2018 NAFCU Economic Presentation

Karen Gilmore

VP & Regional Executive

The views expressed are my own, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

Janet Yellen

Jerome Powell

3

Vacant

Jerome H. PowellChair

Board of Governors of the Federal Reserve System

4

Lael Brainard

Vacant

Randal QuarlesVice Chair for Supervision

Vacant

Richard H. ClaridaVice Chair

5

Eric RosengrenBoston

1st District

Patrick HarkerPhiladelphia3rd District

Loretta MesterCleveland4th District

Charles EvansChicago

7th District

Neel KashkariMinneapolis9th District

Mary DalySan Francisco

12th District

Esther GeorgeKansas City10th District

Robert KaplanDallas

11th District

James BullardSt. Louis

8th District

Raphael BosticAtlanta

6th District

John WilliamsNew York2nd District

Tom BarkinRichmond5th District

The Federal Reserve Bank Presidents

Summary of Economic Projections

6Source: Board of Governors of the Federal Reserve System September 26, 2018

Midpoint of target range or target level for the Federal Funds Rate

The Fed’s Dual Mandate

• The Fed is pursuing two objectives as given to us by Congress—maximum employment and price stability.

• The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market, although a stronger economy does help with job creation.

• The Federal Open Market Committee (FOMC) has chosen an inflation target of two percent year-over-year growth over the longer term.

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12-month average

Monthly change

Source: Bureau of Labor Statistics, Haver Analytics through October 2018

Payroll Employment Changes

Payroll Employment Changesthousands, seasonally adjusted

210

250

-1000

-800

-600

-400

-200

0

200

400

600

08 09 10 11 12 13 14 15 16 17 18

Unemployment and Labor Force Participation Rates

3.7

7.4

62.9

60

62

64

66

68

70

0

2

4

6

8

10

12

14

16

18

07 08 09 10 11 12 13 14 15 16 17 18

Unemployment and Labor Force Participation Ratesmonthly, percent, seasonally adjusted

through October 2018 Source: Bureau of Labor Statistics, Haver Analytics

Civilian Unemployment Rate (U3)(left axis)

Broad Unemployment Rate (U6)(left axis)

Labor Force Participation Rate(right axis)

Labor Force Participation Rates

10

62.9

82.3

79

80

81

82

83

84

85

61

62

63

64

65

66

67

06 07 08 09 10 11 12 13 14 15 16 17 18

Labor Force Participation Ratessa, percent

Overall (left axis)

Prime Age 25‐54 (right axis)

Sources: Bureau of Labor Statistics; Haver Analytics data through October 2018

Changes in Labor Force Participation Rate by Gender

11Source: Brookings- Hutchins Roundup: High-wage cities, monetary policy spillovers, and more

Age Distribution

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Reasons Not in Labor Force

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

16-20 21-25 26-30 31-34 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-79 80+

Disabled or ill In school or trainingOther RetiredTaking care of house or family Want a job, but not 'unemployed'

Sources: BLS Current Population Survey, Author's CalculationsNote: The series were constructed from the Current Population Survey’s basic monthly data, averaged for the period 1999–2014. 13

14

0

2

4

6

8

10

12

1987:Q3

1997:Q12005:Q4

1978:Q21971:Q4

1964:Q3

“High pressure” periods, where the unemployment rate falls below its natural rate.

Natural rate of unemployment (CBO)

15

Sources: Bureau of Labor Statistics; Congressional Budget Office (CBO); BEA; Federal Reserve Board

“Undershooting” the Natural Unemployment Rate

16

Wage Measures

3.1%

3.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

07 08 09 10 11 12 13 14 15 16 17 18

Wage Measuresyear-over-year percent change Average Hourly Earnings Wage Growth Tracker

Source: Bureau of Labor Statistics, Atlanta Fed, Haver Analytics October 2018 (AHE); September 2018 (WGT)

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Summary of Economic Projections

Source: Board of Governors of the Federal Reserve System September 26, 2018

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Personal Consumption Expenditure (PCE) Price Index

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2010 2011 2012 2013 2014 2015 2016 2017 2018

year-over-year percent change, monthly

PCE Core PCE Trimmed Mean PCE

Sources: Bureau of Economic Analysis; Haver Analytics; Federal Reserve Bank of Dallas through September 2018

FOMC Inflation Objective

Personal Consumption Expenditure (PCE) Price Index

Summary of Economic Projections

19Source: Board of Governors of the Federal Reserve System September 26, 2018

Real GDP Growth

20Source: Bureau of Economic Analysis

2011-2017 – Annualized GDP growth

September SEP 2018 Forecast

1.8

2.2

1.7

2.4

2.8

1.8

2.32.2

4.2

3.5

3.1

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

2011 2012 2013 2014 2015 2016 2017 Q1-18 Q2-18 Q3-18 2018

Summary of Economic Projections

21Source: Board of Governors of the Federal Reserve System September 26, 2018

The buzz…

• Tax Cuts and Jobs Act of 2017

• Changes in trade/tariff policies

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Business Fixed Investment: Business Cycle Graph

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75.0

100.0

125.0

150.0

175.0

200.0

225.0

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42

Business Fixed Investment: Business Cycle Graph Index=100 at business cycle peak

2007q4 2001q1

1990q3 1981q3

1973q4 1969q4

1960q2

Quarters since business cycle peak

Latest GDPNow estimate

Business cycles (length of line is equal to the number of quarters between “peaks”):

Top Trading Partners YTD - Exports

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Canada

Mexico

China

Japan

United Kingdom

Germany

Korea, South

Netherlands

Hong Kong

Brazil

Belgium

France

SingaporeTaiwan India

Canada 18.20%

Mexico 15.90%

China 7.50%

Japan 4.40%

United Kingdom 4.00%

Germany 3.50%

Korea, South 3.30%

Netherlands 2.90%

Hong Kong 2.30%

Brazil 2.40%

Belgium 1.90%

France 2.20%

Singapore 2.00%

Taiwan 1.80%

India 2.00%

Through September 2018Source: US Census Bureau

Top Trading Partners YTD - Imports

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China

Canada

Mexico

Japan

Germany

Korea, South

United Kingdom

France

India

Italy

Taiwan

IrelandVietnam

Malaysia Switzerland

China 20.90%

Canada 12.80%

Mexico 13.70%

Japan 5.60%

Germany 5.00%

Korea, South 2.90%

United Kingdom 2.30%

France 2.00%

India 2.20%

Italy 2.10%

Taiwan 1.80%

Ireland 2.30%

Vietnam 1.90%

Malaysia 1.60%

Switzerland 1.60%

Source: US Census Bureau Through September 2018

Treasury Note YieldFederal Funds Rate

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0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

2014 2015 2016 2017 2018

average, percent p.a.

10-year Treasury Note

Fed Funds

Source: Federal Reserve Board; Haver Analytics data through October 19, 2018

Jan. 20142.93%

Dec. 20161.77%

Oct. 20180.99%

Summary of the Economic Environment: The November 2018 FOMC Policy Statement

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• The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

• Risks to the economic outlook appear roughly balanced.

• The Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Vibrant new online magazine, Economy Matters.

macroblogCommentary from our head of research and other AtlantaFed economists

Information Resources frbatlanta.org

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