Staff GDP Forecast Summary Real growth: about 2% (Q4/Q4) in 2018 - - PowerPoint PPT Presentation

Staff GDP Forecast Summary

• Real growth: about 2¾% (Q4/Q4) in 2018 and 2½% in 2019.

– Forecast for 2018 stronger than that presented at April 2017 EAP . – Forecasts for 2018 and 2019 similar to Blue Chip consensus.

• Outlook reflects overall strengthening in economic activity.

Positives: Positives:

– U.S. economy entered 2018 with greater momentum. – Aggregate household balance sheet remains in very strong position. – Fiscal policy will provide significant stimulus in 2018 – 19, supporting consumption, investment, and government spending. – Low inventories and rising home prices support residential investment. – Global economic conditions generally solid.

Negatives: Negatives:

– Net exports expected to be a greater drag on growth.

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1 2 3 4 5 6 2014 2015 2016 2017 2018 2019

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1 2 3 4 5 6

Real GDP Growth Forecasts

% Change (AR) % Change (AR)

Note: The blue band represents the top 10 and bottom 10 averages of the Blue Chip survey.

FRBNY Staff Released Data Blue Chip

Source: FRBNY Staff, BEA, and Blue Chip Economic Indicators

April 2017 Vintage

2.0 0.1 0.8 0.1 ‐0.1 1.6 0.2 0.8 0.3 ‐0.3 1.7 0.1 0.5 0.5 ‐0.3

‐0.5 0.5 1 1.5 2 2.5 ‐0.5 0.5 1 1.5 2 2.5 PCE

• Res. Inv.

BFI

• Gov. Exp.

Net Exports 2017 2018 2019

GDP Growth Contributions: 2017-19

2017 2018 2019 Real GDP 2.6 2.7 2.5 Real Final Sales 2.9 2.6 2.5

Percentage Points Percentage Points

Source: Bureau of Economic Analysis and New York Fed Staff calculations

‐0.5 ‐0.4 ‐0.3 ‐0.2 ‐0.1 0.1 0.2 0.3 0.4 0.5 ‐0.5 ‐0.4 ‐0.3 ‐0.2 ‐0.1 0.1 0.2 0.3 0.4 0.5

Change in Primary Federal Budget Balance

Source: Congressional Budget Office

2018 2019 2020

% of GDP % of GDP

2 4 6 8 10 12 400 450 500 550 600 650 700

Source: Bureau of Economic Analysis and Federal Reserve Board

Households’ Net Worth as a Percent of Disposable Income

2006Q1 to present

Note: Fitted line is from 1983Q1 to 2005Q4.

Personal Saving Rate (Percent)

1983Q1 to 2005Q4 2017Q4 (678.8, 2.6)

Personal Saving Rate and Household Wealth

Single-family Home Prices and Inventory Level

3 4 5 6 7 8 9 10 11 12

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5 10 15 20 25 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 12 Month Percent Change Months

Source: CoreLogic, National Association of Realtors Note: Shading shows NBER recessions.

Single Family House Price Index (Left Axis) Months’ Supply (Right Axis) “Normal” Range for Months’ Supply

0.5 1 1.5 2 2.5 3 0.5 1 1.5 2 2.5 3 1960 1970 1980 1990 2000 2010 3 Month Moving Average 3 Month Moving Average

Source: Census Bureau via Haver Analytics Note: Shading shows NBER recessions.

Single-family Housing Starts per Household

Dec 2017 Value = 0.74

45 50 55 60 65 45 50 55 60 65 2013 2014 2015 2016 2017 2018

Surveys of Manufacturing Activity

Index (50+ = expansion) Index (50+ = expansion)

Source: IHS Markit and Institute for Supply Management via Haver Analytics

EU US China

Staff Unemployment Rate Forecast Summary

• Growth above potential contributes to unemployment

rate of 3¾% at end-2018 and 3½% at end-2019.

– Projected path below that presented at April 2017 EAP . – Staff projection similar to Blue Chip consensus.

• Factors underlying this forecast.

– Population growth around 1%. – Productivity growth picking up and rising slightly above assumed trend rate of 1¼% NFBS-basis (1% GDP-basis). – Participation rate rises slowly but steadily over 2018 - 2019. – Average weekly hours little changed from March level (34.5).

3 4 5 6 7

2014 2015 2016 2017 2018 2019

3 4 5 6 7

Unemployment Rate Forecasts

Percent Percent

Note: The blue band represents the top 10 and bottom 10 averages of the Blue Chip survey.

