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Prefatory Note

The attached document represents the most complete and accurate version available
based on original files from the FOMC Secretariat at the Board of Governors of the
Federal Reserve System.
Please note that some material may have been redacted from this document if that
material was received on a confidential basis. Redacted material is indicated by
occasional gaps in the text or by gray boxes around non-text content. All redacted
passages are exempt from disclosure under applicable provisions of the Freedom of
Information Act.

Content last modified 04/01/2015.

Class II FOMC - Restricted (FR)

Part 1

October 29, 2009

CURRENT ECONOMIC
AND FINANCIAL CONDITIONS
Summary and Outlook

Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System

Class II FOMC - Restricted (FR)

October 29, 2009

Summary and Outlook

Prepared for the Federal Open Market Committee
by the staff of the Board of Governors of the Federal Reserve System

Class II FOMC—Restricted (FR)

Domestic Developments
The data on spending and production that have become available since the September
Greenbook suggest that economic activity was stronger this summer than we had
previously estimated. Real GDP rose at an annual rate of 3½ percent in the third quarter,
1 percentage point faster than we had forecast in the September Greenbook, with much of
the upside surprise in household spending. Similarly, industrial production rose more
rapidly than we had previously projected. That said, with earlier declines in wealth still
weighing on household balance sheets, measures of consumer sentiment relatively low,
and the labor market continuing to deteriorate (even more than we had anticipated), we
have not taken a great deal of signal from the recent unexpected strength in the data.
Indeed, we think some of it is likely to be reversed in the fourth quarter. We now
forecast that real GDP will increase at an annual rate of 2¾ percent this quarter, down
½ percentage point from the previous Greenbook.
As in previous forecasts, we expect several factors that have held back spending over the
past year or so to fade in the next two years. The drag from the previous losses in
household wealth is expected to wane, credit conditions are anticipated to ease, and
household and business confidence is expected to improve as the economic recovery is
sustained. With monetary policy assumed to maintain its accommodative stance, we
project that real GDP will increase 3½ percent next year and 4½ percent in the following
year, about the same as in the September Greenbook. Meanwhile, in light of the
surprising strength in productivity in recent quarters, we have raised our estimate of the
level of potential output in this projection, leaving the output gap wider than in the
September Greenbook. We have also boosted the unemployment rate somewhat in this
forecast, primarily in response to weak incoming labor market data.
Because the recent price data have come in close to our expectations, and given that the
revisions to economic slack and energy prices in this projection have small and offsetting
implications for inflation, we have made no material changes to our projection of core
price inflation. After rising 1.4 percent this year, core PCE prices are expected to
increase 1.1 percent next year and 1 percent in 2011. However, with the recent rise in oil
prices anticipated to put upward pressure on consumer energy prices, we have revised up
our projection for overall PCE price inflation this quarter and next to an annual rate of
roughly 2 percent, about ½ percentage point higher than in the September Greenbook.
__________________________
Note: A list of abbreviations is available at the end of Part 1.

I-1

I-2

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

Thereafter, we expect headline inflation to fall gradually, coming back in line with core
inflation in 2011.
Key Background Factors
We continue to assume that the FOMC will hold the target federal funds rate in the
current range of 0 to ¼ percent through 2011. We have also left our assumptions for
nontraditional policy actions essentially unchanged. We assume that the Federal
Reserve’s purchases of long-term securities will total $1.7 trillion—$300 billion of
Treasury debt, $175 billion of agency debt, and $1.25 trillion of agency mortgage-backed
securities (MBS). Purchases of Treasury debt are assumed to be completed by the end of
this month, while purchases of agency debt and MBS are assumed to be completed by the
end of the first quarter of 2010. Holdings of these long-term securities are assumed to
run off gradually thereafter, declining to a total of $1.3 trillion by the end of 2011.
The 10-year Treasury yield has been about unchanged, on net, since the September
Greenbook. We expect this yield to increase about 40 basis points over the forecast
period. Given our assumed policy path, market participants’ expectations for the federal
funds rate over the next couple of years seem likely to shift down, which would put
downward pressure on Treasury yields; however, this effect is more than offset by the
increase in yields implied by the movement of the 10-year valuation window through the
period of near-zero short-term rates.
The BBB-rated corporate bond yield has declined about 20 basis points since the time of
the September Greenbook, narrowing its spread over long-term Treasury rates by a
similar amount. As in the previous Greenbook, we assume that corporate bond spreads
will edge down another ½ percentage point between now and the end of the forecast as
macroeconomic conditions improve. In the mortgage markets, the average interest rate
on conforming fixed-rate mortgages has remained near 5 percent since mid-September.
We continue to project that it will drift up above 5½ percent by the end of 2011,
reflecting both the expected increase in Treasury yields and a slight widening of the
mortgage rate spread associated with the end of the Federal Reserve’s MBS purchases.
The projected level of equity prices is about 5 percent lower than in the September
Greenbook. Since last winter, our measure of the equity premium has retraced most of its
run-up since the middle of 2008. Nonetheless, the equity premium remains wide by
longer-run norms, and we continue to assume it will decline over the forecast period.

