Economic Overview August 24 2011 Proprietary and Confidential. Not - - PowerPoint PPT Presentation

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

Economic Overview

August 24 2011

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• The (Federal Open Market) Committee now expects a somewhat

slower pace of recovery over coming quarters than it did at the

time of the previous meeting.

• They anticipate that the unemployment rate will decline only

gradually toward levels that the Committee judges to be consistent

with its dual mandate. (Dual mandate = maximum employment and stable prices.)

• Moreover, downside risks to the economic outlook have

increased.

• The Committee also anticipates that inflation will settle, over coming

quarters, at levels at or below those consistent with the Committee's unofficial inflation target as the effects of past energy and other commodity price increases dissipate further.

What the Fed Said . . .

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• To promote the ongoing economic recovery and to help ensure

that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for

the federal funds rate at 0 to 1/4 percent.

• The Committee currently anticipates that

economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.

• The Committee also will maintain its existing policy of reinvesting

principal payments from its securities holdings.

More of what the Fed Said . . .

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• 10
• 8
• 6
• 4
• 2

2 4 6

Q12007 Q32007 Q12008 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011

Real GDP growth (percent, annual rate) Old series New series

The benchmark revisions to the GDP accounts now paint a materially different picture of the recession and the recovery.

Source: Bureau of Economic Analysis

Preliminary Q2 Data, and it will likely be revised down a bit.

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“The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting (June).”

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4

Blue Chip Economic Forecast: Real GDP

June FOMC Projections Actual Consensus Optimistic Pessimistic Quarterly Annualized % Change. Source: Blue Chip Economic Forecasts, August 2011

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“. . . the unemployment rate will decline only gradually . . .

% of Labor Force. Source: Blue Chip Economic Forecasts, August 2011 7.0 7.5 8.0 8.5 9.0 9.5 10.0 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4

Blue Chip Economic Forecast: Unemployment

June FOMC Projections Actual Consensus Optimistic Pessimistic

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• 1000
• 800
• 600
• 400
• 200

200 400 600

2005 - Jan 2005 - Mar 2005 - May 2005 - Jul 2005 - Sep 2005 - Nov 2006 - Jan 2006 - Mar 2006 - May 2006 - Jul 2006 - Sep 2006 - Nov 2007 - Jan 2007 - Mar 2007 - May 2007 - Jul 2007 - Sep 2007 - Nov 2008 - Jan 2008 - Mar 2008 - May 2008 - Jul 2008 - Sep 2008 - Nov 2009 - Jan 2009 - Mar 2009 - May 2009 - Jul 2009 - Sep 2009 - Nov 2010 - Jan 2010 - Mar 2010 - May 2010 - Jul 2010 - Sep 2010 - Nov 2011 - Jan 2011 - Mar 2011 - May 2011 - Jul

Needed to reduced unemployment

Net monthly jobs growth, in thousands

The recent and expected growth is too slow to push joblessness down at a significant pace.

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2 4 6 8 10 12 14 16 18 20 Share of the labor force

Unemployment rate Under-employment*

* Includes discouraged workers and workers working less than wanted.

And joblessness, whether measured by the commonly reported estimate, or a broader measure of “under-employment” is very high.

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. . . downside risks to the economic outlook have increased.

Persistently high unemployment = cautious consumers Market volatility and declining confidence = a trip to the sidelines Debt and Deficit Reduction = Short-term pain and long-term uncertainty Europe = Questions about international financial stability Housing = Price declines, foreclosures and shadow inventory, tougher qualifying standards, little new construction activity, etc. Ongoing/Protracted Deleveraging = Ongoing and Protracted period of slow growth.

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“I continue to expect positive effects as the unusual forces that restrained the economy in the first half of this year peter out. Some

• f these will be in auto manufacturing and assembly, which should

rebound as the supply chain disruptions caused by the Japanese earthquake and tsunami are eliminated. Add to that business investment in equipment and software, which should continue to be relatively strong even if business people have pulled back investing to some degree because of greater uncertainty. Also, the U.S. energy sector is active again. Demand for coal is high, firms are investing and hiring to explore and develop shale gas, and demand for alternative energy sources is strong. Tourism has been very strong this summer. Hotel and cruise bookings and attendance at theme parks and resort venues have been very good.”

