Photos courtesy of USDA Maria Akers Assistant Economist Federal Reserve Bank of Kansas City Omaha Branch www.kansascityfed.org September 22, 2008 Economic Outlook The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
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Photos courtesy of USDA Maria Akers Assistant Economist Federal Reserve Bank of Kansas City Omaha Branch September 22, 2008 Economic.
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Transcript
Photos courtesy of USDA
Maria AkersAssistant Economist
Federal Reserve Bank of Kansas City
Omaha Branch
www.kansascityfed.org
September 22, 2008
Economic Outlook
The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
Photos courtesy of USDA
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Economic Outlook
The views expressed are those of the author and do not necessarily reflect the opinions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Outline from September 2007
• Housing and the financial market crisis
• Risks to the Outlook– Will housing market weakness spread to the
overall economy?– Will inflationary pressures remain contained?
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Today’s Outline
• The Ongoing Financial Market Crisis• The Housing Correction Continues• Energy and Food Price Inflation• Employment and Consumer Spending• Business and Export Activity• Risks to the Outlook
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Regional, Public, and Community AffairsPhotos courtesy of USDA
Today’s Outline
• The Ongoing Financial Market Crisis• The Housing Correction Continues• Energy and Food Price Inflation• Employment and Consumer Spending
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Will job losses slow consumer spending?
-400
-300
-200
-100
0
100
200
300
400
500
600
Jul-96 Jul-98 Jul-00 Jul-02 Jul-04 Jul-06 Jul-08
0
1
2
3
4
5
6
7
8
9
10Change from previous month (Thousands)
Job Change(Left Scale)
Unemployment Rate(Right Scale)
Source: Bureau of Labor Statistics
U.S. Non-farm Job Growth and Unemployment Rate
Percent
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Wage growth will have significant influence on inflation and growth.
0
1
2
3
4
5
6
7
8
2002 2003 2004 2005 2006 2007 2008
0
1
2
3
4
5
6
7
8
Percent change from year ago
Wages and Salary
Benefits
Source: Bureau of Labor Statistics
Employment Cost Index
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Retail sales are mixed.
Retail SalesPercent Change from Aug 2008
to Aug 2007
Retail and Food Services +1.6
Gasoline Stations +22.5
General Merchandise Stores +4.3
Food and Beverage Stores +6.9
Food Services and Drinking Places +4.3
Motor Vehicle and Parts Dealers -13.5
Furniture and Home Furnishings Stores -6.8
Building Material and Garden Equipment Dealers -2.3
Department Stores (ex. L.D.) -4.2
Source: Census Bureau
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
What stimulus is left after the rebates?
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
2006 2007 2008 2009
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Personal Consumption Expenditures
Annualized percent change from previous quarter
Source: Bureau of Economic Analysis and Blue Chip Forecast
Blue Chip Forecast(Sept 2008)
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Today’s Outline
• The Ongoing Financial Market Crisis• The Housing Correction Continues• Energy and Food Price Inflation• Employment and Consumer Spending• Business and Export Activity
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
40
45
50
55
60
65
70
Jan-05 Jan-06 Jan-07 Jan-08
Nonmanufacturing
Manufacturing
Jan-05 Jan-06 Jan-07 Jan-0840
50
60
70
80
90
100Nonmanufacturing
Manufacturing
Index
Source: Institute of Supply Management
Prices PaidIndex
Business activity has slowed with rising input prices.
Business Activity
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Corporate Profits and Nonresidential Fixed Investment
Percent change from year ago
Source: Bureau of Economic Analysis
Corporate ProfitsAfter Tax
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
80
85
90
95
100
105
110
115
120
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
-1000
-900
-800
-700
-600
-500
-400
-300
-200
-100
0
The Weak Dollar Has Boosted Exports
Index Billions of Dollars
Dollar Index Value(Left Scale)
Net Exports(Right Scale)
Dollar Value and U.S. Net Exports
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Today’s Outline
• The Ongoing Financial Market Crisis• The Housing Correction Continues• Energy and Food Price Inflation• Employment and Consumer Spending• Business and Export Activity• Risks to the Outlook
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Economic Projections of the Federal Reserve Governors and Bank Presidents
Central Tendency1 2007(Percent)
2008(Percent)
2009(Percent)
2010(Percent)
Real GDP growth Apr. 2008 projections Oct. 2007 projections
Source: Federal Reserve Board of Governors, June 25, 2008 FOMC Minutes
Note: Projections of the growth of real GDP, of PCE inflation, and of core PCE inflation are percent changes from the fourth quarter of the previous year to the fourth quarter of the year indicated. Projections for the unemployment rate are for the average civilian unemployment rate in the fourth quarter of the year indicated.
1 The central tendency excludes the three highest and three lowest projections for each variable in each year.
Near-Term: Weaker Growth
Near-Term: Rising Inflation
Long-Term: Stronger Growth
Long-Term: Falling Inflation
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Regional, Public, and Community AffairsPhotos courtesy of USDA
FOMC Statement(September 16, 2008)
• Economic growth … slowed recently.– Reflecting a softening of household spending. – Tight credit conditions, the ongoing housing
contraction, and some slowing in export growth.
• Inflation has been high, spurred by earlier increases in the prices of energy and some other commodities.– Expects inflation to moderate, but– Outlook remains highly uncertain.
• Downside risks to growth and the upside risks to inflation are both of significant concern.
FEDERAL RESERVE BANK OF KANSAS CITY
Regional, Public, and Community AffairsPhotos courtesy of USDA
Conclusion
• Housing risks fueled financial market volatility – when will they stabilize?
• Commodity prices soared with strong global demand and limited supply gains.
• Rising energy prices have sapped U.S. economic growth and boosted inflation.
• Will consumer spending and business investment slow further?