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	 NUMBER 333

Chicag­ Fed Letter
Economic Outlook Symposium: Summary of 2014 results and
2015 forecasts
by William A. Strauss, senior economist and economic advisor, and Jacob Berman, associate economist

According to participants in the Chicago Fed’s annual Economic Outlook Symposium,
the U.S. economy is forecasted to grow at a pace slightly above average in 2015, with
inflation ticking lower and the unemployment rate edging down.

The Federal Reserve Bank of Chicago

held its 28th annual Economic Outlook
Symposium (EOS) on December 5, 2014.
More than 100 economists and analysts
from business, academia, and government attended the
conference. This
1. Median forecast of GDP and related items
Chicago Fed Letter re	
2013	2014	 2015
views the forecasts
(Actual)	 (Forecast)	(Forecast)
for 2014 from the
Real gross domestic product 	3.1	
2.1	2.7
previous EOS, and
Real personal consumption expenditures 	2.8	 2.0	2.6
then analyzes the
Real business fixed investment 	4.7	
5.2	4.2
Real residential investment 	6.9	
2.4	7.5
forecasts for 2015
Change in private inventories 	81.8	
65.0	50.0
(see figure 1) and
Net exports of goods and services 	–384.0	
–415.0	–432.9
Real government consumption
summarizes the preexpenditures and gross investment 	–1.9	 1.2	0.9
sentations from the
Industrial production 	3.3	
4.1	3.0
Car and light truck sales (millions of units)	
16.4	16.8
most recent EOS.1








Housing starts (millions of units)	
1.00	1.14
Unemployment ratec	7.0	
5.8	5.6
Consumer Price Index 	1.2	
1.8	1.7
One-year Treasury rate (constant maturity) 	0.12	
0.11	0.47	
Ten-year Treasury rate (constant maturity) 	2.75	
2.36	3.00
J. P. Morgan trade-weighted dollar indexa	3.5	 2.3	0.5
Oil price (dollars per barrel of
West Texas Intermediate)c	
80.00	83.84

The U.S. economy
entered the sixth year
of its expansion in the
third quarter of 2014.
While the nation’s
Percent change, fourth quarter over fourth quarter.
real gross domestic
Billions of chained (2009) dollars in the fourth quarter at a seasonally adjusted annual rate.
Fourth quarter average.
product (GDP) is at
Note: These values reflect forecasts made in November 2014.
its highest level in
Sources: Actual data from authors’ calculations and Haver Analytics; median forecast from
Economic Outlook Symposium participants.
history, the rate of
economic growth
since the end of the Great Recession in
mid-2009 has been very restrained. During the 21 quarters following the second
quarter of 2009, the annualized rate of
real GDP growth was 2.3%—roughly in
line with the long-term historical rate
of growth for the U.S. economy.

Economic growth was quite volatile
during much of 2014. At 3.5% in the
fourth quarter of 2013, the annualized
rate of real GDP growth fell to –2.1%
in the first quarter of 2014; then it rose
to 4.6% in the second quarter and 5.0%
in the third quarter. The fluctuation in
growth rates during 2014 was due in large
part to two temporary factors—extreme
winter weather and a downward inventory correction. However, over the first
three quarters of 2014 combined, the
annualized rate of real GDP growth was
a moderate 2.4%—close to the annualized growth rate during the first 21 quarters of the current expansion.
The economy continued to increase
employment in 2014, with more than
2.9 million jobs added. By May 2014,
the more than 8.7 million jobs lost
over the period February 2008 through
February 2010 had finally been recovered. Moreover, in the final quarter of
2014, the unemployment rate stood at
5.7%. The working-age population (16
and older) had increased substantially
since early 2008, leading to a drop in
the labor force participation rate (i.e.,
the proportion of the working-age population that is employed or jobless and
actively seeking work). According to the
U.S. Bureau of Labor Statistics (BLS),
between February 2008 and December
2014, just under 2.5 million individuals

joined the labor force, translating to
an annualized gain of 0.2%. However,
the working-age population increased
by more than 16.2 million people over
the same period, which translates to an
annualized increase of 1.0%. As a result,
the slack in the labor market remains
quite large despite the job gains of last
year. In addition, significant labor market slack is indicated by the still outsized
number of part-time workers who desire full-time employment. Finally, some
workers may not have obtained jobs that
utilize their specific skills—another factor
contributing to labor market slack.

a gain of 19% from 2012. Housing starts
increased further in 2014: The annualized rate of housing starts was 0.99 million for the first 11 months of 2014—up
7% relative to the same period in 2013.
Results versus forecasts