Dennis Lockhart: The Sky is Not Falling

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• 10
• 8
• 6
• 4
• 2

2 4 6 8 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12

Blue Chip Consumer Price Inflation Forecast

Annualized quarterly percent change CPI actual August Median Forecast top ten bottom ten

Source: Blue Chip panel of economists, August 10, 2011

“We expected that the inflationary pressures would subside as the year progressed, and this seems to be occurring.”

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“Monetary policy needs to be very supportive of growth as the recovery seeks to regain its footing. Conditional on stable inflation expectations, I believe maintaining the current low interest rate environment is the right posture for the time being.” “I'm currently cautious about further monetary action. As I see it, we do not yet have enough information to conclude the economy won't resume a healthier pace of growth. I still maintain that a resumption of growth is the most likely

• case. But if that assessment proves to be wrong, I believe we

do have tools to address whatever circumstances arise.” Dennis Lockhart on Monetary Policy

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

REIN & Florida’s Influence on Monetary Policy

Chris Oakley Vice President and Regional Executive

Federal Reserve Bank of Atlanta Jacksonville Branch August 24, 2011

The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

• Florida Data Digest
• REIN & What our

Contacts are Telling Us

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

Florida Data Digest August 2011

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Source: Federal Reserve Bank of Philadelphia

Florida’s economic performance continues to lag the nation. Broad indicators of economic activity in Florida show stabilization but little improvement. Comparable U.S. data indicate slow but steady gains.

90.0 95.0 100.0 105.0 110.0 115.0 120.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Coincident Economic Indicator June 2011

United States Florida Jan 2001 = 100

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4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 1990 1995 2000 2005 2010

Florida Payroll Employment

July 2011

Florida lost relatively few jobs during the previous two recessions. Post-recession employment gains in Florida did not materialize for some time after the previous two downturns. Florida shed 11.4% of total employment from peak to trough. Thousands, Seasonally adjusted

Total employment in Florida has stabilized near recession lows, but job gains remain elusive. The current level of employment is at mid-2003 levels.

Source: U.S. Bureau of Labor Statistics, Haver Analytics

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All industries except education and health care saw significant job losses during the downturn, and several continue to post declines. Where job growth has occurred—in leisure and hospitality, for example—gains have to date been modest.

Note: A reading of 0.0 in the "trough to present" measure indicates that employment continues to decline in these industries. Likewise, a reading of 0.0 in the "peak to trough" measure indicates the employment continues to increase in these industries. Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta

• 11.4
• 51.6
• 28.2
• 15.8
• 10.7
• 12.1
• 21.7
• 16.1
• 15.4

0.0

• 7.5
• 11.4
• 13.5
• 4.2

1.3 1.4 2.3 0.0 2.1 3.4 0.5 0.9 2.3 8.7 6.5 0.9 2.6 1.4

• 60.0
• 50.0
• 40.0
• 30.0
• 20.0
• 10.0

0.0 10.0 20.0 Total Construction Manufacturing Wholesale trade Retail trade Transport/Warehousing/Utilities Information Financial services Business services Education & healthcare Leisure & hospitality Other services Federal & state government Local government

Employment Loss and Gain by Industry: Florida

June 2011

Percent change trough to present Percent change peak to trough

The state as a whole shed 11.4% of total employment peak to trough (Mar 2007), and is only up 1.3% since the trough.

Over half of Florida’s construction jobs have been lost.

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Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta

Leisure and hospitality, manufacturing, and retail trade show positive employment momentum, while information, wholesale trade, and federal and state government employment remain very weak.

• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 8.0 10.0 12.0

• 8.0
• 6.0
• 4.0
• 2.0

0.0 2.0 4.0 6.0 3-month average annualized percent change Year-over-year percent change

Employment Momentum by Industry: Florida

June 2011

Business services Manufacturing Wholesale trade Retail trade Transport/Warehouse/Utilities Information Financial services Health care & private education Leisure & hospitality Other services Construction Federal & state government Local government

Expanding Improving Contracting Slipping

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Job losses in southwestern Florida metro areas have been staggering. Major declines are not limited to coastal areas. Ocala is down over 17 percent. Pensacola, Orlando, Panama City, and Daytona are the only areas with more than a 2 percent increase since their troughs.

