2018 NAFCU Economic Presentation Karen Gilmore VP & Regional Executive

The views expressed are my own, and not necessarily those of the Atlanta Fed or the Federal Reserve System.

Board of Governors of the Federal Reserve System

Jerome H. Powell Richard H. Clarida Lael Brainard Randal Quarles Chair Vice Chair Vice Chair for Supervision

Vacant Vacant Vacant

Loretta Mester Charles Evans Neel Kashkari Patrick Harker Eric Rosengren Cleveland Chicago Minneapolis Philadelphia Boston 4th District 7th District 9th District 3rd District 1st District

John Williams New York 2nd District

Tom Barkin Richmond 5th District

Raphael Bostic Mary Daly Esther George Robert Kaplan James Bullard Atlanta San Francisco Kansas City Dallas St. Louis 6th District 12th District 10th District 11th District 8th District 5

Summary of Economic Projections

Midpoint of target range or target level for the Federal Funds Rate

Source: Board of Governors of the Federal Reserve System September 26, 2018 6 The Fed’s Dual Mandate

• The Fed is pursuing two objectives as given to us by Congress—maximum employment and price stability.

• The maximum level of employment is largely determined by nonmonetary factors that affect the structure and dynamics of the job market, although a stronger economy does help with job creation.

• The Federal Open Market Committee (FOMC) has chosen an inflation target of two percent year-over-year growth over the longer term.

Payroll Employment Changes

Payroll Employment Changes thousands, seasonally adjusted 600 Monthly change 400 250

200 210

-200 12-month average -400

-600

-800

-1000 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Labor Statistics, Haver Analytics through October 2018 Unemployment and Labor Force Participation Rates

Unemployment and Labor Force Participation Rates monthly, percent, seasonally adjusted 18 70

16 Broad Unemployment Rate (U6) (left axis) 68 14

Civilian Unemployment Rate (U3) 66 10 (left axis)

8 7.4 64 6 62.9 Labor Force Participation Rate 4 (right axis) 62 3.7 2

0 60 07 08 09 10 11 12 13 14 15 16 17 18 Source: Bureau of Labor Statistics, Haver Analytics through October 2018

Labor Force Participation Rates

Labor Force Participation Rates sa, percent 67 85

66 84 Overall (left axis)

Prime Age 25‐54 (right axis) 65 83

82.3

64 82

62.9 63 81

62 80

61 79 06 07 08 09 10 11 12 13 14 15 16 17 18

Sources: Bureau of Labor Statistics; Haver Analytics data through October 2018 10 Changes in Labor Force Participation Rate by Gender

Source: Brookings- Hutchins Roundup: High-wage cities, monetary policy spillovers, and more 11

Age Distribution

12 Reasons Not in Labor Force

Disabled or ill In school or training Other Retired Taking care of house or family Want a job, but not 'unemployed' 100%

90%

80%

70%

60%

50%

40%

30%

20%

10%

0% 16-20 21-25 26-30 31-34 36-40 41-45 46-50 51-55 56-60 61-65 66-70 71-75 76-79 80+

Sources: BLS Current Population Survey, Author's Calculations Note: The series were constructed from the Current Population Survey’s basic monthly data, averaged for the period 1999–2014. 13

14 “Undershooting” the Natural Unemployment Rate

12 Natural rate of unemployment (CBO)

10 1978:Q2 1971:Q4 1987:Q3 1964:Q3 1997:Q1 8 2005:Q4

“High 4 pressure” periods, where the 2 unemployme nt rate falls below its 0 natural rate.

Sources: Bureau of Labor Statistics; Congressional Budget Office (CBO); BEA; Federal Reserve Board

Wage Measures

Wage Measures year-over-year percent change Average Hourly Earnings Wage Growth Tracker 5.0%

4.5%

4.0%

3.5% 3.5%

3.1% 3.0%

2.5%

2.0%

1.5%

1.0% 07 08 09 10 11 12 13 14 15 16 17 18

Source: Bureau of Labor Statistics, Atlanta Fed, Haver Analytics October 2018 (AHE); September 2018 (WGT) 16 Summary of Economic Projections

Source: Board of Governors of the Federal Reserve System September 26, 2018 17

Personal Consumption Expenditure (PCE) Price Index Personal Consumptionyear-over-year Expenditure percent change, (PCE) monthly Price Index

3.5 PCE Core PCE Trimmed Mean PCE 3.0

2.5

2.0 FOMC Inflation Objective

1.5

1.0

0.5

0.0 2010 2011 2012 2013 2014 2015 2016 2017 2018

Sources: Bureau of Economic Analysis; Haver Analytics; Federal Reserve Bank of Dallas through September 2018 18 Summary of Economic Projections

Source: Board of Governors of the Federal Reserve System September 26, 2018 19

Real GDP Growth

4.5 2011-2017 – Annualized GDP growth 4.2

3.5 September SEP 3.5 2018 Forecast

3.1 3 2.8

2.5 2.4 2.3 2.2 2.2

2 1.8 1.8 1.7

1.5

0.5

0 2011 2012 2013 2014 2015 2016 2017 Q1-18 Q2-18 Q3-18 2018 Source: Bureau of Economic Analysis 20 Summary of Economic Projections

Source: Board of Governors of the Federal Reserve System September 26, 2018 21

The buzz…

• Tax Cuts and Jobs Act of 2017

• Changes in trade/tariff policies

22 Business Fixed Investment: Business Cycle Graph

Business Fixed Investment: Business Cycle Graph Index=100 at business cycle peak 225.0 Business cycles (length of line is equal to the number of 200.0 quarters between “peaks”):

2007q4 2001q1 1990q3 1981q3 175.0 1973q4 1969q4 1960q2

150.0

Latest GDPNow 125.0 estimate

100.0

75.0 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 Quarters since business cycle peak 23

Top Trading Partners YTD - Exports

Taiwan India Singapore France Belgium Canada Canada 18.20% Mexico 15.90% Brazil China 7.50%

Hong Kong Japan 4.40% United Kingdom 4.00%

Netherlands Germany 3.50% Korea, South 3.30% Netherlands 2.90% Korea, South Hong Kong 2.30% Brazil 2.40%

Germany Belgium 1.90% France 2.20% Singapore 2.00% United Kingdom Mexico Taiwan 1.80% India 2.00% Japan

China

Source: US Census Bureau Through September 2018 24 Top Trading Partners YTD - Imports

Malaysia Switzerland Vietnam Ireland Taiwan Italy China China 20.90% Canada 12.80% India Mexico 13.70% France Japan 5.60% Germany 5.00% United Kingdom Korea, South 2.90%

Korea, South United Kingdom 2.30% France 2.00% India 2.20%

Germany Italy 2.10% Taiwan 1.80% Ireland 2.30% Canada Vietnam 1.90% Japan Malaysia 1.60% Switzerland 1.60%

Mexico

Source: US Census Bureau Through September 2018 25

Treasury Note Yield Federal Funds Rate

average, percent p.a.

3.5 10-year Treasury Note

3.0 Fed Funds

2.5 Oct. 2018 0.99%

2.0

1.5 Jan. 2014 Dec. 2016 2.93% 1.77% 1.0

0.5

0.0 2014 2015 2016 2017 2018

Source: Federal Reserve Board; Haver Analytics data through October 19, 2018 26 Summary of the Economic Environment: The November 2018 FOMC Policy Statement

• The Committee expects that further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective over the medium term.

• Risks to the economic outlook appear roughly balanced.

• The Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Information Resources frbatlanta.org

macroblog

Commentary from our head of research and other Atlanta Fed economists

Vibrant new online magazine, Economy Matters.