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

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

ECONversations

• 1. Was it really just the weather?

2

Five Questions

The June FOMC projections suggest 2014 growth at about 2.2 percent – down from the near 3 percent pace expected in March.

3

0.0% 1.0% 2.0% 3.0% 4.0% 10 11 12 13 14 15 16

Real GDP and FOMC Projections

Q4/Q4 percent change

Actual 2016: 2.5 –3.0

Recovery average growth (2.2%)

Central tendency of FOMC Projections

Sources: Bureau of Economic Analysis, Federal Reserve Board actual through Q4 2013, forecast through 2017

2014: 2.1 – 2.3 2015: 3.0 –3.2

So far, so good: Incoming numbers have been consistent with a growth bounce back in the second quarter.

4

Real GDP Tracking Estimates Change in GDP (annualized % change) Q1 Q2 FRB Atlanta Model Forecast (June 23) Q2 MA Forecast (June 23)

Annualized Final Sales Growth 0.6 2.9 3.2 Annualized Final Domestic Sales Growth 1.6 3.4 3.1

Annualized Real GDP Growth

• 1.0

2.9 3.6

Sources: Bureau of Economic Analysis, Macroeconomic Advisers, Atlanta Fed calculations

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

5

Five Questions

Though confidence is improving, investment has fallen off after an early recovery boomlet.

6

• 10%

0% 10% 20% 10 11 12 13 14

Business Fixed Investment

percent change, SAAR Source: Bureau of Economic Analysis through March 2014

• 10%

0% 10% 20% 10 11 12 13 14

Core Capital Goods Orders

year-over-year percent change, SA Source: Census Bureau through April 2014

85 90 95 100 105 10 11 12 13 14

NFIB Small Business Optimism Index

SA, 1986=100

Source: National Federation of Independent Business through May 2014 pre-recession average

60 70 80 90 100 110 120 10 11 12 13 14

CEO Economic Outlook Survey

diffusion index (50+=expansion)

Source: Business Roundtable through Q1 2014 pre‐recession average

The Cap-Ex contribution to real GDP growth was significant early in the recovery, but over the past few years has been “below average.”

7

• 2
• 1.5
• 1
• 0.5

0.5 1 1.5 2 1970 - Q1 1971 - Q1 1972 - Q1 1973 - Q1 1974 - Q1 1975 - Q1 1976 - Q1 1977 - Q1 1978 - Q1 1979 - Q1 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 1995 - Q1 1996 - Q1 1997 - Q1 1998 - Q1 1999 - Q1 2000 - Q1 2001 - Q1 2002 - Q1 2003 - Q1 2004 - Q1 2005 - Q1 2006 - Q1 2007 - Q1 2008 - Q1 2009 - Q1 2010 - Q1 2011 - Q1 2012 - Q1 2013 - Q1

Source: Bureau of Economic Analysis through 2013 Q4 Percentage points, past four quarters

Cap-Ex Contribution to Real GDP Growth

43 year average

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

8

Five Questions

Home prices are increasing, but sales have fallen off and residential investment growth has turned negative.

9

• 30%
• 20%
• 10%

0% 10% 20% 30% 10 11 12 13 14

Private Residential Fixed Investment

percent change, SAAR Source: Bureau of Economic Analysis through Q1 2014

200 300 400 500 10 11 12 13 14

New Single-Family Homes Sales

thousands, SAAR

Source: Census Bureau through April 2014

3000 4000 5000 6000 10 11 12 13 14

Existing Home Sales

thousands, SAAR

Sources: National Association of Realtors through April 2014

• 20%
• 10%

0% 10% 20% 30% 10 11 12 13 14

S&P/Case Shiller Composite 20 Home Price Index

percent change, SAAR

Source: S&P/ Case Shiller through March 2014

Southeast brokers and builders are not reporting an absence of available mortgage credit....

10

Source: Atlanta Fed business contact poll

How available do you perceive mortgage finance to be in your market?

54% 39% 50% 23% 43% 35% 35% 37% 32% 39% 33% 50% 50% 62% 52% 57% 65% 63% 68% 61% 13% 11% 15% 4% 9% 0% 20% 40% 60% 80% 100% Nov

• 12

Mar- 13 Aug

• 13

Nov

• 13

Jan- 14 Feb- 14 Mar- 14 Apr- 14 May

• 14

Jun- 14

Builders

57% 52% 38% 36% 43% 33% 24% 32% 32% 32% 25% 38% 50% 51% 50% 54% 68% 59% 59% 59% 18% 10% 13% 13% 7% 13% 7% 10% 9% 9% 0% 20% 40% 60% 80% 100% Oct-12 Mar-13 Aug-13 Nov-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14

Brokers

… but builders report that available construction and development finance falls short of demand…

11

86% 69% 82% 58% 65% 73% 63% 68% 83% 5% 28% 14% 38% 30% 27% 37% 32% 11% 9% 3% 5% 4% 4% 6% 0% 20% 40% 60% 80% 100% Nov-12 Mar-13 Aug-13 Nov-13 Jan-14 Mar-14 Apr-14 May-14 Jun-14

Builders: How available do you perceive construction and development finance to be in your market?

Credit > Demand Credit = Demand Credit < Demand

Source: Atlanta Fed business contact poll

… costs are widely reported to be rising.

12

• 1.0
• 0.5

0.0 0.5 1.0 2006 2007 2008 2009 2010 2011 2012 2013 2014 Diffusion index

Source: Atlanta Fed business contact poll

May 2014 Southeast Homebuilder Survey

Cost Changes vs. a Year Earlier Material Costs Labor Costs

• 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

Five Questions

Consumer spending has been hanging in there, as household net worth has expanded.

14

500% 525% 550% 575% 600% 625% 650%

0% 1% 2% 3% 4% 5% 6% 10 11 12 13 14

Real Personal Consumption Expenditures (PCE) and Household Net Worth

Source: Bureau of Economic Analysis and Federal Reserve Board through Q1 2014

Real PCE 3-Month Percentage Change, SAAR Household Net Worth As percentage of disposable income

15 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% 4.0% 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

Average Hourly Earnings and Employment Cost Index

year-over-year percent change

Employment Cost Index (ECI) Average Hourly Earnings Source: Bureau of Labor Statistics

Growth in wages and labor compensation, however, has stalled.

While the short-term unemployment rate is now about at its pre- crisis level, other measures of “slack” have been slow to recover.

16

3 4 5 6 7 00 02 04 06 08 10 12 14 Short-term unemployment rate (< 27 weeks)

Pre-2008 mean = 4.2%

Short-term Unemployment Rate

percent

Source: Bureau of Labor Statistics through April 2014

1 2 3 4 5 6 7 00 02 04 06 08 10 12 14

Pre-2008 mean = 2.9% Pre-2008 mean = 0.9%

Alternative Slack Measures

percent

Part time for economic reasons (%

• f labor force)

Long-term unemployment rate (>27 weeks)

• 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

Five Questions

18

Prices have firmed recently, but the year-to-year inflation rate remains under the FOMC’s longer-term objective.

0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 10 11 12 13 14

PCE Price Index

year-over-year percent change, monthly

PCE Core PCE

Source: Bureau of Economic Analysis FOMC’s longer-term inflation objective through April 2014 (annualized % change) Overall PCE Core PCE April 2014 2.4 2.1 Past 3 months 1.8 1.8 Past 6 months 1.6 1.5 Past 12 months 1.6 1.4

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