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Assessing the Economic Recovery Eric S. Rosengren President & CEO Federal Reserve Bank of Boston University of Massachusetts Boston John W. McCormack Graduate School of Policy and Global Studies Boston, Massachusetts November 4, 2013 EMBARGOED UNTIL MONDAY, NOVEMBER 4, 2013 AT 4:25 P.M. OR UPON DELIVERY www.bostonfed.org Figure 1 Treasury Yield Curves May 1, 2013, September 16, 2013, and October 31, 2013 Percent 4 September 16, 2013 3 October 31, 2013 2 May 1, 2013 1 0 0 5 10 15 Maturity in Years Source: U.S. Department of the Treasury 20 25 30 Figure 2 Primary Dealer Survey Results: Distribution of Probabilities for the Timing of First Reduction Survey Results as of September 9, 2013 and Updated as of September 23, 2013 Percent Percent 70 70 Following September FOMC Meeting Prior to September FOMC Meeting 60 60 50 50 40 40 Treasuries Agency MBS 30 30 20 20 10 10 0 Treasuries Agency MBS 0 Sep 2013 Oct 2013 Dec 2013 > 2013 Sep 2013 Oct 2013 Dec 2013 Source: Federal Reserve Bank of New York, Survey of Primary Dealers, September 2013 > 2013 Figure 3 Federal Reserve System Assets and Projections March 2008 - October 2013 Actual, November 2013 - April 2014 Projected Trillions of Dollars 5 No Tapering Through March 2014 4 Tapering Beginning December 2013 No tapering through March 2014: Purchases reduced to $75 billion in April 2014. No Tapering Through March 2014 3 2 Tapering beginning Purchases reduced Purchases reduced Purchases reduced Purchases reduced 1 December 2013: to $75 billion in December 2014. to $50 billion in January 2014. to $25 billion in March 2014. to $0 in April 2014. 0 Mar-2008 Mar-2009 Mar-2010 Mar-2011 Mar-2012 Mar-2013 Source: Federal Reserve Statistical Release H.4.1 / Haver Analytics and author's calculations Mar-2014 Figure 4 Employment Change from Peak Employment Most Recent and Three Previous Peaks Percent Change from Peak Employment 1 0 -1 -2 -3 July 1981 -4 June 1990 -5 February 2001 -6 January 2008 -7 -30 -26 -22 -18 -14 -10 -6 -2 2 6 10 14 18 22 Months Before and After Employment Trough Source: BLS, NBER / Haver Analytics 26 30 34 38 42 Figure 5 Government Employment 2003:Q1 - 2013:Q3 Millions of Workers 1 23.0 Reflects Temporary Decennial Census Workers 1 22.5 1 22.0 0 21.5 0 0 21.0 2003:Q1 2005:Q1 Recession 2007:Q1 2009:Q1 2011:Q1 Note: Includes federal, state, and local government workers. Source: BLS, NBER / Haver Analytics 2013:Q1 Figure 6 Government Employment Change from Official Trough Current and Three Previous Recoveries Index, Official Trough = 100 108 Official Trough: November 1982 March 1991 November 2001 June 2009 Reflects Temporary Decennial Census Workers 106 104 102 100 98 96 0 6 12 18 24 30 36 42 48 Months from Trough of Recession Source: BLS, NBER / Haver Analytics 12 Figure 7 Housing Starts 2003:Q1 - 2013:Q2 Thousands of Units, Seasonally Adjusted Annual Rate 1 2,400 1 1,600 1 0 800 0 0 0 2003:Q1 2005:Q1 2007:Q1 Recession Source: Census Bureau, NBER / Haver Analytics 2009:Q1 2011:Q1 2013:Q1 Figure 8 Auto and Light Truck Sales 2003:Q1 - 2013:Q3 Millions of Units, Seasonally Adjusted Annual Rate 1 20 1 15 1 10 0 5 0 0 0 2003:Q1 2005:Q1 2007:Q1 Recession Source: BEA, NBER / Haver Analytics 2009:Q1 2011:Q1 2013:Q1 Figure 9 Change in Real GDP from Official Business Cycle Peak Most Recent and Three Previous Peaks Percent Change from Official Peak 25 Official Peak: 20 1981:Q3 1990:Q3 2001:Q1 2007:Q4 15 10 5 0 -5 -10 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 Quarters Before and After Official Trough Source: BEA, NBER / Haver Analytics 10 11 12 13 14 15 16 Figure 10 Change in Real GDP from Official Trough Current and Three Previous Recoveries Index, Official Trough = 100 130 Official Trough: 1982:Q4 1991:Q1 2001:Q4 2009:Q2 120 110 100 90 0 1 2 3 4 5 6 7 8 9 10 11 Quarters from Official Trough of Recession Source: BEA, NBER / Haver Analytics 12 13 14 15 16 Figure 11 Estimates of Annual Real GDP Growth Needed to Return to Full Employment Percent 6 2014 2015 2016 2017 2018 Recovery from: 5.2 1982:Q4 Trough 1991:Q1 Trough 2001:Q4 Trough 2009:Q2 Trough 5 5.2 4 3.8 3.3 3 3.0 3.3 2.8 3.1 2.2 2 1 0 Annual Growth Needed to Return to 5.25% Unemployment Rate by Year End For Comparison: Average Annual Growth in First Four Years of Recovery from Last Four Recessions Note: Estimates are based on a modified Okun's Law and potential GDP growth of 2.1%. Source: BEA, NBER / Haver Analytics and author’s calculations Figure 12 Estimates of Annual Real GDP Growth Needed to Return to Full Employment Percent 6 2014 5.2 4 2015 2016 2017 Projected Real GDP Growth: 2014 2014-2015 2014-2016 2018 3.8 3.3 3.0 2.8 3.0 3.1 3.1 2 0 Annual Growth Needed to Return to 5.25% Unemployment Rate by Year End Note: Estimates are based on a modified Okun's Law and potential GDP growth of 2.1%. For Comparison: Economic Projections of Federal Reserve Board Members and Bank Presidents Note: Projections are the averages of the midpoints of the central tendencies for the years specified. Source: BEA, NBER, FOMC Summary of Economic Projections / Haver Analytics and author’s calculations