ECONversations Economic and Policy Briefing Webcast Dave Altig, R - PowerPoint PPT Presentation

ECONversations Economic and Policy Briefing Webcast Dave Altig, R esearch Director June 25, 2014 2:00 p.m. ET Questions for Dave: events@ atl.frb.org Technical issues: james.dooley@ atl.frb.org

Five Questions 1. Was it really just the weather? 2

The June FOMC projections suggest 2014 growth at about 2.2 percent – down from the near 3 percent pace expected in March. Real GDP and FOMC Projections Q4/Q4 percent change 4.0% 2015: 3.0 –3.2 3.0% Actual Recovery average 2016: growth (2.2%) 2.5 –3.0 2.0% 2014: 2.1 – 2.3 1.0% Central tendency of FOMC Projections 0.0% 10 11 12 13 14 15 16 Sources: Bureau of Economic Analysis, Federal Reserve Board actual through Q4 2013, forecast through 2017 3

So far, so good: Incoming numbers have been consistent with a growth bounce back in the second quarter. Real GDP Tracking Estimates Q2 FRB Atlanta Q2 MA Change in GDP Q1 Model Forecast (annualized % change) Forecast (June 23) (June 23) 0.6 2.9 3.2 Annualized Final Sales Growth Annualized Final Domestic Sales Growth 1.6 3.4 3.1 Annualized Real GDP -1.0 2.9 3.6 Growth Sources: Bureau of Economic Analysis, Macroeconomic Advisers, Atlanta Fed calculations 4

Five Questions 1. Was it really just the weather? 2. Will business investment get back in the game? 5

Though confidence is improving, investment has fallen off after an early recovery boomlet. Business Fixed Investment Core Capital Goods Orders year-over-year percent change, SA percent change, SAAR 20% 20% 10% 10% 0% 0% -10% -10% 10 11 12 13 14 10 11 12 13 14 Source: Bureau of Economic Analysis through March 2014 Source: Census Bureau through April 2014 CEO Economic Outlook Survey NFIB Small Business Optimism Index diffusion index (50+=expansion) SA, 1986=100 120 105 110 pre-recession average 100 100 pre ‐ recession average 90 95 80 90 70 60 85 10 11 12 13 14 10 11 12 13 14 Source: National Federation of Independent Business through May 2014 Source: Business Roundtable through Q1 2014 6

Percentage points, past four quarters -1.5 -0.5 0.5 1.5 Source: Bureau of Economic Analysis -2 -1 “below average.” early in the recovery, but over the past few years has been The Cap-Ex contribution to real GDP growth was significant 0 1 2 1970 - Q1 1971 - Q1 1972 - Q1 1973 - Q1 1974 - Q1 1975 - Q1 1976 - Q1 1977 - Q1 1978 - Q1 1979 - Q1 Cap-Ex Contribution to Real GDP Growth 1980 - Q1 1981 - Q1 1982 - Q1 1983 - Q1 1984 - Q1 1985 - Q1 1986 - Q1 1987 - Q1 1988 - Q1 1989 - Q1 1990 - Q1 1991 - Q1 1992 - Q1 1993 - Q1 1994 - Q1 43 year average 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 through 2013 Q4 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1 7

Five Questions 1. Was it really just the weather? 2. Will business investment get back in the game? 3. What is constraining the housing market? 8

Home prices are increasing, but sales have fallen off and residential investment growth has turned negative. S&P/Case Shiller Composite 20 Private Residential Fixed Investment Home Price Index percent change, SAAR percent change, SAAR 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% -30% 10 11 12 13 14 10 11 12 13 14 Source: Bureau of Economic Analysis through Q1 2014 Source: S&P/ Case Shiller through March 2014 Existing Home Sales New Single-Family Homes Sales thousands, SAAR thousands, SAAR 6000 500 5000 400 4000 300 3000 200 10 11 12 13 14 10 11 12 13 14 Sources: National Association of Realtors through April 2014 Source: Census Bureau through April 2014 9

