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2012 Economic Forecast Presentation

Joseph Henning, IOM, ACE, CAE, profile picture
Joseph Henning, IOM, ACE, CAE

William Strauss, a senior economist at the Federal Reserve Bank of Chicago, presents an economic outlook following the end of the Great Recession in June 2009, highlighting a modest GDP growth of 1.6% over the past year. The report indicates an increase in employment and gradual improvements in lending standards, although challenges such as tight mortgage loan standards and falling home prices persist. Strauss forecasts a continuation of GDP growth and a decrease in the unemployment rate, while inflation remains below targets set by policymakers.

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William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 1 Economic Outlook William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Aurora Regional Chamber of Commerce Aurora, IL February 1, 2012
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 2 The “Great Recession” ended in June 2009, but the economy expanded by just 1.6% over the past year 6 8 10 Real gross domestic product percent Quarterly change(saar) -10 -8 -6 -4 -2 0 2 4 6 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 3 1.0 2.0 Chicago Fed National Activity Index The Chicago Fed National Activity Index 3-month average is just below zero -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Monthly Three monthaverage
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 4 2,500 3,000 Liabilities of the Federal Reserve Billions of dollars The liabilities side of the Fed’s balance sheet shows large amount of excess reserves 0 500 1,000 1,500 2,000 Treasury Balance Currency inCirculation 2007 2008 2009 2010 DepositsofDepository Institutions 2011
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 5 80 100 Senior Loan Officer Opinion Survey net percentage of domestic respondents tightening commercial and industrial loan standards Lending standards for commercial and industrial loans had begun to loosen -40 -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 '11 '12 medium and large firms Small firms
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 6 50 60 70 Senior Loan Officer Opinion Survey net percentage ofdomestic respondentstightening credit card and other consumer loan standards Lending standards for credit cards and other consumer loans have also begun to loosen -30 -20 -10 0 10 20 30 40 50 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 other consumerloans credit cards
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 7 60 80 Senior Loan Officer Opinion Survey net percentage of domestic respondents tightening mortgage loan standards Lending standards for mortgage loans remain relatively tight -20 0 20 40 60 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 8 Personal savings rate has recently moved lower 12 14 16 Personal savings as a percent of disposable personal income percent 0 2 4 6 8 10 12 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 9 Existing home prices fell by over 30% $210,000 $230,000 $250,000 Median sales price - existing single family home 3-monthsmoothed $90,000 $110,000 $130,000 $150,000 $170,000 $190,000 $210,000 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 10 1,200 1,400 1,600 S&P 500 stock index Index: 1941-43 = 10 The stock market has improved since March 2009, but remains well below previous levels 0 200 400 600 800 1,000 1,200 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 11 23 24 25 Consumer credit as a percentage of disposable income percent Consumer credit as a share of disposable income appears to be ticking higher after moving lower over the past several years 16 17 18 19 20 21 22 23 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 12 6 8 10 Real gross domestic product percent Quarterly change(saar) Blue Chip GDP Forecast Actual Forecast 2011 2012 2013 GDP is forecast to grow near trend in 2012 and slightly above trend in 2013 -10 -8 -6 -4 -2 0 2 4 6 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Quarterly change(saar) Percent changefrom a year earlier Q4-2011 1.6 2.4 2.8
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 13 116 118 120 122 Business cycle recovery path index- business cycle trough = 100 1981-82 The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles average annualized growth: 5.4% 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 11 12 13 14 2008-09 Blue Chip forecast recovery path 1974-75 quarters beforetrough quartersafter trough average annualized growth: 5.3% average annualized growth: 2.4%
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 14 2.4 2 3 Contributions to real GDP growth during the current recovery percentage points (annual rate) The recovery has been led by the consumer and business sectors 1.5 0.6 0.0 0.8 -0.2 -0.2 -1 0 1 2 GDP Consumption Business Fixed Investment Residential Investment Change in Inventories Government Net Exports
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 15 The FOMC participants see real GDP improving over time 4 5 6 Real gross domestic product percent change from a year earlier -5 -4 -3 -2 -1 0 1 2 3 4 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 FOMC
