ETI - 180501 - Final 2018/2018... · 2018-05-07 · 7kh )hghudo 2shq 0dunhw &rpplwwhh )20& h[shfwv...

$: ETI - 180501 - Final 2018/2018... · 2018-05-07 · 7kh )hghudo 2shq 0dunhw &rpplwwhh )20& h[shfwv *'3 wr jurz deryh wuhqg wklv \hdu vrphzkdw deryh wuhqg qh[w \hdu dqg durxqg wuhqg$
Economic Outlook

William Strauss

Senior Economist

and Economic Advisor

Federal Reserve Bank of Chicago

ETI ToolTech 2018Tucson, AZMay 1, 2018

GDP expanded by 2.9% over the past year

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-8

-6

-4

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2

4

6

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Real gross domestic productpercent

Quarterly change (saar)

Percent change from a year earlier

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Monthly

Chicago Fed National Activity Index

Three month average

The Chicago Fed National Activity Index 3-monthis above zero

The real value of the stock market is very high

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100

150

200

250

300

350

400

450

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Real S&P 500 stock indexIndex: 1990 = 100

The Federal Open Market Committee (FOMC) expectsGDP to grow above trend this year;

somewhat above trend next year; and around trend in 2020

-5-4-3-2-10123456

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Real gross domestic productpercent change from a year earlier

FOMC

FOMC Central Tendency (March 2018)

2018 2.6 – 3.02019 2.2 – 2.62020 1.8 – 2.1

Longer run 1.8 – 2.0

The probability of recession in the next quarter has eased

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60

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80

90

100

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Probablility of a recession - one quarters ahead (Survey of Professional Forecasters)percent

The same is true for the chances of a recessionover the next two quarters

0

10

20

30

40

50

60

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Probablility of a recession - two quarters ahead (Survey of Professional Forecasters)percent

The index of leading indicators continues to rise

0

20

40

60

80

100

120

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Composite Index of 10 Leading IndicatorsIndex (2016=100)

-7-6-5-4-3-2-101234

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Total employmentpercent



Employment increased by over 2.2 million jobsover the past 12 months

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11

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Unemployment ratepercent

The unemployment rate has fallen to 4.1%

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Unemployment ratepercent

FOMC

The FOMC forecasts that the unemployment ratewill be well below the natural rate through 2020


2018 3.6 – 3.82019 3.4 – 3.72020 3.5 – 3.8


Wages and benefit costs continue to increaseat a moderate rate,

although it may finally be picking up some its pace

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Employment cost indexpercent change from year ago

benefit costs

wages and salaries

There is a very strong correlation between 9-month lead NFIB: planning to raise compensation and

Employment Cost Index: wages and salaries

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

5

10

15

20

25

1986 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

Empolyment cost index - wages and salaries and NFIB: Companies planning to raise wages and salaries

% of frims

ECI: wages and salaries(private industry workers) - right scale

NFIB: Companies planning to raise worker compensation(9 month lead) - left scale

% y/y

Correlation = 0.85

Slow productivity growth helps explain why relatively strong employment growth has not translated into higher wages

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0

1

2

3

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5

1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Productivtypercent change (20-qtr rate)

A large part of the weakness in productivity growthhas been the weak pace of investment,

although it increased at a solid pace beginning in 2017

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20

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Real private nonresidential fixed investment percent



This may help explain the productivitygrowth improvement over the past year

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1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Productivtypercent change from a year earlier

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-1

0

1

2

3

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5

6

1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Personal consumption expenditure - chain price indexpercent change from a year earlier

Inflation reached the Fed target of 2% in March

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80

100

120

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160

1970 '75 '80 '85 '90 '95 '00 '05 '10 '15

Real West Texas Intermediate oil pricedol lars per barrel, 2016 dollars

In large part inflation has been followingthe pattern of energy prices

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9

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1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

Expenditures on energy remainwell below the historical average

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7

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9

10

1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

Energy goods and services expenditures as a share oftotal consumptionpercent

60s

70s

80s

90s 00s

1960-2017

10s

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier

Removing the volatile food and energy components from the PCE,

“core” inflation is just below 2%

The FOMC anticipates that PCE inflation will be aroundits two percent target beginning this year

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1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Personal consumption expenditure - chain price indexpercent change from a year earlier

FOMC


2018 1.8 – 2.0 2019 2.0 – 2.2 2020 2.1 – 2.2

Longer run 2.0

0

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2

3

4

5

1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20

Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier

FOMC

The FOMC anticipates that “core” PCE inflationwill get close to two percent this year


2018 1.8 – 2.02019 2.0 – 2.2 2020 2.1 – 2.2

Inflation Exchange RateReal GDP % change Against Interest Rates% change Annual US Dollar 3-Month

Annual Consumer Prices End of Year End of Year2017 2018 2019 2017 2018 2019 2018 2019 2018 2019

