Economic Overview
August 24 2011
Proprietary and Confidential. Not for disclosure outside Federal Reserve. What the Fed Said . . .
• The (Federal Open Market) Committee now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting.
• They anticipate that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. (Dual mandate = maximum employment and stable prices.)
• Moreover, downside risks to the economic outlook have increased.
• The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's unofficial inflation target as the effects of past energy and other commodity price increases dissipate further. 2 More of what the Fed Said . . .
• To promote the ongoing economic recovery and to help ensure that inflation, over time, is at levels consistent with its mandate, the Committee decided today to keep the target range for the federal funds rate at 0 to 1/4 percent.
• The Committee currently anticipates that economic conditions--including low rates of resource utilization and a subdued outlook for inflation over the medium run--are likely to warrant exceptionally low levels for the federal funds rate at least through mid-2013.
• The Committee also will maintain its existing policy of reinvesting principal payments from its securities holdings.
3 The benchmark revisions to the GDP accounts now paint a materially different picture of the recession and the recovery.
Real GDP growth (percent, annual rate) 6 Old series 4
2
0
-2 Preliminary Q2 Data, and it will likely be revised down a bit. -4
-6 New series -8
-10 Q12007 Q32007 Q12008 Q32008 Q12009 Q32009 Q12010 Q32010 Q12011
Source: Bureau of Economic Analysis 4 “The FOMC now expects a somewhat slower pace of recovery over coming quarters than it did at the time of the previous meeting (June).”
Blue Chip Economic Forecast: Real GDP 4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4
June FOMC Projections Actual Consensus Optimistic Pessimistic Quarterly Annualized % Change. Source: Blue Chip Economic Forecasts, August 2011 5 “. . . the unemployment rate will decline only gradually . . .
Blue Chip Economic Forecast: Unemployment 10.0
9.5
9.0
8.5
8.0
7.5
7.0 2010 Q2 Q3 Q4 2011 Q2 Q3 Q4 2012 Q2 Q3 Q4
June FOMC Projections Actual Consensus Optimistic Pessimistic % of Labor Force. Source: Blue Chip Economic Forecasts, August 2011 6 The recent and expected growth is too slow to push joblessness down at a significant pace.
Net monthly jobs growth, in thousands 600
400
200 Needed to reduced unemployment
0
-200
-400
-600
-800
-1000
Jul Jul Jul Jul Jul Jul Jul
Jan Jan Jan Jan Jan Jan Jan
Sep Sep Sep Sep Sep Sep
Mar Mar Mar Mar Mar Mar Mar
Nov Nov Nov Nov Nov Nov
May May May May May May May
------
------
------
------
------
------
2007 2007 2005 2005 2006 2008 2009 2010 2011
2005 2005 2006 2007 2008 2009 2010 2011
2005 2005 2006 2007 2008 2009 2010
2008 2008 2005 2005 2006 2007 2009 2010 2011
2005 2005 2006 2007 2008 2009 2010
2005 2005 2006 2007 2008 2009 2010 2011
7 And joblessness, whether measured by the commonly reported estimate, or a broader measure of “under-employment” is very high.
20 Share of the labor force
18
16 Under-employment* 14
12
10
8 Unemployment rate 6
4
2
0
* Includes discouraged workers and workers working less than wanted. 8 . . . downside risks to the economic outlook have increased.
Persistently high unemployment = cautious consumers
Market volatility and declining confidence = a trip to the sidelines
Debt and Deficit Reduction = Short-term pain and long-term uncertainty
Europe = Questions about international financial stability
Housing = Price declines, foreclosures and shadow inventory, tougher qualifying standards, little new construction activity, etc.
Ongoing/Protracted Deleveraging = Ongoing and Protracted period of slow growth. 9 Dennis Lockhart: The Sky is Not Falling
“I continue to expect positive effects as the unusual forces that restrained the economy in the first half of this year peter out. Some of these will be in auto manufacturing and assembly, which should rebound as the supply chain disruptions caused by the Japanese earthquake and tsunami are eliminated.
Add to that business investment in equipment and software, which should continue to be relatively strong even if business people have pulled back investing to some degree because of greater uncertainty.
Also, the U.S. energy sector is active again. Demand for coal is high, firms are investing and hiring to explore and develop shale gas, and demand for alternative energy sources is strong.
Tourism has been very strong this summer. Hotel and cruise bookings and attendance at theme parks and resort venues have been very good.”
10 “We expected that the inflationary pressures would subside as the year progressed, and this seems to be occurring.”