Note: A reading of 0.0 in the “trough to present” measure indicates that employment continues to decline in these metro areas. Likewise, a reading of 0.0 in the “peak to trough” measure indicates that employment continues to increase in these metro areas. Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta

• 11.4
• 12.8
• 18.1
• 6.6
• 9.1
• 9.6
• 12.7
• 10.2
• 20.4
• 17.3
• 9.6
• 7.3
• 10.6
• 12.4
• 12.5
• 16.4
• 15.3
• 6.1
• 11.2
• 12.2

1.3 2.2 0.1 1.3 1.7 0.1 0.2 1.4 0.0 0.9 2.3 3.2 2.2 0.0 0.8 0.0 1.2 0.8 0.9 1.0

• 25.0
• 20.0
• 15.0
• 10.0
• 5.0

0.0 5.0 Florida Daytona

• Ft. Myers

Gainesville Jacksonville Lakeland Melbourne Miami-Ft.L'dale Naples Ocala Orlando Panama City Pensacola

• St. Lucie-Ft. Pierce

Punta Gorda Sarasota Vero Beach Tallahassee Tampa-St. Pete

• W. Palm Beach

Employment Loss and Gain by Metro Area: Florida

June 2011

Percent change trough to present Percent change peak to trough Tallahassee is the only Florida metro area that had a lower percent change decline peak-to-trough than the US average of 6.3%.

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Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta

Orlando, Tampa-St. Pete, Jacksonville, and Miami-Ft. Lauderdale show positive employment momentum, while smaller metro areas, like Melbourne, Sarasota, and

• St. Lucie-Ft. Pierce, remain very weak.
• 5.0
• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 4.0 5.0 6.0

• 4.0
• 3.0
• 2.0
• 1.0

0.0 1.0 2.0 3.0 3-month average annualized percent change Year-over-year percent change

Employment Momentum by Metro Area: Florida

June 2011

Tampa-St. Pete Miami-Ft. Lauderdale Punta Gorda

• Ft. Myers

Jacksonville Melbourne Sarasota Orlando Lakeland Daytona

• St. Lucie-Ft. Pierce

Ocala West Palm Beach Gainesville

Expanding Improving Contracting Slipping

Tallahassee Panama City Naples Vero Beach Pensacola

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3.0 4.0 5.0 6.0 7.0 8.0 9.0 10.0 11.0 12.0 13.0 2005 2006 2007 2008 2009 2010 2011

Unemployment Rate

July 2011

Florida United States

The table shows unemployment rates for metro areas. Current = June 2011. Year ago and Jan 2007 are included for comparison.

Percent of labor force

Florida’s unemployment rate continued to climb long after the overall U.S. rate stabilized and began to fall.

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Initial claims for unemployment have declined substantially in 2011, which may indicate that unemployment has peaked.

Source: U.S. Department of Labor–Employment and Training Administration, Haver Analytics

5,000 10,000 15,000 20,000 25,000 30,000 2008 2009 2010 2011

Initial Unemployment Insurance Claims: Florida

July 9, 2011

Initial claims averaged just over 10,000 during 2004-2006. The current number of initial claims remains elevated. 4-week moving average

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Source: Florida Department of Revenue, University of Florida Bureau of Economic and Business Research Center, Federal Reserve Bank of Atlanta

Measures of consumer activity have recovered from recession lows. However, sales tax revenues decreased slightly and consumer confidence fell in June.

• 15.0
• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 55 60 65 70 75 80 85 90 95 100 2005 2006 2007 2008 2009 2010 2011

Florida Sales Tax Revenue and Consumer Confidence

June 2011

Florida Consumer Confidence (left scale) Florida Sales Tax Revenue (right scale) Sales tax revenues have been helped by healthy activity in the leisure and hospitality sector. International visitors have played an important role in boosting tourism spending. 1966 = 100 Year-to-year change, 3-month moving average

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Existing home sales in Florida have increased, driven by foreclosures and

• ther distressed sales. The level of sales in Florida is well above the

2007–8 lows.

Source: National Association of Realtors, Haver Analytics, Federal Reserve Bank of Atlanta

• 40.0
• 20.0

0.0 20.0 40.0 60.0 80.0 2005 2006 2007 2008 2009 2010 2011

Existing Home Sales

Q1 2011

United States Florida Year-over-year percent change

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As a result of low sales and high inventories, new home construction remains near historic lows in Florida and the United States as a whole.

Source: U.S. Bureau of the Census, Haver Analytics

5,000 10,000 15,000 20,000 25,000 30,000 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 2005 2006 2007 2008 2009 2010 2011

New Residential Home Construction Permits

June 2011

United States (left scale) Florida (right scale)

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Source: S&P, Haver Analytics Source: Federal Housing Finance Agency, Haver Analytics, Federal Reserve Bank of Atlanta

Home prices in Florida have declined substantially over the past five years.