Southeast brokers and builders are not reporting an absence of available mortgage credit.... How available do you perceive mortgage finance to be in your market? Brokers Builders Jun- Jun-14 39% 61% 32% 59% 9% 14 May May-14 32% 59% 9% 32% 68% -14 Apr- Apr-14 32% 59% 10% 37% 63% 14 Mar- Mar-14 24% 68% 7% 35% 65% 14 Feb- Feb-14 33% 54% 13% 35% 57% 9% 14 Jan- Jan-14 43% 50% 7% 43% 52% 4% 14 Nov Nov-13 36% 51% 13% 23% 62% 15% -13 Aug Aug-13 38% 50% 13% 50% 50% -13 Mar- Mar-13 52% 38% 10% 39% 50% 11% 13 Nov Oct-12 57% 25% 18% 54% 33% 13% -12 0% 20% 40% 60% 80% 100% 0% 20% 40% 60% 80% 100% Source: Atlanta Fed business contact poll 10

… but builders report that available construction and development finance falls short of demand… Builders: How available do you perceive construction and development finance to be in your market? 100% 3% 4% 4% 5% 6% 9% 5% 11% 14% 27% 32% 28% 37% 30% 80% 38% 60% Credit > Demand Credit = Demand 86% 83% 82% Credit < Demand 40% 73% 69% 68% 65% 63% 58% 20% 0% Nov-12 Mar-13 Aug-13 Nov-13 Jan-14 Mar-14 Apr-14 May-14 Jun-14 Source: Atlanta Fed business contact poll 11

… costs are widely reported to be rising. May 2014 Southeast Homebuilder Survey Cost Changes vs. a Year Earlier 1.0 0.5 Diffusion index 0.0 -0.5 -1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Material Costs Labor Costs Source: Atlanta Fed business contact poll 12

Five Questions 1. Was it really just the weather? 2. Will business investment get back in the game? 3. What is constraining the housing market? 4. Will wages ever rise? 13

Consumer spending has been hanging in there, as household net worth has expanded. Real Personal Consumption Expenditures (PCE) and Household Net Worth 650% 6% 5% 625% Real PCE 3-Month Percentage Change, SAAR 600% 4% 575% 3% Household Net Worth 550% 2% As percentage of disposable income 525% 1% 500% 0% 10 11 12 13 14 through Q1 2014 Source: Bureau of Economic Analysis and Federal Reserve Board 14

Growth in wages and labor compensation, however, has stalled. Average Hourly Earnings and Employment Cost Index year-over-year percent change 4.0% 1 0.9 3.5% 0.8 0.7 3.0% Average Hourly 0.6 Earnings 2.5% 0.5 Employment Cost Index (ECI) 0.4 2.0% 0.3 0.2 1.5% 0.1 1.0% 0 2007 - Q1 2007 - Q2 2007 - Q3 2007 - Q4 2008 - Q1 2008 - Q2 2008 - Q3 2008 - Q4 2009 - Q1 2009 - Q2 2009 - Q3 2009 - Q4 2010 - Q1 2010 - Q2 2010 - Q3 2010 - Q4 2011 - Q1 2011 - Q2 2011 - Q3 2011 - Q4 2012 - Q1 2012 - Q2 2012 - Q3 2012 - Q4 2013 - Q1 2013 - Q2 2013 - Q3 2013 - Q4 2014 - Q1 15 Source: Bureau of Labor Statistics

While the short-term unemployment rate is now about at its pre- crisis level, other measures of “slack” have been slow to recover . Short-term Unemployment Rate Alternative Slack Measures percent percent 7 7 Part time for economic reasons (% of labor force) 6 6 5 Short-term unemployment rate 4 (< 27 weeks) 5 3 Pre-2008 mean = 2.9% 2 Long-term unemployment rate Pre-2008 4 (>27 weeks) mean = 4.2% 1 Pre-2008 mean = 0.9% 3 0 00 02 04 06 08 10 12 14 00 02 04 06 08 10 12 14 16 Source: Bureau of Labor Statistics through April 2014

Five Questions 1. Was it really just the weather? 2. Will business investment get back in the game? 3. What is constraining the housing market? 4. Will wages ever rise? 5. Is the inflation bump for real? 17

Prices have firmed recently, but the year-to-year inflation rate remains under the FOMC’s longer-term objective. PCE Price Index year-over-year percent change, monthly 3.5 PCE Core PCE 3.0 2.5 FOMC’s longer-term inflation objective 2.0 1.5 (annualized Overall Core % change) PCE PCE 1.0 April 2014 2.4 2.1 Past 3 months 1.8 1.8 0.5 Past 6 months 1.6 1.5 Past 12 months 1.6 1.4 0.0 10 11 12 13 14 18 Source: Bureau of Economic Analysis through April 2014

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