Economic Outlook Community Leaders Forum November 18, 2010 Presented by: Juan del Busto Regional Executive Federal Reserve Bank of Atlanta Miami Branch 1

2 Thanks for this opportunity today. We are interested in your input. My presentation. But first… a disclaimer. AGENDA:

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The Southeast (and Florida) economy in perspective 4 If the Southeast was an independent country, its GDP would make it the 8 th largest in the world. Florida alone would be the world’s 18 th largest economy at $744 billion

5 The Miami Branch zone would be the 32 nd largest economy in the world in terms of GDP South Florida’s economy is significant for many reasons. Size is one of them. Miami – Ft. Lauderdale Metro Area is the 41 largest economy, roughly the size of Singapore Miami Branch Zone (13 Southernmost counties in Florida) is the 32 largest economy, roughly the size of Thailand

6 SUPERVISION AND REGULATION PAYMENTS SERVICES – THE BANKERS BANK - Check paper based - Electronic - Cash ECONOMIC AND FINANCIAL EDUCATION MONETARY POLICY THE FUNCTIONS OF THE FEDERAL RESERVE BANK AND THE MIAMI BRANCH:

What the Fed did to stem the crisis in 2008 and the current plan Source: Federal Reserve Board Agency Securities & Mortgage Backed Securities TALF, CPFF, AMLF, MMIFF Discount Window, TAF, Currency Swaps Other Fed Assets: AIG, etc Treasury Securities 7

Source: Federal Reserve Board 8

9 Key points The U.S. economy continues to recover, but the pace of growth has slowed, and further improvement is likely to be gradual. Consumer spending is increasing at a modest pace, constrained by persistently high unemployment and slow income growth. Inflation has stabilized at historically low levels. Risks to the outlook include renewed retrenchment by consumers, protracted weakness in the housing market, and deflation. The fed funds rate will remain exceptionally low for “an extended period” in light of weak conditions and heightened uncertainty about the outlook.

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Annualized quarterly percent change Blue Chip GDP Forecast SOURCES: Blue Chip panel of economists, Nov 10, ForecastActual --- top ten --- bottom ten 11

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Historical lag between end of recession, unemployment rate peak, and beginning of funds rate tightening cycle End of Recession Unemployment rate peak Beginning of funds rate tightening cycle Months from end of recession to unemployment peak Months from unemployment peak to beginning of funds rate tightening cycle Nov-01Jun-03Jul Mar-91Jun-92Feb Nov-82Dec-82Jun-8316 (Jul 1980) Mar-75May-75May Nov-70Aug-71Mar-7297 Policy changes usually lag unemployment peaks 13

WHAT KIND OF GROWTH IS IT GOING TO TAKE TO MAKE A SERIOUS DENT IN THE UNEMPLOYMENT RATE? Unemployment Economic Growth… in excess of productivity growth… and ordinary labor force growth… and re-entry of the discouraged workforce... and absorption of the underemployed. 14

*Note: Marginally attached workers currently want a job and have looked for work within the last 12 months. This primarily includes discouraged workers (those not currently looking for work because they believe no work is available given their circumstance), and persons not now working due to family responsibilities, ill-health, or are in school. Source: U.S. Bureau of Labor Statistics 15

Underemployment is significantly higher than in past recessions. October

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September 2010Source: U.S. Bureau of Labor Statistics 19

20 The depth of employment loss is substantial compared to previous recessions.

THE EMPLOYMENT LOSS HAS BEEN MORE SEVERE IN THE U.S THAN IN OTHER COUNTRIES Employment, 2007:QI =

PRODUCTIVITY UP IN THE U.S, DOWN EVERYWHERE ELSE

Consumers continue to reduce debt, especially credit card debt Assumes recession ended July ‘09 23

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26 Many Florida homeowners are “underwater” or “upside down: owe more on their mortgage than what their home is worth. 3Q 2010

AS STATE BUDGET GAPS REMAIN HIGH, OFFSET FROM FEDERAL SUPPORT WANES. 27

THE RECOVERY IS EXPECTED TO BE MODEST RELATIVE TO THE MAGNITUDE OF THE RECESSION 28

29 Economic growth is weaker: GDP growth continuing but has downshifted since the first quarter of 2010 Strengths: Some manufacturing growth, new equipment, software investments Weaknesses: Housing, household income growth, financial firms not lending, and many small businesses not able to get financing. Businesses not hiring. Risks: Commercial real estate, state and local fiscal gaps, heightened uncertainty, lack of confidence, continued high unemployment Fed policy: QE2 over next several months as the Fed keeps a close eye on conditions and will employ its policy tools as necessary to support the economic recovery. Looking Ahead

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