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 16 Employment fell by over 8.7 million jobs between December 2007 and February 2010, but it began to rise beginning in March 2010 and added 1.64 million jobs during 2011 2 3 4 Total employment percent -7 -6 -5 -4 -3 -2 -1 0 1 2 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 17 9 10 11 Unemployment rate percent After peaking in October 2009, the unemployment rate has fallen by 1.5 percentage points 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 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 18 10 12 Unemployment rate percent Unemployment rate percent Q4-2011 Blue Chip Forecast The unemployment rate is forecast to tick lower 0 2 4 6 8 10 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 19 The FOMC participants expect the unemployment rate to gradually fall 9 10 11 Unemployment rate percent 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 '11 '12 '13 '14 FOMC
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 20 12 14 16 MI Unemployment rate percent Unemployment rates have been moving lower in many states in the Midwest - however, Illinois’ unemployment rate has increased by 0.6 percentage points over the past year 0 2 4 6 8 10 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 US IL IN IA WI
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 21 5 6 Personal consumption expenditure - chain price index percent change from a year earlier Inflation has risen -1 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 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 22 120 140 Real West Texas Intermediate oil price dollars per barrel. 2011 dollars In large part due to the movement of oil prices. However, adjusted for inflation, current oil prices are below the levels that existed thirty years ago 0 20 40 60 80 100 1970 '75 '80 '85 '90 '95 '00 '05 '10
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 23 12 14 16 Real natural gas price dollars per mmbtu(2011 dollars) Natural gas prices remain low 0 2 4 6 8 10 12 1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 24 Expenditures on energy are just below the historical average 9 10 Energy goods and services expenditures as a share of total consumptionpercent 9 10 Energy goods and services expenditures as a share of total consumptionpercent 3 4 5 6 7 8 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 3 4 5 6 7 8 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 60s 70s 80s 90s 00s 1960-2010 10s
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 25 4 5 Personal consumption expenditure - less food and energy - chain price indexpercent change from a year earlier Removing the volatile food and energy components from the PCE, “core” inflation remains low 0 1 2 3 4 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 26 6 8 Consumer price index percent Quarterly change(saar) Inflation is anticipated to rise 2.1 percent this year and 2.2 percent next year -10 -8 -6 -4 -2 0 2 4 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Percent changefrom a year earlier Q4-2011 Blue Chip CPI Forecast Actual Forecast 2011 2012 2013 3.3 2.1 2.2
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 27 Inflation is anticipated to remain below the target of many policy makers 5 6 Personal consumption expenditure - chain price index percent change from a year earlier -1 0 1 2 3 4 5 1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 FOMC
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 28 Core inflation is anticipated to remain below 2 percent through 2014 4 5 Personal consumption expenditure - less food and energy - chain price indexpercent change from a year earlier 0 1 2 3 4 1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 FOMC
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 29 10 15 Industrial production- manufacturing percent Percent changefrom a year earlier Industrial output in manufacturing fell quite sharply during the recession, but has risen strongly over the past thirty months, averaging 6.1% and has recovered 62.6% of the loss during the recession -25 -20 -15 -10 -5 0 5 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 30 80 82 84 86 Capacity utilization - manufacturing percent Manufacturing capacity utilization has been rising since June 2009 62 64 66 68 70 72 74 76 78 80 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 31 Declines in manufacturing output were broad-based during the Great Recession – especially in primary metals and vehicle manufacturing -60 -50 -40 -30 -20 -10 0 Manufacturing Durable Goods WoodProducts Industrial output:December2007 - June 2009 percent change WoodProducts Nonmetallic Mineral Products PrimaryMetals FabricatedMetal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and RelatedProducts Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile andProduct Mills Apparel and Leather Goods Paper Printing and RelatedSupport Activities Chemicals Petroleum and Coal Products Plastics andRubber Products Other Manufacturing
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 32 The recovery has also been broad-based with primary metals and automotive manufacturing leading the way -20 -10 0 10 20 30 40 50 60 70 80 Manufacturing Durable Goods WoodProducts Industrial output:June 2009 - December2011 percent change WoodProducts Nonmetallic Mineral Products PrimaryMetals FabricatedMetal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and RelatedProducts Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile andProduct Mills Apparel and Leather Goods Paper Printing and RelatedSupport Activities Chemicals Petroleum and Coal Products Plastics andRubber Products OtherManufacturing
