Economic Update MLGMA Federal Reserve Bank of Chicago Paul Traub July 29, 2016 Paul Traub Senior Business Economist

Federal Reserve Bank of Chicago Overview U.S. Economy (C + I + G + Nx) U.S. Consumer Monetary Policy Michigan Economy Questions July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Main Economic Indicators Annual Comparison – 2009, 2015 and Q1 ‘16 2009 2015 2016 GDP – Annual Growth Rate -2.8% 2.4% 2.1% 1 PCE Core Inflation Yr. / Yr. 1.2% 1.3% 1.7% 2 Unemployment Rate – Annual Avg. 9.3% 5.3% 4.9% Participation Rate – Annual Avg. 65.4% 62.6% 62.8% Nonfarm Job Growth (Monthly Avg.) -298,100 228,700 149,600 Initial Unemployment Claims 573,730 278,140 268,358 Year-over-year change - Q1 ‘16 / Q1 ’15 Year-over-year change – May ‘16 / May ‘15 Source: U.S. Bureau of Economic Analysis, Census Bureau and Bureau of Labor Statistics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Real GDP Billions Chained $2009, % Change Q/Q at SAAR $ Billions Percent Q1 ‘16 $16,514.6 1.1% Q4 ‘07 $14,992 Q4 ‘08 -8.3% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Real GDP Contribution to Percent Change, Q4, 2015 - Q/Q at SAAR Percent Note: Private domestic investment includes: nonresidential -0.58. residential +0.52, and -0.23 inventory change . Government Consumption and Investment includes: Federal -0.11 and State and Local 0.34. Net Exports includes: Exports 0.04 and Imports 0.08. Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Personal Consumption Expenditures Billions Chained $2009, % Change Q/Q at SAAR $ Billions Percent Q1 ‘16 $11,373 1.5% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Personal Consumption Expenditures Index, Q4 2007 = 100 Index Q1 ’16 128.9 111.5 109.8 Source: Author’s calculations using data from the BEA July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Retail Sales and Food Services Billions of $2009 Dollars & % Chg. M/M - SA $ Billions Percent Jun ’16 408.7 0.4% Source: U.S. Census Bureau data inflation adjusted using CPI – All Items. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Gross Domestic Investment Billions Chained $2009, % Change Q/Q at SAAR $ Billions Percent Q1 ‘16 $2,840 -1.7% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Private Fixed Investment Index, 2005 = 100 Index Q1 ‘16 127.4 105.7 65.0 Source: Author’s calculations using data from the BEA July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Private Fixed Investment Billions of Chained $2009, Percent Change - Q/Q at SAAR Percent Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago New Orders and Industrial Production Index – 2012 = 100 Percent Jun ‘16 104.1 May ‘16 93.1 Note: New Orders Nondefense Capital Goods Excluding Aircraft. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Housing Starts In Thousands of Units (SAAR) and Annual Average (000)’s Jun ‘16 1,189 Note: The United States averaged 1.5 million housing starts per year 1990 to 2004. Source: U.S. Census Bureau July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Government Consumption & Investment Billions Chained $2009, Index – Q4 2007 = 100 Index Q1 ‘16 101.5 97.9 95.7 Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Government Consumption & Investment Billions of Chained $2009, Percent Change - Q/Q at SAAR Percent Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Stronger U.S. Dollar Select Currencies 1/3/14 to 7/22/16, Index – 2014 = 100 Index Canadian Dollar to U.S. Dollar Index Euro to U.S. Dollar 120.6 118.3 Stronger U.S. Dollar Stronger U.S. Dollar Weaker U.S. Dollar Weaker U.S. Dollar Index Japanese Yen to U.S. Dollar Index Chinese Yuan to U.S. Dollar 108.5 Stronger U.S. Dollar Stronger U.S. Dollar 100.5 Weaker U.S. Dollar Weaker U.S. Dollar Source: Board of Governors – Federal Reserve System July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Imports and Exports Billions Chained $2009, Index – 2005 = 100 Index Q1 ‘16 152.8 122.9 -$546.8 Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago China PMI Manufacturing & Nonmanufacturing - SA, +50 Signifies Expansion Index Jun ’16 53.7 50.0 Source: China Federation of Logistics & Purchasing and Haver Analytics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Global Outlook IMF Forecast for Growth (Jan ‘16 Update), % Chg. Yr./Yr. Percent Source: IMF - World Economic Outlook July 29, 2016 Federal Reserve Bank of Chicago

