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ECONversations Economic and Policy Briefing Webcast Dave Altig, Research Director November 19, 2014 2:00 p.m. ET Questions for Dave: events@atl.frb.org Technical issues: james.dooley@atl.frb.org Information received since the Federal Open

  1. ECONversations Economic and Policy Briefing Webcast Dave Altig, Research Director November 19, 2014 2:00 p.m. ET Questions for Dave: events@atl.frb.org Technical issues: james.dooley@atl.frb.org

  2. “Information received since the Federal Open Market Committee met in September suggests that economic activity is expanding at a moderate pace.” FOMC Statement October 28, 2014

  3. The numbers don’t lie. Annualized Real GDP Growth 2013 2014 Q4 Q1 Q2 Q3 Forecast 3.1 -2.1 4.6 3.5 2.1 Sources: Bureau of Economic Analysis, Macroeconomic Advisers 3

  4. “Household spending is rising moderately and business fixed investment is advancing…” FOMC Statement October 28, 2014

  5. fixed investment is advancing … ” “Household spending is rising moderately and business 10.0 ¡ 12.0 ¡ -­‑6.0 ¡ -­‑4.0 ¡ -­‑2.0 ¡ 0.0 ¡ 2.0 ¡ 4.0 ¡ 6.0 ¡ 8.0 ¡ 2010-­‑01-­‑01 ¡ 2010-­‑03-­‑01 ¡ 2010-­‑05-­‑01 ¡ Nonresiden6al ¡Fixed ¡Investment ¡and ¡Personal ¡Consump6on ¡ ¡ 2010-­‑07-­‑01 ¡ 2010-­‑09-­‑01 ¡ 2010-­‑11-­‑01 ¡ 2011-­‑01-­‑01 ¡ 2011-­‑03-­‑01 ¡ 2011-­‑05-­‑01 ¡ Year-­‑over-­‑Year ¡Percent ¡Change ¡ ¡ 2011-­‑07-­‑01 ¡ 2011-­‑09-­‑01 ¡ 2011-­‑11-­‑01 ¡ 2012-­‑01-­‑01 ¡ 2012-­‑03-­‑01 ¡ Expenditures Personal Consumption 2012-­‑05-­‑01 ¡ Investment Nonresidential Fixed 2012-­‑07-­‑01 ¡ 2012-­‑09-­‑01 ¡ 2012-­‑11-­‑01 ¡ 2013-­‑01-­‑01 ¡ 2013-­‑03-­‑01 ¡ 2013-­‑05-­‑01 ¡ 2013-­‑07-­‑01 ¡ 2013-­‑09-­‑01 ¡ 2013-­‑11-­‑01 ¡ 2014-­‑01-­‑01 ¡ 2014-­‑03-­‑01 ¡ 2014-­‑05-­‑01 ¡ 2014-­‑07-­‑01 ¡ 5

  6. “… while the recovery in the housing sector remains slow.” FOMC Statement October 28, 2014

  7. “ … the recovery in the housing sector remains slow. ” U.S. Single-Family Home Sales 1 2-month moving average, thousands, SAAR 1400 7000 1200 6000 Existing (right axis): 4296 1000 5000 800 4000 600 3000 400 2000 New 200 1000 (left axis): 437 0 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Source: National Association of Realtors, Census Bureau through September 2014 7

  8. “Labor market conditions improved somewhat further, with solid job gains and a lower unemployment rate.” FOMC Statement October 28, 2014

  9. The trend in job growth has been rock solid, and drifting upward. Payroll Employment Changes seasonally adjusted, thousands of jobs 600 Monthly change 400 214 200 220 0 12-month average -200 -400 -600 -800 -1000 08 09 10 11 12 13 14 Source: Bureau of Labor Statistics data through October 2014 9

  10. Unemployment rate projections have been persistently overly pessimistic. Percent, quarterly average 10 9.5 Interest rates low until mid-2013 (Aug) Jun-11 Maturity Extension Program (Sept) 9 Open-ended MBS purchases (1 st shot Sep-12 8.5 of QE3) Actual 8 7.5 “Tapering” announced 7 Dec-13 Dashed lines represent midpoint of FOMC 6.5 Summary of Economic Projections as of the 6 indicated date. 5.5 Sept-14 5 4Q2010 4Q2011 4Q2012 4Q2013 4Q2014 4Q2015 4Q2016 4Q2017 Source: U.S. Bureau of Labor Statistics, Federal Reserve Board 10

  11. “On balance, a range of labor market indicators suggests that underutilization of labor resources is gradually diminishing. ” FOMC Statement October 28, 2014