FRBNY Staff Released Data Blue Chip

Source: FRBNY Staff, BEA, and Blue Chip Economic Indicators

April 2017 Vintage

72 73 74 75 76 77 78 87 88 89 90 91 92 93 1994 1997 2000 2003 2006 2009 2012 2015 2018 Percent

Source: Bureau of Labor Statistics Note: Shading shows NBER recessions.

Men (Left Axis) Women (Right Axis) Percent

Labor Force Participation Rate: Ages 25-54

1.0 1.5 2.0 2.5 3.0 3.5 4.0 1.0 1.5 2.0 2.5 3.0 3.5 4.0 2008 2010 2012 2014 2016 2018

Average Hourly Earnings

12-Month Change 12-Month Change

Source: Bureau of Labor Statistics via Haver Analytics Note: Shading shows NBER recessions.

Production and Nonsupervisory Workers All Workers

Staff Inflation Forecast Summary

• Inflation anticipated to be modestly above FOMC’s

longer-run goal over forecast horizon.

– Total PCE inflation and core PCE inflation projected to be about 2¼% in 2018 and 2019. – Firming in core PCE inflation reflects dissipation of transitory factors from 2017 and vanishing resource slack.

• Assumptions that underlie this projection.

– Well-anchored longer-run inflation expectations. – Global demand maintains its solid growth. – Downward pressure on goods prices from past dollar appreciation fades over forecast horizon.

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1 2 3 4 5 6

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1 2 3 4 5 6

2014 2015 2016 2017 2018 2019

Overall PCE Inflation Forecast

% Change (AR) % Change (AR) FRBNY Staff Released Data

Source: FRBNY Staff and Bureau of Economic Analysis

FOMC Objective April 2017 Vintage

0.0 0.5 1.0 1.5 2.0 2.5 0.0 0.5 1.0 1.5 2.0 2.5 2014 2015 2016 2017 2018 2019

Core PCE Inflation Forecast

% Change (AR) % Change (AR) FRBNY Staff Released Data

Source: FRBNY Staff and Bureau of Economic Analysis

FOMC Objective April 2017 Vintage

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1 2 3 4 5

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1 2 3 4 5 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 6-Month Moving Average (annual rate) 6-Month Moving Average (annual rate)

Source: Bureau of Economic Analysis via Haver Analytics Note: Shading shows NBER recessions.

Total PCE Core PCE FOMC Objective

PCE Inflation: Overall and Core

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1 2 3 4 5

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1 2 3 4 5 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018

PCE Inflation: Core Goods and Core Services

12 Month % Change 12 Month % Change

Source: Bureau of Labor Statistics Note: Shading shows NBER recessions.

Core Goods Core Services

Risks to FRBNY Staff Real Activity Outlook

• Risks to staff growth forecast are roughly balanced.
• Major risks

Upside: Upside:

– Fiscal package of tax cuts and government spending increases provide more stimulus than we anticipate.

Downside: Downside:

– Trade frictions or an escalation of geopolitical risks leads to a pull back in private spending.

• Uncertainty around outlook has declined over the past

year.

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2 4 6 8 10

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2 4 6 8 10 2014 2015 2016 2017 2018 2019 2020

Mode Mean Released Data

% Change – Year to Year % Change – Year to Year

Real GDP Growth Forecast Distribution

Source: New York Fed staff

Risks to FRBNY Staff Inflation Outlook

• Risks to staff inflation forecast are skewed modestly to

the upside. Upside: Upside:

– Fiscal-stimulus-induced boost to aggregate demand pushes inflation higher more quickly than anticipated.

Downside: Downside:

– A realization of downside real risks would damp inflation and inflation expectations.

• Uncertainty around inflation outlook less than a year

ago.

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1 2 3 4 5

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1 2 3 4 5 2014 2015 2016 2017 2018 2019 2020

Mode Mean Released Data

% Change – Year to Year % Change – Year to Year

Core PCE Inflation Forecast Distribution

Source: New York Fed staff

REFERENCE SLIDES

2 4 6 8 10 12 2 4 6 8 10 12 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1

Student Loan

Transition Into Delinquency (90+ Days) by Loan Type

Source: New York Fed Consumer Credit Panel/Equifax Note: 4 Quarter Moving Sum Student loan data are not reported prior to 2004 due to uneven reporting

Credit Card Mortgage Auto Loan HE Revolving Percent of Balance Percent of Balance

180 200 220 240 260 280 180 200 220 240 260 280 1/1/1995 1/1/2000 1/1/2005 1/1/2010 1/1/2015

2018 Q1 Forecast: 250.1

Real Value of New Single-family Homes Sold

Thousands $, 3 MMA Thousands $, 3 MMA

Source: Census Bureau via Haver Analytics Note: Shading shows NBER recessions.