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 33 65 70 75 Chicago Purchasing managers' index - composite net percent reporting increases The Chicago purchasing managers index has been significantly above the nation’s 30 35 40 45 50 55 60 65 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 United States
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 34 Midwest manufacturing has been outperforming the U.S. during the recovery 10 15 20 Midwest Industrial output - manufacturing percent change from a year earlier United States -30 -25 -20 -15 -10 -5 0 5 10 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 United States
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 35 Industrial production is forecast to rise at a solid pace 5 10 Total industrial production percent Quarterly change(saar) -20 -15 -10 -5 0 5 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Percent changefrom a year earlier Q4-2011 Blue Chip IP Forecast Actual Forecast 2011 2012 2013 3.7 2.8 3.3
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 36 19 20 21 22 Light vehicle sales millions of units (saar) Light vehicle sales have been improving following the 2011 Tōhuku earthquake and tsunami 9 10 11 12 13 14 15 16 17 18 19 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 37 15 20 Consumer price index - new vehicles percent Monthly change(saar) New vehicle prices rose sharply following the Japanese disaster -15 -10 -5 0 5 10 15 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Percent changefrom a year earlier
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 38 80 90 100 80 90 100 Share of light vehicle sales percent imports percent Increases in new domestic production share has offset losses in Detroit-3 market share 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 1980 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 Detroit-3 new domestics
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 39 17 18 Vehicle sales millions of units Vehicle sales are expected to improve at a good pace 10 11 12 13 14 15 16 1980 '85 '90 '95 '00 '05 '10 Blue Chip Light-Vehicle SalesForecast Actual Forecast 2011 2012 2013 12.7 13.7 14.4
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 40 2,000 2,500 Housing starts thousands Housing starts fell to a post WWII low 0 500 1,000 1,500 2,000 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 41 2,000 2,500 Housing starts thousands The forecast calls for a very gradual recovery in housing 0 500 1,000 1,500 2,000 1980 '85 '90 '95 '00 '05 '10 Blue Chip Housing Starts Forecast (thousands) Actual Forecast 2011 2012 2013 607 708 873
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 42 14 16 18 Credit spreads between Corporate HighYield and Corporate Aaa percent Credit spreads between Corporate High Yield securities and Corporate Aaa securities have moved higher 0 2 4 6 8 10 12 14 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 2007 2008 2009 2010 2011 2012
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 43 7 8 9 Fed Funds rate percent Monetary policy has been very aggressive, keeping the Fed Funds near zero since December 2008 0 1 2 3 4 5 6 7 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 44 The Federal Funds Rate is anticipated to remain very low over the forecast horizon 7 8 9 Target Federal Funds Rate percent 0 1 2 3 4 5 6 7 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 FOMC
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 45 2,500 3,000 Assets of the Federal Reserve Billions of dollars Maiden Lane II & III Term Asset-Backed Securities Loan Facility The asset side of the Fed’s balance sheet has expanded in size and in composition 0 500 1,000 1,500 2,000 Term Auction Credit Securities HeldOutright Central Bank Swaps Maiden Lane II & III Commercial Paper Facility 2007 2008 2009 AIG Support Maiden Lane 2010 2011
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 46 300 350 Monetaryexpansion2007-currentperiod index:Jan 2007 = 100 monetarybase 300 350 Monetaryexpansion1929-1933 index:Jan 1929 = 100 The Fed’s expansion of the monetary base has allowed the money supply to continue rising, compared with what took place during the 1930s 50 100 150 200 250 2007 '08 '09 '10 '11 M2 CPI 50 100 150 200 250 1929 '30 '31 '32 '33 monetarybase M2 CPI
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 47 •The outlook is for the U.S. economy to expand at a pace below trend this year and slightly above trend in 2013 Summary •Employment is expected to rise moderately with the unemployment rate edging lower •Slackness in the economy will lead to a relatively contained inflation rate •Vehicle sales are anticipated to rise at a good pace •Growth in manufacturing output should be solid
William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 48 www.chicagofed.org www.federalreserve.gov

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2012 Economic Forecast Presentation

  • 1. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 1 Economic Outlook William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Aurora Regional Chamber of Commerce Aurora, IL February 1, 2012
