A View from the FED:
The Answer Is
Yes and No.
University of Alabama Economic
Outlook Conference
Montgomery AL, FL
January 15, 2015
The long-awaited breakout in growth appears to have
finally arrived.
Annualized Real GDP
Growth
2013
2014
Q1
2014
Q2
2014
Q3
2014
Q4
3.1
-2.1
4.6
5.0
3.4
Note: As of last Friday, MA tracking projections point to
3.4% annualized 4Q GDP growth for the advance estimate
which will be released at the end of this month. Our
GDPNow Q4 projection is essentially identical, 3.5%.
Sources: Bureau of Economic Analysis, Macroeconomic Advisers
The November reports have surprised to the upside,
though the December retail sales report was soft.
The Evolution of Q4 Real GDP Growth Tracking Estimates
quarterly percent change, SAAR
4.0
3.5
Nov 14: Nov 17:
Ind.
Retail
sales, Prod.
(Oct)
(Oct)
Business
inv.
(Sep)
Dec 1:
ISM
Dec 5:
Int.
Trade
(Oct)
Dec 11:
Retail
sales,
(Nov)
Business
inv.
(Oct)
Dec 15:
Ind.
Prod.
(Nov)
Dec. 22:
Existing
Home
Sales
(Nov)
Dec. 23:
3Q GDP,
Adv. Dur.
Goods,
PI &
Outlays
(Nov)
Jan 7:
Int.
Trade
(Nov)
Jan 9:
Employment
Report
(Dec),
Wholesale
Invent
(Nov)
1
Jan
14:
Retail
Trade
(Dec),
Busine
ss inv.
(Nov)
Atlanta Fed
GDPNow Model
3.0
Macroeconomic
Advisers
2.5
2.0
12-Nov
0
19-Nov
26-Nov
3-Dec
10-Dec
17-Dec
Date of forecast
Sources: FRBA, Macroeconomic Advisers
24-Dec
31-Dec
7-Jan
14-Jan
In our projections, growth remains around 3% for the next
several years.
2015:
q4/q4
2016:
q4/q4
Real GDP Growth
Jan FRBA
preliminary forecast
a: assumes 3.3% QIV.
Source: FRBA forecasts
3.2
2.9
Next year – the consumer takes over?
Nonresidential Fixed Investment and Personal Consumption
Year-over-Year Percent Change
5%
15%
4%
Personal Consumption
Expenditures (lhs)
10%
3%
5%
2%
1%
Nonresidential Fixed
Investment (rhs)
0%
0%
-5%
-1%
-2%
2010
-10%
2011
Source: Bureau of Economic Analysis
2012
2013
2014
Actual through Q3 2014, GDPNow forecast for Q4 2014
5
News to nobody: Oil prices are really low.
Spot Oil Prices
(weekly)
$/Barrel
$160
1
$140
$120
WTI
$100
Brent
$80
$60
$48.48 $48.27
Wednesday close,
February contracts
$40
$20
$0
0
99
00
01
02
03
04
05
06
Source: EIA/Chicago Mercantile Exchange, Financial Times
07
08
09
10
11
12
13
14
As of the week of Dec 30, 2014
6
Mining and oil-field investment as a share of business
spending has risen dramatically.
Investment shares of mining +
oil-field investment
40
Share of Structures Investment
Share of Structures + Equipment Investment
35
30
25
20
15
10
5
0
59
64
69
74
79
84
89
94
99
04
09
14
Studies suggest energy production is price-insensitive, but
energy-relates investment is sensitive to price.
Real Business Fixed Investment (BFI)
(percentage point deviation from baseline level)
4
Real BFI excluding mining + oil
0
Real BFI
-4
-8
Real mining + oil investment
-12
-16
-20
14 q2
15q2
Source: Federal Reserve Bank of Atlanta Calculations
16q2
17q2
Our simple statistical experiments indicate that energy-price
declines are a near-term drag, but longer-term boon.
Real GDP and Real Consumption
(percentage point deviation from baseline level)
1.4
Real consumption
1.2
1.0
0.8
Real GDP
0.6
0.4
0.2
0.0
-0.2
14q2
15q2
Source: Federal Reserve Bank of Atlanta Calculations
16q2
17q2
World Bank: “… global growth is expected to rise
moderately, to 3.0 percent [from 2.6 percent] in 2015.”
IMF GDP Projections
October 2014
annual percentage change
8.0
7.0
6.0
5.0
4.0
2014
3.0
2015
2.0
1.0
0.0
Euro Area
Canada
Mexico
China
Advanced
Economies
Emerging and
Deveoping
Economies
Source: IMF World Economic Outlook October 2014
10
In our view, the official unemployment rate will hit “normal”
by the end of the year.
