Transcript Midwest Economic Outlook - University of Illinois at

Economic Outlook for Consumers
University of Illinois Center for Economic
and Financial Education
Financial Fitness for Live
Bloomington, IL
April 19, 2010
William Strauss
Senior Economist
and Economic Advisor
Federal Reserve Bank of Chicago
The “Great Recession” appears to have come
to an end around the middle of last year and
the economy expanded by 5.6% in the fourth quarter
Real gross domestic product
percent
8
Quarterly change (saar)
6
4
2
0
-2
Percent change from a year earlier
-4
-6
-8
1990 '91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Fourth quarter GDP expanded at a fast pace
with contributions largely coming from
inventories, consumption and business fixed investment
Contributions to real GDP growth in Q4:2009
percentage points (annual rate)
6
5.6
5
3.8
4
3
2
1.2
0.5
1
0.3
0.1
0
-0.3
-1
GDP
Consumption
Business Residential Inventories Government Net Exports
Fixed
Investment
Investment
The Chicago Fed National Activity Index
bottomed in January 2009 and has been rising
Chicago Fed National Activity Index
2.0
1.0
0.0
-1.0
-2.0
Three month average
-3.0
-4.0
Monthly
-5.0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
GDP is forecast to grow
above trend in 2010 and 2011
Real gross domestic product
Blue Chip GDP Forecast
percent
Actual
2009
0.1
10
8
Quarterly change (saar)
6
Forecast
2010
2011
2.9
3.2
Q4-2009
4
2
0
-2
Percent change from a year earlier
-4
-6
-8
2000
01
02
03
04
05
06
07
08
09
10
11
The forecast path of the current recovery is relatively muted
compared with past deep recession recovery cycles
Business cycle recovery path
index - business cycle trough = 100
116
1981-82
114
112
1974-75
110
108
106
2008-09
104
102
Blue Chip forecast recovery path
100
98
-8
-7
-6 -5 -4 -3 -2
quarters before trough
-1
0
1
2
3
4
5
6
7
quarters after trough
8
9
10
Inflation has begun to move higher
Personal consumption expenditure - chain price index
percent change from a year earlier
6
5
4
3
2
1
0
-1
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
In large part due to the movement of oil prices
Real West Texas Intermediate oil price
dollars per barrel. 2009 dollars
140
120
100
80
60
40
20
0
1970
'75
'80
'85
'90
'95
'00
'05
'10
Removing the volatile food and energy
components from the PCE,
“core” inflation remains contained
Personal consumption expenditure - less food and energy chain price index
percent change from a year earlier
5
4
3
2
1
0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Inflation is anticipated to rise
by 1.7 percent this year and 2.0 percent next year
Consumer price index
percent
8
Quarterly change (saar)
6
4
2
0
-2
Percent change from a year earlier
Q1-2010
-4
Blue Chip CPI Forecast
-6
Actual
2009
1.5
-8
Forecast
2010
2011
1.7
2.0
-10
2000
01
02
03
04
05
06
07
08
09
10
11
Employment has fallen by over 8.2 million jobs
since December 2007
Total employment
percent
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
Percent change from a year earlier
Monthly change (saar)
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
The unemployment rate appears to have
peaked at 10.1% in October 2009
Unemployment rate
percent
11
10
9
8
7
6
5
4
3
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
The unemployment rate is believed to have peaked
in the final quarter of 2009 and is forecast to edge lower
Unemployment rate
percent
12
Blue Chip Forecast
Q1-2010
10
8
6
4
2
0
2000
01
02
03
04
05
06
07
08
09
10
11
Real disposable income growth remains weak
Real disposable personal income
percent
12
10
8
6
4
2
0
-2
-4
-6
-8
-10
Percent change from a year earlier
Quarterly change (saar)
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Real disposable personal income is anticipated
to rise at a solid pace through 2011
Blue Chip DPI Forecast
Real disposable personal income
Actual
2009
0.9
percent
12
Quarterly change (saar)
10
8
6
4
2
0
-2
-4
-6 Percent change from a year earlier
-8
-10
2000
01
02
03
04
05
Forecast
2010
2011
2.4
2.7
Q4-2009
06
07
08
09
10
11
The standard of living in the United States
remains near its record high
Real disposable personal income - per capita
2005 chained dollars
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
1960
'65
'70
'75
'80
'85
'90
'95
'00
'05
Consumer spending improved in the second half of 2009
Real personal consumption expenditures
percent
8
Percent change from a year earlier
Quarterly change (saar)
6
4
2
0
-2
-4
1990 '91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Consumer spending growth is expected to
improve over the next two years
Real personal consumption expenditures
percent
8
Blue Chip PCE Forecast
Quarterly change (saar)
Actual
2009
1.0
6
Forecast
2010
2011
2.6
2.7
4
Q4-2009
2
0
-2
Percent change from a year earlier
-4
2000
01
02
03
04
05
06
07
08
09
10
11
Personal savings rate has increased
Personal savings as a percent of disposable personal income
percent
16
14
12
10
8
6
4
2
0
1960
'65
'70
'75
'80
'85
'90
'95
'00
'05
'10
What is your number?
