Embed Size (px)
Citation preview
Economic Outlook for Consumers
William Strauss
Senior Economist
and Economic Advisor
Federal Reserve Bank of Chicago
University of Illinois Center for Economic and Financial EducationFinancial Fitness for LiveBloomington, ILApril 19, 2010
The “Great Recession” appears to have cometo an end around the middle of last year and
the economy expanded by 5.6% in the fourth quarter
-8
-6
-4
-2
0
2
4
6
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Real gross domestic productpercent
Quarterly change (saar)
Percent change from a year earlier
Fourth quarter GDP expanded at a fast pacewith contributions largely coming from
inventories, consumption and business fixed investment
5.6
1.20.5
0.1
3.8
-0.3
0.3
-1
0
1
2
3
4
5
6
GDP Consumption Business Fixed
Investment
Residential Investment
Inventories Government Net Exports
Contributions to real GDP growth in Q4:2009percentage points (annual rate)
The Chicago Fed National Activity Indexbottomed in January 2009 and has been rising
-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
Monthly
Chicago Fed National Activity Index
Three month average
GDP is forecast to growabove trend in 2010 and 2011
-8
-6
-4
-2
0
2
4
6
8
10
2000 01 02 03 04 05 06 07 08 09 10 11
Real gross domestic productpercent
Quarterly change (saar)
Percent change from a year earlier
Q4-2009
Blue Chip GDP Forecast
Actual Forecast 2009 2010 2011
0.1 2.9 3.2
The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles
98
100
102
104
106
108
110
112
114
116
-8 -7 -6 -5 -4 -3 -2 -1 0 1 2 3 4 5 6 7 8 9 10
Business cycle recovery pathindex - business cycle trough = 100
1981-82
2008-09
Blue Chip forecast recovery path
1974-75
quarters before trough quarters after trough
Inflation has begun to move higher
-1
0
1
2
3
4
5
6
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Personal consumption expenditure - chain price indexpercent change from a year earlier
In large part due to the movement of oil prices
0
20
40
60
80
100
120
140
1970 '75 '80 '85 '90 '95 '00 '05 '10
Real West Texas Intermediate oil pricedollars per barrel. 2009 dollars
Removing the volatile food and energy components from the PCE,
“core” inflation remains contained
0
1
2
3
4
5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Personal consumption expenditure - less food and energy -chain price indexpercent change from a year earlier
Inflation is anticipated to riseby 1.7 percent this year and 2.0 percent next year
-10
-8
-6
-4
-2
0
2
4
6
8
2000 01 02 03 04 05 06 07 08 09 10 11
Consumer price indexpercent
Quarterly change (saar)
Percent change from a year earlier Q1-2010Blue Chip CPI Forecast
Actual Forecast 2009 2010 20111.5 1.7 2.0
Employment has fallen by over 8.2 million jobssince December 2007
-7-6-5-4-3-2-10123456
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Total employmentpercent
Monthly change (saar)
Percent change from a year earlier
The unemployment rate appears to havepeaked at 10.1% in October 2009
3
4
5
6
7
8
9
10
11
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Unemployment ratepercent
The unemployment rate is believed to have peakedin the final quarter of 2009 and is forecast to edge lower
0
2
4
6
8
10
12
2000 01 02 03 04 05 06 07 08 09 10 11
Unemployment ratepercent
Unemployment ratepercent
Q1-2010
Blue Chip Forecast
Real disposable income growth remains weak
-10-8-6-4-202468
1012
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Real disposable personal incomepercent
Quarterly change (saar)
Percent change from a year earlier
Real disposable personal income is anticipatedto rise at a solid pace through 2011
-10-8-6-4-202468
1012
2000 01 02 03 04 05 06 07 08 09 10 11
Real disposable personal incomepercent
Quarterly change (saar)
Percent change from a year earlier
Q4-2009
Blue Chip DPI Forecast
Actual Forecast 2009 2010 20110.9 2.4 2.7
The standard of living in the United Statesremains near its record high
$0
$5,000
$10,000
$15,000
$20,000
$25,000
$30,000
$35,000
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05
Real disposable personal income - per capita2005 chained dollars
Consumer spending improved in the second half of 2009
-4
-2
0
2
4
6
8
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Real personal consumption expenditurespercent
Quarterly change (saar) Percent change from a year earlier
Consumer spending growth is expected toimprove over the next two years
-4
-2
0
2
4
6
8
2000 01 02 03 04 05 06 07 08 09 10 11
Real personal consumption expenditurespercent
Quarterly change (saar)
Percent change from a year earlier
Q4-2009
Blue Chip PCE Forecast
Actual Forecast 2009 2010 20111.0 2.6 2.7
Personal savings rate has increased
0
2
4
6
8
10
12
14
16
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
Personal savings as a percent of disposable personal incomepercent
What is your number?
