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Economic Outlook
Community Leaders ForumNovember 18, 2010
Presented by:
Juan del BustoRegional ExecutiveFederal Reserve Bank of Atlanta Miami Branch
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• Thanks for this opportunity today.
• We are interested in your input.
• My presentation.
• But first… a disclaimer.
AGENDA:
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The Southeast (and Florida) economy in perspective
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If the Southeast was an independent country, itsGDP would make it the 8th largest in the world.
Florida alone would be the world’s18th largest economy at $744 billion
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The Miami Branch zone would be the 32nd largest economy in the world in terms of GDP
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
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• SUPERVISION AND REGULATION
• PAYMENTS SERVICES – THE BANKERS BANK- Check paper based- Electronic- Cash
• ECONOMIC AND FINANCIAL EDUCATION
• MONETARY POLICY
THE FUNCTIONS OF THE FEDERAL RESERVE BANK AND THE MIAMI BRANCH:
What the Fed did to stem the crisis in 2008 and the current plan
Source: Federal Reserve Board
Agency Securities & Mortgage Backed Securities
TALF, CPFF, AMLF, MMIFF
Discount Window, TAF, Currency Swaps
Other Fed Assets: AIG, etc
Treasury Securities
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Key points
• 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.
• Inflation has stabilized at historically low levels.
• Risks to the outlook include renewed retrenchment by consumers, protracted weakness in the housing market, and deflation.
• 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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Annualized quarterly percent change
Blue Chip GDP Forecast
SOURCES: Blue Chip panel of economists, Nov 10, 2010.
ForecastActual
--- top ten--- bottom ten
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Historical lag between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle
End of Recession
Unemployment rate peak
Beginning of funds rate tightening
cycle
Months from end of recession to unemployment
peak
Months from unemployment
peak to beginning of funds rate
tightening cycleNov-01 Jun-03 Jul-04 19 13
Mar-91 Jun-92 Feb-94 15 20
Nov-82 Dec-82 Jun-83 1 6
(Jul 1980)
Mar-75 May-75 May-76 2 12
Nov-70 Aug-71 Mar-72 9 7
Policy changes usually lag unemployment peaks
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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 thediscouraged 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.Source: U.S. Bureau of Labor Statistics
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Underemployment is significantly higher than in past recessions.
October 2010
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September 2010Source: U.S. Bureau of Labor Statistics
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The depth of employment loss is substantial compared to previous recessions.
THE EMPLOYMENT LOSS HAS BEEN MORE SEVERE IN THE U.S THAN IN
OTHER COUNTRIESEmployment, 2007:QI = 100
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2010
PRODUCTIVITY UP IN THE U.S, DOWN EVERYWHERE ELSE
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2010
Consumers continue to reduce debt, especially credit card debt
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.
3Q 2010
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
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0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
0% 1% 2% 3% 4% 5%
Current Forecasts are very Pessimistic in Historical Context
Optimists
Consensus
Pessimists20011990-1991
1980
1973 - 75
1957 - 58
1981 - 82
1953 - 54
1960 - 61
1970
4 Quarter % Change After
Peak to Trough Decline in Real GDPSource: BEA;Blue Chip Economic Indicators,
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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.
Looking Ahead
Questions
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