Transcript Higher Expectations for Interest Rates

Cook’s Tour of American Politics and Economics
Published February 13, 2013
Updated August 26, 2015
National Journal Presentation Credits
Contributors: Charlie Cook, Cook Political Report Editor
Producer: Katharine Conlon, Alexander Perry
Director: Jessica Guzik, Afzal Bari
The following slides were updated:
Slides 4, 5, 6, 7, 8, 9, 10, 11, 12 13, 14, 15, 18, 19, 20, 23, 24, 25, 26, and 28.
When you think economics, think elections;
When you think elections, think economics.
- Edward Tufte, Political Control of the Economy (1978)
2
Roadmap for the Presentation
Economic Vital Signs
American Politics
3
Economic Growth Just Now Returning to Normal Levels
Real GDP
Percent Change from Prior Quarter at Annual Rate
1976-2006 Average: 3.1%
2007-2014 Average: 1.3%
Current
level: 2.3%
Source: St. Louis Federal Reserve, July 30, 2015
4
Nearly Average Growth Projected for Foreseeable Future
Estimated Quarterly Change in GDP
from Blue Chip Economic Indicators
Reported
Figure
Optimistic
Forecast
Consensus
Forecast
Pessimistic
Forecast
1972-2002
Average:
3.2%
Source: Bureau of Economic Analysis, 2015; Blue Chip Economic Indicators, July 10, 2015.
5
Real Median Household Income Returning to Normal Levels
1985-2013 Average: 0.28%
2013
Level: 0.3%
Source: St. Louis Federal Reserve, September 30, 2014.
6
Ultimate Sign of Pessimism: Birth Rate Down
People Deciding to Defer Starting or Expanding a Family
U.S. General Fertility Rate
(Births to Women Aged 15-44 Years)
past 4 years
of data
Births
per
1000
women
aged
15-44
years
62.9 births
Source: CDC, National Vital Statistics Report, June 17, 2015
7
Interest Rates at Historic Lows
Savers Punished and Borrowers Rewarded with Low Returns
Interest Rate
Quarterly Percent
3-Month Treasury Bills
Interest Rate
10-Year Treasury Constant
Maturity Rate
1976-2006 Average
2007-2015 Average
3-Month T-Bills Interest Rate
6.0%
0.74%
10-Year Treasury Constant Maturity Rate
7.7%
3.0%
Source: St. Louis Federal Reserve, August 25, 2015.
8
Higher Expectations for Interest Rates
Reflect Improved Growth Expectations
Estimated Quarterly Interest of Three-Month Treasury Bills
From Blue Chip Economic Indicators
Reported
Figure
Optimistic
Forecast
Consensus
Forecast
Pessimistic
Forecast
1972-2002 Average:
6.4%
Source: Blue Chip Economic Indicators, July10, 2015.
9
Higher Expectations for Interest Rates
Estimated10-Year Treasury Constant Maturity Rate
From Blue Chip Economic Indicators
Reported
Figure
Optimistic
Forecast
Consensus
Forecast
Pessimistic
Forecast
1972-2002 Average:
8.1%
Source: Blue Chip Economic Indicators, July 10, 2015.
10
So Far Inflation Stays Very Low
Quarterly Percent Change in Consumer Price Index (CPI) for All Urban Consumers
1976-2006 Average: 4.2%
2007-2015 Average: 2.2%
Current level:
-3.1%
Source: St. Louis Federal Reserve, August 19, 2015.
11
Inflation Projected to Stay Low
No Signs of Reaching Higher Levels
Estimated Quarterly CPI for All Urban Consumers
From Blue Chip Economic Indicators
Reported
Figure
Pessimistic
Forecast
Consensus
Forecast
Optimistic
Forecast
1972-2002 Average:
4.8%
Source: Blue Chip Economic Indicators, July10, 2015.
12
Long-Term Unemployment Rate Gradually Declines
Almost Half of Unemployed Endure 15+ Weeks Out of Job
Percentage of Unemployed Population by Duration of Unemployment
50%
past 5 years
40%
30%
26.9%
Unemployed
27+ weeks
20%
14.6%
Unemployed
15-26 weeks
10%
0%
Source: St. Louis Federal Reserve, August 7, 2015.
