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Economic Assessment

Economic Assessment. William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago. Not So Silent Partners: Libraries and Local Economic Development Chicago, IL July 13, 2009. The economy entered a recession in the first quarter of 2008.

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Economic Assessment

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  1. Economic Assessment • William Strauss • Senior Economist • and Economic Advisor • Federal Reserve Bank of Chicago Not So Silent Partners: Libraries and Local Economic Development Chicago, IL July 13, 2009

  2. The economy entered a recession in the first quarter of 2008

  3. The personal savings rate increased sharply

  4. GDP growth is forecast to be quite weak this year,but then grow close to trend in 2010

  5. Potential Historical Context

  6. The Chicago Fed National Activity Indexbottomed in January 2009 and has begun to rise

  7. Inflation has reversed its upward trajectory

  8. In large part due to the movement of oil prices

  9. Adjusted for inflation - current oil prices are well below early 1980s prices

  10. Expenditures on energy increased over the past few years,and they are currently well below the historical average

  11. Removing the volatile food and energy components from the PCE, “core” inflation has remained in the “comfort zone”

  12. Inflation is anticipated to moderate this yearand then rise by just under two percent in 2010

  13. Employment has fallen by nearly 6.5 million jobssince December 2007

  14. The unemployment rate has risen tothe highest level since August 1983

  15. The unemployment rate is forecast to peak at 10.1%early next year and then begin to edge lower

  16. Real disposable personal incomes are anticipatedto continue to rise a moderate pace

  17. Consumer spending is expected toedge down in the second quarter of this yearand then begin to rise

  18. Light vehicle sales collapsed

  19. In an attempt to keep inventories in line with falling saleslight vehicle production has been cut back quite severely

  20. Consumer attitudes about buying a vehicle is very low

  21. Increases in new domestic production sharehas offset losses in Detroit-3 market share

  22. Residential investment fell off sharply beginning in 2006

  23. Residential investment as a share of GDP is very low

  24. The supply of new single family homes is extremely high

  25. Housing starts have been cut-back sharply

  26. Housing starts have fallen to a new post WWII low

  27. When you take into account the growth of households,it is an even more dramatic decline

  28. Mortgage rates are very low

  29. Home price declines are large

  30. Home price have fallen by over seven percent over the past year with large differences across regions

  31. Housing affordability has improved dramatically

  32. Yet, consumer attitudes for buying a home remain very low

  33. Lending standards for mortgage loans remain tight

  34. Corporate High Yield rates increased beginning in June 2007

  35. Credit spreads between Corporate High Yield securitiesand Corporate Aaa securities rose by over 1,400 basis points,but have been improving over the past several months

  36. The Fed has been very aggressive, lowering theFed Funds rate by nearly 525 basis points

  37. The Fed’s balance sheet has expandedin size and in composition

  38. Summary • The outlook is for the U.S. economy to struggle through • most of this year and then grow at a solid pace next year • Employment is expected to remain weak this year, • leading to a continued rise in the unemployment rate • Slackness in the economy will lead to a relatively • low inflation rate over the coming year • The volatile credit markets and the weak housing market • are the biggest risk on the horizon for the U.S. economy

  39. www.chicagofed.org www.federalreserve.gov

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