Economic Outlook December 2014 Economic Policy Division U

Economic Outlook December 2014 Economic Policy Division

U. S. GDP Actual and Potential Quarterly, Q 1 1980 to Q 4 2015 Billions Real GDP Trillion 2009 Dollars Log Scale Forecast $18. 0 $15. 0 Actual $12. 5 Potential $9. 0 $6. 5 1980 1985 1990 1995 Potential GDP estimated by Congressional Budget Office 2000 2005 2010 2015

U. S. GDP per Capita: Actual and Potential Quarterly, Q 1 1980 to Q 3 2014 2009 Dollars 55, 000 50, 000 Per Capita Real GDP Potential Per Capita Real GDP 45, 000 40, 000 35, 000 30, 000 25, 000 20, 000 1985 1990 1995 Potential GDP estimated by Congressional Budget Office 2000 2005 2010

U. S. GDP: Estimates of Potential Quarterly, Q 1 1980 to Q 4 2017

Comparing Recessions Trough May 1954 (II) April 1958 (II) February 1961 (I) November 1970 (IV) March 1975 (I) November 1982 (IV) March 1991(I) November 2001 (IV) June 2009 (II) GDP Loss (Peak to Trough) -2. 5 (%) -3. 1 -0. 5 -0. 2 -3. 2 -2. 6 -1. 4 +0. 7 -4. 7 Duration of Recession 10 (months) 8 10 11 16 16 8 8 18 GDP Growth in the following year 7. 9 (%) 9. 6 7. 5 4. 5 6. 2 7. 7 2. 6 1. 9 2. 5 GDP Growth in the following 3 years 4. 0 4. 2 5. 8 5. 2 4. 5 5. 8 3. 2 2. 9 2. 2 Months from end of recession until we reached prior employment peak 13 12 10 6 9 12 23 39 59 Months from end of recession until GDP reached potential 2 4 10 5 13 20 25 13 NA

Real GDP Outlook Percent Change, Annual Rate 10 5 0 -5 -10 1985 1990 1995 2000 2005 2010

Personal Consumption Outlook Percent Change, Annual Rate 9 6 3 0 -3 -6 -9 1980 Real Personal Consumption Expenditures 1985 1990 1995 2000 2005 2010

Real Disposable Personal Income Billions $ 12, 000 10, 000 8, 000 6, 000 4, 000 2, 000 0 1985 1990 1995 2000 2005 2010

Household Net Worth Trillion $ 90 Household Wealth 80 70 60 50 40 30 20 10 1985 1990 1995 2000 2005 2010

Household Net Worth Trillion $ 90 Household Wealth 80 70 60 50 40 30 20 10 1985 1990 1995 2000 2005 2010

Household Balance Sheet Trillion $ 100 Total Assets Nonfinancial Assets Financial Assets 80 60 Household Assets 40 20 0 1985 1990 1995 2000 2005 2010 Trillion $ 20 15 Household Liabilities 10 5 0 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Consumer Debt Service Percent of Disposable Personal Income 15 14 13 12 11 10 9 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Domestic Bank Lending Billions $ 3, 500 Consumer Credit Outstanding 3, 200 2, 900 2, 600 2, 300 2, 000 2007 2008 2009 Billions $ 2010 2011 2012 2013 2014 Residential Real Estate Loans 1, 600 1, 300 2007 2008 2009 2010 2011 2012 2013 2014

Consumer Confidence 150 University of Michigan Consumer Sentiment 130 Conference Board Consumer Confidence 110 90 70 50 30 10 -10 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Auto & Light Truck Sales Millions 25 20 15 10 5 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Housing Market Trends Thous. of Units, SAAR 2500 Home Sales 7500 1200 2000 6500 5500 1000 700 Housing Starts 500 0 1998 2000 2002 Sales Price, Thous. $ 300 2004 2006 2008 Median Home Prices 250 200 150 100 2000 Existing Homes New Homes 2002 2004 2010 2006 2008 2010 2012 2000 220 200 180 160 140 120 100 80 2000 4500 New Home Sales (left axis) 3500 2002 2004 2006 2008 2010 2012 2014 Housing Affordability Index 2002 2004 2006 2008 2010 2012 2014

Housing Market Trends Thous. of Units, SAAR Millions 125 700 120 Household Formation Housing Inventory New Homes (left axis) Existing Homes (right axis) 4500 115 110 3500 300 2500 105 100 2000 30 2002 2004 2006 Foreclosures: All Foreclosures: Subprime Delinquencies: Prime Delinquencies: Subprime 25 20 15 2008 2010 2012 Mortgage Delinquency and Foreclosure Rates 10 5 0 2002 2004 2006 2008 2010 2012 2014 100 2000 Percent 35 30 25 20 15 10 5 0 2010 1500 2002 2004 2006 2008 2010 2012 2014 Home Mortgages with Negative Equity 2011 2012 2013 2014

Real Business Fixed Investment Percent Change, Annual Rate 20 10 0 -10 -20 -30 1995 2000 2005 2010

