The 2015 C2ER Annual Conference & LMI Institute Annual Forum DR. TOM POTIOWSKY NORTHWEST ECONOMIC RESEARCH CENTER DIRECTOR June 11, 2015 NORTHWEST ECONOMIC RESEARCH CENTER COLLEGE OF URBAN AND PUBLIC AFFAIRS PORTLAND STATE UNIVERSITY
Established in 2011 Hosted by the College of Urban and Public Affairs (CUPA) Directed by Dr. Thomas Potiowsky Assisted by Dr. Jenny H Liu Photo Credit: www.wheretowillie.com NORTHWEST ECONOMIC RESEARCH CENTER COLLEGE OF URBAN AND PUBLIC AFFAIRS PORTLAND STATE UNIVERSITY
From the Recession to Today
Percent Change in Real GDP Quarterly Real GDP Year over Year Percentage Change (1948 Q1 2015 Q1) 5% 4% 3% Relatively Slower Expansions 2% 1% 0% -1% -2% Relatively Longer Expansions -3% Source: Federal Reserve Bank of St. Louis U.S. Department of Commerce: Bureau of Economic Analysis
U.S. Economy Brief Summary 2011 2012 2013 2014 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 Real GDP Growth 1.6% 2.3% 2.2% 2.4% 1.8% 4.5% 3.5% -2.1% 4.6% 5.0% 2.2% -0.8% CPI Change 3.1% 2.1% 1.5% 1.6% -0.1% 2.3% 1.4% 2.1% 2.4% 1.2% -0.9% -0.1% Core CPI Change Unemployment Rate 3-Month Treasury Bill 10-Year Treasury Constant Maturity Rate 1.7% 2.1% 1.8% 1.7% 1.1% 1.9% 1.7% 1.8% 2.2% 1.4% 1.5% 1.7% 8.9% 8.1% 7.4% 6.2% 7.5% 7.2% 7.0% 6.6% 6.2% 6.1% 5.7% 5.6% 0.05 0.09 0.06 0.03 0.05 0.03 0.06 0.05 0.03 0.03 0.02 0.02 2.78 1.8 2.35 2.54 1.99 2.71 2.74 2.77 2.62 2.50 2.28 1.97 Source: Federal Reserve Bank of St. Louis. U.S. Department of Commerce: Bureau of Economic Analysis, U.S. Department of Labor: Bureau of Labor Statistics, Board of Governors of the Federal Reserve System
Summary of U.S. Economy Activity Highlighting 1st Quarter 2015 (WSJ: April 30, 2015)
U.S. Industrial Winners Percent Change in Employment Since Jan 2008 through May 2015 Source: Federal Reserve Bank of St. Louis, US. Bureau of Labor Statistics, Current Employment Statistics
U.S. Industrial Losers Percent Change in Employment Since Jan 2008 through May 2015 Source: Federal Reserve Bank of St. Louis, US. Bureau of Labor Statistics, Current Employment Statistics
Real Trade Weighted Exchange Moving from Assist to Hinder 1973 = 100 (January 1973 May 2015) U.S. Dollar Index, Broad U.S. Dollar Index, Major Currencies U.S. Dollar Index, Other Trading Partners 140 130 120 110 100 90 80 70 60 Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
U.S. Top 10 Export Trading Partners (2010 2014). In goods only Source: U.S. Census Bureau
U.S. Exports of Goods by Principal End-Use Category (2010 2014). Source: U.S. Census Bureau
Effective Federal Funds Rate Percent (July 1954 8 th June 2015) Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
Interest rates (July 1959 to May 2015) Monthly, Not Seasonally Adjusted 20 Interest rates 30-Year Fixed Rate Moody's Seasoned Aaa Corporate 1-Year Treasury Bill 18 16 14 12 10 8 6 4 2 0 Source: Federal Reserve Bank of St. Louis. Moody's Seasoned Aaa Corporate Bond Yield Board of Governors of the Federal Reserve System (US); Moody's Investor Services. Freddie Mac;
State Coincidence Index (January 2015) Coincident Index Components 1.Nonfarm Employment 2.Average Hours Worked Manufacturing 3.Unemployment Rate 4.Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. Source: Federal Reserve Bank of Philadelphia
State Coincidence Index (April 2015) Coincident Index Components 1.Nonfarm Employment 2.Average Hours Worked Manufacturing 3.Unemployment Rate 4.Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. Source: Federal Reserve Bank of Philadelphia
Labor Markets
U.S. Employment Loss by Recession Percent Employment Loss Since December 2007 to March 2014 (Monthly)
Employment Slack Total Employment Gap U-6 U-3 Differential Blanchflower & Levin (2015)
U.S. Duration of Unemployment Monthly Seasonally Adjusted (January 1968 to May 2015) Average Weeks Unemployed Median Weeks Unemployed 45 40 35 30 May 2015: Average = 30.7 Median = 11.8 25 20 15 10 5 0 Source: Bureau of Labor Statistics, Current Population Survey
U.S. Labor Participation Rate Monthly Seasonally Adjusted (January 1948 to May 2015) Recession Participation Rate 68.0 1 66.0 64.0 62.0 0.9 0.8 0.7 0.6 60.0 0.5 58.0 56.0 54.0 0.4 0.3 0.2 0.1 52.0 0 Source: Bureau of Labor Statistics
Employed Full Time: Usual Weekly Real Earnings 1982-1984 CPI Adjusted Dollars ((1979 Q1 2015 Q1) 360 Employed Full Time: Usual Weekly Earnings 350 340 330 320 310 300 290 280 Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
Where Might We Be Headed?
