Greater Washington Economic Outlook 2016
R. Andrew Bauer, Ph.D.
Senior Regional Economist
Research Department
Catoctin Estate Planning Council
January 13, 2016
Greater Washington Economic Outlook 2016
R. Andrew Bauer, Ph.D.
Senior Regional Economist
January 13, 2016
The views expressed here are those of the author, and do not necessarily
represent those of the Federal Reserve Bank of Richmond or the Federal
Reserve System.
2
A Solid Year Ahead
•
Last year the question was “Are we there yet?”
•
•
•
•
Economic growth appeared to be accelerating
Consumer spending stronger in H2 2014
Solid improvement in the labor market in 2014
Expectations for a solid-to-strong year ahead
•
•
Above-trend consumer spending
Business investment/manufacturing to strengthen
•
Fiscal cuts less of an issue; adjustments continue
•
Uncertainty still an impediment to stronger growth
•
•
Fiscal policy, growth abroad, regulatory uncertainty
Focus on pace of monetary policy moves in 2016
3
Real Gross Domestic Product
6
Percent change from previous quarter at annual rate
6
5
5
4
FOMC Projection
Q3
2.0%
3
4
3
2
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
-8
-8
-9
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
-9
Note: Projection is the median, central tendency, and range from the December 2015 Summary of Economic
Projections. Red dots indicate median projections. Projections of change in real gross domestic product (GDP)
are from the fourth quarter of the previous year to the fourth quarter of the year indicated.
Source: Bureau of Economic Analysis via Haver Analytics & Federal Reserve Board
4
Nonfarm Payroll Employment
400
Quarterly average of monthly changes, thousands of persons
400
Q4 Average
300
300
200
200
100
100
0
0
-100
-100
-200
-200
-300
-300
-400
-400
Monthly Change
Dec.
292
Nov.
252
Oct.
307
Sep.
145
Aug.
153
-500
-600
-700
-800
-500
-600
-700
-800
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Source: Bureau of Labor Statistics via Haver Analytics
5
Unemployment Rate
Percent
11
11
10.5
10.5
10
10
9.5
9.5
9
9
8.5
8.5
8
8
7.5
7.5
7
7
6.5
6.5
6
December
5.0%
5.5
6
FOMC Projection
5.5
5
5
4.5
4
2008
4.5
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
4
2020
Notes: FOMC projection is the median, range, and central tendency for the Q4 levels, from the December 2015
meeting. Red dots indicate median projections
Source: Bureau of Labor Statistics & Board of Governors via Haver Analytics
6
Average Hourly Earnings
4
12 Month % Change
4
Monthly % Change
Dec.
0.0%
Nov.
0.2%
Oct.
0.3%
Sep.
0.1%
3.5
3
3
December
2.52%
2.5
2
2.5
2
1.5
1
2010
3.5
1.5
2011
2012
2013
2014
2015
2016
1
2017
Source: Bureau of Labor Statistics via Haver Analytics
7
Regional economy lagged US through 2014
Gross Domestic Product: All Industries
percent change
5
4
3
2
1
0
-1
-2
-3
-4
2004
2005 2006
Maryland
2007
2008
U.S.
2009
2010 2011
Virginia
2012 2013 2014
DCMSA
Source: Bureau of Economic Analysis/Haver Analytics
Regional labor market improved considerably in 2015
Source: Bureau of Labor Statistics/Haver Analytics
9
Payroll Employment by Sector
November 2015
Natural Resources & Construction
Northern Virginia
-1.0
0.4
Manufacturing
0.8
1.8
Trade, Transportation & Utilities
Information
United States
1.9
1.7
1.9
Total
0.6
1.4
-2.4
1.8
Financial Activities
0.1
3.1
Professional & Business Services
2.4
3.0
Education & Health Services
3.4
3.1
Leisure & Hospitality
3.9
1.1
Other Services
1.6
0.4
Government
1.0
-3
-2
-1
0
1
2
3
4
5
YoY % Change (NSA)
Source: Bureau of Labor Statistics/Haver Analytics
10
Regional labor market improved considerably in 2015
Source: Bureau of Labor Statistics/Haver Analytics
11
Regional labor market improved considerably in 2015
Source: Bureau of Labor Statistics/Haver Analytics
12
Washington MSA Business by Sector
Number of Establishments
171,723
184,396
Total
44,812
51,081
29,356
31,926
25,522
24,161
16,621
22,501
14,767
14,351
12,505
14,180
15,351
13,041
3,675
3,657
2,910
3,207
2,619
2,543
403
470
Professional & Business Services
