1. Economic Outlook for Consumers William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago University of Illinois Center for Economic and Financial Education Financial Fitness for Live Bloomington, IL April 19, 2010

2. The “Great Recession” appears to have come to an end around the middle of last year and the economy expanded by 5.6% in the fourth quarter

3. Fourth quarter GDP expanded at a fast pace with contributions largely coming from inventories, consumption and business fixed investment

4. The Chicago Fed National Activity Index bottomed in January 2009 and has been rising

5. GDP is forecast to grow above trend in 2010 and 2011

6. The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles

7. Inflation has begun to move higher

8. In large part due to the movement of oil prices

9. Removing the volatile food and energy components from the PCE, “core” inflation remains contained

10. Inflation is anticipated to rise by 1.7 percent this year and 2.0 percent next year

11. Employment has fallen by over 8.2 million jobs since December 2007

12. The unemployment rate appears to have peaked at 10.1% in October 2009

13. The unemployment rate is believed to have peaked in the final quarter of 2009 and is forecast to edge lower

14. Real disposable income growth remains weak

15. Real disposable personal income is anticipated to rise at a solid pace through 2011

16. The standard of living in the United States remains near its record high

17. Consumer spending improved in the second half of 2009

18. Consumer spending growth is expected to improve over the next two years

19. Personal savings rate has increased

20. What is your number?

21. The stock market has improved since March 2009, but remains well below previous levels

22. After peaking in June 2005, home prices have fallen 28%

23. Homeowners’ equity stake plunged over the past four years

24. The home ownership rate has been moving lower

25. Mortgage rates are very low

26. Home price declines have been large

27. Home price declines in the second quarter, compared with a year-earlier, were quite large in the West and Florida 7 Red States 4 Light Blue States

28. Conditions improved in the third quarter with prices down around 4% compared with a year-earlier 4 Red States 7 Light Blue States

29. In the fourth quarter, home prices fell by just over one percent over the past year 3 Red States 19 Light Blue States

30. Housing affordability improved dramatically

31. Consumer attitudes for buying a home remain very low

32. Lending standards for mortgage loans remain tight

33. The forecast calls for a very slow recovery in housing

34. The financial obligation ratio has been moving lower

35. Both mortgage and consumer loan obligations have been improving for homeowning households

36. Debt as a share of financial assets has been falling over the past year

37. Low mortgage rates, greater home ownership participation and a strong housing market led consumers to increase their mortgage debt load over the past decade, however deleveraging is currently underway

38. Financial stress remains a major problem for the housing sector across all categories, but especially for adjustable rate mortgages and largely in subprime mortgages

39. Consumer credit as a share of disposable income has been moving lower over the past few years

40. Household net worth has begun to improve

41. The bank card delinquency rate have begun to move lower

42. The direct auto loan delinquency rate have also been falling

43. Indirect vehicle loan delinquency rate has been slowly improving

44. Personal loan delinquency rate appears to have peaked and is beginning to improve

45. The Fed has been very aggressive, lowering the Fed Funds rate by nearly 525 basis points

46. The Fed’s balance sheet has expanded in size and in composition

47. The outlook is for the U.S. economy to expand at a solid pace this year and next year Summary Employment is expected to rise moderately this year and next year, with the unemployment rate edging lower through 2011 Slackness in the economy will lead to a relatively low inflation rate over the next two years A big question remains about consumer spending/savings over the next several years The consumer does appear to be putting their financial house in order – is this by their choice?

48. www.chicagofed.org www.federalreserve.gov