According to participants in the Chicago Fed's annual Economic Outlook Symposium, solid economic growth is forecasted for the US in 2010, following a very sharp contraction during 2008 and the first half of 2009; inflation is expected to increase in 2010; and the unemployment rate is predicted to peak early in 2010 and edge lower throughout the year. The housing sector, which has been contracting since 2005, continued to be a substantial drag on the economy through the first half of 2009. Residential investment fell by over 30% in the first half of 2009. Residential investment as a share of GDP fell from a record 6.3% in the fourth quarter of 2005 to 2.4% in the second quarter of 2009. The ten-year Treasury rate is forecasted to increase by 59 basis points (to 4.00%) in 2010, and the one-year Treasury rate is expected to rise by a somewhat larger 75 basis points (to 1.20%).
ESSAYS ON ISSUES THE FEDERAL RESERVE BANK FEBRUARY 2010 OF CHICAGO NUMBER 271 Chicago Fed Letter Economic Outlook Symposium: Summary of 2009 results and forecasts for 2010 by William A. Strauss, senior economist and economic advisor, and Britton Lombardi, associate economist According to participants in the Chicago Fed’s annual Economic Outlook Symposium, solid economic growth is forecasted for the nation in 2010, following a very sharp contraction during 2008 and the first half of 2009; inflation is expected to increase in 2010; and the unemployment rate is predicted to peak early in 2010 and edge lower throughout the year. The Federal Reserve Bank of Chicago Depression. Conditions in the financial held its twenty-third annual Economic markets improved markedly through- Outlook Symposium on December 4, out 2009, although even by the end of 2009. More than 120 economists and the year conditions would still have been analysts from busi- considered “tight.” 1. Median forecast of GDP and related items ness, academia, and In part supported by the federal govern- government attended 2008 2009 2010 ment’s Car Allowance Rebate System (Actual) (Forecast) (Forecast) the conference. This (more commonly known as the cash- Chicago Fed Letter reviews Real gross domestic product a –1.9 –0.4 2.5 for-clunkers program), output growth Real personal consumption expenditures a –1.8 1.0 2.0 the forecasts from the moved substantially higher in the third Real business fixed investment a –6.0 –14.8 3.5 previous Economic Real residential investment a –21.0 –11.8 11.4 quarter of 2009. Real GDP rose by 2.2% Change in private inventories b –37.4 –66.9 25.0 Outlook Symposium for in the third quarter, the fastest quarterly Net exports of goods and services b –470.9 –355.0 –375.0 2009 and then analyzes Real government consumption growth rate in two years. expenditures and gross investment a 3.1 2.0 1.4 the forecasts for 2010 Industrial production a –6.7 –5.5 4.0 (see figure 1) and sum- The housing sector, which has been con- Car and light truck sales (millions of units) 13.2 10.2 11.4 Housing starts (millions of units) 0.90 0.57 0.74 marizes the presenta- tracting since 2005, continued to be a Unemployment rate c 6.9 10.1 9.8 tions from the most substantial drag on the economy through a Consumer Price Index 1.5 1.2 2.2 One-year Treasury rate (constant maturity) 0.99 c 0.45 1.20 recent symposium.1 the first half of 2009. Residential invest- Ten-year Treasury rate (constant maturity)c 3.25 3.41 4.00 ment fell by over 30% (SAAR) in the J. P. Morgan Trade-Weighted Dollar Indexa 9.2 –5.7 –1.8 The fallout from the Oil price (dollars per barrel of first half of 2009. Residential investment financial crisis that West Texas Intermediate)c 58.37 77.50 82.51 as a share of GDP fell from a record 6.3% began in September a Percent change, fourth quarter over fourth quarter. in the fourth quarter of 2005 to 2.4% b Billions of chained (2000) dollars in the fourth quarter at a seasonally adjusted annual rate. 2008 weighed heavily c Fourth quarter average. in the second quarter of 2009. In what on the economy in the NOTE: These values reflect forecasts made in November 2009. appears to be the start of the recovery SOURCES: Actual data from authors’ calculations and Haver Analytics; median forecast from fourth quarter of 2008 Economic Outlook Symposium participants. for the housing sector, residential invest-
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