  12. We view broader measures of unemployment as improved, but short of “mandate consistent.” Civilian Unemployment Rate (U-3) vs. Broad Unemployment (U-6) percent, SA 19 Part time for economic reasons 17 Civilian Unemployment Rate: 16 yr + 15 13 11 5.7 ppts 9 7 4.8 ppts Conventional 5 Unemployment Rate (U-3) 3 00 02 04 06 08 10 12 14 Note: Figures cited are as of Jan. 2007 and Oct. 2014 Source: Bureau of Labor Statistics 12

  13. The job growth is there … Cumulative change in payrolls for select sectors, since June 2009 Health care Temporary Construction Leisure and Manufacturing Retail Trade Financial and social Information help services hospitality Activities assistance 2 2 2 2 Million 2 2 2 2 +1.75M +1.68M 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 +1.19M +0.90M 1 1 1 1 1 1 1 1 +0.46M 0.5 0.5 0.5 0.5 0.5 +0.17M 0.5 0.5 0.5 -0.10M +0.09M through Oct. 0 0 0 0 0 0 0 0 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 13 Source: U.S. Bureau of Labor Statistics

  14. … but where is the wage growth? Average hourly earnings for select sectors, from highest-paying to lowest-paying and adjusted for inflation $34.28 in Oct. $40 $40 $40 $40 $40 $40 $40 $40 $30.91 in Oct. $26.86 in Oct. $25.05 in Sep. $24.96 in Oct. $30 $30 $30 $30 $30 $30 $30 $30 $17.09 in Oct. $16.39 in Sep. $14.06 in Oct. $20 $20 $20 $20 $20 $20 $20 $20 Health care Manufacturing Information Financial Construction and social Retail Trade Temporary $10 Activities assistance Leisure and $10 $10 $10 $10 $10 $10 $10 help services hospitality $0 $0 $0 $0 $0 $0 $0 $0 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 Cumulative change in payrolls for select sectors, since June 2009 2 2 2 2 Million 2 2 2 2 +1.75M +1.68M 1.5 1.5 1.5 1.5 1.5 1.5 1.5 1.5 +1.19M +0.90M 1 1 1 1 1 1 1 1 +0.46M 0.5 0.5 0.5 0.5 0.5 +0.17M 0.5 0.5 0.5 -0.10M +0.09M through Oct. 0 0 0 0 0 0 0 0 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 -0.5 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 09 11 13 14 Source: U.S. Bureau of Labor Statistics

  15. “Inflation has continued to run below the Committee's longer-run objective.” FOMC Statement October 28, 2014

  16. Growth rate in the core PCE has been at 1.5 percent since May. PCE Price Index year-over-year percent change, monthly 4.5 PCE Overall Core (annualized % change) Core PCE PCE PCE 4.0 September 2014 0.9 1.5 August 2014 -0.6 0.9 3.5 July 2014 1.0 1.2 June 2014 2.7 1.9 3.0 2.5 FOMC’s inflation objective 2.0 1.5 1.0 0.5 0.0 10 11 12 13 14 16 Sources: Bureau of Economic Analysis through September 2014

  17. “Market-based measures of inflation compensation have declined somewhat; survey-based measures of longer-term inflation expectations have remained stable.” FOMC Statement October 28, 2014

  18. “Market-based measures of inflation compensation have declined … ; survey-based measures have remained stable.” Inflation Expectations Measures 5-Year, 5-Year Forward Inflation percent, year-ahead Expectation Rate percent 3.0 3.5 Survey of Professional Forecasters Atlanta Fed Business Inflation Expectations 2.5 3.0 2.5 2.0 2.0 1.5 1.5 1.0 12-12 06-13 12-13 06-14 10-12 04-13 10-13 04-14 10-14 SPF through Q3 2014, Sources: Atlanta Fed, Philadelphia Fed 18 Source: St. Louis FED through November 5, 2014 BIE through October 2014

  19. “In determining how long to maintain this target range, the Committee will assess progress – both realized and expected - toward its objectives of maximum employment and 2 percent inflation.” FOMC Statement October 28, 2014

  20. We believe we are still short of the FOMC’s mandate. Progress Towards Objectives: U-3 gap versus U-6 gap (Using Core PCE) 6 5 Distance from goal based on U-6 4 gap 3 2 Distance from goal based on U-3 1 gap 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 through October 2014 Source: Bureau of Labor Statistics; James Bullard’s July 17, 2014 speech; authors’ calculations 20

  21. ECONversations Economic and Policy Briefing Webcast Dave Altig, Research Director November 19, 2014 2:00 p.m. ET Questions for Dave: events@atl.frb.org Technical issues: james.dooley@atl.frb.org

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