The stock market has improved since March 2009,
but remains well below previous levels
S&P 500 stock index
Index: 1941-43 = 10
1,600
1,400
1,200
1,000
800
600
400
200
0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
After peaking in June 2005, home prices have fallen 28%
Median sales price - existing single family home
3-month smoothed
$250,000
$230,000
$210,000
$190,000
$170,000
$150,000
$130,000
$110,000
$90,000
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Homeowners’ equity stake plunged over the past four years
Homeowners' equity as a percent of real estate value
percent
80
75
70
65
60
55
50
45
40
35
30
1955
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
The home ownership rate has been moving lower
Homeownership rate
percent
70
69
68
67
66
65
64
63
62
1965
'70
'75
'80
'85
'90
'95
'00
'05
Mortgage rates are very low
Mortgage rate - 30-year fixed
percent
11
10
9
8
7
6
5
4
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Home price declines have been large
Median sales price - existing single family home
3-month smoothed - percent change from a year earlier
20
15
10
5
0
-5
-10
-15
-20
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Home price declines in the second quarter, compared with a
year-earlier, were quite large in the West and Florida
7 Red States
4 Light Blue States
Conditions improved in the third quarter with prices down
around 4% compared with a year-earlier
4 Red States
7 Light Blue States
In the fourth quarter, home prices fell by just over
one percent over the past year
3 Red States
19 Light Blue States
Housing affordability improved dramatically
Composite housing affordability index
index=100 when median family income qualifies for an 80% mortgage
on a median priced existing single family home
190
180
170
160
150
140
130
120
110
100
90
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Consumer attitudes for buying a home remain very low
Consumer attitudes - plan to buy a home in next six months
percent of respondents
6
5
4
3
2
1
0
1980
'85
'90
'95
'00
'05
'10
Lending standards for mortgage loans remain tight
Senior Loan Officer Opinion Survey
net percentage of domestic respondents tightening mortgage loan standards
80
60
40
20
0
-20
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
The forecast calls for a very slow recovery in housing
Housing starts
thousands
2,500
2,000
1,500
1,000
Blue Chip Housing Starts
Forecast (thousands)
Actual
2009
553
500
Forecast
2010
2011
685
952
0
1980
'85
'90
'95
'00
'05
'10
The financial obligation ratio has been moving lower
Household financial obligations divided by disposable income
percent
35
renting households
30
25
20
all households
15
homeowning households
10
1980
'85
'90
'95
'00
'05
Both mortgage and consumer loan obligations
have been improving for homeowning households
Homeowning households financial obligations divided by
percent
disposable income
20
Total
15
mortgages
10
5
consumer loans
0
1980
'85
'90
'95
'00
'05
Debt as a share of financial assets
has been falling over the past year
Total household debt as a percent of financial assets
percent
35
30
25
20
15
1990 '91
'92
'93
'94
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Low mortgage rates, greater home ownership
participation and a strong housing market led consumers
to increase their mortgage debt load over the past decade,
however deleveraging is currently underway
Mortgage debt as a percentage of disposable income
percent
100
95
90
85
80
75
70
65
60
55
1990
'93
'96
'99
'02
'05
'08
Financial stress remains a major problem for the
housing sector across all categories,
but especially for adjustable rate mortgages
and largely in subprime mortgages
Delinquencies on Mortgages
percent of loans 90 or more days past due or in foreclosure
45
40
Subprime - ARM
35
30
25
20
15
Subprime - FRM
10
5
Prime - FRM
Prime - ARM
0
1998
'99
'00
'01
'02
'03
'04
'05
'06
'07
'08
'09
Consumer credit as a share of disposable income
has been moving lower over the past few years
Consumer credit as a percentage of disposable income
percent
25
24
23
22
21
20
19
18
17
16
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Household net worth has begun to improve
Households net worth divided by disposable income
percent
650
600
550
500
450
400
1955
'60
'65
'70
'75
'80
'85
'90
'95
'00
'05
The bank card delinquency rate have begun to move lower
Delinquency rate - bank card loans
percent
5.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
The direct auto loan delinquency rate have also been falling
Delinquency rate - automobile direct loans
percent
3.5
3.0
2.5
2.0
1.5
1.0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Indirect vehicle loan delinquency rate
has been slowly improving
Delinquency rate - automobile indirect loans
percent
3.75
3.50
3.25
3.00
2.75
2.50
2.25
2.00
1.75
1.50
1.25
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Personal loan delinquency rate appears to have peaked
and is beginning to improve
Delinquency rate - personal loans
percent
4.0
3.5
3.0
2.5
2.0
1.5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
The Fed has been very aggressive, lowering the
Fed Funds rate by nearly 525 basis points
Fed Funds rate
percent
9
8
7
6
5
4
3
2
1
0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
The Fed’s balance sheet has expanded
in size and in composition
Assets of the Federal Reserve
Billions of dollars
2,500
Maiden Lane II & III
2,000
Term Asset-Backed Securities
Loan Facility
AIG Support
Central Bank Swaps
1,500
Commercial Paper Facility
1,000
Maiden Lane
Term Auction Credit
500
Securities Held Outright
0
2007
2008
2009
2010
Summary
•The outlook is for the U.S. economy to expand at a
solid pace this year and next year
•Employment is expected to rise moderately this year and next
year, with the unemployment rate edging lower through 2011
•Slackness in the economy will lead to a relatively
low inflation rate over the next two years
•A big question remains about consumer spending/savings
over the next several years
•The consumer does appear to be putting their financial house
in order – is this by their choice?
www.chicagofed.org
www.federalreserve.gov