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2013 C.A.R. Forecasting Conference January 2013

2013 C.A.R. Forecasting Conference January 2013. Overview 2013: More of the Same?. Yes: The economy will grow, but only at or just below potential Yes: This growth level is too slow put a dent in unemployment or underemployment Yes: Incomes will continue to grow slowly, adjusted for inflation

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2013 C.A.R. Forecasting Conference January 2013

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  1. 2013C.A.R. Forecasting Conference January 2013

  2. Overview 2013: More of the Same? • Yes: The economy will grow, but only at or just below potential • Yes: This growth level is too slow put a dent in unemployment or underemployment • Yes: Incomes will continue to grow slowly, adjusted for inflation • Yes: Interest rates will remain at historic lows • BUT NO!: Housing is going to continue its comeback started last year

  3. GDP growth positive but too slow to make a dent in unemployment

  4. Total payrolls growth uneven and too slow to absorb the pool of currently unemployed

  5. What will it take? • At current rate of job creation it will take 40 months to get to the Fed’s 6.5% unemployment to reconsider interest rate policy • To get back to the 4.7% unemployment rate of late 2007 would take EIGHT YEARS! • To be back to 5.0% unemployment by the 2016 election we need 240,000 new jobs per month, or a rise or 60% faster job creation than the current economy

  6. Will we have the income to buy? Incomes growing slowly

  7. Beige Book on real estate • Activity in residential real estate and new home construction remained slow across all Districts • All Districts attributed slumping activity to the pace of economic recovery • Chicago District mentioned difficulty obtaining credit as another constraint on demand. • Home prices generally declined or held steady distressed properties placing downward pressure on prices • Outlook: mixed, with contacts in most Districts described as expecting continued weak conditions.

  8. What about the Fed? • Focused solely on growth and employment and not inflation • The Fed will continue to add to its balance sheet by buying bonds – provides dollars for mortgages and the federal government deficit • Will not raise rates until unemployment falls to 6.5%, a new point of guidance never used before • Even if the economy surprises us all they can drain the excess liquidity before inflation damage is done (we h0pe!)

  9. Fed Forecast for 2013 ( as of Dec. ‘12) Indicator Range Central tendency Real GDP 2.0-4.02.3-3.0 PCE Inflation 1.3-2.01.3-2.0 Unemployment 6.9-7.8 7.4-7.7

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