2018 Q1 2018 Q2 2017 Q4/Q4 2018 Q4/Q4 2019 Q4/Q4 Summary Actual 4/12 4/12 Actual 4/12 4/12 A R eal GDP 2.9 1.9 2.8 2.6 2.7 2.5 Tot al PCE Deflat or 2.7 2.8 1.4 1.7 2.1 2.3 Cor e PCE Deflat or 1.9 2.5 2.0 1.5 2.2 2.3 Nonfarm Business Sector Out put 3.2 2.4 3.5 3.2 3.4 3.1 Hour s 3.3 2.0 2.1 2.1 1.8 1.6 Pr oduct ivit y Gr owt h 0.0 0.4 1.4 1.1 1.5 1.5 Compensat ion 2.4 3.2 3.4 2.9 3.4 3.6 Unit Labor Cost s 2.5 2.8 2.0 1.7 1.8 2.1 Real GDP Grow th Contributions** Final S ales t o Domest ic Pur chaser s 4.6 1.8 3.1 3.0 2.8 2.8 Pr ivat e 4.1 2.0 2.8 2.8 2.5 2.3 Consumpt ion 2.8 0.9 1.9 2.0 1.6 1.7 BFI: Equipment 0.6 0.7 0.6 0.5 0.5 0.2 BFI: Nonr esident ial S t r uct ur es 0.2 0.2 0.1 0.1 0.1 0.1 BFI: Int ellect ur al Pr oper t y Pr oduct s 0.0 0.2 0.2 0.2 0.2 0.2 R esident ial Invest ment 0.5 0.1 0.1 0.1 0.2 0.1 Gover nment 0.5

• 0.2

0.3 0.1 0.3 0.5 Feder al 0.2

• 0.2

0.2 0.1 0.2 0.3 S t at e and Local 0.3 0.1 0.1 0.1 0.1 0.2 Invent or y Invest ment

• 0.5

0.9

• 0.4
• 0.3

0.2 0.0 Net Expor t s

• 1.2
• 0.8

0.0

• 0.1
• 0.3
• 0.3

Expor t s 0.8 0.7 0.5 0.6 0.5 0.4 Impor t s

• 2.0
• 1.5
• 0.5
• 0.7
• 0.8
• 0.7

Real GDP Components' Grow th Rates Final S ales t o Domest ic Pur chaser s 4.5 1.8 3.1 2.9 2.7 2.7 Consumpt ion 4.0 1.3 2.7 2.8 2.3 2.5 BFI: Equipment 11.5 11.8 10.0 8.9 8.9 4.0 BFI: Nonr esident ial S t r uct ur es 6.3 6.0 4.0 5.0 4.0 2.0 BFI: Int ellect ur al Pr oper t y Pr oduct s 0.9 4.0 4.0 3.9 4.0 4.0 R esident ial Invest ment 12.8 2.5 3.3 2.6 3.9 2.5 Gover nment : Feder al 3.2

• 3.5

3.8 1.0 3.4 5.2 Gover nment : S t at e and Local 2.9 0.6 0.5 0.5 0.5 1.5 Invent or y Invest ment n/ a n/ a n/ a n/ a n/ a n/ a Net Expor t s n/ a n/ a n/ a n/ a n/ a n/ a Expor t s 7.0 5.9 4.2 5.0 4.2 3.6 Impor t s 14.1 10.0 3.1 4.7 5.0 4.8 Labor Market Nonfar m Payr oll Employment (Aver age per Mont h, Thousands) 185 205 247 181 205 189 Unemployment R at e*** 4.1 4.1 3.9 4.1 3.7 3.5 Income R eal Disposable Per sonal Income 1.1 4.5 2.8 1.8 3.3 2.6 *End-of-period value **Grow th contributions may not sum to total due to rounding. ***Quarterly values are the average rate for the quarter. Yearly values are the average rate for Q4 of the listed year. 2017 Q4 Blue and italic text indicate released data; darker colors indicate the most recent forecast.

Staff Forecast Details