The Economic Outlook Economic Policy Division
Glass Half Full Six plus years of moderate 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 and financial sectors recovered
Glass Half Full Six years of steady growth Housing and financial sectors recovered Almost 14 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 December 5.0% 4 Unemployment Rate U-6 2 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Household Net Worth Trillion $ 90 80 Household Wealth 70 60 50 40 30 20 10 1980 1985 1990 1995 2000 2005 2010 2015
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 ISM non-manufacturing 55.3 Inflation flat CPI-U at 0.4% 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 Multiple local weaknesses
Glass Half Empty Multiple local weaknesses Flat wages ISM manufacturing index at 48.2 Industrial production down 1.8% Y/Y At risk of deflation?
Economy losing steam: 2015 Q2 3.9 % 2015 Q3 2.0% 2015 Q4 1.x% Glass Half Empty
Glass Half Empty Budget deficits huge and poised to soar Along with federal debt 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 massive, historic stimulus? 4 years of trillion dollar plus deficits 7 years of near-zero Fed funds rate Over $3 trillion quantitative easing
Why is the Glass Half Empty? Despite massive, historic 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
What Can We Do?
Step 1: No WMEs What Can We Do?
The U.S. Chamber Policy Agenda Emphasize prudent, cost-effective regulation Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Immigration reform Entitlement reform Education reform
U.S. monetary policy Future Concerns End-game regulatory surge Cloudy international picture
U.S. Monetary Policy Future Concerns
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
Normalizing the Funds Rate 9 8 7 6 Not a Forecast 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 2020
Future Concerns U.S. Monetary Policy Administration s end-game regulatory surge
Future Concerns U.S. Monetary Policy End-game regulatory surge Cloudy international picture
Future Concerns End-game regulatory surge Cloudy international picture = tough to export Europe Latin America Asia
Bottom Line 6 years and counting glass is still half full Blame for lagging economy rests squarely with the Administration
Bottom Line 6 years and counting glass is still half full Blame for lagging economy rests squarely with the Administration Recession? not in the near term, but recovery is getting long in the tooth
Bottom Line 6 years and counting glass is still half full Blame for lagging economy rests squarely with the Administration Recession? not in the near term How can we do better? Defensively, government needs to do less harm
Bottom Line 6 years and counting glass is still half full Blame for lagging economy rests squarely with the Administration Recession? not in the near term How can we do better? Defensively, government needs to do less harm Proactively:
The U.S. Chamber Policy Agenda Emphasize prudent, cost-effective regulation Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Immigration reform Entitlement reform Education reform
The Economic Outlook: Economic Policy Division
History of the Federal Funds Rate 8 7 6 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015
Normalizing the Funds Rate 9 8 7 6 Not a Forecast 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 2020
Current Interest Rate Structure 3.5 3 2.5 2 1.5 1 0.5 0 Federal Funds Rate 1 Year 10 Year 30 Year
Higher Funds Rates Shifts Structure UP 4.5 4 3.5 3 2.5 2 1.5 1 0.5 0 Federal Funds Rate 1 Year 10 Year 30 Year
6 Conventional Wisdom Shifts on the Rate Structure 5 4 3 2 1 0 Federal Funds Rate 1 Year 10 Year 30 Year
9.00 The Greenspan Conundrum (Funds Rate 1990 2006) 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
10.00 The Greenspan Conundrum Funds rate v 10-Yr Treasury 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
Normalizing the Funds Rate 9 8 7 6 Not a Forecast 5 4 3 2 1 0 1990 1995 2000 2005 2010 2015 2020
10 A Possible Future Path for the Funds Rate 9 8 Not a Forecast 7 6 5 4 3 2 1 Target Funds Rate 10 Year Treasury Note 0 1990 1995 2000 2005 2010 2015 2020
10 A Possible Future Path for the Funds Rate 9 8 Not a Forecast 7 6 5 4 3 2 1 Target Funds Rate 10 Year Treasury Note 0 1990 1995 2000 2005 2010 2015 2020