1. Economic Outlook for 2011 and 2012 William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Electronics Representatives Association Oak Brook, IL October 5, 2011

2. The “Great Recession” ended in June 2009, but the economy expanded by just 1.6% over the past year

3. The Chicago Fed National Activity Index 3-month average is below zero

4. The liabilities side of the Fed’s balance sheet shows large amount of excess reserves

5. Lending standards for commercial and industrial loans have begun to loosen

6. Lending standards for credit cards and other consumer loans have also begun to loosen

7. Personal savings rate has increased

8. Existing home prices fell by over 30%

9. The stock market has improved since March 2009, but remains well below previous levels

10. Consumer credit as a share of disposable income has been moving lower over the past several years

11. GDP is forecast to grow well below trend in 2011 and around trend in 2012

12. The forecast path of the current recovery is relatively muted compared with past deep recession recovery cycles average annualized growth: 5.3% average annualized growth: 2.4%

13. Employment fell by over 8.7 million jobs between December 2007 and February 2010, but it began to rise in March 2010 and it added just under 1.3 million jobs over the past year

14. After peaking in October 2009, the unemployment rate has fallen by only one percentage point

15. The unemployment rate is forecast to remain very high

16. Inflation has been rising

17. In large part due to the movement of oil prices. However, adjusted for inflation, current oil prices are well below the levels that existed thirty years ago

18. Expenditures on energy are below the historical average

19. Removing the volatile food and energy components from the PCE, “core” inflation remains low

20. Nondurable goods prices are over seven percent higher than they were a year earlier 23% of consumer spending

21. Durable goods prices have been falling for fifteen years 13% of consumer spending

22. Services prices are rising by just over one percent 64% of consumer spending

23. Inflation is anticipated to rise by 3.3 percent in 2011 and 2.1 percent in 2012

24. Industrial output in manufacturing fell quite sharply during the recession, but has risen strongly over the past twenty-six months, averaging 6.5% and has recovered 55.8% of the loss during the recession

25. Manufacturing capacity utilization has been rising since June 2009

26. Declines in manufacturing output were broad-based during the Great Recession – especially in primary metals and vehicle manufacturing

27. The recovery has also been broad-based with primary metals and automotive manufacturing leading the way

28. Supply managers’ composite index fell to just above 50

29. Industrial production is forecast to rise at a solid pace through the end of 2011

30. New orders and shipments for capital goods continues to move higher

31. Light vehicle sales pulled back following the 2011 Tōhuku earthquake and tsunami

32. New vehicle prices rose sharply during the Spring

33. Light vehicle production did not fall as much as sales

34. Increases in new domestic production share has offset losses in Detroit-3 market share

35. Vehicle sales are expected to improve at a moderate pace

36. Housing starts fell to a post WWII low

37. The forecast calls for a very slow recovery in housing

38. Credit spreads between Corporate High Yield securities and Corporate Aaa securities have recently moved higher

39. Monetary policy has been very aggressive, keeping the Fed Funds near zero since December 2008

40. The asset side of the Fed’s balance sheet has expanded in size and in composition

41. The Fed’s expansion of the monetary base has allowed the money supply to continue rising, compared with what took place during the 1930s

42. The outlook is for the U.S. economy to expand at a trend pace in the second half of this year and next year Summary Employment is expected to rise moderately this year and next year, with the unemployment rate edging lower through 2012 Slackness in the economy will lead to a relatively low inflation rate over the next 18 months Growth in manufacturing output will be solid in 2011 and 2012

43. www.chicagofed.org www.federalreserve.gov