Economic Policy Division The Economic Outlook Economic Policy Division

Glass Half Full Six years of steady growth

Real GDP Outlook

Glass Half Full Six years of steady growth Housing essentially recovered

Glass Half Full Six years of steady growth Housing essentially recovered Financial sector largely recovered

Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery

Unemployment Rate August 5.1% Initial Unemployment Claims Labor Market Total Nonfarm Jobs Household Employment Unemployment Rate August 5.1% Initial Unemployment Claims

Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery Household net worth recovered

Household Net Worth Household Wealth

Glass Half Full Six years of steady growth Housing essentially recovered Financial sector recovered 11 million jobs since start of recovery Household net worth recovered Corporate profits strong

U.S. Corporate Profits SAAR, $billions

Glass Half Full Private construction up 16.9% Y/Y New residential sales up 25.8% Y/Y ISM non-manufacturing index at 59 Inflation flat – C-CPI-U at -0.1% Y/Y Budget deficit halved

Glass Half Empty Budget Deficits Huge and Poised to Soar

CBO’s Baseline Deficit (August 2015) Budget Deficit Deficit to GDP

Glass Half Empty Budget deficits huge and poised to soar Along with federal debt

Government Baseline Outside Debt (August 2015) Debt Debt to GDP

Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements

Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements Multiple local weaknesses

Glass Half Empty Multiple local weaknesses Flat wages ISM manufacturing index at 51.1 Business investment in equipment flat Y/Y At risk of deflation?

Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements Multiple local weaknesses A persistent output gap

U.S. GDP Actual and Potential Quarterly, Q1 1980 to Q4 2016 Trillion $2009 Forecast

Glass Half Empty Budget deficits huge and poised to soar Along with federal debt And nothing pending on entitlements A persistent output gap And a downgraded future

U.S. GDP: Estimates of Potential (Real $2013 dollars)

Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus?

Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus? Administration’s anti-growth tax hikes Anti-growth regulatory policies

Regulatory Overload Health care: ACA regulation of health insurance benefit and payment parameters Employee benefits: Expanded information reporting for service providers to employer-sponsored retirement other benefit plans Energy efficiency: 14 regulations on energy efficiency standards for electrical equipment Air quality: Reduction of CO2 emissions from electricity generation facilities Ozone: National ambient air quality standards for ozone Labor: Fair Labor Standards Act regulations increasing overtime pay threshold Natural gas: Requirements for air emissions and control technology for new natural gas wells And over 240 additional regulations across all federal agencies in just the past year

Why is the Glass Half Empty? Despite historic fiscal and monetary stimulus? Administration’s anti-growth tax hikes Anti-growth regulatory policies General sense of hostility toward businesses and economic growth

Good News! Sound policies can reverse effects of bad policies Underlying theme: Do Less Harm

What Can We Do? Education reform Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Emphasize prudent, cost-effective regulation Immigration reform Entitlement reform

Reasons for Optimism Proven resilience The worst is over?

Future Concerns End-game regulatory surge Cloudy international picture U.S. monetary policy

Future Concerns End-game regulatory surge Health care: ACA regulation of health insurance benefit and payment parameters Employee benefits: Expanded information reporting for service providers to employer-sponsored retirement other benefit plans Energy efficiency: 14 regulations on energy efficiency standards for electrical equipment Air quality: Reduction of CO2 emissions from electricity generation facilities Ozone: National ambient air quality standards for ozone Labor: Fair Labor Standards Act regulations increasing overtime pay threshold Natural gas: Requirements for air emissions and control technology for new natural gas wells

Future Concerns End-game regulatory surge Cloudy international picture

Countries in or Near Recession Outside of Europe: Canada (-0.5%) Japan (-0.3%) Australia (0.2%) South Africa (-0.3%) Brazil (-1.6%) Venezuela (-0.4% -- and 200% annual inflation)

Europe Debt crisis lingers Problems of currency union unresolved Conflicts in governance Now an immigration wave

China Managed economy with multiple imbalances, multiple excesses

China Managed economy with multiple imbalances, multiple excesses 10 Words – huyou – data

China Managed economy with multiple imbalances, multiple excesses 10 Words – huyou – data Trading by numbers

Future Concerns End-game regulatory surge Cloudy international picture U.S. monetary policy

Future Concerns End-game regulatory surge Cloudy international picture U.S. monetary policy Not what the Fed should do Or when the Fed will do it But the economic implications of a policy change

“It Ain’t Necessarily So” Future Concerns End-game regulatory surge Cloudy international picture U.S. monetary policy implications: “It Ain’t Necessarily So”

The Recent History of the Federal Funds Rate

Long Term Rates and the Funds Rate Not a Forecast

The Greenspan Conundrum

The Greenspan Conundrum

A Possible Future Path for the Funds Rate Not a Forecast

Bank Assets and Liabilities Fed Policy Bank Assets and Liabilities

Bank Assets and Liabilities Fed Policy Bank Assets and Liabilities Not a Forecast

Bottom Line 6 years and counting – glass is still half full Recession? Steady growth Maybe with a new Administration, the economy can do even better Following the pro-growth policies the Chamber’s laid out

What Can We Do to Fill the Glass? Education reform Infrastructure investment Comprehensive tax reform Advance free trade Energy market reform Emphasize prudent, cost-effective regulation Immigration reform Entitlement reform

Economic Policy Division The Economic Outlook: Economic Policy Division