1. The State of the Economy
August 2017
Kyla Scanlon

2. Economic Forecasting What is necessary for a good economy?
Growth, Employment, and Stability
What does the current economy look like?
What does the future economy look like?

3. Leading Indicators Lagging Indicators Stock Market Changes in GDP
change prior to large economic adjustments and can be used to predict future trends
Lagging Indicators
reflect the economy’s historical performance and changes to these are only identifiable after the trend has been established
Stock Market
Changes in GDP
Manufacturing Activity
Income and Wages
Inventory Levels
Unemployment Rate
Retail Sales
Consumer Price Index
Housing Market
Currency Strength
Level of New Business Startups
Interest Rates

4. Economic Growth in Q2 2017 Economy grew at 3%
Consumer spending increased 3.3% (70% of the economy) up from 1.9% in Q1
Spending on durable goods rose 5.9%
Non durable goods rose 4.3% and services rose 2.1%
Business investment rose 3.6% due to a 6.9% increase in nonresidential, and despite a (6.5%) decrease in residential investment
Government spending DECREASED (0.3%) with a 4.7% increase in military spending
Exports rose 3.7% (oil and commercial aircraft)
Imports rose 1.6% which subtracts from GDP

5. Consumer Price Index (Inflation Proxy) Consumer Sentiment
Growth (GDP)
Consumer Price Index (Inflation Proxy)
Consumer Sentiment
Unemployment Rate
Labor Force Participation Rate
Housing Starts
Retail
Markets
US Dollar
Interest Rates

6. Real GDP
Reflects the value of all goods and services produced by an economy in a given year
Composed of CIGNX
Consumer Spending
Inventory
Government Spending
Imports and Exports
Increased at a rate of 3% in Q2 up from 1.2% in Q1, and the highest its been since Q1 2015
Growth estimates for Q3 are at 3.4%
Real values are adjusted for inflation so nominal appears higher
Consumer spending is 70% of GDP

7. Consumer Price Index
Measures changes in consumer prices paid for a market basket monthly
Proxy for inflation and cost of living
Food, Housing, Apparel, Transportation, Medical care, Recreation, Education, Other
Rose 0.1% in July and 1.4% over the past 12 months
Fed wants this to be at 2%
Increasing but not increasing at the rate that the Fed wants it to

8. University of Michigan: Consumer Sentiment
Gauge of public‘s overall confidence in the health of the US economy
Consumer sentiment is a major market driver
If they see improved labor market conditions and wage growth they feel better
Side Note: VIX just dropped below 10, which also means investors aren’t generally worried

9. The Unemployment Rate U3: 4.3% U6: 8.6%
U3: Official unemployment rate per the International Labor Organization definition. It occurs when people are without jobs and they have actively looked for work within the past four weeks.
U6: discouraged workers, marginally attached workers (those who looked recently but aren’t currently) and those who want to work full-time
For example, a stonemason who wants to work but who has become discouraged by a lack of opportunity in the midst of a deep economic recession would not be included in U-3 unemployment. A marketing executive who is laid off at age 57 and stops scheduling new job interviews due to her experience of age discrimination would not be included in U-3 unemployment. A person who only works one six-hour shift per week because no full-time jobs are available in his area would not be included in U-3 unemployment. Read more: The True Unemployment Rate: U6 Vs. U3 | Investopedia  Follow us: Investopedia on Facebook
Either way unemployment is the lowest it has been since 2008

10. Labor Force Participation Rate
Year
Average
2007
66.0
2008
2009
65.4
2010
64.7
2011
64.1
2012
63.7
2013
63.3
2014
62.9
2015
62.7
2016
62.8
2017
This has been DECREASING

11. All Employees: Total Nonfarm Payrolls
Accounts for 80% if the workers who contribute to GDP
Represents the number of jobs added or lost in an economy
Hiring businesses = growing businesses
Newly employed = new income = new purchases
146,615 added in July

12. Housing Starts Demand for newly built homes Represent 4% of annual GDP
Economic drivers that strengthen the economy
Jul 2017: 1,155 starts & 1,230 permits
There is a high correlation between permits and starts, which is good – that means people are following through on the permits purchased

13. Retail Sales US retail sales rose 0.6% in July 2017
Due to sales in home appliances, motor vehicles, and sporting goods
Stronger retail sales improve investor confidence in the economy and signal that consumer activity is improving

14. Markets: “Trump Rally”
Measures stock of capital and gauges future business and consumer confidence
Economy is growing at a steady but slow pace
DOW just hit above 22,000; a record high
Big rally due to low interest rates (no one wants bonds)
DIA: Up 11.02% Over the Year
SPX: Up 10.26% Over the Year Up 19.30% Over the Year

15. Value of the US Dollar
WSJ Dollar Index: measure of the value of the US Dollar relative to 16 foreign currencies
The dollar is down relative to the past year, sitting at $85.84 from a high of $93.56
Prices on imports rise
Exports more competitive in a global market
The dollar has fallen by 9% in the past year
Expected to finish down 13%
A strong dollar is good for buying stuff and a weaker dollar is good for making stuff

16. Interest Rates
Federal Funds Rate: rate at which depository institutions lend to each other
Decrease in rate stimulates economic growth
Increase in rate curbs economic growth – what the Fed is trying to do right now to increase the cost of borrowing
Went 8 years without rate increase (2008 – 2015)
Is now 1.25%
Expected to increase rate in December, but some analysts only see a ~30% chance of this happening due to weak inflation

17.
Economic Outlook (1 of 2)
Real GDP is expected to be 3.4% for Q3 (based on stronger consumer spending – sustainable?)
CPI indicates that inflation is on a slow but steady rise, and the slowdown could prevent rate hike
Consumer Sentiment indicates that consumers are feeling confident in the economy
Employment numbers are good overall, with low unemployment and increase in nonfarm payrolls despite a small decline labor participation rate. U3 is expected to remain around 4.3%
Housing starts have increased with people following through on permits purchased and are expected to continue increasing, mildly
American incomes have grown 0.4%

18. Economic Outlook (2 of 2)
Retail sales are varied, but were strong for July, and are expected to increase up to December
Markets are on a huge trajectory upward
Value of USD are down, which means that the US can compete better overseas but it will hurt importers and signals sluggish growth
Interest rates will need to increase as the labor market and economic activity have strengthened but inflation hasn’t met their standards – we can expect one more increase in December
This has been a very long rally (9 years)

19. Conclusion

20. References
brick/?utm_source=series_page&utm_medium=related_content&utm_term=related_resources&utm_ campaign=fredblog
back-into-job-market/ /