13
Unemployment Dropping
Unemployment Direction is Positive
Actual Year-to-Date Unemployment Rates
past 5 years
of data
Current
level: 5.3%
Source: St. Louis Federal Reserve, August 7, 2015.
14
Forecasts Predict Continual Decrease in Unemployment
Forecasted Quarterly Rate Nearing 5%
Estimated Quarterly Unemployment
From Blue Chip Economic Indicators
Reported
Figure
Pessimistic
Forecast
Consensus
Forecast
Optimistic
Forecast
1972-2002 Average:
4.8%
Source: Blue Chip Economic Indicators, July 10, 2015.
15
Deficit Problem Stems from Both
Increased Spending and Decreased Taxing
Taxes and Spending as Percentage of GDP
Current
Spending at
20.3% of GDP
Average
Spending:
20%
Average
Taxation:
17%
Current Taxes
at 17.5% of
GDP
Source: White House Office of Management and Budget, Historical Tables, 2015.
16
Gap Between Taxing and Spending Creates Deficit or Surplus
U.S.Taxing and Spending as Percentage of GDP
Inflation-Adjusted
(Billions of Dollars)
U.S. Deficit and Surplus
*Estimate
Source: White House Office of Management and Budget, Historical Tables, 2015.
17
Public Still Skeptical On National Outlook
Percentage Responding to Question:
“All in all, do you think things in the nation are generally headed
in the right direction, or do you feel things are off on the wrong track?”
65%
28%
Source: NBC/WSJ Poll, July 26-30, 2015.
18
Public Outlook for Economy Gradually Improving
Percentage Responding to Question:
“During the next twelve months, do you think that the
nation’s economy will get better or worse?”*
Better
% Better/Worse
Worse
25%
24%
*N.B.: Prior to April 2001, the question was phrased, “Over the past year…”
Source: NBC/WSJ Poll, July 26-30, 2015.
19
Consumers Optimism Improving But Still
Low by Historical Measure
Consumer Confidence Index ® and Consumer Sentiment
Conference Board’s Consumer Confidence Index®
Michigan/Reuters Consumer Sentiment
Index
past 5 years
Consumer
Confidence = 101.5
Consumer
Sentiment = 92.9
Source: Conference Board, August 2015; Thomson Reuters/University of Michigan Surveys of Consumers, August 2015.
20
Roadmap for the Presentation
Economic Vital Signs
American Politics
21
Congressional Partisanship Frames Fiscal Fights
Source: Senate.gov, 2014; Office of the Clerk of the House of Representatives, 2014; CNN, 2014.
22
Congressional Approval Hovers Near Three-Decade Low
Congressional Approval Rating
past 5 years
82%
14%
Source: Gallup.com, Aug 5-9, 2015.
23
Public Opinion Split on Democratic Party
NBC/WSJ Thermometer: Democratic Party
38%
38%
Source: NBC/WSJ Poll, July 26-30, 2015.
24
Public Holds Negative Opinion of GOP
NBC/WSJ Thermometer: Republican Party
44%
28%
Source: NBC/WSJ Poll, July 26-30, 2015.
25
Share of Self-Described Independents
Grows at Expense of Both Parties
Gallup’s Party Affiliation Survey
Responding to question: “In politics, as of today, do you consider
yourself a Republican, a Democrat, or an independent?”
41%
Independents
31%
Democrats
27%
Republicans
Source: Gallup.com, 2015.
26
In House, Fewer “Swing” Seats, More Polarization
Cook Political Report Rates the Districts
House Makeup by Cook Partisan Vote Index
Number
of Seats
Analysis
• According to the Cook Partisan Vote Index, the number of swing seats in the House has dropped 45%, from 164 in 1998 to
90 in 2014
• Fewer swing seats means more polarization in Congress
• As district populations grow increasingly liberal or conservative, incumbents fear radical primary challengers
Source: Cook Political Report, 2015.
27
Public Nearly Split on Obama’s Job Approval
NBC/WSJ’s Presidential Job Approval
Source: NBC/WSJ Poll, July 26-29, 2015; Gallup.com, Aug 17-23, 2015.
Gallup’s Presidential Job Approval
50%
51%
45%
44%
28