What to Expect from the FOMC part of GIC’s Virtual Summer Series
featuring Bill Dunkelberg, Ph.D. Chief Economist National Federation of Independent Business
Dial-In Information: For the audio of this event, call 1-800-955-6371 and enter the following passcode: 4148832. Submit a Question: To submit a question for Q&A, please email your question to alichtenstein@interdependence.org
ACTUAL PRICE INCREASES SEASONALLY ADJUSTED RAISED (NET)
80
FIRST MONTH IN EACH QUARTER
40 20
-40
'1 2 15
'0 6 '0 9
'0 0 '0 3
94 97
88 91
-20
82 85
0
76 79
Percent of Firms
60
MAY JUNE
2
GDP AND EMPLOYMENT GDP(left)
EMPLOYMENT (right)
PAYROLL
17000
148000
16000
146000 144000
15000
142000
14000
140000 138000
13000
136000
12000
134000 132000
11000
14
'1 3
'1 2
'1 1
'1 0
'0 9
'0 8
'0 7
'0 6
130000
'0 5
'0 4
'0 3
'0 2
HAVER ANALYTICS
'0 1
'0 0
10000
3
PERCENT OF OWNERS INCREASING OR REDUCING EMPLOYMENT INCREASED
30
REDUCED
FIRST MONTH IN EACH QUARTER + MAY JUNE
20 15 10 5
'1 2
'0 9
'0 6
'0 3
97 '0 0
91 94
85 88
0
79 82
Percent of Firms
25
4
ACTUAL CAPITAL OUTLAYS %SPEND + LEASE
75
MAY JUNE
65 60 55 50 45
FIRST MONTH IN EACH QUARTER
2 '1
9 '0
6 '0
3 '0
0 '0
97
40
94
Percent of Firms
70
5
QUARTERLY CHANGE IN REAL GDP QUARTERLY 4 3
1 0 -1 -2
2 '1
9 '0
6 '0
3 '0
0 '0
94 97
82 85
88 91
SEASONALLY ADJUSTED
-3
76 79
Percent
2
6
7
MORTGAGES
TREASURY SECURITIES
8
EXCESS RESERVES
9
10
REGULAR BORROWING ACTIVITY (AT LEAST ONCE A QUARTER)
QUARTERLY 50 45 40 35 30
97 '0 0 '0 3 '0 6 '0 9 '1 2
94
91
88
85
82
79
25
76
Percent of Firms
55
11
SINGLE MOST IMPORTANT PROBLEM FACING OWNERS INFLATION
CREDIT
45 35 30
FIRST MONTH IN EACH QUARTER + MAY JUNE
25 20 15
CREDIT: NO PROBLEM
10 5
12
9 '0
6 '0
3 '0
0 '0
97
94
91
88
85
82
79
0
76
Percent of Firms
40
12
AVERAGE RATE PAID ON SHORT TERM LOANS RATE PAID
1 YR TREASURY
25
QUARTERLY + JUNE
15 10 5
14
1 '1
8 '0
5 '0
2 '0
99
96
93
90
87
84
0
81
Percent
20
13
ALL CREDIT NEEDS NOT SATISFIED MAY JUNE
15 10 5
14
'11
'08
'05
'02
99
96
0
93
Percent of Firms
NEEDS NOT MET
14
LOAN DEMANDS WEAKEN WITH WEAK EXPECTATIONS FOR GROWTH PERCENT OF ALL FIRMS NOT WANTING A LOAN RECESSION STARTS
50
45 40
14
11
'0 8
'0 5
'0 2
99
96
35
93
Percent of Firms
55
15
OUTLOOK FOR BUSINESS EXPANSION (PCT “NOW IS A GOOD TIME”)
QUARTERLY
MAY JUNE
“NO” for 25 QUARTERS
25 20 15 10 5
(SEASONALLY ADJUSTED)
'1 2
'0 9
'0 6
'0 3
'0 0
97
94
91
88
85
82
79
0
76
Percent of Firms
30
16
BAD TIME TO EXPAND DUE TO THE POLITICAL CLIMATE QUARTERLY
MAY JUNE
35 30 25 20 15 10 5
(SEASONALLY ADJUSTED)
'1 3
'1 0
'0 4
'0 7
% OF THOSE SAYING “BAD TIME”
0
'0 1
Percent of Firms
40
17
2008-2014
'1 2
'0 9
'0 6
NET % POLICIES ARE GOOD
'0 3
50 40 30 20 10 0 -10 -20 -30 -40 -50
'0 0
Percent of Consumers
RATING OF GOVERNMENT POLICY
Source: University of Michigan 18
EXACTLY HOW HELPFUL IS TRANSPARENCY AND FORWARD GUIDANCE?