The stock market has improved since March 2009,but remains well below previous levels
0
200
400
600
800
1,000
1,200
1,400
1,600
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
S&P 500 stock indexIndex: 1941-43 = 10
After peaking in June 2005, home prices have fallen 28%
$90,000
$110,000
$130,000
$150,000
$170,000
$190,000
$210,000
$230,000
$250,000
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Median sales price - existing single family home3-month smoothed
Homeowners’ equity stake plunged over the past four years
30
35
40
45
50
55
60
65
70
75
80
1955 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05
Homeowners' equity as a percent of real estate valuepercent
The home ownership rate has been moving lower
62
63
64
65
66
67
68
69
70
1965 '70 '75 '80 '85 '90 '95 '00 '05
Homeownership ratepercent
Mortgage rates are very low
4
5
6
7
8
9
10
11
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Mortgage rate - 30-year fixedpercent
Home price declines have been large
-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
Median sales price - existing single family home3-month smoothed - percent change from a year earlier
Home price declines in the second quarter, compared with a year-earlier, were quite large in the West and Florida
7 Red States4 Light Blue States
Conditions improved in the third quarter with prices down around 4% compared with a year-earlier
4 Red States7 Light Blue States
In the fourth quarter, home prices fell by just overone percent over the past year
3 Red States19 Light Blue States
Housing affordability improved dramatically
90
100
110
120
130
140
150
160
170
180
190
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Composite housing affordability indexindex=100 when median family income qualifies for an 80% mortgage
on a median priced existing single family home
Consumer attitudes for buying a home remain very low
0
1
2
3
4
5
6
1980 '85 '90 '95 '00 '05 '10
Consumer attitudes - plan to buy a home in next six monthspercent of respondents
Lending standards for mortgage loans remain tight
-20
0
20
40
60
80
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Senior Loan Officer Opinion Surveynet percentage of domestic respondents tightening mortgage loan standards
The forecast calls for a very slow recovery in housing
0
500
1,000
1,500
2,000
2,500
1980 '85 '90 '95 '00 '05 '10
Housing startsthousands
Blue Chip Housing StartsForecast (thousands)
Actual Forecast 2009 2010 2011553 685 952
The financial obligation ratio has been moving lower
10
15
20
25
30
35
1980 '85 '90 '95 '00 '05
Household financial obligations divided by disposable incomepercent
renting households
all households
homeowning households
Both mortgage and consumer loan obligationshave been improving for homeowning households
0
5
10
15
20
1980 '85 '90 '95 '00 '05
Homeowning households financial obligations divided bydisposable incomepercent
consumer loans
mortgages
Total
Debt as a share of financial assets has been falling over the past year
15
20
25
30
35
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Total household debt as a percent of financial assetspercentpercent
Low mortgage rates, greater home ownershipparticipation and a strong housing market led consumersto increase their mortgage debt load over the past decade,
however deleveraging is currently underway
55
60
65
70
75
80
85
90
95
100
1990 '93 '96 '99 '02 '05 '08
Mortgage debt as a percentage of disposable incomepercent
Financial stress remains a major problem for thehousing sector across all categories,
but especially for adjustable rate mortgagesand largely in subprime mortgages
0
5
10
15
20
25
30
35
40
45
1998 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Delinquencies on Mortgagespercent of loans 90 or more days past due or in foreclosure
Subprime - ARM
Prime - ARM
Subprime - FRM
Prime - FRM
Consumer credit as a share of disposable incomehas been moving lower over the past few years
16
17
18
19
20
21
22
23
24
25
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Consumer credit as a percentage of disposable incomepercent
Household net worth has begun to improve
400
450
500
550
600
650
1955 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05
Households net worth divided by disposable incomepercent
The bank card delinquency rate have begun to move lower
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Delinquency rate - bank card loanspercent
The direct auto loan delinquency rate have also been falling
1.0
1.5
2.0
2.5
3.0
3.5
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Delinquency rate - automobile direct loanspercent
Indirect vehicle loan delinquency ratehas been slowly improving
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Delinquency rate - automobile indirect loanspercent
Personal loan delinquency rate appears to have peakedand is beginning to improve
1.5
2.0
2.5
3.0
3.5
4.0
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Delinquency rate - personal loanspercent
The Fed has been very aggressive, lowering theFed Funds rate by nearly 525 basis points
0
1
2
3
4
5
6
7
8
9
1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10
Fed Funds ratepercent
The Fed’s balance sheet has expandedin size and in composition
0
500
1,000
1,500
2,000
2,500
Assets of the Federal ReserveBillions 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
•The outlook is for the U.S. economy to expand at a
solid pace this year and next year
Summary
•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
