Presentation on theme: "The New Economic Landscape William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago The Progressive Manufacturing Summit 2009."— Presentation transcript:
The New Economic Landscape William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago The Progressive Manufacturing Summit 2009 Sarasota, FL June 10, 2009
The economy entered a recession in the first quarter of 2008
First quarter GDP was driven down by large decreases in business fixed investment and inventories
GDP growth is forecast to be quite weak this year, but then grow closer to trend in 2010
Potential Historical Context Historical 1 Blue Chip Forecast for Current Episode AverageRangeConsensus Duration (months) 116 to 1618-24 Change in GDP 2 -1.7-0.4 to -3.1-3.6 3 Maximum Unemployment Rate 2 7.86.1 to 10.89.9 Change in payroll employment 2 -2.1-1.3 to -3.1-4.5 to -5.0 4 1. Calculated over the 1960-61, 1969-70, 1973-75, 1980, 1981-82, 1990-91, and 2001 recessions. 2.Percent change from peak to trough of GDP. 3.Starting from the peak of GDP in the second quarter of 2008. 4.My guess. – through May 2009 employment is down 4.3%
ARS Question Do you believe the recession will be over by the middle of this year?
ARS Question Do you think the recession will be over by the end of this year?
The Chicago Fed National Activity Index bottomed in January 2009 and has begun to rise
Home price have fallen by over eight percent over the past year with large differences across regions
Housing affordability has improved dramatically
Yet, consumer attitudes for buying a home remain very low
Lending standards for mortgage loans remain tight
Corporate High Yield rates increased beginning in June 2007
Credit spreads between Corporate High Yield securities and Corporate Aaa securities rose by over 1,400 basis points, but have been improving over the past several months
The Fed has been very aggressive, lowering the Fed Funds rate by nearly 525 basis points
The Feds balance sheet has expanded in size and in composition
The outlook is for the U.S. economy to struggle through most of this year and then grow at a solid pace next year Summary Employment is expected to remain weak this year, leading to a continued rise in the unemployment rate Slackness in the economy will lead to a relatively low inflation rate over the coming year The volatile credit markets and the weak housing market are the biggest risk on the horizon for the U.S. economy
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