  • 2. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 2 The “Great Recession” ended in June 2009, but the economy expanded by just 1.6% over the past year 6 8 10 Real gross domestic product percent Quarterly change(saar) -10 -8 -6 -4 -2 0 2 4 6 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
  • 3. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 3 1.0 2.0 Chicago Fed National Activity Index The Chicago Fed National Activity Index 3-month average is just below zero -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Monthly Three monthaverage
  • 4. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 4 2,500 3,000 Liabilities of the Federal Reserve Billions of dollars The liabilities side of the Fed’s balance sheet shows large amount of excess reserves 0 500 1,000 1,500 2,000 Treasury Balance Currency inCirculation 2007 2008 2009 2010 DepositsofDepository Institutions 2011
  • 5. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 5 80 100 Senior Loan Officer Opinion Survey net percentage of domestic respondents tightening commercial and industrial loan standards Lending standards for commercial and industrial loans had begun to loosen -40 -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 '11 '12 medium and large firms Small firms
  • 6. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 6 50 60 70 Senior Loan Officer Opinion Survey net percentage ofdomestic respondentstightening credit card and other consumer loan standards Lending standards for credit cards and other consumer loans have also begun to loosen -30 -20 -10 0 10 20 30 40 50 1996 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 other consumerloans credit cards
  • 7. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 7 60 80 Senior Loan Officer Opinion Survey net percentage of domestic respondents tightening mortgage loan standards Lending standards for mortgage loans remain relatively tight -20 0 20 40 60 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 8. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 8 Personal savings rate has recently moved lower 12 14 16 Personal savings as a percent of disposable personal income percent 0 2 4 6 8 10 12 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
  • 9. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 9 Existing home prices fell by over 30% $210,000 $230,000 $250,000 Median sales price - existing single family home 3-monthsmoothed $90,000 $110,000 $130,000 $150,000 $170,000 $190,000 $210,000 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 10. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 10 1,200 1,400 1,600 S&P 500 stock index Index: 1941-43 = 10 The stock market has improved since March 2009, but remains well below previous levels 0 200 400 600 800 1,000 1,200 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 11. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 11 23 24 25 Consumer credit as a percentage of disposable income percent Consumer credit as a share of disposable income appears to be ticking higher after moving lower over the past several years 16 17 18 19 20 21 22 23 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 12. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 12 6 8 10 Real gross domestic product percent Quarterly change(saar) Blue Chip GDP Forecast Actual Forecast 2011 2012 2013 GDP is forecast to grow near trend in 2012 and slightly above trend in 2013 -10 -8 -6 -4 -2 0 2 4 6 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Quarterly change(saar) Percent changefrom a year earlier Q4-2011 1.6 2.4 2.8
  • 13. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 13 116 118 120 122 Business cycle recovery path index- business cycle trough = 100 1981-82 The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles average annualized growth: 5.4% 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 11 12 13 14 2008-09 Blue Chip forecast recovery path 1974-75 quarters beforetrough quartersafter trough average annualized growth: 5.3% average annualized growth: 2.4%
  • 14. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 14 2.4 2 3 Contributions to real GDP growth during the current recovery percentage points (annual rate) The recovery has been led by the consumer and business sectors 1.5 0.6 0.0 0.8 -0.2 -0.2 -1 0 1 2 GDP Consumption Business Fixed Investment Residential Investment Change in Inventories Government Net Exports
  • 15. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 15 The FOMC participants see real GDP improving over time 4 5 6 Real gross domestic product percent change from a year earlier -5 -4 -3 -2 -1 0 1 2 3 4 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 FOMC
  • 16. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 16 Employment fell by over 8.7 million jobs between December 2007 and February 2010, but it began to rise beginning in March 2010 and added 1.64 million jobs during 2011 2 3 4 Total employment percent -7 -6 -5 -4 -3 -2 -1 0 1 2 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
  • 17. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 17 9 10 11 Unemployment rate percent After peaking in October 2009, the unemployment rate has fallen by 1.5 percentage points 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 '11
  • 18. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 18 10 12 Unemployment rate percent Unemployment rate percent Q4-2011 Blue Chip Forecast The unemployment rate is forecast to tick lower 0 2 4 6 8 10 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13
