Economic Overview August 24 2011 Proprietary and Confidential. Not for disclosure outside Federal Reserve.
What the Fed Said . . . The (Federal Open Market) Committee now expects a somewhat • slower pace of recovery over coming quarters than it did at the time of the previous meeting. They anticipate that the unemployment rate will decline only • gradually toward levels that the Committee judges to be consistent with its dual mandate. (Dual mandate = maximum employment and stable prices.) Moreover, downside risks to the economic outlook have • increased. • The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's unofficial inflation target as the effects of past energy and other commodity price increases dissipate further. 2
More of what the Fed Said . . . • To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent. • The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013. The Committee also will maintain its existing policy of reinvesting • principal payments from its securities holdings. 3
The benchmark revisions to the GDP accounts now paint a materially different picture of the recession and the recovery. Real GDP growth (percent, annual rate) 6 Old series 4 2 0 Preliminary Q2 Data, and it will -2 likely be revised down a bit. -4 -6 New series -8 -10 Q12007 Q32007 Q12008 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011 Source: Bureau of Economic Analysis 4
“The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting (June).” Blue Chip Economic Forecast: Real GDP 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 June FOMC Projections Actual Consensus Optimistic Pessimistic Quarterly Annualized % Change. Source: Blue Chip Economic Forecasts, August 2011 5
“. . . the unemployment rate will decline only gradually . . . Blue Chip Economic Forecast: Unemployment 10.0 9.5 9.0 8.5 8.0 7.5 7.0 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4 June FOMC Projections Actual Consensus Optimistic Pessimistic % of Labor Force. Source: Blue Chip Economic Forecasts, August 2011 6
joblessness down at a significant pace. The recent and expected growth is too slow to push -1000 -800 -600 -400 -200 200 400 600 0 Net monthly jobs growth, in thousands 2005 - Jan 2005 - Mar 2005 - May 2005 - Jul 2005 - Sep 2005 - Nov 2006 - Jan 2006 - Mar 2006 - May 2006 - Jul 2006 - Sep 2006 - Nov 2007 - Jan 2007 - Mar 2007 - May 2007 - Jul 2007 - Sep 2007 - Nov 2008 - Jan Needed to reduced unemployment 2008 - Mar 2008 - May 2008 - Jul 2008 - Sep 2008 - Nov 2009 - Jan 2009 - Mar 2009 - May 2009 - Jul 2009 - Sep 2009 - Nov 2010 - Jan 2010 - Mar 2010 - May 2010 - Jul 2010 - Sep 2010 - Nov 2011 - Jan 2011 - Mar 2011 - May 2011 - Jul 7
And joblessness, whether measured by the commonly reported estimate, or a broader measure of “under - employment” is very high. 20 Share of the labor force 18 16 Under-employment* 14 12 10 8 Unemployment rate 6 4 2 0 8 * Includes discouraged workers and workers working less than wanted.
. . . downside risks to the economic outlook have increased. Persistently high unemployment = cautious consumers Market volatility and declining confidence = a trip to the sidelines Debt and Deficit Reduction = Short-term pain and long-term uncertainty Europe = Questions about international financial stability Housing = Price declines, foreclosures and shadow inventory, tougher qualifying standards, little new construction activity, etc. Ongoing/Protracted Deleveraging = Ongoing and Protracted period of slow growth. 9
Dennis Lockhart: The Sky is Not Falling “I continue to expect positive effects as the unusual forces that restrained the economy in the first half of this year peter out. Some of these will be in auto manufacturing and assembly, which should rebound as the supply chain disruptions caused by the Japanese earthquake and tsunami are eliminated. Add to that business investment in equipment and software, which should continue to be relatively strong even if business people have pulled back investing to some degree because of greater uncertainty. Also, the U.S. energy sector is active again. Demand for coal is high, firms are investing and hiring to explore and develop shale gas, and demand for alternative energy sources is strong. Tourism has been very strong this summer. Hotel and cruise bookings and attendance at theme parks and resort venues have been very good.” 10
“We expected that the inflationary pressures would subside as the year progressed, and this seems to be occurring.” Blue Chip Consumer Price Inflation Forecast Annualized quarterly percent change 8 CPI actual August Median Forecast top ten bottom ten 6 4 2 0 -2 -4 -6 -8 -10 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12 Source: Blue Chip panel of economists, August 10, 2011 11
Dennis Lockhart on Monetary Policy “Monetary policy needs to be very supportive of growth as the recovery seeks to regain its footing. Conditional on stable inflation expectations, I believe maintaining the current low interest rate environment is the right posture for the time being.” “I'm currently cautious about further monetary action. As I see it, we do not yet have enough information to conclude the economy won't resume a healthier pace of growth. I still maintain that a resumption of growth is the most likely case. But if that assessment proves to be wrong, I believe we do have tools to address whatever circumstances arise.” 12
REIN & Florida’s Influence on Monetary Policy Chris Oakley Vice President and Regional Executive Federal Reserve Bank of Atlanta Jacksonville Branch August 24, 2011 The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System. Proprietary and Confidential. Not for disclosure outside Federal Reserve.
• Florida Data Digest • REIN & What our Contacts are Telling Us Proprietary and Confidential. Not for disclosure outside Federal Reserve.
Florida Data Digest August 2011 Proprietary and Confidential. Not for disclosure outside Federal Reserve.
Florida’s economic performance continues to lag the nation. Broad indicators of economic activity in Florida show stabilization but little improvement. Comparable U.S. data indicate slow but steady gains. Coincident Economic Indicator Jan 2001 = 100 June 2011 120.0 115.0 110.0 105.0 100.0 United States 95.0 Florida 90.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Federal Reserve Bank of Philadelphia 16
Total employment in Florida has stabilized near recession lows, but job gains remain elusive. The current level of employment is at mid-2003 levels. Florida Payroll Employment Thousands, July 2011 Seasonally adjusted 8,500 8,000 Florida lost relatively few 7,500 jobs during the previous two recessions. Florida shed 11.4% of 7,000 total employment from peak to trough. 6,500 6,000 Post-recession employment gains in Florida did not materialize for some time after the 5,500 previous two downturns. 5,000 4,500 1990 1995 2000 2005 2010 Source: U.S. Bureau of Labor Statistics, Haver Analytics 17
All industries except education and health care saw significant job losses during the downturn, and several continue to post declines. Where job growth has occurred — in leisure and hospitality, for example — gains have to date been modest. Employment Loss and Gain by Industry: Florida June 2011 1.4 Local government -4.2 2.6 Federal & state government -13.5 0.9 Other services -11.4 6.5 Leisure & hospitality Percent change trough to present -7.5 Percent change peak to trough 8.7 Education & healthcare 0.0 2.3 Business services -15.4 0.9 Financial services -16.1 0.5 Information -21.7 3.4 Transport/Warehousing/Utilities -12.1 2.1 Retail trade -10.7 0.0 Wholesale trade The state as a whole -15.8 shed 11.4% of total 2.3 Manufacturing employment peak to -28.2 trough (Mar 2007), 1.4 Construction and is only up 1.3% -51.6 since the trough. 1.3 Total -11.4 Over half of Florida’s construction jobs have -60.0 -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 been lost. Note: A reading of 0.0 in the "trough to present" measure indicates that employment continues to decline in these industries. Likewise, a reading of 0.0 in the "peak to trough" measure indicates the employment continues to increase in these industries. Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta 18
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