greater washington economic outlook 2016 catoctin estate planning council january 13, 2016 r. andrew...

Greater Washington Economic Outlook 2016

Catoctin Estate Planning CouncilJanuary 13, 2016

R. Andrew Bauer, Ph.D.Senior Regional EconomistResearch Department

Greater Washington Economic Outlook 2016

2

R. Andrew Bauer, Ph.D.Senior Regional EconomistJanuary 13, 2016

The views expressed here are those of the author, and do not necessarily represent those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

A Solid Year Ahead

3

• Last year the question was “Are we there yet?”• Economic growth appeared to be accelerating• Consumer spending stronger in H2 2014• Solid improvement in the labor market in 2014

• Expectations for a solid-to-strong year ahead• Above-trend consumer spending• Business investment/manufacturing to strengthen

• Fiscal cuts less of an issue; adjustments continue

• Uncertainty still an impediment to stronger growth• Fiscal policy, growth abroad, regulatory uncertainty

• Focus on pace of monetary policy moves in 2016

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

-9

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

3

4

5

6

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

4

Q32.0%

Real Gross Domestic Product

Source: Bureau of Economic Analysis via Haver Analytics & Federal Reserve Board

Percent change from previous quarter at annual rate

FOMC Projection

Note: Projection is the median, central tendency, and range from the December 2015 Summary of Economic Projections. Red dots indicate median projections. Projections of change in real gross domestic product (GDP) are from the fourth quarter of the previous year to the fourth quarter of the year indicated.

-800

-700

-600

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-400

-300

-200

-100

0

100

200

300

400

-800

-700

-600

-500

-400

-300

-200

-100

0

100

200

300

400

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

5

Quarterly average of monthly changes, thousands of persons

Nonfarm Payroll Employment

Source: Bureau of Labor Statistics via Haver Analytics

Q4 Average

Dec. 292Nov. 252Oct. 307Sep. 145Aug. 153

Monthly Change

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

4

4.5

5

5.5

6

6.5

7

7.5

8

8.5

9

9.5

10

10.5

11

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

6

Percent

Unemployment Rate

Source: Bureau of Labor Statistics & Board of Governors via Haver Analytics

FOMC ProjectionDecember

5.0%

Notes: FOMC projection is the median, range, and central tendency for the Q4 levels, from the December 2015 meeting. Red dots indicate median projections

1

1.5

2

2.5

3

3.5

4

1

1.5

2

2.5

3

3.5

4

2010 2011 2012 2013 2014 2015 2016 2017

7

12 Month % Change

Average Hourly Earnings

Source: Bureau of Labor Statistics via Haver Analytics

December2.52%

Dec. 0.0%Nov. 0.2%Oct. 0.3%Sep. 0.1%

Monthly % Change

Regional economy lagged US through 2014

Source: Bureau of Economic Analysis/Haver Analytics

-4

-3

-2

-1

0

1

2

3

4

5

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Gross Domestic Product: All Industriespercent change

Maryland U.S. Virginia DCMSA

Source: Bureau of Labor Statistics/Haver Analytics

Regional labor market improved considerably in 2015

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Payroll Employment by Sector

10

1.9

1.9

0.4

1.8

1.4

1.8

3.1

3.0

3.1

1.1

0.4

1.7

-1.0

0.8

0.6

-2.4

0.1

2.4

3.4

3.9

1.6

1.0

-3 -2 -1 0 1 2 3 4 5

Total

Natural Resources & Construction

Manufacturing

Trade, Transportation & Utilities

Information

Financial Activities

Professional & Business Services

Education & Health Services

Leisure & Hospitality

Other Services

Government

YoY % Change (NSA)

November 2015United States

Northern Virginia



11


12Source: Bureau of Labor Statistics/Haver Analytics

Source: Bureau of Labor Statistics

Washington MSA Business by Sector

13

171,723

44,812

29,356

25,522

16,621

14,767

12,505

15,351

3,675

2,910

2,619

403

184,396

51,081

31,926

24,161

22,501

14,351

14,180

13,041

3,657

3,207

2,543

470

0 50,000 100,000 150,000 200,000

Total


Other Services





Construction

Information

Total Government

Manufacturing

Natural Resources

Number of Establishments

Qtr4 2007

Qtr2 2015


Washington MSA Business Dynamics

14

-1,145

-5

1,005

56

717

29

406

-1,394

-1,504

-396

-81

-86

11,528

62

-1,305

-20

-644

11

-10

4,875

4,376

1,279

2,489

211

-4,000 -2,000 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000

Total

Natural Resources

Construction

Manufacturing


Information





Other Services

Total Government

Establishment Loss inRecession (Q4:2007 toQ2:2009)Establishment Gain inRecovery (Q2:2009 toQ2:2015)


