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State of the Economy: 2013
Transcript of State of the Economy: 2013
Housing starts have increased dramatically in past 6 months Investment Housing Starts (thousands) Long Term Unemployment # of long term unemployed is extremely high
Persistently high rate may indicate structural unemployment Global Growth & Prospects Exports U.S. Net Exports Inflation Recent Fed Activity Expansionary Monetary Policy
Growth of the balance sheet Federal Reserve Balance Sheet Inflation Core measures of inflation remain comfortably close to Fed's 2% target
Massive expansion of base has potential to cause inflation in the long run PCE and Core PCE Percentage Change from a Year Ago TIPS Spread 10 Year TIPS vs. 10 Year Non-Inflation Indexed Treasury Monetary Base and M2 (Index Q4 2007=100) Overall
IMF has lowered 2013 growth projections to 3.3%
2014 Expected Global Growth rate remains at 4%
Monetary easing by the Fed, Bank of Japan, and the ECB has improved global conditions
Credit continues to contract and lending conditions continue to tighten
Eurozone Unemployment reached 12% (early April).
Total number of jobless in the EU is a record 26.3m
Growth estimate for Japan raised due to recent aggressive round of fiscal and monetary stimuli to combat slow-growth.
Brazil as the worst performing BRIC Continued upward trend in overall US export growth since 2009
Record U.S. export growth in 2012
Decrease in trade deficit
Down to $43.0 billion in February 2013
Headwinds from European recession hitting U.S. and Chinese export growth. Unemployment in EU and Selected Countries Summary GDP growth is sub-par, although housing is a bright spot
The international situation is mixed, with strong growth in developing countries and weak growth in developed countries
Unemployment continues to disappoint—not expected to return to full employment for years
Inflation is stable, but massive expansion of base could lead to problems down the road
Quantitative Easing has successfully lowered long-term rates and boosted the stock market, but has failed to translate to real economic growth. Massive Gap Long-run Trend Hysteresis Sustained cyclical unemployment may alter natural rate of unemployment
In our rapidly changing world, remaining jobless for an extended period of time could cause a person’s skills to depreciate and become permanently unemployable. How Can We Tell? According to 2009 research by Laurence Ball, a portion of the higher NAIRU of the 1980s can be attributed to the hysteresis caused by the Volcker recession
Bernanke: “If progress in reducing unemployment is too slow, the long-term unemployed will see their skills and labor force attachment atrophy further, possibly converting a cyclical problem into a structural one” Questions? Residential and Nonresidential Investment (Index: Q4 2007=100) Policy Recommendation We recommend that the Fed raise its unemployment threshold from 6.5% to 6.9% because of hysteresis effects on NAIRU—current unemployment appears to be structural rather than cyclical. Effectiveness of QE QE1 QE2 QE3 Base has tripled since 2008!