Blue Chip Consumer Price Inflation Forecast Annualized quarterly percent change
8 CPI actual August Median Forecast top ten bottom ten 6
4
2
0
-2
-4
-6
-8
-10 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Q3-11 Q1-12 Q3-12
Source: Blue Chip panel of economists, August 10, 2011 11 Dennis Lockhart on Monetary Policy
“Monetary policy needs to be very supportive of growth as the recovery seeks to regain its footing. Conditional on stable inflation expectations, I believe maintaining the current low interest rate environment is the right posture for the time being.”
“I'm currently cautious about further monetary action. As I see it, we do not yet have enough information to conclude the economy won't resume a healthier pace of growth.
I still maintain that a resumption of growth is the most likely case. But if that assessment proves to be wrong, I believe we do have tools to address whatever circumstances arise.”
12 REIN & Florida’s Influence on Monetary Policy
Chris Oakley Vice President and Regional Executive
Federal Reserve Bank of Atlanta Jacksonville Branch
August 24, 2011
The views expressed are mine, and not necessarily those of the Atlanta Fed or the Federal Reserve System.
Proprietary and Confidential. Not for disclosure outside Federal Reserve. • Florida Data Digest • REIN & What our Contacts are Telling Us
Proprietary and Confidential. Not for disclosure outside Federal Reserve. Florida Data Digest August 2011
Proprietary and Confidential. Not for disclosure outside Federal Reserve. Florida’s economic performance continues to lag the nation. Broad indicators of economic activity in Florida show stabilization but little improvement. Comparable U.S. data indicate slow but steady gains.
Jan 2001 = 100 Coincident Economic Indicator 120.0 June 2011
115.0
110.0
105.0
100.0
United States 95.0 Florida
90.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Federal Reserve Bank of Philadelphia 16 Total employment in Florida has stabilized near recession lows, but job gains remain elusive. The current level of employment is at mid-2003 levels.
Thousands, Florida Payroll Employment Seasonally adjusted July 2011 8,500
8,000
7,500 Florida lost relatively few jobs during the previous two recessions. Florida shed 11.4% of 7,000 total employment from peak to trough.
6,500
6,000
Post-recession employment gains in Florida did 5,500 not materialize for some time after the previous two downturns.
5,000
4,500 1990 1995 2000 2005 2010 Source: U.S. Bureau of Labor Statistics, Haver Analytics 17 All industries except education and health care saw significant job losses during the downturn, and several continue to post declines. Where job growth has occurred—in leisure and hospitality, for example—gains have to date been modest.
Employment Loss and Gain by Industry: Florida June 2011 1.4 Local government -4.2 2.6 Federal & state government -13.5 0.9 Other services -11.4 6.5 Leisure & hospitality Percent change trough to present -7.5 Percent change peak to trough 8.7 Education & healthcare 0.0 2.3 Business services -15.4 0.9 Financial services -16.1 0.5 Information -21.7 3.4 Transport/Warehousing/Utilities -12.1 2.1 Retail trade -10.7 0.0 The state as a whole Wholesale trade -15.8 shed 11.4% of total 2.3 Manufacturing -28.2 employment peak to trough (Mar 2007), 1.4 Construction -51.6 and is only up 1.3% since the trough. 1.3 Total -11.4 Over half of Florida’s construction jobs have -60.0 -50.0 -40.0 -30.0 -20.0 -10.0 0.0 10.0 20.0 been lost. Note: A reading of 0.0 in the "trough to present" measure indicates that employment continues to decline in these industries. Likewise, a reading of 0.0 in the "peak to trough" measure indicates the employment continues to increase in these industries. Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta 18 Leisure and hospitality, manufacturing, and retail trade show positive employment momentum, while information, wholesale trade, and federal and state government employment remain very weak.
Employment Momentum by Industry: Florida 12.0 June 2011 Improving Expanding
10.0 Leisure & hospitality
8.0
6.0 Manufacturing Retail trade
4.0 Transport/Warehouse/Utilities Business services
Construction Health care & private education 2.0
Financial services Local government 0.0 Other services Federal & state government
month month average annualized percent change -2.0
- 3
Wholesale trade -4.0 Information
Contracting Slipping -6.0 -8.0 -6.0 -4.0 -2.0 0.0 2.0 4.0 6.0 Year-over-year percent change Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta 19 Job losses in southwestern Florida metro areas have been staggering. Major declines are not limited to coastal areas. Ocala is down over 17 percent. Pensacola, Orlando, Panama City, and Daytona are the only areas with more than a 2 percent increase since their troughs.