2015:
q4/q4
2016:
q4/q4
Real GDP Growth
Jan FRBA preliminary
forecast
3.2
2.9
5.2
5.2
Unemployment Rate
Jan FRBA preliminary
forecast
*: QIV
Source: FRBA forecasts
Unemployment rate projections have been persistently
overly pessimistic.
Percent, quarterly average
10
9.5
9
8.5
8
Actual
7.5
“Tapering” announced
7
6.5
6
5.5
Dec-13
Dashed lines represent
midpoint of FOMC
Summary of Economic
Projections as of the
indicated date.
5
Dec-14
4.5
4Q2010
4Q2011
4Q2012
4Q2013
Source: U.S. Bureau of Labor Statistics, Federal Reserve Board
4Q2014
4Q2015
4Q2016
4Q2017
12
The standard measure of unemployment is near
normal, but we still think there is work to be done.
Civilian Unemployment Rate (U-3) vs. Broad Unemployment (U-6)
percent, SA
19
17
15
U-6
7.3
ppts
13
6.4
ppts
11
5.6
ppts
9
7
3.8 ppts
Conventional
Unemployment Rate (U-3)
U-3
5
3
00
02
Source: Bureau of Labor Statistics
04
06
08
10
12
14
Note: Figures cited are as of Jan. 2007, Sep. 2011, Dec. 2013 and Dec. 2014
By gender, part-time work hasn’t changed much.
Share of Part-time Workers
70.00%
60.00%
50.00%
40.00%
30.00%
20.00%
10.00%
0.00%
Men
Women
2007
2014
Source: Author’s calculations from Census Bureau’s Current Population Survey microdata files
By gender, part-time for economic reasons has shifted
toward women.
Share of Part-time for Economic Reasons
53.00%
52.00%
51.00%
50.00%
49.00%
48.00%
47.00%
46.00%
45.00%
Men
Women
2007
2014
Source: Author’s calculations from Census Bureau’s Current Population Survey microdata files
Wage growth remains quite subdued, with only scant
evidence in the data that real wages are rising.
Wage Measures
year-over-year change, SA
4.0%
3.5%
3.0%
2.5%
Average Hourly Earnings
2.0%
Employment Cost Index
1.5%
1.0%
07
08
Source: Bureau of Labor Statistics
09
10
11
12
13
14
ECI data through Q3 2014, AHE data through December 2014
Another look: Wage growth (through November) from
detailed Census data. New data, same story.
6
Percent change**, Full-year over previous full-year
5
U.S. hourly wages
4
3
2
1
0
-1
-2
2008
2009
2010
2011
2012
2013
Source: Author’s calculations from Census Bureau’s Current Population Survey microdata files
**Note: Percent change measured by logarithmic change. 2014 uses 12 months ending November 2014 relative to 12 months ending November 2013
2014
17
The drag on wage growth? It looks like the part-time for
economic reasons to us.
6
Percent change**, Full-year over previous full-year
5
U.S. hourly wages
4
U5 minus U3
(Proxy for marginallyattached workers)
3
2
1
0
“Other” factors
-1
U6 minus U5 (Proxy for
part-time for economic reasons)
Short-term unemployment rate (< 27 weeks)
-2
2008
2009
2010
2011
2012
Long-term unemployment
rate (>27 weeks)
2013
Source: Author’s calculations from Census Bureau’s Current Population Survey microdata files
**Note: Percent change measured by logarithmic change. 2014 uses 12 months ending November 2014 relative to 12 months ending November 2013
2014
18
Inflation will move toward 2%: That’s our story and we are
sticking to it.
2015:
q4/q4
2016:
q4/q4
Real GDP Growth
Jan FRBA preliminary
forecast
3.2
2.9
5.2
5.2
1.8
2.0
Unemployment Rate*
Jan FRBA preliminary
forecast
Inflation
Jan FRBA preliminary
forecast
*: QIV
Source: FRBA forecasts
The trend in inflation hasn’t budged much off of 1.5
percent for a couple of years
PCE Price Index
year-over-year percent change, monthly
4.5
PCE
Core PCE
4.0
3.5
3.0
2.5
2.0
FOMC’s inflation objective
1.5
1.0
0.5
0.0
10
11
Sources: Bureau of Economic Analysis
12
13
14
through November 2014
Some measures of longer-term inflation expectations are
showing signs of weakness.
5-Year,5-Year Forward Inflation
Expectation
Inflation Expectations Measures
percent, year-ahead
percent
3.5
3.0
Atlanta Fed Business Inflation Expectations
3.0
2.5
2.5
2.0
2.0
1.5
1.5
01-12
1.0
07-12
01-13
07-13
Source: St. Louis Fed, Kitsul and
Wright (2012)
01-14
07-14
01-15
through January 12, 2015
11-12
05-13
11-13
Source: Philadelphia Fed, Atlanta Fed
05-14
11-14
SPF data through Q4 2014, BIE
data through January 2015