Class II FOMC - Restricted (FR)

I-3

Key Background Factors Underlying the Baseline Staff Projection
Federal Funds Rate

Long-Term Interest Rates
Percent

Percent
8

Quarterly average

10

Quarterly average
7

Current Greenbook
September Greenbook
Market forecast

6

9
BBB corporate yield

8

5

7

4

6
Conforming mortgage rate

3
2

5
10-year
Treasury yield

4

1
2006

2007

2008

2009

2010

2011

0

Equity Prices

3
2006

2007

2008

2009

2010

2011

2

House Prices
2006:Q1 = 100, ratio scale

2006:Q1 = 100, ratio scale
150
140

Quarter-end

120

Quarterly
110

130
120

100

LoanPerformance
index

110

90

100
Dow Jones
Total Stock Market
Index

90

80

80
70
70

2006

2007

2008

2009

2010

2011

60

2006

2007

2008

2009

2010

2011

60

Note: The projection period begins in 2009:Q3.

Crude Oil Prices

Broad Real Dollar
Dollars per barrel

2006:Q1 = 100
140

Quarterly average

110

Quarterly average
120

105

100
West Texas
Intermediate

100
80
95
60
90

40

2006

2007

2008

2009

2010

2011

20

2006

2007

2008

2009

2010

Note: In each panel, shading represents the projection period, which begins in 2009:Q4, except
where noted. In the upper-left panel that reports the federal funds rate, the dashed line is not
apparent because the paths of the federal funds rate in the September and current Greenbooks are the
same.

2011

85

I-4

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

As a result, we have equity prices rising about 15 percent per year, on average, in 2010
and 2011.
The latest readings on house prices have been a little stronger than we anticipated in the
September Greenbook; we now estimate that home values, as measured by the
LoanPerformance price index, rose at an annual rate of 7 percent in the third quarter,
about 3 percentage points faster than we had anticipated. However, we continue to
project that house prices will slip back this quarter and next as the dramatic jump in
foreclosures that were started earlier this year translates into a surge of repossessed
properties being put up for sale. Next year we expect the decline in house prices to taper
off, and we look for a slight upturn in 2011 as credit conditions and the employment
situation continue to improve. Compared with the 30 percent plunge in home prices
since 2006, the recent and projected movements in house prices are small and offsetting.
Our fiscal policy assumptions have changed only slightly from those in the September
Greenbook. We now assume that the current emergency unemployment compensation
(EUC) program will be expanded through next year to allow an additional 14 weeks of
benefits to all qualified unemployed individuals and then another 6 weeks for those in
high-unemployment states.1 In addition, we now assume that recipients of both Social
Security and veterans’ benefits will receive another one-time $250 payment early next
year, in line with the Administration’s proposal. Finally, we assume that the first-time
homebuyer tax credit will be extended through June 2010 rather than being allowed to
expire this quarter; in the absence of specific details about an extension, our assumption
is a placeholder at this point. However, these policy changes do not significantly alter
our estimates of the annual pattern of fiscal impetus. In particular, we expect federal
fiscal policy to provide an impetus to the change in real GDP of about 1 percentage point
in both 2009 and 2010, primarily reflecting the continued boost from stimulus programs.
In 2011, as outlays from these programs diminish, fiscal policy is projected to be a slight
drag on the rate of growth in real GDP.
As in the previous projection, we expect the deficit in the unified budget—which stood at
$1.4 trillion in fiscal 2009 (10 percent of GDP)—to remain extraordinarily large in fiscal
2010, reflecting the ongoing budgetary effects of the weakness in economic activity and
1

With the standard available benefits, the expanded federal EUC program, and the extended benefits
provided by states where unemployment is high, eligible unemployed individuals would be entitled to
between 60 and 99 weeks of total unemployment benefits, depending on the unemployment rate in their
state of residence.

Domestic Developments

Class II FOMC—Restricted (FR) I-5

the countervailing stimulus policies that have been put in place. Our deficit projection of
about $1.4 trillion for fiscal 2010 is little changed from that in the September Greenbook;
the budget costs associated with the expanded fiscal initiatives noted above are
anticipated to be partly offset by the temporarily higher receipts that we now expect the
FDIC will generate as banks prepay three years’ worth of fees in December. In fiscal
2011, the deficit is projected to narrow to $1.2 trillion (7½ percent of GDP), as the
strengthening pace of economic activity increases revenues and damps some outlays as
the budget effects associated with the 2009 fiscal stimulus package diminish.
The foreign exchange value of the dollar on a trade-weighted basis has fallen a bit since
mid-September. Going forward, we project the real trade-weighted dollar to depreciate at
an annual rate of nearly 2 percent over the forecast period, similar to what we had
assumed in the September Greenbook. Meanwhile, the incoming data on economic
activity abroad have come in slightly above our expectations, on net. We now expect
foreign real GDP to rise at an annual rate of roughly 4 percent, on average, in the second
half of this year through 2011.
The spot price of West Texas Intermediate (WTI) crude oil has risen to about $77 per
barrel over the past few weeks amid generally positive incoming news regarding global
economic activity; the latest readings are about $9 per barrel higher than at the time of the
previous Greenbook. Far-dated futures quotes have also moved up since September.
Based on these futures quotes, we are assuming that the spot price of WTI will rise to
$86 per barrel by the end of 2011, about $9 per barrel above our assumption in the
September Greenbook.
Recent Developments and the Near-Term Outlook
According to the BEA’s advance release, real GDP rose at an annual rate of 3½ percent
in the third quarter, a stronger figure than we had anticipated in the September
Greenbook. Final sales increased last quarter, posting a gain of 2½ percent at an annual
rate, reflecting considerable increases in consumer spending and residential investment.
Because we think that some of the recent strength in spending will prove transitory, we
are projecting final sales (even outside of the motor vehicles sector) to increase only a
little in the current quarter. In contrast, a lessening in the pace of inventory liquidation is