Other Services
Trade, Transportation & Utilities
Education & Health Services
Financial Activities
Leisure & Hospitality
Construction
Information
Total Government
Manufacturing
Natural Resources
0
50,000
Qtr4 2007
Qtr2 2015
100,000
150,000
200,000
Source: Bureau of Labor Statistics
13
Washington MSA Business Dynamics
Total
-1,145
11,528
-5
Natural Resources
Construction
62
1,005
-1,305
56
Manufacturing
Trade, Transportation & Utilities
-20
717
29
11
406
Information
Financial Activities
-10
Professional & Business Services
-1,394
Education & Health Services
-1,504
Leisure & Hospitality
Establishment Loss in
Recession (Q4:2007 to
Q2:2009)
Establishment Gain in
Recovery (Q2:2009 to
Q2:2015)
-644
4,875
4,376
-396
1,279
Other Services
-81
Total Government
-86
-4,000 -2,000
2,489
211
0
2,000
4,000
6,000
8,000
10,000 12,000 14,000
Source: Bureau of Labor Statistics
14
Loudon County Business by Sector
Number of Establishments
8,289
Total
10,941
78
79
Natural Resources
906
846
Construction
168
229
Manufacturing
1,543
1,634
Trade, Transportation & Utilities
Qtr4 2007
205
309
618
769
Information
Financial Activities
Qtr2 2015
2,484
Professional & Business…
680
Education & Health Services
3,652
1,337
579
769
745
1,026
281
290
Leisure & Hospitality
Other Services
Government
0
2,000
4,000
6,000
8,000
10,000
12,000
Source: Bureau of Labor Statistics
15
Loudoun County Business Dynamics
Total -806
1,846
-6
-5
Natural Resources
25
Construction
Manufacturing
-35
-19
Trade, Transportation & Utilities
-40
Information
-43
Financial Activities
-55
Professional & Business Services
42
61
96
-382
786
-170
Education & Health Services
487
Leisure & Hospitality
-47
Other Services
-56
143
225
-13
-4
Government
-1,000
Establishment Loss in
Recession (Q4:2007 to
Q2:2009)
Establishment Gain in
Recovery (Q2:2009 to
Q2:2015)
51
-500
0
500
1,000
1,500
2,000
Source: Bureau of Labor Statistics
16
Housing market recovery to continue at moderate pace
Single Family Housing Permits
YTD through November
6000
54000
Fairfax: 12% (2013)
Loudon: 62% (2009)
Prince William: 21% (2011)
Virginia: 33% (2011)
DC MSA: 36% (2009)
5000
4000
45000
36000
3000
27000
2000
18000
1000
9000
0
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Fairfax (lhs)
Loudoun (lhs)
Prince William (lhs)
Virginia (rhs)
DC MSA (rhs)
Source: Census Bureau/Haver Analytics
17
Housing market recovery to continue at moderate pace
Home Sales
Mid-Atlantic Region
Fairfax County, VA
Loudoun County, VA
Prince William County, VA
Washington D.C.
2015
8,603
867
370
376
636
November
2014 % Change
8,022
7.20%
821
5.60%
358
3.40%
382
-1.60%
552 15.20%
Year to Date
2015
2014 % Change
120,512 106,186 13.50%
13,662
12,389 10.30%
5,894
5,236 12.60%
6,309
5,710 10.50%
7,485
7,256
3.20%
Median Home Prices
Mid-Atlantic Region
Fairfax County, VA
Loudoun County, VA
Prince William County, VA
Washington D.C.
2015
$295,555
$460,000
$435,000
$318,995
$548,000
November
Year to Date
2014 % Change
2015
2014 % Change
$289,350
2.10% $305,000 $303,000
0.70%
$455,000
1.10% $475,000 $460,000
3.30%
$415,000
4.80% $430,000 $430,000
0.00%
$306,500
4.10% $324,900 $315,000
3.10%
$502,500
9.10% $524,000 $499,000
5.00%
Source: Real Estate Business Intelligence, MRIS
18
CoreLogic HPI – Through November 2015
YoY% Change
35
25
15
5
-5
United States
Virginia
-15
Washington, DC MetDiv.
Fairfax County
-25
Loudoun County
Prince William County
-35
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: Core Logic/Haver Analytics
19
Housing market recovery to continue at moderate pace
Source: FHFA/Haver Analytics
20
Monetary Policy
21
Personal Consumption Expenditure Price Index
5
12 Month % Change
5
4.5
4.5
4
4
3.5
3.5
3
FOMC Projection
2.5
2.5
2% Longer-run Target
2
2
1.5
1.5
1
1
0.5
0.5
0
0
November
0.4%
-0.5
-0.5
-1
-1.5
2008
3
-1
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-1.5
2019
Notes: FOMC projection is the median, range, and central tendency for Q4/Q4 percent changes, from the December
2015 meeting. Red dots indicate median projections.
Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics
22
Core Personal Consumption Expenditure Price Index
5
12 Month % Change
5
4.5
4.5
4
4
3.5
3.5
3
3
FOMC Projection
2.5
2% Longer-run Target
2
2
1.5
1.5
1
1
November
1.3%
0.5
0.5
0
0
-0.5
-0.5
-1
-1.5
2008
2.5
-1
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
-1.5
2019
Notes: FOMC projection is the median, range, and central tendency for Q4/Q4 percent changes, from the December
2015 meeting. Red dots indicate median projections. Core PCE Price Index excludes expenditures on gasoline and
food services.
Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics
23
Monetary Policy Instruments
7.0
Percent
7.0
6.5
6.5
6.0
6.0
5.5
5.5
5.0
5.0
4.5
4.5
4.0
4.0
3.5
3.5
3.0
3.0
Federal Funds Target Rate
2.5
2.5
2.0
2.0
1.5
1.5
1.0
0.5
0.0
2005
January 8th
Primary Credit Rate
1.0
Interest Rate Paid on
Reserves
Federal Funds Rate
Target Range
2006
2007
2008
0.5
2009
2010
2011
2012
2013
2014
2015
2016
0.0
2017
Source: Board of Governors via Haver Analytics
24
Money Market Rates
1.25 Percent
1.25
January 8th
1
1
Primary Credit Rate
0.75
0.75
3-Month LIBOR
0.5
0.5
IOER
0.25
0.25
Federal Funds Rate
0
0
3-Month T-Bill
-0.25
2009
2010
2011
2012
2013
Fed Reverse Repo Rate
on Treasuries
2014
2015
2016
-0.25
2017
Source: Board of Governors & Financial Times via Haver Analytics & Bloomberg
25
Federal Reserve System Assets
4750
$, Billions
Total: $4,531
4500
Agency
Debt: $33
4250
Miscellaneous:
$289
4000
3750
3500
Agency MBS: $1,747
3250
Total: $2,865
3000
2750
2500
Agency
Debt: $87
Miscellaneous: $282
2250
2000
Agency MBS: $844
1750
Treasury Securities:
$2,462
2462
1500
1250
1000
750
Treasury Securities:
$1,652
1652
500
250
0
9/12/2012
1/6/2016
Note: Numbers may not add up due to rounding.
Source: Board of Governors via Haver Analytics
26
FOMC Statement
December 16, 2015
Information received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a
moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing
sector has improved further; however, net exports have been soft. A range of recent labor market indicators, including ongoing job gains and
declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably
since early this year. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in
energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based
measures of longer-term inflation expectations have edged down.
Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently
expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and
labor market indicators will continue to strengthen. Overall, taking into account domestic and international developments, the Committee
sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the
medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The
Committee continues to monitor inflation developments closely.
The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that
inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for
policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2
percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor
market conditions and a return to 2 percent inflation.
Source: Board of Governors
27
Continued…
In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will
assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent
inflation. This assessment will take into account a wide range of information, including measures of labor market
conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international
developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual
and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a
manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain,
for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal
funds rate will depend on the economic outlook as informed by incoming data.
The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and
agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury
securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under
way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain
accommodative financial conditions.
Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael
Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K.
Tarullo; and John C. Williams.
December 16, 2015
Source: Board of Governors
28
Summary of Economic Projections: Federal Funds Rate
5
Percent
5
4
4
3
3
2
2
1
1
0
2015
2016
2017
2018
0
Longer run
Note: Each dot in the chart represents the value of an FOMC participant’s judgment of the midpoint of the appropriate
target range (or the appropriate target level) for the federal funds rate at the end of the calendar year.
Projections made for the December 2015 meeting.
Source: Board of Governors
29
Eurodollar Futures
Percent
3.5
3.5
3
3
December 15, 2015
2.5
2.5
January 11th, 2015
2
1.5
1.5
1
1
0.5
0
2016
2
0.5
2017
2018
2019
2020
2021
2022
0
2023
Source: CME Group via Bloomberg
30
Outlook for 2016
•
Solid-to-strong U.S. economic growth
•
•
•
Solid regional economic growth in 2016
•
•
•
•
Closed the gap with the US considerably in 2015
Employment growth on par with the US average
Housing market to continue to improve moderately
Uncertainty still an impediment to stronger growth
•
•
Above-trend consumer spending
Business investment & manufacturing to strengthen over
course of the year
Fiscal policy, growth abroad, regulatory uncertainty
Focus will be on pace of monetary policy moves
31
The views expressed here are those of the author, and do not necessarily represent those of
the Federal Reserve Bank of Richmond or the Federal Reserve System.
32