A View from the Fed:
Slouching toward 2016
28th Annual Economic Outlook
Conference, University of Alabama
Culverhouse College of Commerce
Montgomery, AL
January 14, 2016
The views expressed are those of the author and do not necessarily
represent those of the Federal Reserve Bank of Atlanta or the Federal
Reserve System.
2
It appears that growth in the last three months of
2015 will look very weak.
Real GDP Component Tracking Forecasts
Change in GDP
Q3
Q4
(annualized %
BEA Estimate,
GDPNow, Jan. 8
change)
Dec. 22
Annualized GDP
Growth
2.0
0.8
Note: Most Q4 growth forecasts are tracking between 1.75
and 2.25 percent (annualized).
Sources: Bureau of Economic Analysis, FRBA
3
Inventories continue to weigh on near term growth.
Inventory to Sales Ratios
Inventory to Sales Ratio: Total Business
SA
SA
1.5
1.7
1.45
1.6
Retailers
Manufacturers
1.4
1.5
1.35
1.4
1.3
1.3
1.25
1.2
1.2
05 06 07 08 09 10 11 12 13 14 15
Source: Census Bureau
Wholesalers
1.1
05 06 07 08 09 10 11 12 13 14 15
data through November 2015
4
The divergence between topline GDP growth and final
sales continues – but Q4 is tracking soft nonetheless.
Real GDP Component Tracking Forecasts
Change in GDP
Q3
Q4
(annualized %
BEA Estimate,
GDPNow, Jan. 8
change)
Dec. 22
Annualized GDP
Growth
2.0
0.8
Annualized Final
Sales Growth
2.7
1.7
Sources: Bureau of Economic Analysis, FRBA
5
The manufacturing sector has struggled as the dollar has
strengthened.
The Dollar and the Manufacturing Sector
125
Index, Jan-97=100
SA, 50+ = Expansion
Nominal Broad Trade-Weighted Exchange Value of
the US$
ISM Manufacturing: PMI Composite Index (right
axis)
ISM Mfg: New Export Orders Index (SA, 50+ = Econ
Expand)
120
115
65
60
110
105
55
100
95
50
90
85
80
45
01-12
07-12
01-13
07-13
01-14
Source: Federal Reserve Board; Institute for Supply Management
07-14
01-15
07-15
Data through November 2015
6
We expect that the drag on structures investment is not
done yet.
Spot Oil Price and Baker Hughes Active Rig Count
$150
2000
RigCount,numberofac<verigs(rhs)
$120
$90
1500
1000
BrentSpot,$/barrel(lhs)
$60
500
$30
Jan-14
0
Mar-14
Jun-14
Sep-14
Dec-14
Source: Energy Information Administration, Baker Hughes
Feb-15
May-15
Aug-15
Nov-15
ThroughJanuary1,2016
7
Recent data on consumer spending hasn’t been as strong
as it was through the middle of 2015.
Personal Consumption Expenditure Growth
four-quarter annualized percent
3.5%
3.0%
2.5%
Average: 2.3%
2.0%
1.5%
1.0%
0.5%
0.0%
2010Q1
2011Q1
2012Q1
Source: Bureau of Economic Analysis, Atlanta Fed
2013Q1
2014Q1
2015Q1
Actual through Q3 2015, forecast through Q4
8
9
Despite the limp finish to 2015, we anticipate
above trend growth in 2016.
2015:q4/ 2016:q4/ Longerq4
q4
run
Real GDP Growth
Current FRBA
Staff Forecast
Dec. FOMC SEP
median
1.8a
2.5
2.1
2.1
2.4
2.0
a: assumes 0.8% in QIV.
Sources: FRBA forecasts; FOMC Summary of Economic Projections
10
Payroll growth has been exceptionally strong – and suggests
more strength in the economy than GDP growth might suggest.
Payroll Employment Changes
thousands of jobs, SA
450
400
350
Monthly change
12-month
average
300
250
200
150
100
50
3-month average
284,000 jobs/ month
12-month average
221,000 jobs/ month
0
11
Source: Bureau of Labor Statistics
12
13
14
15
through December 2015
11
Solid income (and increased savings) should provide a favorable
environment for consumption growth in the future.
Personal Savings Rate
percent
Real Disposable Personal Income
year-over-year percent change, SA
5%
6.0
4%
5.5
3%
5.0
2%
4.5
1%
4.0
12-13
0%
11-13
05-14
Source: Census Bureau
11-14
05-15
11-15
through November 2015
06-14
12-14
06-15
12-15
Source: Bureau of Economic Analysis
through November 2015
12
Trend wage growth has been weak for some time,
but may be picking up.
Wage Measures
5
Average Hourly Earnings of All Employees, year-over-year percent
change
Atlanta Fed Wage Growth Tracker, 3-mo. moving average
4
3
2
1
07
08
09
Source: Bureau of Labor Statistics
10
11
12
13
14
15
Wage tracker through November 2015; data through December 2015
13
Over the balance of the recovery, productivity
growth has been decidedly weak.
14
A lack of investment seems to be the smoking gun.
15
Inflation continues at a pace that is well below the
Fed’s target pace.
PCE Price Index
year-over-year percent change, monthly
4.0
PCE
3.5
3.0
2.5
FOMC Inflation Objective
2.0
1.5
1.0
0.5
0.0
12
13
Sources: Bureau of Economic Analysis;
14
15
through November 2015 16
17
Even trend measures that “look through” temporary
influence are running soft to the FOMC’s objective.
PCE Price Index
year-over-year percent change, monthly
4.0
PCE
Core PCE
3.5
FRBD trimmed-mean PCE
3.0
2.5
FOMC Inflation Objective
2.0
1.5
1.0
0.5
0.0
12
13
14
Sources: Bureau of Economic Analysis; Federal Reserve Bank of Dallas
15
through November 2015 18
We are probably close to “full employment”, but not quite
there.
ZPOP: The Share of the Population Fully Utilized
percent, seasonally-adjusted
95
94
93
92
91
90
89
88
87
86
07
08
09
10
11
12
13
14
15
through December 2015
Source: Bureau of Labor Statistics, authors’ calculations
19
20
The U.S. Economic
Outlook:
Slouching Towards 2016