I-6

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

Summary of the Near-Term Outlook
(Percent change at annual rate except as noted)
2009:Q3
Measure
Real GDP
Private domestic final purchases
Personal consumption expenditures
Residential investment
Business fixed investment
Government outlays for consumption
and investment

September
Greenbook

2009:Q4

October
September
Greenbook Greenbook

October
Greenbook

2.5
1.6
2.3
3.0
-3.8

3.4
3.0
3.4
20.9
-3.8

3.2
-.5
.8
4.0
-11.3

2.8
-.1
.7
.1
-6.4

1.8

2.3

4.3

1.8

Contribution to growth
(percentage points)
Inventory investment
Net exports

1.0
-.2

.9
-.6

2.8
-.1

2.3
.1

projected to make a sizable contribution to real GDP growth this quarter. All told, we
look for real GDP to rise at a 2¾ percent pace in the fourth quarter.2
The output of the manufacturing sector rebounded in the third quarter, increasing at an
annual rate of 7 percent. A bounceback in motor vehicle production was an important
contributor to the strength in factory output, but production moved up in a variety of
other categories as well. Automakers’ schedules call for a further step-up in production
in the current quarter, and many other near-term indicators of manufacturing IP, such as
national and regional business surveys, have improved in recent months. We therefore
look for manufacturing production to post another sizable gain of about 6¼ percent in the
current quarter. With this path of output, capacity utilization in manufacturing is
expected to move up to 68 percent this quarter, a bit above the trough reached in June but
still well below the 1972-2008 average of nearly 80 percent.
Labor market conditions have deteriorated somewhat more than we anticipated in the
September Greenbook. Although job losses have ebbed from the enormous declines
registered early in the year, payroll employment has continued to fall steadily—declining
at an average rate of more than 200,000 per month in the third quarter. Because of the
2

Currently, the staff projection does not incorporate the possible effects of a pandemic influenza virus
on production or employment. For a discussion of this issue, see the box titled “Possible Economic Effects
of H1N1 Flu.”

Class II FOMC—Restricted (FR) I-7

Domestic Developments

Possible Economic Effects of H1N1 Flu
According to the Centers for Disease Control,
H1N1 flu is now widespread in almost all states
and appears to be spreading rapidly. Moreover,
vaccine production has proceeded more slowly
than had been projected by the federal
government. In addition to its possibly serious
health implications, H1N1 flu has the potential
to create noticeable economic effects. However,
vast uncertainty surrounds any estimate, and we
have not, at this early stage, made flu-related
adjustments to the Greenbook forecast.
Nonetheless, we have considered a range of
scenarios. We highlight one plausible scenario
here, both to provide a frame of reference for the
magnitude of possible effects and to highlight
the key parameters that ultimately will determine
this magnitude.
Two studies provide useful starting points for
assessing possible impacts. A report by the
Congressional Budget Office (updated July
2006) develops a range of scenarios based on
earlier pandemics and highlights supply-side
effects (from reduced hours as employees stay
home) and demand-side effects (as fear of social
interaction reduces activity and spending). A
study released in August by the President’s
Council of Advisors on Science and Technology
outlined a plausible scenario for the health
effects of H1N1 flu but did not assess economic
consequences.
Based on these studies, along with other
information, we constructed one plausible
scenario for the economic effects of H1N1 flu.
We assumed the following: 20 percent of the
workforce either will get sick or will need to stay
home to care for others who are sick; affected

employees will miss four days of work; and onehalf of the output lost from the reduction in
hours will be offset by individuals working at
home or working longer hours when they return
to work, by temporary help, or by colleagues
working harder or for longer hours. Regarding
timing, we assume that H1N1 infections will
peak in November and December and that twothirds of the reduction in hours will occur in the
fourth quarter and one-third in the first quarter.
(The effects of regular seasonal flu largely are
captured by standard seasonal adjustment
procedures.) Finally, we assume that aggregate
demand will fall by roughly the same amount as
aggregate supply so that we can use the effect on
hours to gauge the effect on real GDP.
Under these assumptions, the reduction in hours
would cut the annual rate of change in real GDP
by about 1½ percentage points in the fourth
quarter. The change in GDP would then be
boosted by about ¾ percentage point in both the
first and second quarters of next year, leaving
the level of output unchanged by the middle of
next year. (The level of output would be down
in the first quarter relative to a “no flu” baseline,
but it would be down by less than it had been in
the fourth quarter.)
As noted, considerable uncertainty surrounds
any assessment, and, in real time, we could face
some substantial challenges in attempting to
extract a signal about the underlying strength of
the economy from the noise created by flurelated effects. But the bottom line is that an
outbreak along the lines sketched out above
would have only a brief and transitory effect on
economic activity.

