The Post-FOMC Post Mortem: QE not so Mortem 2013 Gulf Power Economic Symposium Sandestin, FL September 30, 2013

The Post-FOMC Post Mortem: QE not so Mortem

2013 Gulf Power Economic SymposiumSandestin, FLSeptember 30, 2013

… the Committee decided to continue purchasing additional agency mortgage-backed securities at a pace of $40 billion per month and longer-term Treasury securities at a pace of $45 billion per month.

FOMC statement; September 18 2013

Shock, if not awe.

“… our policy decision had two

main elements. First, the

Committee decided

to continue purchasing additional

agency mortgage-backed

securities… and longer-term

Treasury securities…

Chairman Ben BernankeMarch 20, 2013

“Second, the Committee kept the target

for the federal funds rate at 0 to ¼

percent... we anticipate that this

exceptionally low range for the funds

rate will be appropriate at least as long

as the unemployment rate remains

above 6½ percent…

Chairman Ben BernankeMarch 20, 2013

“If the incoming data are broadly

consistent with [our] forecast, the

Committee anticipates that it

would be appropriate to moderate

the monthly pace of purchases

later this year…”

Chairman Ben BernankeJune 19, 2013

“We have a three-part baseline

projection which involves increasing

growth…, continuing gains in the labor

market, and inflation moving back

towards objective… we’ll be looking to

see if the data confirm that basic

outlook.”

Chairman Ben BernankeSeptember 18, 2013







outlook.”


08 09 10 11 12 13-1000

-800

-600

-400

-200

0

200

400

600

184

169

12-month average

Monthly change

Payroll Employment Changes seasonally adjusted, thousands of jobs

Source: Bureau of Labor Statisticsdata through August 2013

9

While the longer-term average of monthly employment growth continued near its two-year

trend….

Source: Bureau of Labor Statistics, author’s calculationsdata through August 2013

10

… job growth over the summer was a substantial step down from the pace earlier in the year.

2010 - Oct

2010 - Dec

2011 - Feb

2011 - Apr

2011 - Jun

2011 - Aug

2011 - Oct

2011 - Dec

2012 - Feb

2012 - Apr

2012 - Jun

2012 - Aug

2012 - Oct

2012 - Dec

2013 - Feb

2013 - Apr

2013 - Jun

2013 - Aug

0

0.5

1

1.5

2

2.5

Job Growth MomentumAverage 3-month change relative to average 12-

month changeIncreasing momentum

Decreasing momentum

11

May-13 Jun-13 Jul-13-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

20,000

Monthly U.S. Payroll RevisionsThousands

Change from 1st Re-lease

Change from 2nd Re-lease

U.S. Department of Labor Statistics

Additionally, the revisions to initial employment reports have been persistently negative.







outlook.”


13Source: Bureau of Economic Analysis

Real GDP 2013: H1

Q1actual Q2 actual

Annualized Real GDP Growth

1.1 2.5

The U.S. economy grew by a bit less than 2% over the first half of this year.

14Source: Bureau of Economic Analysis, Macroeconomic Advisers, FRB Atlanta

2013:H1 and 3rd Quarter Tracking Forecasts (Sept. 27th)

Real GDP Component Tracking Estimate and Forecast

Q1actual Q2 actual

FRB Atlanta Tracking Model

ForecastMA

Forecast

Annualized Real GDP Growth

1.1 2.5 1.7 1.8

Recent tracking estimates for real GDP suggest the third quarter will look like the

first half.

15

2008 2009 2010 2011 2012 2013 2014 2015 2016-2

-1

0

1

2

3

4

5

U.S. 4Q GDP Growthyear-over-year, percent change

Actual Jun-13 SEP Sep-13 SEP

Source: U.S. Bureau of Economic Analysis

The FOMC Summary of Economic Projections: A downward revision







outlook.”


10 11 12 13-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0PCE Price Index

year-over-year % change, monthlyHeadline Core

data through August 2013

Sources: Bureau of Labor Statistics; Federal Reserve Bank of Dallas

(annualized % change)

Overall PCE

Core PCE

Trimmed-mean

PCE

August 2013 1.7 1.9 1.6

Past 3 months 2.5 1.7 1.7

Past 6 months 0.6 1.1 1.2

Past 12 months

1.2 1.2 1.3

FOMC’s longer-term inflation objective

Though the August price report was encouraging, inflation remains well short of

2%.