  • 19. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 19 The FOMC participants expect the unemployment rate to gradually fall 9 10 11 Unemployment rate percent 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 '11 '12 '13 '14 FOMC
  • 20. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 20 12 14 16 MI Unemployment rate percent Unemployment rates have been moving lower in many states in the Midwest - however, Illinois’ unemployment rate has increased by 0.6 percentage points over the past year 0 2 4 6 8 10 12 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 US IL IN IA WI
  • 21. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 21 5 6 Personal consumption expenditure - chain price index percent change from a year earlier Inflation has risen -1 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 '11
  • 22. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 22 120 140 Real West Texas Intermediate oil price dollars per barrel. 2011 dollars In large part due to the movement of oil prices. However, adjusted for inflation, current oil prices are below the levels that existed thirty years ago 0 20 40 60 80 100 1970 '75 '80 '85 '90 '95 '00 '05 '10
  • 23. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 23 12 14 16 Real natural gas price dollars per mmbtu(2011 dollars) Natural gas prices remain low 0 2 4 6 8 10 12 1994 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
  • 24. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 24 Expenditures on energy are just below the historical average 9 10 Energy goods and services expenditures as a share of total consumptionpercent 9 10 Energy goods and services expenditures as a share of total consumptionpercent 3 4 5 6 7 8 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 3 4 5 6 7 8 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 60s 70s 80s 90s 00s 1960-2010 10s
  • 25. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 25 4 5 Personal consumption expenditure - less food and energy - chain price indexpercent change from a year earlier Removing the volatile food and energy components from the PCE, “core” inflation remains low 0 1 2 3 4 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 26. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 26 6 8 Consumer price index percent Quarterly change(saar) Inflation is anticipated to rise 2.1 percent this year and 2.2 percent next year -10 -8 -6 -4 -2 0 2 4 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Percent changefrom a year earlier Q4-2011 Blue Chip CPI Forecast Actual Forecast 2011 2012 2013 3.3 2.1 2.2
  • 27. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 27 Inflation is anticipated to remain below the target of many policy makers 5 6 Personal consumption expenditure - chain price index percent change from a year earlier -1 0 1 2 3 4 5 1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 FOMC
  • 28. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 28 Core inflation is anticipated to remain below 2 percent through 2014 4 5 Personal consumption expenditure - less food and energy - chain price indexpercent change from a year earlier 0 1 2 3 4 1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 FOMC
  • 29. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 29 10 15 Industrial production- manufacturing percent Percent changefrom a year earlier Industrial output in manufacturing fell quite sharply during the recession, but has risen strongly over the past thirty months, averaging 6.1% and has recovered 62.6% of the loss during the recession -25 -20 -15 -10 -5 0 5 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Quarterly change(saar) Percent changefrom a year earlier
  • 30. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 30 80 82 84 86 Capacity utilization - manufacturing percent Manufacturing capacity utilization has been rising since June 2009 62 64 66 68 70 72 74 76 78 80 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 31. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 31 Declines in manufacturing output were broad-based during the Great Recession – especially in primary metals and vehicle manufacturing -60 -50 -40 -30 -20 -10 0 Manufacturing Durable Goods WoodProducts Industrial output:December2007 - June 2009 percent change WoodProducts Nonmetallic Mineral Products PrimaryMetals FabricatedMetal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and RelatedProducts Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile andProduct Mills Apparel and Leather Goods Paper Printing and RelatedSupport Activities Chemicals Petroleum and Coal Products Plastics andRubber Products Other Manufacturing
  • 32. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 32 The recovery has also been broad-based with primary metals and automotive manufacturing leading the way -20 -10 0 10 20 30 40 50 60 70 80 Manufacturing Durable Goods WoodProducts Industrial output:June 2009 - December2011 percent change WoodProducts Nonmetallic Mineral Products PrimaryMetals FabricatedMetal Products Machinery Computer and Electronic Components Electrical Eqpt, Appliances & Components Motor Vehicles and Parts Aerospace & Miscellaneous Transport Equip Furniture and RelatedProducts Miscellaneous Durable Goods Nondurable Manufacturing Food, Beverages, and Tobacco Textile andProduct Mills Apparel and Leather Goods Paper Printing and RelatedSupport Activities Chemicals Petroleum and Coal Products Plastics andRubber Products OtherManufacturing