I-8

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

disappointing payroll data and the limited improvement in other labor market indicators,
we now do not expect payrolls to turn up until after the start of the year. As a result, we
now expect the unemployment rate to rise above 10 percent in the current quarter,
somewhat higher than we were expecting in the September Greenbook.
Real PCE rose at an annual rate of 3½ percent in the third quarter, about 1 percentage
points faster than we had previously projected. However, with real income declining,
credit conditions remaining tight, and households still likely adjusting to the earlier
declines in their net worth, we think that the change in consumer spending will be
relatively subdued this fall following several months of surprising strength. In addition,
we expect the payback for vehicle purchases that were pulled forward by the “cash for
clunkers” program to keep light motor vehicle sales below 10 million units at an annual
rate this quarter, down 1½ million units from the third-quarter pace. As a result, we
project real PCE to advance at an annual rate of just ¾ percent in the current quarter.
Residential investment rose at a 21 percent annual rate in the third quarter, reflecting both
the step-up in single-family home sales and starts seen earlier in the summer and a
surprisingly sharp increase in residential improvements. Since July, single-family starts
have held steady at an annual rate of about 500,000 units, although with housing demand
likely to continue to be buoyed by mortgage rates that remain low and purchase prices
that may be perceived as finally nearing bottom, we expect homebuilders to increase
single-family starts to an annual rate of 560,000 units this quarter. Nevertheless, given
the lag between when a house is started and when the associated construction
expenditures occur, the recent flattening of starts should temper the rate of increase in
single-family construction expenditures in the current quarter. All in all, real residential
investment is expected to be little changed in the current quarter before picking up again
next quarter.
The incoming data on equipment and software investment suggest that spending may be
stabilizing in the second half of the year. Following six quarters of decline, business
outlays edged up at an annual rate of 1 percent in the third quarter. Moreover, new orders
for nondefense capital goods have been rising, on balance, for the past few months and
have now come back in line with shipments. In the current quarter, we expect real
business outlays to increase at a moderate annual pace of 3½ percent.
The near-term outlook for business expenditures on structures remains grim. Real
outlays in this category dropped at an annual rate of 12.3 percent in the third quarter on

Domestic Developments

Class II FOMC—Restricted (FR) I-9

the heels of a 30 percent rate of decline over the first half of this year. With credit
remaining extremely tight in this sector and vacancy rates high and continuing to rise,
we expect nonresidential construction expenditures to fall again at an annual rate of
23 percent in the fourth quarter.
According to the BEA’s advance release, real nonfarm inventories were drawn down
sharply again in the third quarter and now stand about 7½ percent below their peak level
six quarters ago. With inventory holdings reportedly in better shape and with final sales
having turned back up, we expect that businesses, on net, will pare inventories at a much
slower pace in the fourth quarter, especially given the restocking apparently under way at
the automakers. As a result, we project that the arithmetic contribution of inventory
investment to real GDP growth will jump from 1 percentage point in the third quarter to
more than 2 percentage points in the current quarter.
In the government sector, real federal purchases rose at an annual rate of nearly 8 percent
in the third quarter, the result of both another large increase in defense outlays and the
continued boost to nondefense spending from stimulus funds. Given the appropriations
now in place, we expect federal spending to rise at a 4¾ percent pace in the current
quarter as defense spending rises more moderately. In the state and local sector, real
purchases dipped last quarter as governments laid off workers and took other actions to
address imbalances in their operating budgets. We expect real state and local purchases
to be about flat this quarter as further—albeit smaller—reductions in employment are
offset by another solid gain in real construction expenditures.
After declining in the first half of the year, exports jumped in the third quarter, reflecting
both an improvement in foreign economic activity and a surge in exports of automotive
products. Imports also rebounded last quarter as domestic demand increased. In the
current quarter, we expect further strong growth and look for both exports and imports to
rise at a rapid, albeit more sustainable, clip. For the second half of this year as a whole,
we project that the contribution of net exports to the change in real GDP will be slightly
negative, similar to our forecast in the September Greenbook.
The latest price data have come in close to our expectations and continue to show smaller
increases in core prices than were evident in the first half of the year. Core PCE prices
rose at an annual rate of 1½ percent in the third quarter, and we expect them to rise at a
1¼ percent pace this quarter. In contrast, total PCE prices, which rose at a 2¾ percent
pace in the third quarter, are forecast to increase at a 2 percent rate in the current quarter,

I-10

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

reflecting another double-digit increase in consumer energy prices. Our fourth-quarter
projection for overall consumer price inflation is about ½ percentage point higher than in
the September Greenbook because of the further run-up in crude oil prices over the past
few weeks.
The Medium-Term Outlook
The basic contour of our forecast is little changed from the September Greenbook, and
we continue to expect the pace of economic activity to firm gradually over the next two
years. The accommodative stance of monetary policy in our projection should provide
increasing support to spending as financial stresses diminish, the negative effects of
earlier declines in income and wealth fade, and business prospects brighten. Fiscal policy
provides a further impetus to the increase in GDP in 2010, but is expected to be a slight
drag in 2011. On net, real GDP is projected to rise 3½ percent next year and 4½ percent
in 2011. Despite the pickup in real activity in our projection, we expect a substantial
amount of economic slack to persist throughout the forecast period; our current forecast
has the level of real GDP still 4½ percent below the level of potential output at the end of
2011.
Household sector. We have marked down our projection for consumer spending over
the next two years, reflecting the effects of a weaker-than-expected job market and higher
energy prices on real disposable income. Nonetheless, we still anticipate the modest
recovery in household spending that is currently under way to pick up steam over the
remainder of the forecast period as the drag from the earlier declines in wealth wanes,
and as rising labor income, low interest rates, and a gradual improvement in credit
availability provide increasing support to household spending. In all, we expect
consumer spending to post increases of 2½ percent next year and 3½ percent in 2011.
During this period, the saving rate is expected to edge up from 3¼ percent in the third
quarter of this year to 3¾ percent by the end of the forecast period as households use
some of the projected gains in income to strengthen their balance sheets. In our previous
forecast, the saving rate was flat over the projection period at nearly 4 percent.
We expect activity in the housing markets to continue to strengthen, as lower house
prices and favorable mortgage rates enhance affordability, the diminished pace of house
price declines reduces concerns about buying into a falling market, and prospects for
employment and income improve. With increases in demand continuing to whittle down
the overhang of unsold new homes, we anticipate that single-family starts will move up
to an annual rate of 750,000 units by the end of 2010 and to a pace of 1.03 million units