17

In summary, then:

• Inflation looks low relative to the objective.

• GDP growth has disappointed.

• Continued labor market improvement is a little shaky at the moment.

Will QE go on forever?

“… the Committee tied its asset

purchases to the outlook for the labor

market… conditions in job market today

are still far from what all of us would like

to see. Nevertheless, meaningful

progress has been made in the year

since we announced the asset purchase

program.”


11 12 136.5

7.0

7.5

8.0

8.5

9.0

9.5

10.0

Unemployment Rate: Actual and Blue Chip Consensus Forecasts

Percent, quarterly averages

Actual data Sep-12

Meaningful progress: Missing the forecast in a good way.

20Sources: Bureau of Labor Statistics; Blue Chip Economic Indicators, September 10, 2012 and August 10, 2013

actual data through Q2 2013;forecast data through Q4 2014

Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13125.00%

150.00%

175.00%

200.00%

225.00%

250.00%

275.00%

300.00%

10-year Treasury yielddaily

data through September 26, 2013

Percent

JulyFOMC

Julymin-utes re-leased

June min-utes re-leased

SeptFOMC

Source: Bloomberg 21

Index

June FOMC

May FOMC

Is policy effective? A case can be made.

22

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

NFIB Hiring Plans

Conference Board Job

Availability

Quits (JOLTS)*

UnemployedMarginally attached workers

Job finding rate

Work part time for economic

reasons

Initial claims

Difficult to fill (NFIB)

Temporary help services

employmentLeading Indicators Employer Behavior

ConfidenceUtilization

*June 2013 – Aug 2013 value is May 2013- July 2013Sources: U.S. Bureau of Labor Statistics, U.S. Department of Labor, National Federation of Independent Business, and The Conference Board

Far from what we would like it to be? The Atlanta Fed spider chart.

23

Payroll

JOLTSOpens

JOLTSHires

NFIBHiringPlans

ConfBoardJobAvail

JOLTSQuits

UnemployedMarginAttachSA

UtoErate

PTER

InitialClaims

NFIBCantFill

Temp

2007q4=100

2009q4=0

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

NFIB Hiring Plans


Availability

Quits (JOLTS)*


Job finding rate


reasons

Initial claims







24

Payroll

JOLTSOpens

JOLTSHires

NFIBHiringPlans

ConfBoardJobAvail

JOLTSQuits


UtoErate

PTER

InitialClaims

NFIBCantFill

Temp

2007q4=100

2009q4=0

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

NFIB Hiring Plans


Availability

Quits (JOLTS)*


Job finding rate


reasons

Initial claims






25%

50%

75%


25

Payroll

JOLTSOpens

JOLTSHires

NFIBHiringPlans

ConfBoardJobAvail

JOLTSQuits


UtoErate

PTER

InitialClaims

NFIBCantFill

Temp

2007q4=100

2009q4=0

Jun-13-Aug-13

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

NFIB Hiring Plans


Availability

Quits (JOLTS)*


Job finding rate


reasons

Initial claims






Few labor market indicators have returned to pre-recession levels…

26

Payroll

JOLTSOpens

JOLTSHires

NFIBHiringPlans

ConfBoardJobAvail

JOLTSQuits


UtoErate

PTER

InitialClaims

NFIBCantFill

Temp

2007q4=100

2009q4=0

Jun-12-Aug-12

Jun-13-Aug-13

Payroll

Vacancies (JOLTS)*

Hires (JOLTS)*

NFIB Hiring Plans

Conference Board

Job Availabilit

yQuits (JOLTS)*


Job finding

rate

Work part time for

economic reasons

Initial claims


Temporary help

services employment

Leading Indicators

Employer Behavior



… though in most cases things have improved since last summer.

The Post-FOMC Post Mortem: QE not so Mortem

Documents

The Post-FOMC Post Mortem: QE not so Mortem 2013 Gulf Power Economic Symposium Sandestin, FL September 30, 2013