Transcript The Miami Branch zone would be the 32 nd largest economy in the

Economic Outlook
Community Leaders Forum
November 18, 2010
Presented by:
Juan del Busto
Regional Executive
Federal Reserve Bank of Atlanta
Miami Branch
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AGENDA:
• Thanks for this opportunity today.
• We are interested in your input.
• My presentation.
• But first… a disclaimer.
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The Southeast (and Florida) economy in perspective
If the Southeast was an independent country, its
GDP would make it the 8th largest in the world.
Florida alone would be the world’s
18th largest economy at $744 billion
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South Florida’s economy is significant for many reasons. Size is
one of them.
• Miami – Ft. Lauderdale
Metro Area is the 41 largest
economy, roughly the size
of Singapore
• Miami Branch Zone (13
Southernmost counties in
Florida) is the 32 largest
economy, roughly the size
of Thailand
The Miami Branch zone would be the 32nd
largest economy in the world in terms of GDP
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THE FUNCTIONS OF THE FEDERAL RESERVE BANK AND THE
MIAMI BRANCH:
• SUPERVISION AND REGULATION
• PAYMENTS SERVICES – THE BANKERS BANK
- Check paper based
- Electronic
- Cash
• ECONOMIC AND FINANCIAL EDUCATION
• MONETARY POLICY
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What the Fed did to stem the crisis in 2008 and the current plan
Federal Reserve Assets (Uses of Funds)
2,500
$ billions
Agency Debt & MBS
Lending to Nonbank Credit Markets
2,000
Short-Term lending to Financials
Other
Treasuries
1,500
Discount Window, TAF, Currency Swaps
1,000
Other Fed Assets: AIG, etc
500
Treasury Securities
0
Dec-2007
Apr-2008
Aug-2008
Dec-2008
Apr-2009
Aug-2009
Dec-2009
Apr-2010
Aug-2010
Through Nov 03, 2010
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Source: Federal Reserve Board
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Source: Federal Reserve Board
Key points
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The U.S. economy continues to recover, but the pace of growth has
slowed, and further improvement is likely to be gradual.
•
Consumer spending is increasing at a modest pace, constrained by
persistently high unemployment and slow income growth.
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Inflation has stabilized at historically low levels.
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Risks to the outlook include renewed retrenchment by consumers,
protracted weakness in the housing market, and deflation.
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The fed funds rate will remain exceptionally low for “an extended
period” in light of weak conditions and heightened uncertainty about
the outlook.
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Blue Chip GDP Forecast
Annualized quarterly percent change
Actual
Forecast
--- top ten
--- bottom ten
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SOURCES: Blue Chip panel of economists, Nov 10, 2010.
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Policy changes usually lag unemployment peaks
Historical lag between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle
End of
Recession
Months from
Beginning of Months from end unemployment
of recession to peak to beginning
funds rate
unemployment
of funds rate
Unemployment
tightening
peak
tightening cycle
rate peak
cycle
Nov-01
Jun-03
Jul-04
19
13
Mar-91
Jun-92
Feb-94
15
20
Nov-82
Dec-82
Jun-83
1
6
Mar-75
May-75
May-76
2
12
Nov-70
Aug-71
Mar-72
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7
(Jul 1980)
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WHAT KIND OF GROWTH IS IT GOING TO TAKE TO
MAKE A SERIOUS DENT IN THE UNEMPLOYMENT RATE?
Unemployment
Economic Growth…
in excess of
productivity growth…
and ordinary labor
force growth…
and re-entry of the
discouraged workforce...
and absorption of the
underemployed.
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*Note: Marginally attached workers currently want a job and have looked for work within the last 12 months. This primarily
includes discouraged workers (those not currently looking for work because they believe no work is available given their
circumstance), and persons not now working due to family responsibilities, ill-health, or are in school.
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Source: U.S. Bureau of Labor Statistics
Underemployment is significantly higher than in
past recessions.
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October 2010
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Source: U.S. Bureau of Labor Statistics
September 2010
The depth of employment loss is substantial compared to previous
recessions.
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THE EMPLOYMENT LOSS HAS BEEN MORE
SEVERE IN THE U.S THAN IN OTHER COUNTRIES
Employment, 2007:QI = 100
2010
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PRODUCTIVITY UP IN THE U.S, DOWN
EVERYWHERE ELSE
2010
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Consumers continue to reduce debt, especially credit card debt
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Assumes recession ended July ‘09
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Many Florida homeowners are “underwater” or “upside down: owe more
on their mortgage than what their home is worth.
CoreLogic® 2Q10 Negative Equity Share
Oklahoma
New York
Pennsylvania
North Dakota
Montana
Kentucky
Iowa
Nebraska
Alabama
North Carolina
Alaska
Hawaii
Kansas
Indiana
Texas
Arkansas
Connecticut
New Mexico
Delaware
Wisconsin
Tennessee
South Carolina
Massachusetts
Washington
New Jersey
Missouri
Washington, DC
Oregon
Minnesota
New Hampshire
Colorado
Illinois
Ohio
Rhode Island
Utah
Maryland
Virginia
Nation
Idaho
Georgia
California
Michigan
Florida
Arizona
Nevada
3Q 2010
-10%
0%
10%
20%
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30%
40%
50%
60%
70%
AS STATE BUDGET GAPS REMAIN HIGH, OFFSET FROM
FEDERAL SUPPORT WANES.
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THE RECOVERY IS EXPECTED TO BE MODEST RELATIVE TO THE
MAGNITUDE OF THE RECESSION
Current Forecasts are very Pessimistic
in Historical Context
4 Quarter %
Change After
10%
9%
1953 - 54
8%
1981 - 82
1960 - 61
7%
1957 - 58
6%
1973 - 75
5%
1970
4%
1980
Optimists
3%
Consensus
1990-1991
2%
2001
Pessimists
1%
0%
0%
1%
Source: BEA; Blue Chip Economic Indicators,
2%
3%
4%
Peak to Trough Decline in Real GDP
5%
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Looking Ahead
Economic growth is weaker: GDP growth continuing but has downshifted
since the first quarter of 2010
Strengths: Some manufacturing growth, new equipment, software
investments
Weaknesses: Housing, household income growth, financial firms not
lending, and many small businesses not able to get financing.
Businesses not hiring.
Risks: Commercial real estate, state and local fiscal gaps, heightened
uncertainty, lack of confidence, continued high unemployment
Fed policy: QE2 over next several months as the Fed keeps a close eye
on conditions and will employ its policy tools as necessary to support the
economic recovery.
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Questions
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