Download 12th district head office briefing

National Economic Outlook
October 3, 2014
John Fernald
Senior Research Adviser
Federal Reserve Bank of San Francisco
* The
views expressed are my own and do not necessarily reflect the views of the
Federal Reserve Bank of San Francisco or others associated with the Federal
Reserve System.
Summary of Outlook
 Recovery
from deep recession has been
slow, as headwinds associated with the
financial crisis have abated slowly
 As headwinds fade, moderate growth should
continue
 Wage growth remains muted, and inflation is
expected to slowly increase toward the
FOMC’s 2 percent objective.
2
Recovery has been slow
Real GDP Comparison (Pre-Recession Peak = 100)
Seasonally adjusted annual rates
Index
130
125
Early '80s
120
Early '00s
Early '90s
115
110
1973-75
105
The Great Recession
100
95
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26
Quarters after pre-recession GDP peak
Source: NBER / Haver Analytics
3
Labor market slack gradually narrowing
Unemployment rate
Monthly observations; seasonally adjusted; forecast is quarterly average
Percent
11
10
9
8
7
Aug
Natural Rate (FRBSF)
6
Forecast
5
4
2007
2008
2009
2010
Source: Bureau of Labor Statistics and FRBSF Staff
2011
2012
2013
2014
2015
3
4
Wage growth muted
Employment Cost Index, Private Industry
Percent change from compensation four quarters earlier
Percent
7
6
5
4
3
Q2
2
1
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Source: Bureau of Labor Statistics and FRBSF Staff
5
What’s held back the economy?
NFIB: Single Most Important Problem
Percent
100
Three-month moving averages
Poor Sales
Quality of Labor
80
Insurance Cost/
Availability
60
Other
40
Taxes and Government Requirements
20
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
0
Source: NFIB / Haver Analytics
6
Good job growth this year
Nonfarm payroll employment
Monthly change; seasonally adjusted
Thousands
400
350
300
Monthly
change
6-Month
moving average
250
Aug.
200
150
100
50
2011
Source: Bureau of Labor Statistics
2012
2013
2014
0
7
Business surveys are strong
ISM Index
Seasonally adjusted
Index
65
Aug
60
Nonmanufacturing
55
Manufacturing
50
45
40
35
30
2007
2008
2009
2010
2011
Source: Haver. Diffusion index, where readings above 50 indicate expansion.
2012
2013
2014
8
Growth prospects are good
Real GDP
Quarterly percent change at seasonally adjusted annual rate
Percent
6
Q2
4
2
0
FRBSF
forecast
Actual
-2
-4
-6
-8
-10
2007
2008
2009
2010
Source: Bureau of Economic Analysis and FRBSF staff
2011
2012
2013
2014
2015
9
Inflation gradually returning to target
PCE price inflation
Percent change from four quarters earlier
Percent
5
4
Overall PCE
price index
3
2
Q2
FRBSF
forecasts
Core PCE
price index
1
0
-1
-2
2007
2008
2009
2010
Source: Bureau of Economic Analysis and FRBSF staff
2011
2012
2013
2014
2015
10
Interest rates still low
Interest rates
Weekly average
Percent
8
7
6
5
30-year
Mortgage
9/25
4
3
Ten-year
Treasury
2
Federal
Funds
Rate
2007
Source: FAME
FFR
Forecast
Two-year Treasury
2008
2009
2010
2011
2012
2013
2014
2015
1
0
11
Conclusions
After a deep recession and sluggish recovery, a
moderate, low-inflation recovery should continue
 Interest rates remain low
 Risks to the outlook remain, including from weak
(and volatile) global economy

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