Class II FOMC—Restricted (FR) I-11

Domestic Developments

Projections of Real GDP
(Percent change at annual rate from end of
preceding period except as noted)
2009:
H2

2010:
H1

2010

2011

3.1
2.8

3.2
3.0

3.4
3.5

4.4
4.5

1.4
.9

2.7
2.7

2.7
2.9

3.9
4.1

Personal consumption
expenditures
Previous Greenbook

2.0
1.6

2.4
2.6

2.3
2.9

3.4
3.6

Residential investment
Previous Greenbook

10.0
3.5

9.5
9.6

10.0
12.9

22.6
25.3

Business fixed investment
Previous Greenbook

-5.1
-7.6

3.1
2.2

5.7
5.0

9.5
9.9

Government purchases
Previous Greenbook

2.1
3.1

2.6
2.6

1.7
1.6

.9
1.0

Exports
Previous Greenbook

12.2
14.3

8.4
7.6

8.7
8.2

8.8
8.6

Imports
Previous Greenbook

11.3
12.7

6.4
7.2

7.0
8.0

7.7
8.0

Measure
Real GDP
Previous Greenbook
Final sales
Previous Greenbook

Inventory change
Previous Greenbook

Contribution to growth
(percentage points)
1.7
.4
.7
.5
1.9
.4
.6
.4

Net exports
Previous Greenbook

-.2
-.2

.0
-.2

-.0
-.2

-.1
-.2

by the end of 2011. Meanwhile, we project that multifamily starts will pick up only
modestly from their recent low levels because credit conditions and the returns to
investment in this sector are expected to remain unfavorable. In total, we project real
residential expenditures to rise 10 percent next year and 23 percent in 2011, similar to our
forecast in the September Greenbook. Despite these large percentage increases, by the
end of the forecast period, residential construction expenditures as a share of GDP are
expected to remain well below their long-run historical average.

I-12

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

Business investment. After rising modestly in the second half of this year, real E&S
spending is projected to increase 10 percent next year and 13½ percent in 2011, as credit
markets continue to normalize, the outlook for business sales improves, and economic
uncertainty diminishes. We expect expenditures for short-lived assets, such as light
vehicles, computers, and software, which tend to respond fairly quickly to movements in
business sales, to expand rapidly in the first half of next year. Spending on computers
and software is also likely to be buoyed next year by a wave of pent-up replacement
demand and by Microsoft’s recent release of a new operating system. By the second half
of next year and in 2011, we expect business outlays on other types of equipment and
software to be moving up as well.
Investment in nonresidential structures is expected to decline 3¼ percent next year and to
be flat in 2011. Business demand for structures is usually slow to improve after a
downturn, and with vacancy rates still rising and credit conditions in this sector likely to
remain quite restrictive for some time, we expect the recovery in nonresidential
construction to materialize even more slowly than is typical. To be sure, we expect
investment in the drilling and mining category to expand rapidly (albeit from a very low
level) over the next two years given the upward trajectory of the projected path of energy
prices. But outside that sector, we project real outlays to fall another 7¼ percent next
year and to slip 2¼ percent in 2011.
With firms having made significant progress in addressing their inventory overhangs, the
pace of inventory liquidation is expected to slow considerably in 2010. Indeed, after nine
consecutive quarters of inventory drawdowns, we expect that businesses will finally be
ready to begin replenishing factories, warehouses, and store shelves by the middle of next
year. In 2011, we project that the pace of accumulation will pick up speed as firms
become more confident about the durability of demand. In each of the next two years,
we expect inventory investment to contribute about ½ percentage point to the change in
real GDP.
Government spending. Given our fiscal policy assumptions, we expect federal
government purchases to decelerate over the projection period from about 4¾ percent this
year to 2½ percent in 2010 and then to 1 percent in 2011, primarily reflecting a slowdown
in defense spending. After flattening out this year, real purchases by states and localities
are projected to rise at a 1 percent rate next year and at nearly that pace in 2011.
Although these governments are likely to continue to operate in a restrictive budget
environment, spending next year is expected to be supported by the sizable federal