According to the consensus forecast
from the most recent EOS, the growth
rate of real GDP in the fourth quarter
of 2014 relative to the fourth quarter
of 2013 is estimated to be 2.1%—lower
than the 2.7% rate predicted at the previous EOS. (For the remaining comparisons of GDP components, annual

In 2015, the growth rate of real GDP is expected to be 2.7%—
an improvement from the projected 2.1% rate for 2014.
The year-over-year rate of inflation, as
measured by the Consumer Price Index
(CPI), was 1.3% in November 2014—a
tad higher than the 1.2% inflation rate
of 2013. Inflation remained low in 2014,
in part because of the collapse in the
price of oil. For instance, the price of
West Texas Intermediate oil fell from
roughly $97 per barrel in the fourth
quarter of 2013 to about $73 per barrel
in the final quarter of 2014. Developments like this in the energy sector—
along with the slack in production, the
labor market, and other parts of the
economy—have continued to keep inflationary pressures low.
For the first 11 months of 2014, industrial production grew at an annualized
rate of 5.8%—nearly double its historical growth rate. Light vehicle sales (car
and light truck sales) rose to 15.5 million
units in 2013—an 8% increase over the
previous year’s sales of 14.4 million units.
In 2014, light vehicle sales increased to
16.4 million units, registering a 6% improvement from 2013.
The housing sector contributed little to
the economic expansion through the
third quarter of 2014. Over the 21 quarters following the end of the Great
Recession in mid-2009, residential investment contributed just 0.1 percentage points toward the overall economy’s
annualized growth rate of 2.3%. Housing
starts rose to 0.93 million units in 2013—

values are calculated based on the consensus estimates for the fourth quarter
of 2014 from the most recent EOS.)
While real personal consumption expenditures were somewhat lower than
forecasted, real business fixed investment came in much stronger than expected. Real residential investment
improved at a much slower rate than
anticipated. The unemployment rate
was actually 5.7% in the fourth quarter
of 2014—just over a percentage point
lower than the 6.8% rate forecasted for
the final quarter of 2014. Inflation, as
measured by the CPI, is now expected
to be 1.8% in 2014—nearly identical
to the previously predicted rate of
1.7% for the year. Oil’s actual average
price in the fourth quarter of 2014 was
$73.15 per barrel—significantly lower
than its predicted average price of
$96 per barrel. Light vehicle sales came
in at 16.4 million units for 2014—higher
than the 16.0 million units forecasted.
The annualized rate of housing starts
rose to 0.99 million units for the first
11 months of 2014; so, total housing
starts in 2014 are expected to fall short
of the 1.07 million units previously
predicted. The one-year Treasury rate
ticked up to 0.15% in the fourth quarter
of 2014—a bit below the 0.20% forecasted. The ten-year Treasury rate in
fact decreased to 2.28% by the end of
2014 instead of increasing to the predicted rate of 3.03%.

Economic outlook for 2015

The forecast for 2015 is for the pace
of economic growth to be somewhat
above the historical average. In 2015,
the growth rate of real GDP is expected
to be 2.7%—an improvement from the
projected 2.1% rate for 2014. The
quarterly pattern reveals a fairly solid
performance for real GDP growth
throughout 2015; the annualized rate
is predicted to edge higher over the
year. Given that the economic growth
rate is forecasted to be only somewhat
above its historical average, the unemployment rate is expected to only edge
lower to 5.6% in the final quarter of
2015. Inflation, as measured by the CPI,
is predicted to tick lower from an estimated 1.8% in 2014 to 1.7% in 2015.
Oil prices are anticipated to remain low;
they are predicted to average almost
$84 per barrel in the final quarter of
2015. Real personal consumption expenditures are forecasted to expand at a
rate of 2.6% in 2015. Light vehicle sales
are expected to rise to 16.8 million units
this year; this increase is roughly in line
with the growth in overall consumer
spending. Real business fixed investment
growth is anticipated to slow to a still
solid growth rate of 4.2% in 2015. Industrial production is forecasted to see
its growth rate moderate to 3.0% this
year—close to its historical average.
The housing sector is predicted to
continue its fairly slow march toward
normalization in 2015. Real residential
investment is forecasted to improve to
a growth rate of 7.5% in 2015. Housing
starts are anticipated to rise to 1.14 million units in 2015—well below their
20-year annual average of roughly
1.35 million.
The one-year Treasury rate is expected
to rise to 0.47% in 2015, and the ten-year
Treasury rate is forecasted to increase
to 3.00%. Both the trade-weighted U.S.
dollar and the nation’s trade deficit (net
exports of goods and services) are predicted to be largely unchanged in 2015.
Financial and consumer outlook

