home sales through August, prices through July 213 14
Source: CoreLogic 15 Most states are seeing growth in home prices. In the Sixth District, the strongest gains are seen in parts of Georgia, Florida, and Tennessee. June 213 Year-over-year percent change
Source: CoreLogic 16 Gains over the past year and a half can be seen comparing the previous map with January 212 s version... Home Prices, January 212 Year-over-year percent change
Source: CoreLogic 17 Comparisons to June 28 are even more telling. June 28 Year-over-year percent change
Recent data on the industrial sector have been encouraging. Though manufacturing production remains modest, new orders for core capital goods an indicator that tends to be forward looking have shown promising strength over the last couple of months. y/y % change 3 2 Core Capital Goods *excluding aircraft and parts and defense through August 213 New Orders Shipments 29.91 1 9.7% 2.8% -1-2 -3-4 19.91 Source: U.S. Census Bureau 18
The trade deficit widened in July as imports increased and exports fell slightly. On a year-over-year basis, growth in both exports and imports has begun to trend higher in the past few months. The trade deficit remains well below its prerecession levels. percent change year to year 3 International Trade monthly, seasonally adjusted billion dollars 3 2 Imports (left axis) 2 1 Exports (left axis) 1-1 -1-2 -2-3 -3-4 -4-5 -6 Trade balance (right axis) -5-6 -7 3 4 5 6 7 8 9 1 11 12 13-7 Sources: U.S. Census Bureau, U.S. Bureau of Economic Analysis through July 213 19
According to the International Monetary Fund, global growth is likely to remain subdued this year. Growth forecasts have been lowered compared to projections a few months ago, mainly as a result of a slowdown in key emerging markets. 1 Global Economic Growth real GDP, annual percent change 8 6 4 2 212 213 Forecast -2 China Developing Asia Latin America Mexico Japan Canada Euro Area Source: International Monetary Fund through July 213 2
Commodity prices continue to fluctuate around levels established in late 211. Led by a 4.4 percent increase in metals prices, the CRB Spot Commodity price index rose.3 percent in August. 7 Percent Change in selected index components Spot Commodity Price Index: All commodities monthly average, indexed 1967=1 6 Since month ago Since peak of aggregate (April 11) 5 4 All Commodities.3% -18.1% Metals 4.4% -2.2% Textiles & fibers -.1% -23.8% Raw industrial materials.9% -16.4% Foodstuffs -.5% -2.5% Livestock products -.6%.2% 3 2 4. 2. U.S. Retail Gasoline Price monthly average, regular grade, dollars per gallon $3.57 1. 7 8 9 1 11 12 13 Source: Energy Information Administration through August 213 1 2 3 4 5 6 7 8 9 1 11 12 13 Sources: Commodity Research Bureau, Haver Analytics, Energy Information Administration through August 213 21
6 Looking beyond recent volatility in energy prices, the underlying trend appears to show inflation tracking just below the FOMC s 2 percent objective. Consumer Price Index year-over-year % change 5 Headline 4 3 2 Sticky Price 1-1 -2 CPI annualized % change Core (headline less food & energy) 1-month 3-month 6-month Headline 1.1 3..7 Core 1.5 1.8 1.5 Trimmed-mean 1.5 1.8 1.8 Sticky Price 1.8 1.8 1.6-3 1 2 3 4 5 6 7 8 9 1 11 12 13 through August 213 Source: U.S. Bureau of Labor Statistics 22
According to conventional TIPS market estimates, longerterm inflation is likely to remained relatively subdued. 3.5 5-Year/5-Year Forward Breakeven Inflation Rates percent 3.25 3. 2.75 2.5 2.56% 2.25 2. Sep-1 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13 Source: Federal Reserve Board through September 11, 213 23
Private economists expect GDP growth to remain below 3 percent until late 214. 8 Blue Chip Real GDP Forecast Annualized quarterly percent change GDP actual Consensus Forecast top ten bottom ten 6 4 Average GDP growth during the last recovery: 2.9% 2-2 -4-6 -8-1 Q1-7 Q3-7 Q1-8 Q3-8 Q1-9 Q3-9 Q1-1 Q3-1 Q1-11 Q3-11 Q1-12 Q3-12 Q1-13 Q3-13 Q1-14 Q3-14 Source: Blue Chip panel of economists, September 1, 213 24
Conclusion: Modest Growth and Stable Inflation Progress on bringing down unemployment will continue to be slow. There will likely be a pickup in real GDP growth over the balance of 213, with a further step-up in economic activity as we move into 214. Inflation expectations appear to remain well anchored. 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. There are some encouraging developments in the economy, but more months of improving economic data, especially employment data, would help give confidence that the economy is experiencing sustainable momentum. 25