The Economic Outlook Economic Policy Division
Glass Half Full Six years of steady growth
Real GDP Outlook Percent Change, Annual Rate 10 5 0-5 -10 1980 1985 1990 1995 2000 2005 2010 2015
Glass Half Full Six years of steady growth Housing essentially recovered
Glass Half Full Six years of steady growth Housing essentially recovered Financial sector largely recovered
Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery
Labor Market Million 150 140 130 120 110 Total Nonfarm Jobs Million 150 140 130 120 110 Household Employment 100 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 100 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 SA, Thousands, 4-week Moving Average 700 600 500 400 300 Initial Unemployment Claims 200 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Percent 18 16 14 12 10 8 6 Unemployment Rate September 5.1% 4 Unemployment Rate U-6 2 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery Household net worth recovered
Household Net Worth Trillion $ 90 80 Household Wealth 70 60 50 40 30 20 10 1980 1985 1990 1995 2000 2005 2010 2015
Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery Household net worth recovered Corporate profits strong
U.S. Corporate Profits SAAR, $billions 2,500 2,000 1,500 1,000 500 0 1980 1985 1990 1995 2000 2005 2010
Glass Half Full Private construction up nearly 17% Y/Y New residential sales up nearly 26% Y/Y ISM non-manufacturing nearly 57 Inflation flat CPI-U at 0.2% Y/Y Budget deficit below half a trillion dollars
Glass Half Empty Budget deficits still nearly a half trillion dollars! And set to soar!
CBO s Baseline Deficit (August 2015) Billions $ 500 Budget Deficit 0-500 -1000-1500 -2000 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Percent of GDP 5 Deficit to GDP 0-5 -10-15 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Glass Half Empty Budget deficits nearly a half trillion dollars Federal debt shot up and still rising fast
Federal Publicly Held Debt (August 2015) Billions $ 25,000 20,000 15,000 Debt 10,000 5,000 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Percent of GDP 90 80 70 Debt to GDP 60 50 40 30 20 10 0 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements
Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements Multiple local weaknesses
Glass Half Empty Multiple local weaknesses Flat wages ISM manufacturing index at 50.2 Business investment in equipment flat Y/Y At risk of deflation?
Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements Multiple local weaknesses A persistent output gap
U.S. GDP Actual and Potential Quarterly, Q1 1980 to Q4 2016 Trillion $2009 18 16 Forecast 14 12 Actual 10 Potential 8 6 1980 1985 1990 1995 2000 2005 2010 2015 Potential GDP estimated by Congressional Budget Office
Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements A persistent output gap And a downgraded future
U.S. GDP: Estimates of Potential (Real $2013 dollars)
Why is the Glass Half Empty?
Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus? Five years of trillion dollar plus deficits Seven years of a near-zero Fed funds rate Over three trillion dollars of quantitative easing
Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus? Administration s anti-growth tax hikes Anti-growth regulatory policies
Regulatory Overload 1. Health care: ACA regulation of health insurance benefit and payment parameters 2. Employee benefits: Expanded information reporting 3. Energy efficiency: 14 regulations on efficiency standards for electrical equipment 4. Air quality: Reduction of CO2 emissions from electricity generation facilities 5. Ozone: National ambient air quality standards for ozone 6. Labor: Fair Labor Standards Act regulations increasing overtime pay threshold 7. Natural gas: Requirements for air emissions and controls for new natural gas wells And over 240 additional regulations across all federal agencies in just the past year
Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus? Administration s anti-growth tax hikes Anti-growth regulatory policies General sense of hostility toward businesses and economic growth
Good News! Sound policies can reverse effects of bad policies Underlying theme: Do Less Harm
What Can We Do? Education reform Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Emphasize prudent, cost-effective regulation Immigration reform Entitlement reform
Reasons for Optimism Proven resilience
Reasons for Optimism Proven resilience Trade agenda is advancing
Reasons for Optimism Proven resilience Trade agenda is advancing Best looking horse at the glue factory
Future Concerns End-game regulatory surge Washington dysfunction Cloudy international picture U.S. monetary policy
Future Concerns Administration s end-game regulatory surge
Future Concerns Administration s end-game regulatory surge Washington dysfunction
Future Concerns End-game regulatory surge Washington dysfunction Cloudy international picture
Countries in or Near Recession Outside of Europe: Canada (-0.5%) Japan (-0.3%) Australia (0.2%) South Africa (-0.3%) Brazil (-1.6%) Venezuela (-0.4% -- and 200% annual inflation)
Europe Debt crisis lingers Problems of currency union unresolved Conflicts in governance Now an immigration wave
China Managed economy with multiple imbalances, multiple excesses
China Managed economy with multiple imbalances, multiple excesses 10 Words huyou
Future Concerns End-game regulatory surge Washington dysfunction Cloudy international picture U.S. monetary policy
Future Concerns U.S. monetary policy Not what the Fed should do Or when the Fed will do it But the economic implications of a policy change
Future Concerns U.S. monetary policy implications: It Ain t Necessarily So
9 The Recent History of the Federal Funds Rate 8 7 6 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015
Long Term Rates and the Funds Rate 9 8 7 6 Not a Forecast 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 2020
The Greenspan Conundrum 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 1990 1992 1994 1996 1998 2000 2002 2004 2006
The Greenspan Conundrum 10.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 Effective Funds Rate 10 Year Treasury Note 2.00 1.00 0.00 1990 1992 1994 1996 1998 2000 2002 2004 2006
9 A Possible Future Path for the Funds Rate 8 7 Not a Forecast 6 5 4 3 2 1 8 8.7 0 1990 1995 2000 2005 2010 2015 2020
Fed Policy Billions $ 4,500 4,000 Bank Assets and Liabilities 3,500 3,000 2,500 2,000 1,500 1,000 500 0 Jan Apr. July Oct. Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct Jan Apr Jul Oct 2008 2009 2010 2011 2012 2013 2014 2015 Excess Federal Reserve Assets Money Supply (M1)
Fed Policy Billions $ 5,000 4,500 Bank Assets and Liabilities 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 Not a Forecast 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Excess Reserves Federal Reserve Assets
Bottom Line 6 years and counting glass is still half full
Bottom Line 6 years and counting glass is still half full Recession? not in the near term
Bottom Line 6 years and counting glass is still half full Recession? not in the near term Steady growth
Bottom Line 6 years and counting glass is still half full Recession? not in the near term Steady growth Maybe with a new Administration, the economy can do better
Bottom Line 6 years and counting glass is still half full Recession? not in the near term Steady growth Maybe with a new Administration, the economy can do better How? By following the pro-growth policies the Chamber s laid out
What Can We Do to Fill the Glass? Education reform Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Emphasize prudent, cost-effective regulation Immigration reform Entitlement reform
The Economic Outlook: Economic Policy Division