Loudon County Business by Sector

15

Total

Natural Resources

Construction

Manufacturing


Information





Other Services

Government

0 2,000 4,000 6,000 8,000 10,000 12,000

8,289

78

906

168

1,543

205

618

2,484

680

579

745

281

10,941

79

846

229

1,634

309

769

3,652

1,337

769

1,026

290

Number of Establishments

Qtr2 2015

Qtr4 2007


Loudoun County Business Dynamics

16

-806

-6

25

-19

-40

-43

-55

-382

-170

-47

-56

-13

1,846

-5

-35

42

51

61

96

786

487

143

225

-4

-1,000 -500 0 500 1,000 1,500 2,000

Total

Natural Resources

Construction

Manufacturing


Information





Other Services

Government

Establishment Loss inRecession (Q4:2007 toQ2:2009)Establishment Gain inRecovery (Q2:2009 toQ2:2015)

Source: Census Bureau/Haver Analytics

Housing market recovery to continue at moderate pace

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0

9000

18000

27000

36000

45000

54000

0

1000

2000

3000

4000

5000

6000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Single Family Housing PermitsYTD through November

Fairfax (lhs) Loudoun (lhs) Prince William (lhs) Virginia (rhs) DC MSA (rhs)

Fairfax: 12% (2013)Loudon: 62% (2009)Prince William: 21% (2011)Virginia: 33% (2011)DC MSA: 36% (2009)

Source: Real Estate Business Intelligence, MRIS


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2015 2014 % Change 2015 2014 % ChangeMid-Atlantic Region 8,603 8,022 7.20% 120,512 106,186 13.50%Fairfax County, VA 867 821 5.60% 13,662 12,389 10.30%Loudoun County, VA 370 358 3.40% 5,894 5,236 12.60%Prince William County, VA 376 382 -1.60% 6,309 5,710 10.50%Washington D.C. 636 552 15.20% 7,485 7,256 3.20%

2015 2014 % Change 2015 2014 % ChangeMid-Atlantic Region $295,555 $289,350 2.10% $305,000 $303,000 0.70%Fairfax County, VA $460,000 $455,000 1.10% $475,000 $460,000 3.30%Loudoun County, VA $435,000 $415,000 4.80% $430,000 $430,000 0.00%Prince William County, VA $318,995 $306,500 4.10% $324,900 $315,000 3.10%Washington D.C. $548,000 $502,500 9.10% $524,000 $499,000 5.00%

November

November

Year to Date

Year to Date

Home Sales

Median Home Prices

Source: Core Logic/Haver Analytics

CoreLogic HPI – Through November 2015

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-35

-25

-15

-5

5

15

25

35

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

YoY% Change

United StatesVirginiaWashington, DC MetDiv.Fairfax CountyLoudoun CountyPrince William County

Source: FHFA/Haver Analytics


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Monetary Policy

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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November0.4%

FOMC Projection

Personal Consumption Expenditure Price Index12 Month % Change

Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics

2% Longer-run Target

Notes: FOMC projection is the median, range, and central tendency for Q4/Q4 percent changes, from the December 2015 meeting. Red dots indicate median projections.

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2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

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November1.3%

FOMC Projection

Core Personal Consumption Expenditure Price Index12 Month % Change

Source: Bureau of Economic Analysis & Board of Governors via Haver Analytics

2% Longer-run Target

Notes: FOMC projection is the median, range, and central tendency for Q4/Q4 percent changes, from the December 2015 meeting. Red dots indicate median projections. Core PCE Price Index excludes expenditures on gasoline and food services.

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0.0

0.5

1.0

1.5

2.0

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3.5

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5.0

5.5

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3.0

3.5

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6.5

7.0

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Federal Funds Target Rate

January 8thPrimary Credit Rate

Monetary Policy InstrumentsPercent

Source: Board of Governors via Haver Analytics

Federal Funds Rate Target Range

Interest Rate Paid on Reserves

25

-0.25

0

0.25

0.5

0.75

1

1.25

-0.25

0

0.25

0.5

0.75

1

1.25

2009 2010 2011 2012 2013 2014 2015 2016 2017

Percent

January 8th

3-Month T-Bill

3-Month LIBOR

Federal Funds Rate

Primary Credit Rate

Money Market Rates

Source: Board of Governors & Financial Times via Haver Analytics & Bloomberg

IOER

Fed Reverse Repo Rate on Treasuries

1652

2462

0

250

500

750

1000

1250

1500

1750

2000

2250

2500

2750

3000

3250

3500

3750

4000

4250

4500

4750

9/12/2012 1/6/2016

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Federal Reserve System Assets

Source: Board of Governors via Haver Analytics

$, Billions

Treasury Securities:$2,462

AgencyDebt: $33

Agency MBS: $1,747

Note: Numbers may not add up due to rounding.