U.S. Real GDP Billions Chained $2009, % Change Q/Q at SAAR & Yr./Yr. Percent Macro Advisors Forecast Source: U.S. Bureau of Economic Analysis, Macro Advisors & Haver Analytics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Consumer July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Real Disposable Personal Income Percent Change Year/Year - $2009 Percent Dec ‘12 6.8% Pre-recession 3.1% Dec ‘14 4.0% May ‘16 3.2% Post Recession 1.8% May ‘09 -2.5% Dec ‘13 -4.8% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Personal Savings Rate Percent of Personal Income - SAAR Percent Dec ‘12 10.5% May ’16 5.3% Post recession Average 5.7% Pre-recession average 4.0% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Personal Savings Rate As Percent of Personal Income Percent Source: U.S. Bureau of Economic Analysis June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Total Consumer Credit Revolving and Non-revolving Credit as % of DPI Percent May ‘16 26.1% 18.9% Source: Federal Reserve Bank - Board of Governors July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Personal Interest Payments As a Percent of Disposable Personal Income Percent May ’16 2.0% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Unemployment Claims 4 Week Moving Average (000)’s Week Ending Jul 23, 2016 256.5 Note: Week ending date is a Saturday. Source: Bureau of Labor Statistics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Stock Market S&P 500 and Dow Jones Indices, Index Jan, 2014 = 100 Index Week Ending Jul 22, 2016 118.8 2,168.8 114.0 18,555.0 Source: St Louis Fed and S&P Dow Jones July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Household Net Worth Trillions of Dollars, Q1 ‘00 to Q3 ‘15 Q1 ‘16 $85.0 Q2 ‘07 $65.2 $19.8 Total Decline Q3 ‘07 – Q1 ‘09 -$12.6 Source: Federal Reserve Z.1 Statistical Release ,Table B100, Households and Nonprofit Organizations July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Consumer Sentiment University of Michigan Index January ‘00 112.0 Jun ’16 93.5 Source: Thomson Reuters / University of Michigan July 29, 2016 Federal Reserve Bank of Chicago

Employment & Inflation Monetary Policy Employment & Inflation July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago F.O.M.C Statement July 27, 2016 Information since the F.O.M.C. met in June indicates that the labor market strengthened and that the economy has expanded at a moderate rate. On balance, payrolls and other labor market indicators point to some increase in labor utilization in recent months Household spending has been growing strongly but business fixed investment has been soft. Inflation has continued to run below the Committee’s 2 percent longer-run objective, partly reflecting earlier declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; most surveyed based measures of longer-term expectations are little changed, on balance, in recent months. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Unemployment Rate & PCE Inflation Percent Unemployed, PCE % Change Yr./Yr. Percent Unemployment Percent Inflation – Core PCE 2.0% May ‘16 1.6% May ‘16 4.9% Source: U.S. Department of Labor: Bureau of Labor Statistics , Bureau of Economic Analysis and the Federal Reserve July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Underutilization of Labor U6 Unemployment Rate - SA Percent Jun ‘16 9.6% Includes total unemployed plus marginally attached workers plus employed part-time for economic reasons. Source: U.S. Department of Labor: Bureau of Labor Statistics , Bureau of Economic Analysis and the Federal Reserve July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Nonfarm Payrolls Monthly and Annual Average Job Change – In Thousands Thousands 2014 251.3 Jun ’16 287 171.5 2015 228.7 2013 192.6 2012 179.1 Source: U.S. Department of Labor: Bureau of Labor Statistics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Inflation – PCE & CPI Price Index Percent Change Yr / Yr PCE Price Indexes CPI Price Indexes Jun ‘16 2.2% 1.1% May ‘16 1.6% 0.9% Source: U.S. Department of Labor: Bureau of Labor Statistics data. July 29, 2016 Federal Reserve Bank of Chicago

Inflation Compensation 5 Year and 10 Year Inflation Expectations Percent 5 & 10 Year TIPS Minus 5 & 10 Year Treasuries- Constant Maturity Rate Jul ‘16 1.45% 1.40% Source: Author’s calculation using Federal Reserve System data. Source: U.S. Department of Labor: Bureau of Labor Statistics , Bureau of Economic Analysis and the Federal Reserve July 29, 2016 Federal Reserve Bank of Chicago

