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
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-9
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1
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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.
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0
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400
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-100
0
100
200
300
400
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
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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
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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
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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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Source: Bureau of Labor Statistics/Haver Analytics
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
Source: Bureau of Labor Statistics/Haver Analytics
Regional labor market improved considerably in 2015
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Regional labor market improved considerably in 2015
12Source: Bureau of Labor Statistics/Haver Analytics
Source: Bureau of Labor Statistics
Washington MSA Business by Sector
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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
Professional & Business Services
Other Services
Trade, Transportation & Utilities
Education & Health Services
Financial Activities
Leisure & Hospitality
Construction
Information
Total Government
Manufacturing
Natural Resources
Number of Establishments
Qtr4 2007
Qtr2 2015
Source: Bureau of Labor Statistics
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
Trade, Transportation & Utilities
Information
Financial Activities
Professional & Business Services
Education & Health Services
Leisure & Hospitality
Other Services
Total Government
Establishment Loss inRecession (Q4:2007 toQ2:2009)Establishment Gain inRecovery (Q2:2009 toQ2:2015)
Source: Bureau of Labor Statistics
Loudon County Business by Sector
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Total
Natural Resources
Construction
Manufacturing
Trade, Transportation & Utilities
Information
Financial Activities
Professional & Business Services
Education & Health Services
Leisure & Hospitality
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
Source: Bureau of Labor Statistics
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
Trade, Transportation & Utilities
Information
Financial Activities
Professional & Business Services
Education & Health Services
Leisure & Hospitality
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
Housing market recovery to continue at moderate pace
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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
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-15
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5
15
25
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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
Housing market recovery to continue at moderate pace
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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
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1.0
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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
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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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2015 2016 2017 2018 Longer run
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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.
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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.
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