Employment Loss and Gain by Metro Area: Florida June 2011 1.0 W. Palm Beach Tallahassee is the only Florida metro -12.2 Tampa-St. Pete area that had a lower percent change 0.9 decline peak-to-trough than the US -11.2 0.8 Tallahassee average of 6.3%. -6.1 1.2 Vero Beach -15.3 0.0 Sarasota -16.4 0.8 Punta Gorda -12.5 0.0 St. Lucie-Ft. Pierce -12.4 Percent change trough to present 2.2 Pensacola -10.6 Percent change peak to trough 3.2 Panama City -7.3 2.3 Orlando -9.6 0.9 Ocala -17.3 0.0 Naples -20.4 1.4 Miami-Ft.L'dale -10.2 0.2 Melbourne -12.7 0.1 Lakeland -9.6 1.7 Jacksonville -9.1 1.3 Gainesville -6.6 0.1 Ft. Myers -18.1 2.2 Daytona -12.8 1.3 Florida -11.4 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 Note: A reading of 0.0 in the “trough to present” measure indicates that employment continues to decline in these metro areas. Likewise, a reading of 0.0 in the “peak to trough” measure indicates that employment continues to increase in these metro areas.
Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta 20 Orlando, Tampa-St. Pete, Jacksonville, and Miami-Ft. Lauderdale show positive employment momentum, while smaller metro areas, like Melbourne, Sarasota, and St. Lucie-Ft. Pierce, remain very weak.
Employment Momentum by Metro Area: Florida 6.0 Improving June 2011 Expanding
5.0
4.0 Panama City Daytona Jacksonville Vero Beach Tampa-St. Pete 3.0
West Palm Beach Miami-Ft. Lauderdale 2.0 Tallahassee Ft. Myers 1.0 Orlando
0.0 Punta Gorda Gainesville Ocala Pensacola -1.0 Lakeland St. Lucie-Ft. Pierce
-2.0 Sarasota month month average annualized percent change
- Melbourne 3 -3.0
Naples -4.0 Contracting Slipping -5.0 -4.0 -3.0 -2.0 -1.0 0.0 1.0 2.0 3.0 Year-over-year percent change Source: U.S. Bureau of Labor Statistics, Haver Analytics, Federal Reserve Bank of Atlanta 21 Florida’s unemployment rate continued to climb long after the overall U.S. rate stabilized and began to fall.
Unemployment Rate Percent of labor force July 2011 13.0
12.0
11.0
10.0
9.0 Florida
United States 8.0
7.0
6.0
5.0
4.0 The table shows unemployment rates for 3.0 metro areas. Current = June 2011. Year ago and Jan 2007 are included for comparison. 2005 2006 2007 2008 2009 2010 2011
22 Initial claims for unemployment have declined substantially in 2011, which may indicate that unemployment has peaked.
Initial Unemployment Insurance Claims: Florida 4-week moving average July 9, 2011 30,000
25,000
20,000
15,000
Initial claims averaged just over 10,000 during 2004-2006. The current number of initial claims remains elevated. 10,000
5,000 2008 2009 2010 2011
Source: U.S. Department of Labor–Employment and Training Administration, Haver Analytics 23 Measures of consumer activity have recovered from recession lows. However, sales tax revenues decreased slightly and consumer confidence fell in June.
Florida Sales Tax Revenue and Consumer Confidence Year-to-year change, 1966 = 100 3-month moving average 100 June 2011 20.0
95 15.0
90
10.0 85 Florida Consumer Confidence (left scale) Florida Sales Tax Revenue (right scale) 5.0 80
75 0.0
70
Sales tax revenues have been helped -5.0 by healthy activity in the leisure and 65 hospitality sector. International visitors have played an important role in boosting tourism spending. -10.0 60
55 -15.0 2005 2006 2007 2008 2009 2010 2011 Source: Florida Department of Revenue, University of Florida Bureau of Economic and Business Research Center, Federal Reserve Bank of Atlanta 24 Existing home sales in Florida have increased, driven by foreclosures and other distressed sales. The level of sales in Florida is well above the 2007–8 lows.
Existing Home Sales Year-over-year percent change Q1 2011 80.0
60.0
40.0
20.0 United States Florida
0.0
-20.0
-40.0 2005 2006 2007 2008 2009 2010 2011 Source: National Association of Realtors, Haver Analytics, Federal Reserve Bank of Atlanta 25 As a result of low sales and high inventories, new home construction remains near historic lows in Florida and the United States as a whole.
