How The Chicago Fed Views 2013

01 Feb 2013

Some 125+ economists and analysts from academia, business, and government attended the Federal Reserve Bank of Chicago’s Economic Outlook Symposium in Chicago last November 30. Thus, the following summary presents the gist of the Symposium’s key discussions.

The general consensus could be characterized as being cautiously optimistic. For example, the attendees expect the rate of real Gross Domestic Product to improve from 2012’s marginal 1.7% to an average of 2.3% for 2013...while topping at 2.7% during the fourth quarter.

Conversely, national average unemployment is expected to remain quite high during 2013 while finally edging down to a still stifling 7.6% level during the year’s fourth quarter. The Consumer Price Index’s measure of Inflation is also expected to increase slightly from 2012’s 2.0% to 2.1% for 2013.

Oil prices were generally thought to creep up slightly to $94 per barrel during 2013...which would obviously boost Personal Expenditures proportionately. Moreover, in that context, Real Personal Consumption Expenditures were forecast to expand by 2.3% faster than in 2012.

Broad agreement existed that Real Business Fixed Investment is anticipated to record a solid growth rate of 3.5% during 2013...and is expected to be accompanied by an improved, 2.7% growth rate for Industrial Production. Continued improvement within the nation’s housing sector was also anticipated with Real Residential Investment being forecast to increase significantly by 9.4%...yet, despite being expected to be up considerably from 2012, Housing Starts as projected would still be only slightly more than 67% of the 20-year annual average of 1.39 million units.

Extremely low Interest Rates were projected to continue throughout 2013, with the one-year Treasury Rate averaging an abysmally low 0.20% for the year while the ten-year Treasury Rate is just slightly better at 2.02%. A lender participant on the official program observed that many consumers have been busy strengthening their personal Balance Sheets since the still lingering national financial downturn...that, in turn, constrained Spending Growth and restricted the pace of economic recovery.

While recent improvement in Household Net Worth has occurred, general agreement existed that most of the strengthening has reflected a rebound of stock values...that are owned disproportionately by Higher Income households. The greatest share of Personal Wealth for most households reportedly continues to remain in their Home Equity which still remains depressed in most areas of the U.S.

Financial headwinds still believed to be facing the nation’s economy include lagging hiring of new employees... average unemployment at 40 weeks being twice the historical average...and high levels of Student Loan Debt.

Roy Ferguson can be contacted at Ferguson Group (Tulsa), telephone 918/459-9000