United States 2.3 2.8 2.6 2.1 2.4 2.2 - - 1.88 2.60Canada 3.0 2.1 1.9 1.6 2.1 2.0 1.26 1.26 1.92 2.54Mexico 2.1 2.1 2.3 6.0 4.5 3.8 18.99 18.69 7.09 6.50

Japan 1.7 1.4 1.1 0.5 1.1 1.1 107.5 107.6 -0.03 0.03South Korea 3.1 2.9 2.7 1.9 1.8 2.0 1,061 1,059 1.85 2.09

United Kingdom 1.7 1.5 1.4 2.7 2.5 2.1 1.39 1.42 0.89 1.20Germany 2.5 2.4 2.0 1.7 1.7 1.8 1.24 1.28 -0.23 0.12

France 1.9 2.1 1.8 1.2 1.5 1.5 1.24 1.28 -0.23 0.12Euro Zone 2.5 2.3 1.9 1.5 1.5 1.6 1.24 1.28 -0.23 0.12

Brazil 1.0 2.5 2.8 3.4 3.5 4.2 3.35 3.36 6.64 7.24Russia 1.8 1.8 1.7 3.7 3.2 4.0 58.0 57.7 7.13 6.91China 6.9 6.4 6.3 1.6 2.3 2.5 6.36 6.41 4.08 4.06India 6.7 7.3 7.5 3.5 4.9 4.9 65.6 66.0 6.57 6.60

Blue Chip Economic Indicators Forecast April 10, 2018

Blue Chip International Consensus Forecasts

Over the past couple of years,the real trade-weighted dollar increased by just over 22%,

but since early 2017 it has fallen nearly 8%

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Trade-weighted exchange value of the U.S. dollar (real)index: March 1973=100

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10'11 '12 '13 '14 '15 '16 '17 '18

Industrial production - manufacturingpercent



Manufacturing output is increasingafter being unchanged for the past couple of years

62646668707274767880828486

1990'91 '92 '93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16'17 '18

Capacity utilization - manufacturingpercent

Capacity utilization has been movinghigher over the past year,

but is still below full utilization

Apr-17 May-17 Jun-17 Jul-17 Aug-17 Se p-17 Oct-17 Nov-17 De c-17 Ja n-18 Fe b-18 Ma r-18

Globa l 52.7 52.6 52.6 52.7 53.1 53.3 53.5 54.1 54.5 54.4 54.1 53.4

Unite d Sta tes 52.8 52.7 52.0 53.3 52.8 53.1 54.6 53.9 55.1 55.5 55.3 55.6

Cana da 55.9 55.1 54.7 55.5 54.6 55.0 54.3 54.4 54.7 55.9 55.6 55.7

Mexico 50.7 51.2 52.3 51.2 52.2 52.8 49.2 52.4 51.7 52.6 51.6 52.4

Eurozone 56.7 57.0 57.4 56.6 57.4 58.1 58.5 60.1 60.6 59.6 58.6 56.6

Ge rma ny 58.2 59.5 59.6 58.1 59.3 60.6 60.6 62.5 63.3 61.1 60.6 58.2

Fra nce 55.1 53.8 54.8 54.9 55.8 56.1 56.1 57.7 58.8 58.4 55.9 53.7

Ita ly 56.2 55.1 55.2 55.1 56.3 56.3 57.8 58.3 57.4 59.0 56.8 55.1

Spa in 54.5 55.4 54.7 54.0 52.4 54.3 55.8 56.1 55.8 55.2 56.0 54.8

UK 57.3 56.7 54.2 55.3 56.7 56.0 56.3 58.2 56.2 55.3 55.0 55.1

Russia 50.8 52.4 50.3 52.7 51.6 51.9 51.1 51.5 52.0 52.1 50.2 50.6

Ja pan 52.7 53.1 52.4 52.1 52.2 52.9 52.8 53.6 54.0 54.8 54.1 53.1

China 50.3 49.6 50.4 51.1 51.6 51.0 51.0 50.8 51.5 51.5 51.6 51.0

India 52.5 51.6 50.9 47.9 51.2 51.2 50.3 52.6 54.7 52.4 52.1 51.0

Brazil 50.1 52.0 50.5 50.0 50.9 50.9 51.2 53.5 52.4 51.2 53.2 53.4

Manufacturers’ Purchasing Managers Indexes

Current 3 Month Moving Average Growth is:Above Trend and Accerating

Above Trend and DeceleratingBelow Trend and AcceleratingBelow Trend and Decelerating

