Old Dominion University 2013 National Economic Outlook January 30, 2013 Professor Vinod Agarwal Professor Mohammad Najand Professor Gary A. Wagner www.odu.edu/forecasting 1 Presentation Outline • 2012 Scorecard • Current economic conditions • Outlook for 2013 – What are the likely sources for growth? • Monetary Policy • Downside Risks • Upside risks 2 2012 Scorecard 2012 2012 Forecast Actual Real Gross Domestic Product (GDP) 2.40% 2.26% Employment 2.00% 1.38% Unemployment rate 7.9% 8.1% Consumer Price Index (CPI) 2.30% 1.74% CPI – Core 2.10% 1.89% 3- month Treasury bill 0.50% 0.09% 10- year Treasury bond 1.90% 1.80% 30- year conventional mortgage 3.80% 3.66% Potential and Actual (Real) Gross Domestic Product, 2000-2015 $16,000 $14,000 s r a l lo D 5 0 0 $12,000 2 f o s n o illiB $10,000 $8,000 Potential GDP Actual GDP 4 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Growth in Real Gross Domestic Product (GDP), 2006:Q1 – 2012:Q4 Seasonally adjusted annualized rate *100 2012:Q4 is forecasted. 6 4 2 0 e g a t 2012 Growth Rates: n -2 e cr Q1 = 2.0% e P Q2 = 1.3% -4 Q3 = 3.1% -6 Q4 = 1.2% -8 -10 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 1 1 1 1 1 1 5 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Where has GDP growth been coming from? Last Four Quarters, seasonally adjusted annualized rate 5% Defense spending 4.1% increased by 12.9% 4% Change in inventories = 2.5% 3.1% GDP 3% Consumption 2.0% Nonresidential investment 2% 1.3% Residential investment Change in inventories 1% Government 0% Exports Imports -1% -2% 2011:Q4 2012:Q1 2012:Q2 2012:Q3 6 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project. Month-to-Month Change in US Total Nonfarm Employment January 2004 – December 2012 Average last 12 months: +141,800 Average last 6 months: +159,700 600 400 200 0 s d n a s -200 u o Average monthly change 2004-2006: h T -400 + 184,000 jobs -600 Losing roughly 800,000 per month -800 -1000 4 4 4 4 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 1 1 1 1 1 1 1 1 Private Sector Public Sector 7 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. US Unemployment Rate, January 2005 – December 2012 18 16 14 12 t 10 n e c r e P 8 6 December 2012: 7.8% Average from 1984-2008: 5.7% 4 2 0 5 5 5 5 6 6 6 6 7 7 7 7 8 8 8 8 9 9 9 9 0 0 0 0 1 1 1 1 2 2 2 2 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 4 7 0 1 1 1 1 1 1 1 1 Unemployment Rate U6 Rate 8 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Long-Term Unemployment, 1990-present Of Total Unemployed, Percentage Unemployed for 27 Weeks or Longer 50 Peak: 45.5% (March 2011) Currently: 39.1% 40 4 consecutive months of decline d e y o lp m 30 e n U e s o h t fo 20 e g a t n e c r e P 10 0 0 0 1 1 2 2 3 4 4 5 5 6 7 7 8 8 9 9 0 1 1 2 2 3 4 4 5 5 6 6 7 8 8 9 9 0 1 1 2 2 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / / 1 8 3 0 5 2 7 2 9 4 1 6 1 8 3 0 5 2 7 2 9 4 1 6 1 8 3 0 5 2 7 2 9 4 1 6 1 8 3 0 1 1 1 1 1 1 1 1 1 1 9 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. The 2007-2009 Recession in Perspective % Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak 1% 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 t n e -1% m y o lp m -2% E k a e P n -3% o Back to pre-recession is se peak around April 2015 c e -4% R (87 months) - e r P fo -5% % -6% -7% Months after Pre-Recession Peak Employment March 1980 July 1981 June 1990 February 2001 Current (January 2008) 10 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project