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Economic Assessment and Outlook

Economic Assessment and Outlook. Midwest, Great Plains, and Western Outlook Conference Indianapolis, Indiana August 14, 2003. Rick Kaglic Senior Business Economist Federal Reserve Bank of Chicago. Growth in Q2 surprised many. Final sales were even stronger.

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Economic Assessment and Outlook

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  1. Economic Assessmentand Outlook Midwest, Great Plains, and Western Outlook Conference Indianapolis, Indiana August 14, 2003 • Rick Kaglic • Senior Business Economist • Federal Reserve Bank • of Chicago

  2. Growth in Q2 surprised many

  3. Final sales were even stronger

  4. The CFNAI is signaling slow, but improving growth

  5. Employers continue to delay hiring

  6. The “job loss” recovery?

  7. Unemployment rates continued to trend up in Q2, but fell modestly in July

  8. Productivity surged in Q2 as outputrose and worker hours fell

  9. Benefits costs are rising, but productivity gains have kept unit labor costs in check

  10. Headline consumer prices had been increasing...

  11. …largely due to higher energy costs

  12. Excluding food and energy, the core rate ofinflation continues to trend down

  13. Household spending has held up Contributors: • Households • Business • Rest of the world • Government

  14. Retail spending picked up in July Contributors: • Households • Business • Rest of the world • Government

  15. Residential activity remains resilient Contributors: • Households • Business • Rest of the world • Government

  16. Mortgage interest rates are rising, but are still low Contributors: • Households • Business • Rest of the world • Government

  17. Home price appreciation has been a boost Contributors: • Households • Business • Rest of the world • Government

  18. It is a buyer’s market Contributors: • Households • Business • Rest of the world • Government

  19. Personal income growth held up from,in part due to tax cuts and transfers Contributors: • Households • Business • Rest of the world • Government

  20. Equity markets have recovered somewhat Contributors: • Households • Business • Rest of the world • Government

  21. Consumer confidence improvedafter the war, but is still fragile Contributors: • Households • Business • Rest of the world • Government

  22. Expectations are falling Contributors: • Households • Business • Rest of the world • Government

  23. Business spending is displaying signs of life Contributors: • Households • Business • Rest of the world • Government

  24. Manufacturing capacity utilization isnear the lowest level since 1983 Contributors: • Households • Business • Rest of the world • Government

  25. Despite recent improvements,industrial output remains weak Contributors: • Households • Business • Rest of the world • Government

  26. Capital goods orders are trending up, but barely Contributors: • Households • Business • Rest of the world • Government

  27. Inventories are very low Contributors: • Households • Business • Rest of the world • Government

  28. Inventories are very low Contributors: • Households • Business • Rest of the world • Government

  29. Corporate profits are improving Contributors: • Households • Business • Rest of the world • Government

  30. Net exports are typically a drag on GDP growth Contributors: • Households • Business • Rest of the world • Government

  31. …both exports and imports fell in Q2 Contributors: • Households • Business • Rest of the world • Government

  32. Government spending, particularlyat the federal level has helped Contributors: • Households • Business • Rest of the world • Government

  33. Most states continue to struggle with budget woes States that cut spending after FY 2003 budgets were passed

  34. Outlook • Economic improvement is broad-based. Final sales growth between 3.0% and 3.5% in second half of 2003. • Labor markets will improve, but modestly. • Price pressures remain subdued. • Business spending begins to pick up, particularly for inventories and equipment and software. • Government and rest of world will be a mixed bag.

  35. Risks • Will businesses continue to focus on cost-cutting to improve profit margins? • Can households keep it up? • Will rising interest rates put a damper on the recovery? • What in the world is going on? • What impact will state and local spending cuts have?

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