Contracting but ImprovingContracting and Deteriorating

5-year Trend 2012 2013 2014 2015 2016 2017Manufacturing 0.7%

Wood Products 3.9%

Nonmetallic Mineral Products 3.3%

Primary Metals -1.0%

Fabricated Metal Products 0.0%

Machinery -1.7%

Computer and Electronic Components 3.2%

Electrical Eqpt, Appliances & Components 0.7%

Motor Vehicles and Parts 4.6%

Aerospace & Misc. Transport Equip -1.0%

Furniture and Related Products 0.6%

Miscellaneous Durable Goods -1.8%

Food, Beverages, and Tobacco 1.6%

Textile and Product Mills -0.8%

Apparel and Leather Goods -4.5%

Paper -0.8%

Printing and Related Support Activities -0.5%

Chemicals 0.2%

Petroleum and Coal Products 0.6%

Plastics and Rubber Products 1.6%

The industrial sector output growthhas been strong over the past several months

Manufacturing Industries Activity ChartGrowth (3-month moving average)

compared with the most recent 5-year trend

2018

Manufacturing employment increased by 224,000 workersover the past 12 months

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Manufacturing employmentpercent



Sales for the first four months of 2018has averaged 17.1 million units (saar),

0.3% higher than a comparable a year earlier

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Light vehicle salesmil lions of units (saar)

Year-to-date light truck sales are 8.0% higher,while year-to-date passenger car sales are 13.1% lower

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Passenger car and light truck salesmil lions of units (saar)

light trucks

passenger cars

Light truck market share set a record high in April

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Light truck share of light vehicle market salespercent

Days supply of passenger cars are a bithigher than the industry desires,

but light truck inventories are right at desired levels

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Passenger car and light truck days supplydays

light trucks

passenger cars

Alternative powered vehicles (including hybrids)are a very small fraction of total vehicle sales

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Power-Typepercent of total sales

Alternative

Gasoline and Diesel

Alternative powered vehicles (including hybrids)market share barely exceeded 4%

and have been declining over the past two years

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Alternative Powered Vehiclespercent of total sales

Blue Chip Forecasts vehicle sales toedge lower this year and next year

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1980 '85 '90 '95 '00 '05 '10 '15

Vehicle salesmil lions of units

Blue Chip Light-VehicleSales Forecast

Actual Forecast 2017 2018 201917.1 17.0 16.7

The supply managers’ composite indexremains at a very solid level

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10'11 '12 '13 '14 '15 '16 '17 '18

Purchasing managers' index - compositenet percent reporting increases

Industrial production is forecast to improveat a pace above its historical rate this year

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Total industrial productionpercent



Q1-2018

Blue Chip IP ForecastActual Forecast 2017 2018 20193.0 4.6 2.3

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1965 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

United States

Homeownership ratepercent

Midwest

The Blue Chip Forecast calls for a continuationof the very gradual recovery in housing

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1,000

1,500

2,000

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1980 '85 '90 '95 '00 '05 '10 '15

Housing startsthousands

Blue Chip Housing StartsForecast (thousands)

Actual Forecast 2017 2018 20191,207 1,292 1,337

Credit spreads between Corporate High Yield securitiesand Corporate Aaa securities remains very low

The yield curve remains well above zero

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1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18

Yield curve - 10-year Treasury note yield minus3-month Treasury bill yieldpercent

Blue Chip expects the yield curve to continueto flatten through next year, but not invert

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2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

10-year T-Note to 3-month T-Bill spreadpercent

Q1 -2018

percent

Blue Chip Forecast

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1990'91 '92'93 '94 '95 '96 '97'98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11'12 '13 '14 '15 '16'17 '18

Fed Funds ratepercent

The Federal Reserve increased the Federal Funds rate by 1.25% since December 2015

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Target Federal Funds Ratepercent

FOMC

The Federal Funds Rate is expected to bearound the neutral rate by the end of 2019


2018 2.1 – 2.42019 2.8 – 3.42020 3.1 – 3.6


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2,000

2,500

3,000

3,500

4,000

4,500

Assets of the Federal ReserveBi l lions of dollars

Term Auction Credit

Securities Held Outright

Central Bank Swaps

Maiden Lane II & III

Commercial Paper Facility

2007 2008 2009

Term Asset-Backed SecuritiesLoan Facility

AIG Support

Maiden Lane

2010 2011 2012 2013 2014 2015 2016 2017

The Fed’s balance sheet had remained flat for several years but the Fed began reducing it in October 2017

•The outlook is for the U.S. economy to expand at a pace

above trend in 2018 and 2019 and close to trend in 2020

Summary

•Employment is expected to rise moderately with the

unemployment rate remaining very low

•Inflation is forecast rise to the Fed’s Inflation target this year

•Vehicle sales are anticipated to edge lower this year and in 2019

•Manufacturing output is expected to increase at a rate

above trend in 2018

•Housing is predicted to improve at a modest pace

www.chicagofed.org www.federalreserve.gov

ETI - 180501 - Final 2018/2018... · 2018-05-07 · 7kh )hghudo 2shq 0dunhw &rpplwwhh )20& h[shfwv...

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Transcript of ETI - 180501 - Final 2018/2018... · 2018-05-07 · 7kh )hghudo 2shq 0dunhw &rpplwwhh )20& h[shfwv...