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U.S. Economic Conditions and Outlook

U.S. Economic Conditions and Outlook. Katharine Bradbury Federal Reserve Bank of Boston 2009 Telergee CFO and Controllers Conference October 15, 2009. U.S. Economic Conditions and Outlook. Macroeconomic conditions – current recession in historical context GDP Labor market Housing markets

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U.S. Economic Conditions and Outlook

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  1. U.S. Economic Conditions and Outlook Katharine Bradbury Federal Reserve Bank of Boston 2009 Telergee CFO and Controllers Conference October 15, 2009

  2. U.S. Economic Conditions and Outlook Macroeconomic conditions – current recession in historical context GDP Labor market Housing markets Disaggregate some statistics to look at regions, groups Stimulus program, focusing on funds for state and local governments How much difficulty are state and local governments facing in the current recession? Size and nature of stimulus funding and its effect on macro economy Forecast and factors influencing it

  3. The current recession is severe quarterly percent change at an annual rate Source: BEA

  4. Drop in real GDP to date is larger than in most post-WWII recessions real GDP index = 1 at pre-recession peak quarter Source: BEA

  5. Employment losses are especially large . . . and ongoing Source: BLS

  6. Severity varies across the U.S., but 49 of 50 states have lost jobs in the last 12 months. Source: BLS

  7. Most industries (>80%) have been cutting jobs; some are now turning around. percent Diffusion indexes: percent of 278 industries experiencing employment increases from 1, 3, 6, or 12 months earlier Source: BLS

  8. U.S. unemployment rate is at its highest level since 1982 Source: BLS

  9. Unemployment rate differences among states have widened as rates rose percent Source: BLS

  10. Unemployment disparities among groups have also widened—recessions fall unevenly. Source: BLS

  11. Hours and wages for those still employed are also affected as slack pervades the labor market Source: BLS

  12. Slowdown in housing sales preceded the recession . . . Now preceding the recovery? Sources: Census Bureau and National Association of Realtors

  13. U.S. home price decreases also started early. Pace of decline is now moderating. Sources: FHFA and S&P/Case-Shiller

  14. More booms and busts in local housing markets than nationwide Source: FHFA

  15. U.S. foreclosure and serious delinquency rates continue on a steep upward trajectory Source: Mortgage Bankers Association

  16. Mortgage difficulties are more widespread in some states than others Source: Mortgage Bankers Association

  17. Commercial real estate markets were much less affected than residential until 2008. More deterioration expected. Sources: CB Richard Ellis and MIT Center for Real Estate

  18. Stimulus program uses five approaches to reduce recession’s impact

  19. State-local government sector is pro-cyclical Budget gaps: shortfalls of revenue relative to spending States required to balance budgets State FY2009 gaps: estimated nationwide total $110 billion • $47b before budgets passed • $63b developed mid-year Gap-closing strategies: • Cut spending • Raise taxes • Draw down reserves + Funds from federal government Gap estimates from Center on Budget and Policy Priorities Source: Census Bureau

  20. State stimulus dollars for fiscal relief come mostly in late 2009 and 2010

  21. Projected state gaps in FY2010 & 2011 are larger than in FY2009 and larger than in last recession Last recession Estimated total Source: Center on Budget and Policy Priorities. “New fiscal year brings no relief from unprecedented state budget problems.” Updated September 3, 2009.

  22. Consumer confidence / sentiment and stock prices plunged and are now turning up Index Index: 1990 average = 1 Sources: Conference Board, University of Michigan, Wall Street Journal

  23. But household wealth took a hit and consumers are saving more to improve their balance sheets Source: Federal Reserve Board

  24. Recovery will be gradualEconomic projections of Federal Reserve Governors and Reserve Bank Presidents, June 2009 Source: Federal Reserve Board

  25. Overview / recap Current recession is severe Affecting all regions and population subgroups But some areas hit harder than others: those that boomed and those previously most distressed Disadvantaged population subgroups also more vulnerable downturns Some sectors beginning to turn around Stimulus programs are working to reduce severity of recession Five policy approaches in ARRA State budget gaps sizable in FY2009, 2010, and 2011 and stimulus funds are helping to fill them. Most forecasters expect GDP to resume growth this year, but labor market expected to continue worsening into next year  gradual recovery.

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