“So the language that we used in the statement is considerable period. So I, you know, this is the kind of term it's hard to define. But, you know, probably means something on the order of around six months, that type of thing.” 19
“But, if inflation were slightly above 2 percent even as unemployment remained far above levels consistent with maximum employment, then the unemployment consideration would dominate because we would be further from the unemployment objective than we are from the inflation objective.” NY NABE May, 2014 EXACTLY HOW HELPFUL IS TRANSPARENCY AND FORWARD GUIDANCE?
20
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '0 0 '0 2 '0 4 '0 6 '0 8 10 12 14
TRILLIONS OF DOLLARS
CONSUMER NET WORTH NET WORTH
80 BELIEVABLE???
60 HOUSING
DOT COM
40
20
0
21
CONSUMER NET WORTH RELATIVE TO GDP 5
4.5
BUBBLE
BUBBLE??
BUBBLE
4 3.5 RECESSION
3 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 '0 0 '0 2 '0 4 '0 6 '0 8 10 12 14
RATIO OF WEALTH TO GDP
NET WORTH
22
UNEMPLOYMENT RATE U3 RATE 11 10
GOAL??
8 7 6 5 4
'1 2
'0 9
'0 6
'0 3
'0 0
97
94
91
88
85
82
79
3
76
Percent
9
(SEASONALLY ADJUSTED) 23
24
25
FACTORS TO CONSIDER • • • • • •
UNEMPLOYMENT & ECONOMY BOARD APPOINTED BY ONE PRESIDENT THE FED IS TRYING TO CREATE INFLATION ? MAJOR GOAL IS UNEMPLOYMENT IF ALL YOUHAVE IS A HAMMER…… OFFICIAL END OF QE3 DOES NOT MEAN FED WILL NOT EXPAND ITS PORTFOLIO • “ACCOMODATION” = BUYING BONDS • FED BUYING MORE THAN NEW ISSUES 26
FED POLICY? • KEEP RATES LOW EVEN THOUGH IT IS NOT STIMULATING REAL INVESTMENT: PV DENOMINATOR • KEEP RATES LOW EVEN THOUGH THERE IS LITTLE EVIDENCE THIS HELPS UNEMPLOYMENT • INFLATE ASSET PRICES TO RAISE SPENDING • GENERATE PROFITS FOR LARGE FINANCIAL INSTITUTIONS WHO NEED CAPITAL • DEPRIVE SAVERS OF TRILLIONS IN INCOME • HELP TRADERS MAKE MONEY BY INSURING FUTURE PRICES • INCREASE REGULATORY SUPERVISION • DECLARE VICTORY WHEN UNEMPLOYMENT FINALLY FALLS FAR ENOUGH • IGNORE EFFECTS ON FOREIGN MARKETS • ENCOURAGE MIS-ALLOCATIONS OF CAPITAL • RAISING THE “INFLATION TAX” ON ALL TO MAYBE EMPLOY A FEW MORE PEOPLE? 27
FED POLICY? • WHAT IS “NORMALIZATION”? • HOW FAST WILL WE “NORMALIZE”? • ANY IMPACT OF RISING RATES ON THE VALUE OF THE FED’S PORTFOLIO? • FED “EARNINGS”? • WHEN WILL THE FED LET MARKETS SET RATES AND NOT THE FED? NEVER? FED USES “MODELS” TO DETERMINE “NORMAL”
28
Submit a Question: To submit a question for Q&A, please email your question to alichtenstein@interdependence.org
Join GIC for our next Virtual Summer Series event: Nineteen Quarters and Counting. How Long will the Expansion Last? Michael Drury August 27, 2014 12 - 1 p.m. Eastern Register at http://bit.ly/GIC-Events