1 1 presented by: sara l. johnson managing director global macroeconomics group dri-wefa august 7,...
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Presented by:Sara L. Johnson
Managing DirectorGlobal Macroeconomics Group
DRI-WEFA
August 7, 2001
The U.S. Economic Outlook:Turbulent Times
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1991-2000 Was a Great Decade
The unemployment rate fell from 7% to 4%. Core inflation subsided from 5.5% to 2.5%. Productivity and real wage growth accelerated. Household net worth doubled. The federal budget shifted from deficit to surplus. Potential real GDP growth surged to 4%, its fastest
pace since the mid-1960s.
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The U.S. Economy’s Potential Growth Rate Doubled in the 1990s
-2
0
2
4
6
8
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Actual Real GDP Potential Real GDP
(Percent change)
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4
Business Investment’s Share of GDP
0
3
6
9
12
15
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Structures Equipment & Software
(Nominal investment as a percent of GDP)
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Productivity Growth Reached Unsustainable Rates
0
1
2
3
4
5
1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Total Factor Productivity Full-Employment Labor Productivity
(Year-over-year percent change)
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The Good Times Are Over--for Awhile
The stock market is down. Energy prices are up. Household debt is at a record high, while
saving is at a record low. Internet companies are crashing. Business investment is falling. The U.S. has a huge trade deficit.
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A U. S. Rebound Will Take Time
Monetary and fiscal stimulus is in place. But lower interest rates won’t eliminate the excess
capacity that is depressing business investment. A strong dollar and weakening global economy are
reducing exports. Yet, consumers refuse to become discouraged. An end to inventory decumulation will help to
revive economic growth.
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The U.S. Economy’s Growth Has Stalled and Unemployment Is Rising
0
1
2
3
4
5
6
7
8
1997 1998 1999 2000 2001 2002 2003 2004
0
1
2
3
4
5
6
7
8
Real GDP Growth Unemployment Rate
(Percent change, 1996$) (Percent)
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Manufacturing Production Is in Recession
-8-6
-4-2
02
46
810
1997 1998 1999 2000 2001 2002 2003 2004
(Percent change, annual rate)
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U.S. Inflation Will Subside as Unemployment Rises
-2
-1
0
1
2
3
4
5
1997 1998 1999 2000 2001 2002 2003 2004 2005
CPI Producer Price Index Employment Cost Index
(Year-over-year percent change)
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Crude Oil Prices Will Decline
0
10
20
30
40
50
60
70
1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Current Dollars 2001 Dollars
(Refiners’ acquisition cost, dollars per barrel)
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The Federal Reserve Has Lowered Rates Quickly
3
4
5
6
7
8
9
1997 1998 1999 2000 2001 2002 2003 2004
Federal Funds Rate 10-Year Treasury Yield Mortgage Rate
(Percent)
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The Technology Bubble Has Burst:Nasdaq and S&P 500 Indexes
0
1000
2000
3000
4000
5000
1995 1996 1997 1998 1999 2000 2001
0
600
1200
1800
2400
3000
Nasdaq S&P 500
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From Bull Market to Bear Market: Returnson S&P 500 Stocks and Treasury Bonds
-12
-6
0
6
12
18
24
30
36
1990 1992 1994 1996 1998 2000 2002 2004
Stock Market Return 10-Year Treasury Bond Yield
(Percent)
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0
2
4
6
8
10
12
1980 1983 1986 1989 1992 1995 1998 2001 2004
3.5
4.0
4.5
5.0
5.5
6.0
6.5
Saving Rate Net Worth/Disposable Income
(Percent of disposable income)
The Personal Saving Rate Plummeted asHousehold Net Worth Soared
(Ratio)
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200
300
400
500
600
700
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000
10
11
12
13
14
15
Weekly Initial Unemployment Claims Debt Service Burden
(Thousands of persons)
The Rising Household Debt Service Burden
(Percent of disposable income)
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Consumer Spending Outpaced Disposable Income Growth in 1999-2000
-1
0
1
2
3
4
5
6
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Consumer Spending Disposable Income
(Percent change, chained 1996 dollars)
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A Mild Downturn in Sales of Light Vehicles
0
4
8
12
16
20
1972 1976 1980 1984 1988 1992 1996 2000 2004
Light Trucks Cars
(Millions of units)
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0.0
0.4
0.8
1.2
1.6
2.0
1980 1984 1988 1992 1996 2000 2004
Single-Family Multi-Family
(Housing starts, millions of units)
Falling Interest Rates Support Home-Building
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Computers and Electronics Lead the Decline in Capital Goods Orders
0
200
400
600
800
1000
1994 1995 1996 1997 1998 1999 2000 2001
Total Nondefense Computers & Electronics Other
(Billions of dollars, annual rates)
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A Retrenchment in Business Fixed Investment
-15-10-505
10152025
Structures Computers Software Communic.Equipment
2000 2001 2002 2003
(Percent change, current dollars)
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Venture Capital Investments Have Retreated
0
20
40
60
80
100
120
1994 1995 1996 1997 1998 1999 2000 2001*
(Billions of dollars)
* First half, annual rate
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Most U.S. Venture Capital Still Goes to Information and Communications Industries (Percent of total, first half of 2001)
Internet-Specific
32%
Computers & Electronics
14%
Computer Software
20%
Communi- cations
15%
Biomedical & Health11% Other
8%
Source: National Venture Capital Association and Venture Economics
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Which States Are at Risk as Communications and Information Technologies Consolidate?(Percent of employment in communications and IT, 2000)
4.9 to 6.63.0 to 4.42.1 to 2.91.2 to 1.9
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Global Uncertainties in 2001
U.S. - A pause in growth or a recession? Latin America - What if Argentina devalues? Europe - Part of the problem or part of the
solution? Japan - Another decade of stagnation? Asia - After initial progress, is Asia relapsing?
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The World Economy’s Growth Is Weakening
-101234567
Canada Mexico SouthAmerica
Europe Japan Other Asia
2000 2001 2002
(Percent change in real GDP)
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Real U.S. Exports and Imports Are Cyclical
-4
0
4
8
12
16
1996 1997 1998 1999 2000 2001 2002 2003 2004
Real Exports Real Imports
(Year-over-year percent change)
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Western and Southern States Will Achieve the Fastest Employment Growth (Annual percent change, 2000 to 2005)
1.58 to 4.031.07 to 1.580.91 to 1.070.54 to 0.91