Total: $4,531

Miscellaneous: $289

Treasury Securities:$1,652

AgencyDebt: $87

Agency MBS: $844

Total: $2,865

Miscellaneous: $282

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FOMC StatementInformation received since the Federal Open Market Committee met in October suggests that economic activity has been expanding at a moderate pace. Household spending and business fixed investment have been increasing at solid rates in recent months, and the housing sector has improved further; however, net exports have been soft. A range of recent labor market indicators, including ongoing job gains and declining unemployment, shows further improvement and confirms that underutilization of labor resources has diminished appreciably since early this year. Inflation has continued to run below the Committee's 2 percent longer-run objective, partly reflecting declines in energy prices and in prices of non-energy imports. Market-based measures of inflation compensation remain low; some survey-based measures of longer-term inflation expectations have edged down.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. The Committee currently expects that, with gradual adjustments in the stance of monetary policy, economic activity will continue to expand at a moderate pace and labor market indicators will continue to strengthen. Overall, taking into account domestic and international developments, the Committee sees the risks to the outlook for both economic activity and the labor market as balanced. Inflation is expected to rise to 2 percent over the medium term as the transitory effects of declines in energy and import prices dissipate and the labor market strengthens further. The Committee continues to monitor inflation developments closely.

The Committee judges that there has been considerable improvement in labor market conditions this year, and it is reasonably confident that inflation will rise, over the medium term, to its 2 percent objective. Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to 1/4 to 1/2 percent. The stance of monetary policy remains accommodative after this increase, thereby supporting further improvement in labor market conditions and a return to 2 percent inflation.

Source: Board of Governors

December 16, 2015

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Continued…In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its objectives of maximum employment and 2 percent inflation. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments. In light of the current shortfall of inflation from 2 percent, the Committee will carefully monitor actual and expected progress toward its inflation goal. The Committee expects that economic conditions will evolve in a manner that will warrant only gradual increases in the federal funds rate; the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run. However, the actual path of the federal funds rate will depend on the economic outlook as informed by incoming data.

The Committee is maintaining its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipates doing so until normalization of the level of the federal funds rate is well under way. This policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions.

Voting for the FOMC monetary policy action were: Janet L. Yellen, Chair; William C. Dudley, Vice Chairman; Lael Brainard; Charles L. Evans; Stanley Fischer; Jeffrey M. Lacker; Dennis P. Lockhart; Jerome H. Powell; Daniel K. Tarullo; and John C. Williams.

Source: Board of Governors December 16, 2015

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0

1

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2015 2016 2017 2018 Longer run

29

Summary of Economic Projections: Federal Funds RatePercent

Source: Board of Governors

Note: Each dot in the chart represents the value of an FOMC participant’s judgment of the midpoint of the appropriate target range (or the appropriate target level) for the federal funds rate at the end of the calendar year. Projections made for the December 2015 meeting.

0

0.5

1

1.5

2

2.5

3

3.5

0

0.5

1

1.5

2

2.5

3

3.5

2016 2017 2018 2019 2020 2021 2022 2023

30

Eurodollar FuturesPercent

Source: CME Group via Bloomberg

December 15, 2015

January 11th, 2015

Outlook for 2016

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• Solid-to-strong U.S. economic growth• Above-trend consumer spending• Business investment & manufacturing to strengthen over

course of the year• Solid regional economic growth in 2016

• Closed the gap with the US considerably in 2015• Employment growth on par with the US average• Housing market to continue to improve moderately

• Uncertainty still an impediment to stronger growth• Fiscal policy, growth abroad, regulatory uncertainty

• Focus will be on pace of monetary policy moves

The views expressed here are those of the author, and do not necessarily represent those of the Federal Reserve Bank of Richmond or the Federal Reserve System.

32

greater washington economic outlook 2016 catoctin estate planning council january 13, 2016 r. andrew...

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