Domestic Developments

Class II FOMC—Restricted (FR) I-13

stimulus grants. As these grants begin to wind down in 2011, spending should be
supported by a pickup in state and local tax receipts as the pace of economic activity
improves.
Net exports. After declining 4 percent this year, real exports are expected to rise nearly
9 percent in each of the next two years, reflecting the expected rebound in global activity
and the effects of past and prospective dollar depreciation. Imports, which plunged this
year, are also expected to rebound, rising at an annual rate of about 7½ percent, on
average, over the forecast period. The effects of imports and exports on the change in
domestic production are expected to be largely offsetting, and net exports have little
effect on the change in real GDP over the next two years. The arithmetic contribution to
the change in real GDP growth has been revised up a bit from the September Greenbook
because the foreign exchange value of the dollar is slightly weaker in this forecast. (The
International Developments section provides more detail on the outlook for the external
sector.)
Aggregate Supply, the Labor Market, and Inflation
We have revised up our estimates of the level of structural productivity and potential
output about 1 percent in this projection in response to the strength in actual productivity
in recent quarters (see box on the following page). In particular, we now estimate that
potential output rose 2½ percent last year and is increasing 2¾ percent this year. We
continue to assume that potential GDP will increase at an average annual pace of
2¼ percent in 2010 and 2011, about unchanged from the previous projection. Because
actual GDP is expected to increase faster than potential output in 2010 and 2011, the
output gap is projected to narrow over the next two years to 4½ percent. However,
because of the changes we have made to our estimate of the level of potential GDP, the
output gap is wider throughout the forecast period than in the September Greenbook.
Productivity and the labor market. We anticipate that firms will remain cautious in
their hiring until the economy has clearly regained its footing, preferring to temporarily
push their remaining—and likely more productive—employees harder to meet rising
production goals. As a result, we project that private payroll employment gains will
average just 115,000 per month in the first half of next year, a slower pace than we were
forecasting in the September Greenbook. As output continues to expand briskly, we
expect the average monthly increase in private payroll jobs to pick up to about

I-14

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

Revision to Structural Productivity and Potential Output in the Staff Projection
Productivity in the nonfarm business sector
appears to have increased at a surprisingly rapid
pace so far in 2009. In particular, given
currently published data, we estimate that output
per hour (factoring in the upcoming benchmark
revision to employment) rose at an annual rate
of 5 percent over the first three quarters of the
year. We interpret most of this rapid increase as
a temporary response of firms to a harsh and
uncertain economic environment. However, the
models we use to distinguish structural changes
in productivity from cyclical fluctuations
suggest that some portion reflects a step-up in
the level of structural productivity. This
interpretation is in keeping with anecdotes that
the severe contraction in economic activity has
led some firms to make efficiency-enhancing
changes to their operations that they had not
previously thought profitable or feasible, and has
led to the demise of other less-efficient firms.
As a result, we have revised up our assumed
level of structural productivity—and potential
GDP—by about 1 percent, phased in over the

course of 2008 and 2009. Because we view
these efficiency gains to be one-time
adjustments, we have not made any revision to
the rate of increase in structural productivity in
coming years. We considered the possibility of
more persistent gains in productivity in the
Alternative Scenarios section.
As illustrated in the chart to the lower left, the
recent rapid rise in productivity left our
estimate of the level of productivity last quarter
more than 2 percent above the trend assumed in
the September Greenbook. The revision to the
level of structural productivity in the current
projection eliminates more than one-third of
that gap. In addition, as we noted in the June
Greenbook, the rise in the unemployment rate
since the onset of the recession has been larger
than would have been predicted from an
Okun’s law model. As shown in the chart to
the lower right, the upward revision to potential
GDP reduces this discrepancy by about ¼
percentage point.

Class II FOMC—Restricted (FR) I-15

Domestic Developments

Decomposition of Structural Labor Productivity
Nonfarm Business Sector
(Percent change, Q4 to Q4, except as noted)
1974- 1996- 200195
2000
07

Measure
Structural labor productivity
Previous Greenbook

2008

2009

2010

2011
1.9

1.5
1.5

2.5
2.5

2.8
2.8

2.3
2.0

2.5
1.8

1.6
1.6

Contributions
Capital deepening
Previous Greenbook
Multifactor productivity
Previous Greenbook
Labor composition

.7
.7
.5
.5
.3

1.4
1.4
.7
.7
.3

.7
.7
1.6
1.6
.3

.5
.5
1.6
1.3
.2

-.0
-.0
2.4
1.7
.2

-.1
-.1
1.6
1.6
.1

MEMO
Potential GDP
Previous Greenbook

3.0
3.0

3.4
3.4

2.8
2.8

2.7
2.4

2.7
2.0

2.1
2.1

1.9

1

.5

.4
1.4

1.4
.1
2.4

2.3

Note: Components may not sum to totals because of rounding. For multiyear periods, the
percent change is the annual average from Q4 of the year preceding the first year shown to Q4 of
the last year shown.
1. Percentage points.

The Outlook for the Labor Market
(Percent change, Q4 to Q4, except as noted)
Measure
Output per hour, nonfarm business
Previous Greenbook
Nonfarm private payroll employment
Previous Greenbook
Household survey employment
Previous Greenbook
Labor force participation rate1
Previous Greenbook
Civilian unemployment rate1
Previous Greenbook
MEMO
GDP gap2
Previous Greenbook

2008

2009

2010

2011

.9
.9
-2.1
-2.1
-1.5
-1.5
65.9
65.9
6.9
6.9

4.6
3.7
-4.4
-4.1
-3.7
-3.0
65.2
65.5
10.1
9.9

1.1

.8

1.3
1.8
2.1
1.6
1.7
65.1
65.4
9.5
9.2

1.4

-4.8
-4.6

-7.6
-6.9

-6.4
-5.6

3.4

3.3
2.4

2.3
65.0

65.3
8.2

7.9
-4.5

-3.6

1. Percent, average for the fourth quarter.
2. Actual less potential GDP in the fourth quarter of the year indicated as a
percent of potential GDP. A negative number thus indicates that the economy
is operating below potential.