Carl Tannenbaum (Northern Trust)
presented his outlook for consumers
and the banking sector. Strong retail

and auto sales of the past few years indicate improving U.S. consumption—
which Tannenbaum argued was being
supported by growth in household net
worth and debt reduction. In particular,
rising equity markets have increased
wealth and helped spur additional spending even as wage growth has remained
flat. The absence of wage growth is somewhat puzzling, Tannenbaum noted, since
the unemployment rate has fallen sharply
in the past two years. One explanation
is that the unemployment rate is not
accurately measuring labor market slack.
Other labor market measures—such as
the ratio of part-time to full-time employment and the percentage of individuals
reporting they would like a job even
though they are not actively looking—
remain above their pre-recessionary
levels, suggesting excess capacity still
exists in labor markets. Another explanation is that wage growth is being held
down by demographic factors: Workers
tend to get larger raises when they move
to new jobs, but as many approach retirement (as the baby boomers are), they
are less willing to make that transition.
One concern for Tannenbaum was that
the economic gains of recent years have
occurred only near the top of the income distribution. The Federal Reserve
Board’s Survey of Consumer Finances (SCF)2
shows that between 2010 and 2013 net
worth grew modestly in the top half of
the income distribution, but fell substantially in the bottom half. For the
bottom 20% of earners, net worth declined by about 30%. On the whole,
not only has actual income growth
slowed, but households’ expectations
of future income have also declined,
he said. The latter is particularly concerning because economic theory suggests that income expectations are the
key driver of long-run consumption.
Tannenbaum also said he was worried
that many households are unprepared
for retirement. Not enough households
have retirement accounts, and even
among those that do, the value of their
accounts are too low, he contended.
Moreover, because many state pension
plans face large funding gaps, several
public sector employees may not be able
to count on receiving the retirement
benefits they were promised, he said.

Turning to the financial sector,
Tannenbaum argued bank asset positions and performance are sound. Loan
quality is excellent, business lending
has picked up, and bank assets are producing healthy returns. Most importantly, new capital standards and Federal
Reserve stress testing3 for large financial
institutions have led to more capital
being brought onto their balance sheets,
making them less susceptible to bank
runs, Tannenbaum contended. Moreover, new accounting rules have made
large firms’ holdings more transparent.
Also, he argued, regulators have a much
better understanding of the interconnectedness among firms—which will help
agencies better detect and address
systemic risks. Tannenbaum warned that
cybersecurity and leveraged lending4
were sources of risk, but overall, he
said he was optimistic about the future
of U.S banking.
Automotive outlook

Haig Stoddard (WardsAuto) said U.S.
light vehicle sales are expected to reach
17 million by the end of 2015. Stoddard
contended that pent-up demand created by the Great Recession would continue to drive sales for the next few years
as the economy steadily improves. Many
vehicles have been on the road for over
ten years, so consumers are soon likely
to upgrade to new vehicles with better
technology. He said strong prices for
used vehicles would help support new
vehicle sales via trade-ins. Stoddard also
argued that favorable demographic
trends would spur sales: He said that
millennials would buy new vehicles as
they begin to form households and that
seniors would live and drive longer than
ever before. Although some analysts have
expressed concern that fuel efficiency
mandates from the federal government
would increase costs and dampen sales,
Stoddard noted he was confident that
the price impact of these regulations
would be modest. Fuel efficiency for
trucks and sport utility vehicles has improved dramatically in recent years, so
many of the changes needed to meet the
mandates have already been priced in.
With regard to vehicle classes, Stoddard
shared his prediction that the market
share of crossover utility vehicles would

continue to increase in 2015, while
those of small and mid-size sedans
would continue to decline. This shift
would benefit auto manufacturers such
as General Motors and Fiat Chrysler,
which have strong product lines in the
crossover utility category, he noted.
Steel outlook

Robert DiCianni (ArcelorMittal USA)
said 2014 was a good year for the steel
industry, as steel-intensive sectors outperformed the rest of the U.S. economy.
According to DiCianni, domestic steel
consumption is projected to grow by
2% in 2015, to reach 115 million tons.
Nonresidential construction—the largest
final market for steel—has experienced
stable but modest growth since 2010;
DiCianni said this pattern is expected
to continue into 2015 as the economy
expands. Record automotive production
and solid growth in residential construction are anticipated for 2015, he said,
which should be a boon to steel sales.
Heavy-duty truck sales are also predicted
to help drive up steel consumption in
2015 and beyond; the trucking industry
faces capacity constraints and will have
to grow in the coming years. Moreover,
heavy-duty truck sales are forecasted to
Charles L. Evans, President  Daniel G. Sullivan,
Executive Vice President and Director of Research;
Spencer Krane, Senior Vice President and Economic
Advisor ; David Marshall, Senior Vice President, financial
markets group  Daniel Aaronson, Vice President,
microeconomic policy research; Jonas D. M. Fisher,
Vice President, macroeconomic policy research; Richard
Heckinger,Vice President, markets team; Anna L.
Paulson, Vice President, finance team; William A. Testa,
Vice President, regional programs, and Economics Editor ;
Helen O’D. Koshy and Han Y. Choi, Editors  ;
Rita Molloy and Julia Baker, Production Editors 
Sheila A. Mangler, Editorial Assistant.
Chicago Fed Letter is published by the Economic
Research Department of the Federal Reserve Bank
of Chicago. The views expressed are the authors’
and do not necessarily reflect the views of the
Federal Reserve Bank of Chicago or the Federal
Reserve System.
© 2015 Federal Reserve Bank of Chicago
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ISSN 0895-0164