Investment Drivers Percent of Capacity 120 Industrial Production 100 80 60 40 1985 1990 1995 2005 85 1. 8 80 Inventory to Sales Ratio 1. 6 75 70 1. 4 Capacity Utilization 1. 2 65 1985 1990 2010 P 2 ercent of Capacity 90 Percent of Capacity 60 1980 2000 1995 2000 2005 2010 1 1980 1985 1990 1995 2000 2005 2010

Sector Indicators 6 month moving average; thous. tons 1, 400 SA, 2000=100 140 ATA Truck Tonnage Index 120 1, 200 1, 000 80 800 Boxboard Production 2006 2007 2008 2009 2010 2011 2012 2013 thous, 6 -month moving average 600 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 Monthly Leasing and Finance Index $ Billions 12 10 8 500 6 400 4 Total Rail Carloadings 2 300 0 2006 2007 2008 2009 2010 2011 2012 2013 2014

Domestic Bank Lending Billions $ 2, 000 1, 800 C&I Loans at Commercial Banks 1, 600 1, 400 1, 200 1, 000 800 2007 2008 2009 2010 2011 2012 2013 2014

Business Confidence 70 65 ISM Manufacturing Index 60 55 50 45 40 35 30 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Oil Thousands of Barrels per Day 8, 000 7, 000 6, 000 5, 000 US Crude Oil Production 4, 000 3, 000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 $/ Barrel 160 140 120 100 80 60 40 20 0 Spot Oil Prices: West Texas Intermediate 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2013

Natural Gas Trillion Cubic Feet 30 27 US Natural Gas Production 24 21 18 15 2000 $/ Barrel 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Natural Gas Prices: Henry Hub 14 12 10 8 6 4 2 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2013

Labor Market Million 140 Million Total Nonfarm Jobs 130 120 110 100 199119931995199719992001200320052007200920112013 SA, Thousands, 4 -week Moving Average 700 500 400 Household Employment 140 130 120 600 150 Initial Unemployment Claims 300 200 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 100 199119931995199719992001200320052007200920112013 Percent 18 16 Unemployment Rate 14 November 5. 8% 12 10 8 6 4 Unemployment Rate U-6 2 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Labor Market Thousands 10, 000 3000 Marginally 2500 2000 Attached 1500 1000 Discouraged Workers 500 0 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 Part-time for Economic Reasons 8, 000 6, 000 4, 000 2, 000 0 1985 1990 1995 2000 2005 2010 Median Weeks Unemployed, SA 30 SA, percent 68 25 20 66 Civilian Participation Rate 64 62 1980 1985 1990 1995 2000 2005 Duration of Unemployment 15 10 5 2010 0 1985 1990 1995 2000 2005 2010

Employment-Population Ratio Percent 66 65 64 63 62 61 60 59 58 57 56 1980 1985 1990 1995 2000 2005 2010

Labor Market Thousands 80, 000 Total Separations 60, 000 40, 000 20, 000 0 2001 2002 2003 2004 2005 Thousands 80, 000 2006 2007 2008 2009 2010 2011 2012 2013 2014 Total Hires 60, 000 40, 000 20, 000 0 2001 2002 2003 2004 2005 2006 2007

Labor Market Thousands 3, 000 2, 000 1, 000 0 -1, 000 Net Job Creation -2, 000 -3, 000 -4, 000 -5, 000 -6, 000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Interest Rate Spreads Percent 4. 0 Yield Spread 10 -Year Treasury – 3 month Treasury 3. 0 2. 0 1. 0 0. 0 -1. 0 -2. 0 2001 2002 2003 2004 2005 2006 2008 2009 3. 5 Percent 4 3 2007 TED Spread 3 -Month LIBOR Minus 32 Month Treasury 1 0 200320042005200620072008200920102011201220132014 2010 2011 2012 2013 2014 Risk Spread 3. 0 2. 5 Moody's Seasoned Baa Corporate Bond Yield Minus Moody's Seasoned Aaa Corporate Bond Yield 2. 0 1. 5 1. 0 0. 5 2000 2001 2003 2005 2008 2010 2012 2014

Fed Policy Billions $ 4, 500 Bank Assets and Liabilities 4, 000 3, 500 3, 000 2, 500 2, 000 1, 500 1, 000 500 0 Jan Apr. July Oct. Jan Apr Jul Oct Jan Apr Jul Oct 2008 2009 2010 2011 2012 2013 2014 Excess Federal Reserve Assets Money Supply (M 1)

U. S. Trade SAAR, Bil. Chn. 2000$ -100 -300 -500 -700 Real Net Exports of Goods and Services -900 2006 2007 2008 2009 2010 2011 2012 2013 2014 Exchange Rate (Major Currencies/US$) 115 105 95 85 U. S. Nominal Trade Weighted Exchange Rate 75 65 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Eurozone Growth and Jobs Percent Change, Annual Rate 5. 0 Real GDP 0. 0 -5. 0 -10. 0 -15. 0 2009 2010 2011 2012 2014 Percent Change, Year Percent 14. 0 12. 0 2013 4. 0 3. 0 Unemployment Rates 2. 0 10. 0 Inflation: 1. 0 8. 0 0. 0 6. 0 2009 -1. 0 2011 Source: Oxford Economics 2012 2013 2014 2009 2010 2011 2012 2013 2014