  • 33. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 33 65 70 75 Chicago Purchasing managers' index - composite net percent reporting increases The Chicago purchasing managers index has been significantly above the nation’s 30 35 40 45 50 55 60 65 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 United States
  • 34. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 34 Midwest manufacturing has been outperforming the U.S. during the recovery 10 15 20 Midwest Industrial output - manufacturing percent change from a year earlier United States -30 -25 -20 -15 -10 -5 0 5 10 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 United States
  • 35. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 35 Industrial production is forecast to rise at a solid pace 5 10 Total industrial production percent Quarterly change(saar) -20 -15 -10 -5 0 5 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Percent changefrom a year earlier Q4-2011 Blue Chip IP Forecast Actual Forecast 2011 2012 2013 3.7 2.8 3.3
  • 36. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 36 19 20 21 22 Light vehicle sales millions of units (saar) Light vehicle sales have been improving following the 2011 Tōhuku earthquake and tsunami 9 10 11 12 13 14 15 16 17 18 19 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 37. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 37 15 20 Consumer price index - new vehicles percent Monthly change(saar) New vehicle prices rose sharply following the Japanese disaster -15 -10 -5 0 5 10 15 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Percent changefrom a year earlier
  • 38. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 38 80 90 100 80 90 100 Share of light vehicle sales percent imports percent Increases in new domestic production share has offset losses in Detroit-3 market share 0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 1980 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 Detroit-3 new domestics
  • 39. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 39 17 18 Vehicle sales millions of units Vehicle sales are expected to improve at a good pace 10 11 12 13 14 15 16 1980 '85 '90 '95 '00 '05 '10 Blue Chip Light-Vehicle SalesForecast Actual Forecast 2011 2012 2013 12.7 13.7 14.4
  • 40. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 40 2,000 2,500 Housing starts thousands Housing starts fell to a post WWII low 0 500 1,000 1,500 2,000 1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10
  • 41. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 41 2,000 2,500 Housing starts thousands The forecast calls for a very gradual recovery in housing 0 500 1,000 1,500 2,000 1980 '85 '90 '95 '00 '05 '10 Blue Chip Housing Starts Forecast (thousands) Actual Forecast 2011 2012 2013 607 708 873
  • 42. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 42 14 16 18 Credit spreads between Corporate HighYield and Corporate Aaa percent Credit spreads between Corporate High Yield securities and Corporate Aaa securities have moved higher 0 2 4 6 8 10 12 14 Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan 2007 2008 2009 2010 2011 2012
  • 43. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 43 7 8 9 Fed Funds rate percent Monetary policy has been very aggressive, keeping the Fed Funds near zero since December 2008 0 1 2 3 4 5 6 7 1990'91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
  • 44. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 44 The Federal Funds Rate is anticipated to remain very low over the forecast horizon 7 8 9 Target Federal Funds Rate percent 0 1 2 3 4 5 6 7 1990 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 FOMC
  • 45. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 45 2,500 3,000 Assets of the Federal Reserve Billions of dollars Maiden Lane II & III Term Asset-Backed Securities Loan Facility The asset side of the Fed’s balance sheet has expanded in size and in composition 0 500 1,000 1,500 2,000 Term Auction Credit Securities HeldOutright Central Bank Swaps Maiden Lane II & III Commercial Paper Facility 2007 2008 2009 AIG Support Maiden Lane 2010 2011
  • 46. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 46 300 350 Monetaryexpansion2007-currentperiod index:Jan 2007 = 100 monetarybase 300 350 Monetaryexpansion1929-1933 index:Jan 1929 = 100 The Fed’s expansion of the monetary base has allowed the money supply to continue rising, compared with what took place during the 1930s 50 100 150 200 250 2007 '08 '09 '10 '11 M2 CPI 50 100 150 200 250 1929 '30 '31 '32 '33 monetarybase M2 CPI
  • 47. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 47 •The outlook is for the U.S. economy to expand at a pace below trend this year and slightly above trend in 2013 Summary •Employment is expected to rise moderately with the unemployment rate edging lower •Slackness in the economy will lead to a relatively contained inflation rate •Vehicle sales are anticipated to rise at a good pace •Growth in manufacturing output should be solid
  • 48. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Economic Outlook 48 www.chicagofed.org www.federalreserve.gov