I-16

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

250,000 per month in the second half of 2010 and to 300,000 per month in 2011. As
a consequence, productivity is projected to increase more slowly during this period,
moving back in line with its structural level by the end of 2011. Given the more delayed
turnaround in hiring in this projection, the unemployment rate is projected to recede quite
slowly, from a peak of more than 10 percent in the fourth quarter of this year to
9½ percent by the end of 2010. In 2011, we look for the unemployment rate to fall to
8¼ percent.3
Prices and labor costs. We continue to project that core PCE price inflation will slow
from 1.4 percent this year to 1.1 percent in 2010 and 1 percent in 2011. Given the
substantial amount of slack in resource utilization in our projection, the extent of this
deceleration is small, reflecting our view that inflation expectations, which have been
relatively stable in recent years, will remain that way over the next couple of years. Our
projection for core consumer price inflation is unchanged from that in the September
Greenbook, because the downward pressure on prices from the greater degree of slack in
this forecast is roughly balanced by the upward pressure emanating from higher oil
prices. Of course, the rise in oil prices will have a more pronounced effect on overall
consumer price inflation: After moving up in the second half of this year, headline
inflation is expected to remain somewhat elevated in the first half of next year. However,
headline consumer price inflation is expected to come back into line with core inflation
by the end of 2010 and to remain there in 2011.
Hourly compensation costs have decelerated sharply this year. We now estimate that the
productivity and cost measure of compensation per hour declined at an annual rate of
¾ percent in the first three quarters of this year after having risen 2½ percent in 2008;
the employment cost index has decelerated considerably this year as well. In part, the
steep deceleration in hourly compensation likely reflects a drop in bonuses and other onetime adjustments to the level of compensation in an extremely weak labor market. With
the pressure for unusual wage restraint expected to eventually ease, we project that hourly
compensation will post moderate increases in the period ahead, rising 1¾ percent next
year and 2 percent in 2011.

3

In response to the expansion of the EUC program that we are projecting this round, we have revised
up the unemployment rate by 0.2 percentage point in 2010, bringing the overall effect of this program on
the unemployment rate to 0.7 percentage point. In 2011, we estimate that the EUC program is boosting the
unemployment rate 0.5 percentage point, unchanged from the September Greenbook.

Class II FOMC—Restricted (FR) I-17

Domestic Developments

Inflation Projections
(Percent change, Q4 to Q4, except as noted)
Measure

2008

2009

2010

2011

1.7
1.7

1.1
1.0

1.4
1.3

1.0
1.0

Food and beverages
Previous Greenbook

6.8
6.8

-1.9
-1.1

1.3
1.5

.7
.7

Energy
Previous Greenbook

-9.1
-9.1

1.3
-2.4

7.7
5.0

2.4
2.1

2.0
2.0

1.4
1.4

1.1
1.1

1.0
1.0

1.5
1.5

1.3
1.1

1.7
1.5

1.2
1.1

Excluding food and energy
Previous Greenbook

2.0
2.0

1.7
1.7

1.2
1.2

1.1
1.1

GDP chain-weighted price index
Previous Greenbook

1.9
1.9

.7
.9

1.3
1.2

1.1
1.1

ECI for compensation of private
industry workers1
Previous Greenbook

2.4
2.4

1.2
1.2

1.8
1.8

2.0
2.0

Compensation per hour,
nonfarm business sector
Previous Greenbook

2.6
2.6

-.2
-.3

1.8
1.8

2.1
2.1

Prices of core goods imports2
Previous Greenbook

3.8
3.8

-1.7
-1.4

1.5
1.3

1.0
1.0

PCE chain-weighted price index
Previous Greenbook

Excluding food and energy
Previous Greenbook
Consumer price index
Previous Greenbook

1. December to December.
2. Core goods imports exclude computers, semiconductors, oil, and
natural gas.

Financial Flows and Conditions
We project that domestic nonfinancial debt will expand at an annual rate of 2¾ percent
this quarter and then increase at an average annual pace of 5½ percent in 2010 and 2011.
This forecast reflects rapid expected growth in federal government debt, a moderate rise
in state and local government debt, and sluggish increases in household and nonfinancial
business debt.
Household debt contracted at an annual rate of 1 percent in the first three quarters of the
year, and we expect it to be about unchanged in the fourth quarter. Although we project
that household debt will begin to expand again next year as the economy improves, the

I-18

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

pace of borrowing through 2011 is expected to be tepid because of flat home prices,
elevated loan charge-offs, continued deleveraging by households, and lending standards
that remain relatively tight.
Nonfinancial business debt is projected to edge up in the fourth quarter after having
declined at an annual rate of 1 percent in the first three quarters of the year. We expect
firms with direct access to capital markets to continue issuing bonds in the fourth quarter,
but we anticipate that net bond issuance will slow from its elevated pace in recent
months. Other forms of debt—particularly C&I loans and commercial mortgages—are
expected to contract further, on balance. Although overall debt for nonfinancial
businesses is expected to begin rising early next year, we anticipate only a modest
acceleration over the forecast period amid soft demand for external funds, an only
gradual easing of banks’ terms and standards for business loans, and persistent weakness
in the commercial real estate market.
Federal government debt is expected to balloon further over the forecast period, as
deficits remain extremely large. We project federal borrowing of $1.6 trillion in 2010
and $1.2 trillion in 2011. In the state and local government sector, borrowing rebounded
this year as earlier strains in the municipal bond market eased. We expect that debt
growth will slow somewhat over the projection period, in part because infrastructure
grants will finance some of the projected rise in the sector’s capital outlays.
M2 is projected to expand at an annual rate of 1¼ percent in the fourth quarter, as a
reallocation of household wealth toward higher-yielding assets continues to weigh on
money demand. As that process wanes, we expect M2 to increase at a pace closer to that
of nominal GDP.
The Long-Term Outlook
We have extended the staff forecast to 2014, using the FRB/US model and staff
assessments of long-run supply-side conditions, fiscal policy, and other factors.
The contour of the long-run outlook depends on the following key assumptions:
•

Monetary policy aims to stabilize PCE inflation at 2 percent in the long run,
consistent with the majority of longer-term inflation projections provided by the
FOMC participants.