An economic forecaster is like a cross-eyed javelin thrower: they don t win many accuracy contests, but they keep the crowd s attention. Anonymous
Housing and Government No Longer Drags
Privately Owned Housing Starts: 1-Unit Structures Seasonally Adjusted Annual Rate, Monthly Data, Thousand Units (January 1959 April 2015) Source: U.S. Department of Commerce; Census Bureau
U.S. housing starts, single and multi-family Thousands of Housing Units, Seasonally Adjusted ( Jan 2000 Mar 2015) Source: U.S. Department of Commerce; Census Bureau
Housing Price Index Percent Change Year over Year (1975 Q1 2015) Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
Purchasing Price Index Percent Change Year over Year (January 1991 March 2015) 15 10 5 0 Recession -5 Percent Change from Year Ago -10-15 Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
Housing Price (Thousands) Housing Price, Case-Shiller vs Zillow Home Value price indexes (April 2005- April 2015) Case Shiller Zillow 250.00 200.00 150.00 100.00 50.00 0.00 Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division and Zillow Real Estate Network
National Activity Index (Weighted Average of 85 Indicators) Source: Federal Reserve Bank of Chicago
Leading Index for the United States Percent, Monthly, Seasonally Adjusted (January 1982-May 2015) Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data, Economic Research Division
Wall Street Journal Forecast Consensus May 2015 Forecast WSJ Forecast 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 GDP (Quarterly) 2.20% -0.70% 2.80% 3.10% 3.00% 2.70% 2.80% WSJ Forecast Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Oil Prices $53.27 $58.37 $61.44 $65.45 $68.09 WSJ Forecast 2013 2014 2015 2016 Housing Starts 0.92 1.01 1.11 1.28 Home Prices 7.70% 4.91% 4.40% 4.20% Actual Forecast
Wall Street Journal Forecast Consensus (Continued) May 2015 Forecast WSJ Forecast Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 CPI 0.80% 0.20% 1.20% 2.10% 2.30% 2.40% 2.40% Unemployment 5.60% 5.30% 5.10% 4.90% 4.80% 4.80% 4.80% 10 Year Note 2.17% 2.22% 2.60% 2.98% 3.32% 3.55% 3.74% Fed. Funds Rate 0.13% 0.15% 0.62% 1.20% 1.85% 2.46% 2.94% Actual Forecast
Philly Fed survey of forecasters The outlook for growth in the U.S. economy over the next three years looks weaker now than it did in February, according to 44 forecasters surveyed by the Federal Reserve Bank of Philadelphia....A slightly brighter outlook for unemployment accompanies the weaker outlook for growth....the panelists have revised downward their estimates for job gains in 2015 and 2016." (May 15, 2015) Source: Federal Reserve Bank of Philadelphia
Expected 6 Month Change in State Coincident Indexes (February 2015) Coincident Index Components 1.Nonfarm Employment 2.Average Hours Worked Manufacturing 3.Unemployment Rate 4.Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. Source: Federal Reserve Bank of Philadelphia
Expected 6 Month Change in State Coincident Indexes (March 2015) Coincident Index Components 1.Nonfarm Employment 2.Average Hours Worked Manufacturing 3.Unemployment Rate 4.Inflation Adjusted Wages and Salaries Long-term growth trended to state GDP. Source: Federal Reserve Bank of Philadelphia
Euro / U.S. Foreign Exchange Rate (Abril 1999 to May 2015) Monthly, Not Seasonally Adjusted 1.40 Euro / U.S. Foreign Exchange Rate 1.20 1.00 0.80 0.60 0.40 0.20 0.00 Source: Federal Reserve Bank of St. Louis, Board of Governors of the Federal Reserve System (US)
Excess Reserves of Depository Institutions Billions of Dollars (January 1959 April 2015) Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data
Recent and Upcoming Federal Open Market Committee Meeting Dates April 28-29 June 16-17* July 28-29 September 16-17* October 27-28 December 15-16* * Meeting associated with a Summary of Economic Projections and a press conference by the Chair.