Inflation Expectations PCE Core Inflation – Yr./Yr. & Q4/Q4 Survey of Professional Forecasters – Q2 ‘16 Forecast Percent Source: Bureau of Economic Analysis and FRB Philadelphia Q1 ‘16 Survey July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Average Hourly Earnings & Hours Worked Total Private, All Employees – % Change Y/Y and Hours, SA Percent Hours Jun ’07 34.5 3.6% Jun 16 34.4 2.6% Source: U.S. Department of Labor: Bureau of Labor Statistics data. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago FRB Atlanta - Wage Growth Tracker Percent Change Year/Year, 3MMA Percent Jun ’16 4.3% 3.6% Source: Current Population Survey, Bureau of Labor Statistics and Federal Reserve Bank of Atlanta data. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Job Hires, Openings, and Quits In Thousands - SA Percent Apr ’16 5,500 5,036 2,954 Source: U.S. Department of Labor: Bureau of Labor Statistics data. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Appropriate pace of policy firming Midpoint of target range or target level of the Fed Funds Rate Percent Source: Board of Governors – Federal Reserve System, December 2015 July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Yield Curve 10 Year – 1 Year Treasuries Percent Jun ’16 109 bps Source: Board of Governors – Federal Reserve System July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Probability of a Recession Predicted by 10 Year and 3 Month Treasury Spread Probability Jun ’17 8.1% Note: Source: New York Federal Reserve July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Economy July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Real GSP Billions Chained $2009, % Change Q/Q at SAAR $ Billions Percent Q1 ‘16 $425.8 2.6% Source: U.S. Bureau of Economic Analysis July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Nonfarm Payrolls Monthly Employment - In Thousands Thousands Apr ’00 4,691.0 Jun ’16 4,330.4 Source: U.S. Department of Labor: Bureau of Labor Statistics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Total Economic Activity Index Index 2008 = 100, Source: Comerica Bank Index May ‘16 128.3 Note: Index includes nonfarm payrolls, exports hotel occupancy, continuing unemployment insurance claims, housing starts, sales tax revenue, home prices, and auto production. July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago ISM Purchasing Managers Index Composite and Manufacturing, SA - Greater than 50 = Expansion Index U.S. Composite SE Michigan Composite Jun ’16 55.9 Jun ‘16 56.1 U.S. Manufacturing SE Michigan Manufacturing May ’16 62.8 Apr ’16 50.8 Source: Institute for Supply Management , Haver Analytics and FRED July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Nonfarm Payrolls Monthly and Annual Average Job Change – In Thousands Thousands 2014 6.7 2015 5.9 2016 7.0 Jun ’16 19.7 May ’16 -20.4 Source: U.S. Department of Labor: Bureau of Labor Statistics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Unemployment & Participation Rates Percent of Labor Force - SA Percent Percent Unemployment Rates Participation Rates Apr ‘16 62.7% 61.2% Jun ‘16 4.9% 4.6% Source: U.S. Department of Labor: Bureau of Labor Statistics and Haver Analytics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Employment & Auto Sales Thousands of Employees and Sales – 1990 to 2015 2005 2006 4,390 – 17,445 2007 2015 4,270 – 17,835 2014 2008 2013 2012 2011 2009 2010 3,870 – 10,600 Source: Bureau of Labor Statistics and Ward’s Automotive July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Light Vehicle Sales S.A.A.R – Millions of Units Millions Jun ‘16 17.1 YTD 16.6 Cash for Clunkers Aug ’09 14.6 Feb ’09 9.0 Source: Ward’s Automotive and BEA July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Buying Conditions for Vehicles University of Michigan Index Jun ’16 145.0 Source: Thomson Reuters / University of Michigan July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Reasons for Buying Conditions for Vehicles University of Michigan Good / Bad Reason: Why do you say so? Note: May add to more than a 100 due to multiple mentions. Source: University of Michigan Survey of Consumers June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago U.S. Light Vehicle Incentives As Percent of Transaction Price - SA Percent Jul ’16 11.4 Source: Author’s calculation using Ward’s Automotive and J.D Power data. June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Light Vehicle Transaction Price Annual Average & Percent Change Yr./Yr. Dollars Jul‘16 $31,453 Percent Source: Author’s calculation using J.D Power data. June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Finance Term Length of Loan in Months Source: J.D Power data. June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Average Financing at Finance Companies New Car Loan Parameters – Index 2008 = 100, NSA Percent Q4 2015 Index Actual 113.9 106.6 105.4 85.5 $27,986 65.4 Mos. $489.95 5.03% Source: Author’s calculations using Federal Reserve Board of Governors data June 3, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Real Personal Income In Billions of $2009 and % Change Year/Year $Billions Percent Q1 ‘16 $397.0 4.5% Source: Bureau of Economic Analysis and Haver Analytics July 29, 2016 Federal Reserve Bank of Chicago

Federal Reserve Bank of Chicago Michigan Housing Starts In Thousands of Units – Annual Data and SAAR (000)’s Source: U.S. Census Bureau July 29, 2016 Federal Reserve Bank of Chicago

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