Economic Outlook for Consumers

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Economic Outlook for Consumers

• William Strauss
• Senior Economist
• and Economic Advisor
• Federal Reserve Bank of Chicago

University of Illinois Center for Economic and
Financial Education Financial Fitness for
Live Bloomington, IL April 19, 2010
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The Great Recession appears to have cometo an
end around the middle of last year andthe
economy expanded by 5.6 in the fourth quarter
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Fourth quarter GDP expanded at a fast pacewith
contributions largely coming from inventories,
consumption and business fixed investment
4
The Chicago Fed National Activity Indexbottomed
in January 2009 and has been rising
5
GDP is forecast to growabove trend in 2010 and
2011
6
The forecast path of the current recovery is
relatively muted compared with past deep
recession recovery cycles
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Inflation has begun to move higher
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In large part due to the movement of oil prices
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Removing the volatile food and energy components
from the PCE, core inflation remains contained
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Inflation is anticipated to riseby 1.7 percent
this year and 2.0 percent next year
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Employment has fallen by over 8.2 million
jobssince December 2007
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The unemployment rate appears to havepeaked at
10.1 in October 2009
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The unemployment rate is believed to have
peakedin the final quarter of 2009 and is
forecast to edge lower
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Real disposable income growth remains weak
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Real disposable personal income is anticipatedto
rise at a solid pace through 2011
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The standard of living in the United
Statesremains near its record high
17
Consumer spending improved in the second half of
2009
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Consumer spending growth is expected toimprove
over the next two years
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Personal savings rate has increased
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What is your number?
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The stock market has improved since March
2009,but remains well below previous levels
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After peaking in June 2005, home prices have
fallen 28
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Homeowners equity stake plunged over the past
four years
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The home ownership rate has been moving lower
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Mortgage rates are very low
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Home price declines have been large
27
Home price declines in the second quarter,
compared with a year-earlier, were quite large in
the West and Florida
7 Red States 4 Light Blue States
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Conditions improved in the third quarter with
prices down around 4 compared with a year-earlier
4 Red States 7 Light Blue States
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In the fourth quarter, home prices fell by just
overone percent over the past year
3 Red States 19 Light Blue States
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Housing affordability improved dramatically
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Consumer attitudes for buying a home remain very
low
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Lending standards for mortgage loans remain tight
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The forecast calls for a very slow recovery in
housing
34
The financial obligation ratio has been moving
lower
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Both mortgage and consumer loan obligationshave
been improving for homeowning households
36
Debt as a share of financial assets has been
falling over the past year
37
Low mortgage rates, greater home
ownershipparticipation and a strong housing
market led consumersto increase their mortgage
debt load over the past decade,however
deleveraging is currently underway
38
Financial stress remains a major problem for
thehousing sector across all categories,but
especially for adjustable rate mortgagesand
largely in subprime mortgages
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Consumer credit as a share of disposable
incomehas been moving lower over the past few
years
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Household net worth has begun to improve
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The bank card delinquency rate have begun to move
lower
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The direct auto loan delinquency rate have also
been falling
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Indirect vehicle loan delinquency ratehas been
slowly improving
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Personal loan delinquency rate appears to have
peakedand is beginning to improve
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The Fed has been very aggressive, lowering
theFed Funds rate by nearly 525 basis points
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The Feds balance sheet has expandedin size and
in composition
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Summary

• The outlook is for the U.S. economy to expand at
  a
• solid pace this year and next year

• Employment is expected to rise moderately this
  year and next
• year, with the unemployment rate edging lower
  through 2011

• Slackness in the economy will lead to a
  relatively
• low inflation rate over the next two years

• A big question remains about consumer
  spending/savings
• over the next several years

• The consumer does appear to be putting their
  financial house
• in order is this by their choice?

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• www.chicagofed.org www.federalreserve.gov