Download Regional Teleconference 0598

The U.S. Economic Outlook:
Turbulent Times
Presented by:
Sara L. Johnson
Managing Director
Global Macroeconomics Group
DRI-WEFA
August 7, 2001
1
1
1991-2000 Was a Great Decade
 The unemployment rate fell from 7% to 4%.
 Core inflation subsided from 5.5% to 2.5%.
 Productivity and real wage growth accelerated.
 Household net worth doubled.
 The federal budget shifted from deficit to surplus.
 Potential real GDP growth surged to 4%, its fastest
pace since the mid-1960s.
2
2
The U.S. Economy’s Potential Growth
Rate Doubled in the 1990s
8
(Percent change)
6
4
2
0
-2
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
3
Actual Real GDP
Potential Real GDP
3
Business Investment’s Share of GDP
15
(Nominal investment as a percent of GDP)
12
9
6
3
0
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
4
Structures
Equipment & Software
4
Productivity Growth Reached Unsustainable Rates
(Year-over-year percent change)
5
4
3
2
1
0
1965
1970
1975
1980
1985
Total Factor Productivity
1990
1995
2000
2005
2010
Full-Employment Labor Productivity
5
5
The Good Times Are Over--for Awhile
 The stock market is down.
 Energy prices are up.
 Household debt is at a record high, while
saving is at a record low.
 Internet companies are crashing.
 Business investment is falling.
 The U.S. has a huge trade deficit.
6
6
A U. S. Rebound Will Take Time
 Monetary and fiscal stimulus is in place.
 But lower interest rates won’t eliminate the excess
capacity that is depressing business investment.
 A strong dollar and weakening global economy are
reducing exports.
 Yet, consumers refuse to become discouraged.
 An end to inventory decumulation will help to
revive economic growth.
7
7
The U.S. Economy’s Growth Has Stalled and
Unemployment Is Rising
8
7
6
5
4
3
2
1
0
(Percent change,
1996$)
1997
8
1998
1999
(Percent
)
2000
2001
Real GDP Growth
2002
2003
8
7
6
5
4
3
2
1
0
2004
Unemployment Rate
8
Manufacturing Production Is in Recession
10
8
6
4
2
0
-2
-4
-6
-8
(Percent change, annual rate)
1997
1998
1999
2000
2001
2002
2003
2004
9
9
U.S. Inflation Will Subside as Unemployment Rises
5
(Year-over-year percent change)
4
3
2
1
0
-1
-2
1997
1998
CPI
1999
2000
2001
Producer Price Index
2002
2003
2004
2005
Employment Cost Index
10
10
Crude Oil Prices Will Decline
70
(Refiners’ acquisition cost, dollars per barrel)
60
50
40
30
20
10
0
1974
1978
1982
1986
1990
1994
Current Dollars
1998
2002
2006
2010
2001 Dollars
11
11
The Federal Reserve Has Lowered Rates Quickly
9
(Percent
)
8
7
6
5
4
3
1997
1998
1999
Federal Funds Rate
2000
2001
2002
10-Year Treasury Yield
2003
2004
Mortgage Rate
12
12
The Technology Bubble Has Burst:
Nasdaq and S&P 500 Indexes
5000
3000
4000
2400
3000
1800
2000
1200
1000
600
0
0
1995 1996 1997 1998 1999 2000 2001
Nasdaq
S&P 500
13
13
From Bull Market to Bear Market: Returns
on S&P 500 Stocks and Treasury Bonds
(Percent)
36
30
24
18
12
6
0
-6
-12
1990
1992
1994
1996
Stock Market Return
1998
2000
2002
2004
10-Year Treasury Bond Yield
14
14
The Personal Saving Rate Plummeted as
Household Net Worth Soared
12
(Percent of disposable income)
6.5
10
6.0
8
5.5
6
5.0
4
4.5
2
4.0
0
3.5
1980
15
(Ratio)
1983
1986
1989
Saving Rate
1992
1995
1998
2001
2004
Net Worth/Disposable Income
15
The Rising Household Debt Service Burden
700
(Thousands of persons)
(Percent of disposable income)
15
600
14
500
13
400
12
300
11
200
10
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
Weekly Initial Unemployment Claims
Debt Service Burden
16
16
Consumer Spending Outpaced Disposable
Income Growth in 1999-2000
6
(Percent change, chained 1996 dollars)
5
4
3
2
1
0
-1
1986
1988
1990
1992
1994
1996
Consumer Spending
1998
2000
2002
2004
Disposable Income
17
17
A Mild Downturn in Sales of Light Vehicles
20
(Millions of units)
16
12
8
4
0
1972 1976 1980 1984 1988 1992 1996 2000 2004
18
Light Trucks
Cars
18
Falling Interest Rates Support Home-Building
2.0
(Housing starts, millions of units)
1.6
1.2
0.8
0.4
0.0
1980
1984
1988
1992
Single-Family
1996
2000
2004
Multi-Family
19
19
Computers and Electronics Lead the
Decline in Capital Goods Orders
1000
(Billions of dollars, annual rates)
800
600
400
200
0
1994
20
1995
1996
Total Nondefense
1997
1998
1999
2000
Computers & Electronics
2001
Other
20
A Retrenchment in Business Fixed Investment
(Percent change, current dollars)
25
20
15
10
5
0
-5
-10
-15
Structures
Computers
2000
2001
Software
2002
Communic.
Equipment
2003
21
21
Venture Capital Investments Have Retreated
(Billions of dollars)
120
100
80
60
40
20
0
1994
22
1995
1996
1997
1998
1999
2000 2001*
* First half, annual rate
22
Most U.S. Venture Capital Still Goes to
Information and Communications Industries
(Percent of total, first half of 2001)
Biomedical &
Health
11%
Computers &
Electronics
14%
Other
8%
InternetSpecific
32%
Communications
15%
Computer
Software
20%
23
Source: National Venture Capital Association and Venture Economics
23
Which States Are at Risk as Communications
and Information Technologies Consolidate?
(Percent of employment in communications and IT, 2000)
4.9 to 6.6
3.0 to 4.4
2.1 to 2.9
1.2 to 1.9
24
24
Global Uncertainties in 2001
 U.S. - A pause in growth or a recession?
 Latin America - What if Argentina devalues?
 Europe - Part of the problem or part of the
solution?
 Japan - Another decade of stagnation?
 Asia - After initial progress, is Asia relapsing?
25
25
The World Economy’s Growth Is Weakening
(Percent change in real GDP)
7
6
5
4
3
2
1
0
-1
Canada
Mexico
South
America
2000
Europe
2001
Japan
Other Asia
2002
26
26
Real U.S. Exports and Imports Are Cyclical
(Year-over-year percent change)
16
12
8
4
0
-4
1996
1997
1998
1999
2000
Real Exports
2001
2002
2003
2004
Real Imports
27
27
Western and Southern States Will Achieve
the Fastest Employment Growth
(Annual percent change, 2000 to 2005)
1.58 to 4.03
1.07 to 1.58
0.91 to 1.07
0.54 to 0.91
28
28