US and Region Expansions: Going Forward Will Be Slower US economy will have slower growth compared to past expansions Slow growth following major financial crisis, though we are passing this drag Slowing of population growth Falling labor participation rate Manufacturing and exports have lead the way. Traditional boost from housing is finally coming around. State and local governments have turned the corner of declining tax revenues. Pothole versus Falling Off the Cliff. This recession is somewhat of a game changer. We are not on the same road, but the road at the bottom of the Cliff is gradually rising. Changing spending behavior, savings rates, home ownership rates, need to be taken into account. Job growth was subdued but picking up steam in the last two years. In this respect, the recovery still has legs for fast growth. Outlook for continued growth in 2015 and 2016. Always bumps in the road to slow us down, but more like speed bumps rather than potholes.
HEADWINDS (AND TAILWINDS)
Short Term and a Few Long Term Risks An Incomplete List: Dimmer Prospects or Rosier Outlook? US candidates 2016 elections Geopolitical Risks (Iran ( we agree to agree ) Agreement, Name your part of the world ) Fiscal and Monetary Policy (Dodd-Frank, Health Care, ) China Economic Growth Financial Overhang (Could the housing recovery stall?) Europe Sovereign Debt Issues (Grexit?) Euro vs dollar exchange rate Energy Prices (Rapidly Falling Oil Prices is a Problem? Depends on who you talk to) Income Disparity, Cyber Attacks, Climate Change
Asian Infrastructure Investment Bank (AIIB) Proposed by China, the AIIB is a new international financial institution focused on increasing financing for sustainable development Founding Members include almost all of Asia and most major countries outside of Asia including France, Germany, the United Kingdom, and Brazil. Larry Summers remarked that the establishment of the AIIB may be remembered as the moment the United States lost its role as the underwriter of the global economic system.
Civilian Labor Force Population in thousands (Projected to 2022) Source: Bureau of Labor Statistics
Total Debt Balance Composition Trillions of Dollars (2003 Q1 to 2014 Q3) Source: Federal Reserve Bank of New York
Rising Cost of College Tuition and Fees U.S. city average, (January 2003 to April 2015) CPI- All Items CPI- College Tuition and Fees 900.0 800.0 700.0 600.0 500.0 400.0 300.0 200.0 100.0 0.0 Source: Bureau of Labor Statistics
Licensed Drivers as a Percent of Age-Group Population Source: Study by the University of Michigan Transportation Research Institute
Homeownership Rates Home Ownership 1994 2004 2015 Under 35 37.1 42.3 34.6 United States 63.8 68.6 63.7 Source: Census Source: Rural Research Brief July 2012 by the Housing Assistance Council
Home Ownership Trends US home ownership peaked at 69.2% in 2004. Oregon home ownership peaked at 70.1% in the 4th quarter of 2005. Dropped down to 63.3% in the first quarter of 2013. First quarter 2014 at 63.7%. Washington home ownership peaked at 69.2% in the 4th quarter of 2005. Dropped down to 62.3% in the fourth quarter of 2013. First quarter 2014 at 63.5% California home ownership peaked at 60.7% in the 3 rd quarter of 2006. Dropped down to 54.0% in the 2 nd quarter of 2013. First quarter 2014 at 54.5%. What is the trend going forward? Source: Current Population Survey/Housing Vacancy Survey, U.S. Census Bureau, Washington, DC 20233
Oil and Gas Price Plunge Source: Energy Information Administration, Wall Street Journal
Mean Income by Quintile (1967-2013, in 2013 Dollars) Source: Census
Shares of household income of quintiles in the U.S. (1970-2010) In thousands (January 2000 March 2015) Source: Statista
Full-Length Labor Feature Coming to a Neighborhood Near You
Postscript: Financial Crisis and Our Approach to Get Out If Stupidity Got Us Into This Mess, Why Can t It Get Us Out? - Will Rogers When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill-done John Maynard Keynes
Contact Follow NERC Northwest Economic Research Center (NERC) 503-725-8167 nerc@pdx.edu http://www.pdx.edu/nerc/