spike up ahead of stricter fuel efficiency
standards that go into effect in 2020.
Costs associated with meeting these
regulations are expected to make new
trucks more expensive. Machinery and
public infrastructure are projected to
be the two weakest final markets for
steel in 2015, he said.
Global steel consumption is projected
to grow by 2% in 2015, to a record level
of 1.59 billion metric tons, said DiCianni.
Steel consumption in Europe is expected
to go up by 2.9% in 2015, as monetary
stimulus from the European Central
Bank (ECB) and pent-up demand for
durable goods support a gradual recovery.
In contrast, weakness in China’s real
estate market and industrial production
is expected to lead the country’s steel
consumption to tick up by only 0.8%
in 2015.
Heavy machinery outlook

Nicolas Clerc (Caterpillar) said his forecast for world GDP growth was 2.9% in
2015—enough to support modest sales
growth for the heavy machine industry.
Additionally, Clerc argued that leading
indicators, including bond prices, vehicle
sales, and freight movements, suggest
the U.S. economy is not at risk of falling
back into recession in the near future.
He said that in the U.S., low interest
rates would continue to promote new
residential and nonresidential construction, which would help heavy machinery
sales. That said, one weak spot for the
machinery market continues to be public
infrastructure spending. Although there
has been some pickup in infrastructure
spending in recent months, the lack of
highway funding makes long-term

planning difficult—and delays heavy
machinery purchases. Another weak
spot for the machinery market is mining,
as demand for raw materials remains low.
Clerc said the sales outlook for heavy
machinery was weaker in less developed
economies. For instance, the Chinese
government responded to the financial
crisis with aggressive fiscal stimulus that
led to a sharp increase in machine industry activity in 2010–11; however, as it
shifts to fighting inflation and reforming
the banking sector, financing for construction spending is becoming scarce.
In other developing countries, declines
in business confidence have led to falling
demand for heavy machinery, said Clerc.
Global economic assessment

Manuel Balmaseda (CEMEX) presented
his outlook on the global economy. He
noted that although economic growth
in the U.S. has been disappointing in
recent years, it has significantly outperformed growth in other developed
economies. In fact, in the International
Monetary Fund’s October 2014 World
Economic Outlook,5 the U.S. was the only
major economy whose growth forecast
was revised up significantly. Meanwhile,
declining business confidence and
growth threaten to push Europe back
into recession, he noted. Balmaseda said
that as inflation expectations continue
to fall, the ECB would inject more monetary stimulus. The ECB’s balance sheet
has expanded at a slower rate than those
of other major central banks, and has
substantial room to grow. He argued
that the most recent European crisis
was primarily political in nature; countries will have to integrate and give up

sovereignty before the continent can
recover economically, he contended.
Balmaseda also expressed concern
about slow growth and high inflation
in Brazil and the effect of rapidly falling oil prices in Russia. Although some
analysts worry that China’s growing
shadow banking sector6 could lead to
financial instability, Balmaseda argued
that because shadow banks are isolated
from the formal banking sector there,
they do not pose the same risks as their
Western counterparts. Overall, he said
that the global economy is expected to
continue to grow, but at a pace that is
too slow for comfort.

In 2014, the U.S. economy expanded
at a pace roughly in line with the historical average. The economy in 2015
is forecasted to grow at a slightly faster
rate than it did in 2014. The housing
sector is predicted to continue to improve
in 2015, as are light vehicle sales. The
unemployment rate is expected to edge
lower by the end of 2015, and inflation
is predicted to remain low.
	 Also see




For more on Fed stress testing, see

	 Leveraged loans are loans with high interest rates extended to firms or individuals
that already have large amounts of debt.



	 For more details, see


Federal Reserve Bank of St. Louis, One Federal Reserve Bank Plaza, St. Louis, MO 63102