FHFA House Price Index: Q1 2011 1-yr % change 5-yr % change 10-yr % change USA

• 3.1
• 11.8

31.1 Florida

• 8.2
• 37.6

31.2

• Ft. Myers
• 7.3
• 54.1

8.6 Daytona

• 12.7
• 43.5

21.6

• Ft. Lauderdale
• 4.8
• 42.3

37.9 Gainesville

• 3.8
• 15.4

47.1 Jacksonville

• 8.8
• 25.6

32.9 Lakeland

• 11.9
• 36.1

19.8 Miami

• 6.8
• 37.6

45.5 Naples

• 6.3
• 49.9

20.9 Ocala

• 10.4
• 34.6

23.4 Orlando

• 7.9
• 38.0

23.6 Melbourne

• 10.3
• 46.5

23.9 Panama City

• 3.5
• 29.0

42.4 Pensacola

• 6.8
• 24.9

30.5

• St. Lucie-Fort Pierce
• 5.2
• 50.4

18.0 Punta Gorda

• 10.0
• 48.0

14.9 Tallahassee

• 5.4
• 15.5

39.7 Tampa-St. Pete

• 9.6
• 36.6

26.0 Vero Beach

• 4.4
• 43.9

22.2 West Palm Beach

• 6.2
• 43.1

35.0

75 100 125 150 175 200 225 250 275 300 2005 2006 2007 2008 2009 2010 2011

S&P/Case-Shiller Home Price Index

through May 2011

Miami Tampa Composite 20 Jan 2000 = 100

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Florida Realtors reported that sales growth was flat from year-ago levels, while builders noted sales were similar to weak levels from a year ago.

Source: Federal Reserve Bank of Atlanta

• 1.0
• 0.8
• 0.6
• 0.4
• 0.2

0.0 0.2 0.4 0.6 0.8 1.0 2006 2007 2008 2009 2010 2011

FRB Atlanta Real Estate Contact Poll: Florida

Current Home Sales vs Year-ago Levels June 2011

Realtors Homebuilders

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

REIN & What our Contacts are Telling Us

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Your Connection to Atlanta and Washington

… via the Regional Economic Information Network (REIN)

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Information Flow

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Leerie Jenkins Jacksonville/ Northeast Florida Kevin Jones Lakeland/ Central Florida

Jacksonville Branch Board of Directors

Hugh Dailey Ocala/ Central Florida Lynda Weatherman Rockledge/ Space Coast

Chair

Input to Forecasting and Monetary Policy

David Stovall Jacksonville/ Northeast Florida Oscar Horton Tampa/ Southern Florida Carolyn Fennell Orlando/ Central Florida

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Atlanta Board of Directors

Input to Forecasting and Monetary Policy

Thomas Barkin McKinsey & Company

Deputy Chair

James Wells SunTrust Banks, Inc. Rudy Schupp 1st United Bank Clarence Otis Darden Restaurants, Inc. Richard Anderson Delta Air Lines, Inc. Anthony Humphries NobleBank & Trust, N.A. Renee Glover Atlanta Housing Authority Carol Tome The Home Depot

Chair

Jose Suquet Pan American Life Insurance

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Interactions with business leaders ensures policy makers have access to and are considering multiple impacts to the broad economy

• Small- and medium-sized businesses
• Bankruptcy experts
• Participation at industry conferences
• Roundtables
• Top revenue producers

Input to Forecasting and Monetary Policy

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What our Florida contacts are telling us:

• Optimism on the pace of economic

activity looking out 6 months has decreased

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What our Florida contacts are telling us:

• Many sources of uncertainty are

impacting business decisions, especially:

• Domestic debt situation and government

gridlock

• Unemployment and poor employment prospects
• Regulatory environment

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• Impact from uncertainty:
• Established businesses: Some impact to

investment and hiring decisions noted

• Start-ups: Potential entrepreneurs less likely

to start new enterprises

What our Florida contacts are telling us:

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What our Florida contacts are telling us:

• Other observations:
• Central Florida tourism is back, but

discounting is still required to maintain volumes

• Housing may be bouncing along a bottom; full

recovery will likely take years

• Loan demand remains weak
• Commercial and industrial real estate may be

starting to show some signs of life

Proprietary and Confidential. Not for disclosure outside Federal Reserve.

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Questions?