New Residential Home Construction Permits 200,000 June 2011 30,000
180,000
25,000 160,000
140,000 20,000
120,000
100,000 15,000
80,000
10,000 60,000 United States (left scale) Florida (right scale) 40,000 5,000
20,000
0 0 2005 2006 2007 2008 2009 2010 2011 Source: U.S. Bureau of the Census, Haver Analytics 26 Home prices in Florida have declined substantially over the past five years.
S&P/Case-Shiller Home Price Index Jan 2000 = 100 through May 2011 300 FHFA House Price 1-yr % 5-yr % 10-yr % Index: Q1 2011 change change change USA -3.1 -11.8 31.1 275 Florida -8.2 -37.6 31.2 Ft. Myers -7.3 -54.1 8.6 250 Daytona -12.7 -43.5 21.6 Ft. Lauderdale -4.8 -42.3 37.9 Gainesville -3.8 -15.4 47.1 225 Jacksonville -8.8 -25.6 32.9 Lakeland -11.9 -36.1 19.8 200 Miami -6.8 -37.6 45.5 Naples -6.3 -49.9 20.9 Ocala -10.4 -34.6 23.4 175 Orlando -7.9 -38.0 23.6 Melbourne -10.3 -46.5 23.9 Panama City -3.5 -29.0 42.4 150 Miami Pensacola -6.8 -24.9 30.5 Tampa St. Lucie-Fort Pierce -5.2 -50.4 18.0 Punta Gorda -10.0 -48.0 14.9 125 Composite 20 Tallahassee -5.4 -15.5 39.7 Tampa-St. Pete -9.6 -36.6 26.0 100 Vero Beach -4.4 -43.9 22.2 West Palm Beach -6.2 -43.1 35.0 75 2005 2006 2007 2008 2009 2010 2011 Source: Federal Housing Finance Agency, Haver Analytics, Federal Reserve Bank of Atlanta Source: S&P, Haver Analytics 27 Florida Realtors reported that sales growth was flat from year-ago levels, while builders noted sales were similar to weak levels from a year ago.
FRB Atlanta Real Estate Contact Poll: Florida Current Home Sales vs Year-ago Levels 1.0 June 2011
0.8
0.6 Realtors Homebuilders 0.4
0.2
0.0
-0.2
-0.4
-0.6
-0.8
-1.0 2006 2007 2008 2009 2010 2011 Source: Federal Reserve Bank of Atlanta 28 REIN & What our Contacts are Telling Us
Proprietary and Confidential. Not for disclosure outside Federal Reserve. Your Connection to Atlanta and Washington
… via the Regional Economic Information Network (REIN)
30 Information Flow
31 Input to Forecasting and Monetary Policy
Jacksonville Branch Board of Directors
Oscar Horton Kevin Jones Hugh Dailey Carolyn Fennell Tampa/ Lakeland/ Ocala/ Orlando/ Southern Florida Central Florida Central Florida Central Florida
Leerie Jenkins Lynda Weatherman David Stovall Jacksonville/ Rockledge/ Jacksonville/ Northeast Florida Space Coast Northeast Florida Chair 32 Input to Forecasting and Monetary Policy
Atlanta Board of Directors
Richard Anderson Renee Glover Anthony Humphries Jose Suquet James Wells Delta Air Lines, Inc. Atlanta Housing NobleBank & Pan American SunTrust Banks, Inc. Authority Trust, N.A. Life Insurance
Clarence Otis Carol Tome Thomas Barkin Rudy Schupp Darden The Home Depot McKinsey & 1st United Bank Restaurants, Inc. Chair Company Deputy Chair
33 Input to Forecasting and Monetary Policy
Interactions with business leaders ensures policy makers have access to and are considering multiple impacts to the broad economy • Small- and medium-sized businesses • Bankruptcy experts • Participation at industry conferences • Roundtables • Top revenue producers
34 What our Florida contacts are telling us:
• Optimism on the pace of economic activity looking out 6 months has decreased
35 What our Florida contacts are telling us:
• Many sources of uncertainty are impacting business decisions, especially: • Domestic debt situation and government gridlock • Unemployment and poor employment prospects • Regulatory environment
36 What our Florida contacts are telling us:
• Impact from uncertainty: • Established businesses: Some impact to investment and hiring decisions noted • Start-ups: Potential entrepreneurs less likely to start new enterprises
37 What our Florida contacts are telling us:
• Other observations: • Central Florida tourism is back, but discounting is still required to maintain volumes • Housing may be bouncing along a bottom; full recovery will likely take years • Loan demand remains weak • Commercial and industrial real estate may be starting to show some signs of life
38 Questions?
Proprietary and Confidential. Not for disclosure outside Federal Reserve. 39