Eurozone Monetary Policy Percent 3. 5 Refinancing Operations ECB Monetary Policy Actions 3. 0 Marginal Lending Rate 2. 5 Deposit Rate 2. 0 1. 5 1. 0 0. 5 0. 0 -0. 5 2009 Source: Oxford Economics 2010 2011 2012 2013 2014

European Growth Percent Change, Annual Rate Real GDP 10. 0 8. 0 6. 0 4. 0 France Germany Italy Spain 2. 0 0. 0 -2. 0 -4. 0 -6. 0 2010 Source: Oxford Economics 2011 2012 2013 2014

United Kingdom Growth and Jobs Percent Change, Annual Rate 5. 0 Real GDP 0. 0 -5. 0 -10. 0 -15. 0 2009 2010 2011 2012 2013 2014 Percent 6 Unemployment Rates 4 2 2009 2010 Source: Oxford Economics 2011 2012 2013 2014

Emerging Markets Percent Change, Year to Year Real GDP 14. 0 12. 0 10. 0 8. 0 6. 0 4. 0 2. 0 0. 0 Mexico China India Brazil South Africa Russia -2. 0 2010 Source: Oxford Economics 2011 2012 2013 2014

CBO’s Baseline Deficit (August 2014) Billions $ Budget Deficit 500 0 -500 -1000 -1500 -2000 1980 Percent of GDP 1985 1990 1995 5 2000 2005 2010 2015 2020 Deficit to GDP 0 -5 -10 -15 1980 1985 1990 1995 2000 2005 2010 2015 2020

Government Baseline Outside Debt (CBO’s Baseline – August 2014) Billions $ 25, 000 20, 000 Debt 15, 000 10, 000 5, 000 0 1980 Percent of GDP 1985 1990 1995 2000 2005 2010 2015 2020 100 80 Debt to GDP 60 40 20 0 1985 1990 1995 2000 2005 2010 2015 2020

Government Gross Debt (CBO’s Baseline – August 2014) Billions $ 30, 000 25, 000 Gross Debt 20, 000 15, 000 10, 000 5, 000 0 1985 1990 1995 120% 100% 80% 60% 40% 20% 0% 2000 2005 2010 2015 2020 Gross Debt to GDP 1980 1985 1990 1995 2000 2005 2010 2015 2020

Government Revenues and Outlays ( percent of GDP) 30 Forecast 25 20 15 Revenues (%GDP) Outlays (%GDP) 10 5 0 1985 1990 Source: CBO Baseline (August 2014) 1995 2000 2005 2010 2015 2020

Government Outlays FY 2000 FY 2024 FY 2013 (% of total) 14. 8% 6. 4% (% of total) 34. 8% 12. 5% 34. 4% 58. 8% 61. 9% 53. 2% Total Outlays: $1. 8 trillion Total Outlays: $3. 5 trillion Discretionary Entitlements Total Outlays: $5. 9 trillion Net Interest 23. 3%

Mandatory Spending FY 2013 FY 2000 (% of total) 16. 7% 15. 2% 39. 8% 39. 4% 13. 0% 1. 7% 13. 0% 9. 4% 5. 9% FY 2024 (% of total) 40. 3% 15. 4% 11. 4% 21. 0% 28. 8% Mandatory Outlays: $950 billion Social Security Mandatory Outlays: $2. 0 trillion Medicare Medicaid 29. 1% Mandatory Outlays: $3. 7 trillion Income Security Other Spending

FY 2013 Revenues and Outlays Billions $ 4, 000 $ 3, 500 $4, 000 Outlays $3, 500 Revenues $ 3, 000 $ 2, 500 $ 2, 000 $ 1, 500 $ 1, 000 $ 500 $- Source: CBO $3, 000 Mandatory (entitlements and net interest) Discretionary Individual and Corporate Income Taxes Social Insurance Taxes $0

FY 2024 Revenues and Outlays Billions $ 7, 000 $ 6, 000 $7, 000 Outlays Revenues $ 5, 000 $ 4, 000 $ 3, 000 $ 2, 000 $ 1, 000 $- Source: CBO $6, 000 Mandatory (entitlements and net interest) Discretionary Individual and Corporate Income Taxes Social Insurance Taxes $0

Government Revenues by Source FY 2000 FY 2013 (% of total) 10. 2% 7. 9% (% of total) 9. 9% Total Revenues: $2. 0 trillion Individual Income Tax 9. 9% FY 2024 (% of total) 8. 5% 51. 4% 47. 4% 49. 6% 32. 2% 7. 0% 31. 6% 34. 2% Total Revenues: $2. 8 trillion Social Insurance Taxes Total Revenues: $4. 9 trillion Corporate Income Tax Other Taxes