United States Economic Outlook 2015-2016

Project LINK Meeting Hung-Yi Li 22-24 October 2014 UN DESA New York

Where are we now?

2

30

40

50

60

70

80

90

100

110

2006 2008 2010 2012 2014

ISM - ManuISM - NonManuNFIB OptimismConsumer Sentiment (Mich.)

Housing sector recovery: slowdown recently

3 0

500

1000

1500

2000

2500

Total

Single-unit

50

100

150

200

250

FHFA Index

C-S 20 CityIndex

But has improved balance sheet:

4 10000

15000

20000

25000

30000

50

100

150

200

250

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Housing price

Real estate values

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

Real estate values

Household net worth

Employment expanding:

5 132000

134000

136000

138000

140000

142000

144000

146000

148000

58

59

60

61

62

63

64

65

66

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

Emp / population (%)

Employment

Longer perspective (1980~2014):

6 90000

100000

110000

120000

130000

140000

150000

54

56

58

60

62

64

66

1 61 121 181 241 301 361

with more take-home income:

7

134000

136000

138000

140000

142000

144000

146000

148000

4500

5000

5500

6000

6500

7000

7500

8000

1 5 9 13 17 21 25 29 33 37 41 45 49 53 57

Wage Income

Employment

But could be better if

8 1

2

3

4

5

3 5 7 9 11

Wag

e in

flat

ion

Unemployment rate

Pre-2008 Post-2008

9 40

41

42

43

44

45

46

47

48

4000

4500

5000

5500

6000

6500

7000

7500

8000

2000 2002 2004 2006 2008 2010 2012 2014

Wage income

% of GDP

Real trade deficit stable

10

-60,000

-50,000

-40,000

-30,000

-20,000

-10,000

0

10,000

2010 2011 2012 2013 2014

Total

Petroleum

Non-petroleum

Residual

Assumption:

• Assets purchasing ends in October 2014.

• Federal fund rate starts to increase in 2015Q3 and reach 2.75 % by the end of 2016.

• Fiscal policy remains restrictive, but less severe than in 2014.

• Real federal gov’t spending declines in 2015 and 2016.

• Debt ceiling will be increased after March 2015.

• US dollar remains strong in 2015 and 2016.

• Oil price decline gradually (~3%) till 2016. 11

Summary of outlook

12

2010 2011 2012 2013 2014 2015 2016

Private Consumption 1.9 2.3 1.8 2.4 2.3 2.8 3.3

Gov't Consumption 0.1 -2.7 -0.2 -2.0 0.0 0.0 0.3

Fixed Investment 1.1 3.6 5.6 3.1 3.9 5.4 6.8

Exports (G&S) 11.9 6.9 3.3 3.0 2.7 5.3 4.8

Imports (G&S) 12.7 5.5 2.3 1.1 3.5 5.1 5.7

GDP 2.5 1.6 2.3 2.2 2.1 2.8 3.4

CPI 1.6 3.2 2.0 1.4 1.9 1.6 1.6

Employment -0.6 0.6 1.8 1.0 1.6 1.9 1.8

Unemployment rate 9.6 8.9 8.1 7.4 6.3 5.8 5.5

Current account (Bil$) -449 -458 -440 -379 -421 -380 -419

Current account

($GDP) -3.0 -2.9 -2.7 -2.3 -2.4 -2.1 -2.2

Risks:

•Budget and debt ceiling issues: will them come back again?

• -> interaction with higher interest rate

•Up to now, financial market seems to be able to correct itself, but is there a limit for this capacity?

13

14

2.6

2.8

3.0

3.2

3.4

3.6

3.8

4.0

1400

1500

1600

1700

1800

1900

2000

2100

Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14

SP500 30-Y Yield