Class II FOMC—Restricted (FR) I-19

Domestic Developments

•

No further nontraditional monetary policy actions are undertaken beyond those that
have already been announced. This assumption implies a gradual shrinking of the
Federal Reserve’s balance sheet over time.

•

Risk premiums on corporate bonds and equity, which are expected to be just a little
above historically normal levels at the end of 2011, edge down a touch thereafter.
Banks ease their lending terms and standards somewhat further as well.

•

The fiscal stimulus package continues to boost the level of government purchases
through 2012. Government budget deficits continue to narrow over the horizon. This
improvement reflects both the effects of the economic recovery on tax receipts and
transfer payments as well as further policy actions after 2011 aimed at reducing the
deficit.

•

From 2012 to 2014, the foreign exchange value of the dollar is assumed to depreciate
2 percent per year in real terms. The price of WTI crude oil rises gradually to about
$90 per barrel by the end of 2014, consistent with futures prices. Under these
assumptions, movements in the prices of energy and imports have only minor
implications for domestic inflation. Foreign real GDP expands almost 3¾ percent per
year, on average, implying some further narrowing in foreign output gaps.

•

The factors that the staff sees as having raised the NAIRU during the recession are
expected to slowly fade; we also assume that the effect of emergency unemployment
compensation on the unemployment rate will diminish after 2011 as these programs
are wound down. Potential GDP is assumed to expand 2¾ percent per year, on
average, from 2012 to 2014.
The Long-Term Outlook
(Percent change, Q4 to Q4, except as noted)
Measure

2009

2010

2011

2012

2013

2014

-.3

3.4

4.4

5.0

4.8

3.2

Civilian unemployment rate

10.1

9.5

8.2

6.1

4.9

4.7

PCE prices, total

1.1

1.4

1.0

1.2

1.4

1.6

1.4

1.1

1.0

1.1

1.4

1.6

.1

.1

.1

2.1

3.5

3.9

Real GDP
1

Core PCE prices
1

Federal funds rate

1. Percent, average for the final quarter of the period.
 

I-20

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

The unemployment rate enters 2012 still at a very high level, and inflation is well below
the assumed long-run target. Under the assumptions used to construct the baseline
extension, the federal funds rate begins to rise in early 2012, edging up to about 2 percent
by the end of that year and to almost 4 percent in 2014.4 A further acceleration in
investment boosts GDP growth close to 5 percent in 2012 and 4¾ percent in 2013. As a
result, the unemployment rate falls back to the NAIRU by the end of 2013. By 2014, the
slow recovery in investment shares toward historical norms is largely complete, so output
growth moves down toward its potential rate and declines in the unemployment rate taper
off. Core PCE inflation moves up gradually after 2011 as economic activity recovers and
long-run inflation expectations are assumed to remain reasonably well anchored.
Assessment of Forecast Uncertainty
Since the spring, the odds of an extremely adverse “tail” outcome for the real economy
have receded, as evidenced by a marked decline in risk spreads, improved credit market
functioning, and increased household and business confidence. As a result, we believe
that the outlook for output and employment is less uncertain now than was the case
earlier in the year. Nevertheless, we continue to judge the risks associated with the staff
projection as elevated relative both to the experience of the past 20 years (the benchmark
used by the Committee) and to the more volatile post-1968 sample period used by the
staff for stochastic simulations. In large part, this assessment reflects the limited
usefulness of our standard models and analyses in the unusual circumstances that we now
confront; for example, history provides little guidance about the speed of financial market
healing, and thus the accompanying pace of economic recovery, likely to follow
disruptions of the magnitude that we have experienced. However, we no longer see the
risks to real activity as biased to the downside, but instead view them as roughly
balanced.
We also continue to view the price outlook as more uncertain than usual. In particular,
our standard inflation forecasting tools may be less useful than normal with economic
slack extremely elevated, monetary policy unable to provide further stimulus through
conventional means, and the size of the Federal Reserve’s balance sheet having expanded
by an unprecedented amount. For this reason, we suspect that our history-based
4

In the long-run outlook, the federal funds rate (R) follows the prescriptions of a Taylor-type rule of
the form R = 2.5 + π - 1.1(u-u*) + 0.5(π – 2), subject to the zero lower bound constraint. In this
expression, π denotes the four-quarter rate of core PCE inflation, u is the civilian unemployment rate, and
u* is the staff estimate of the NAIRU. In essence, this is just the traditional Taylor rule, rewritten in terms
of the unemployment gap, with the coefficient on resource utilization appropriately rescaled. The same
policy rule is used to set the federal funds rate in the alternative scenarios discussed below.

Domestic Developments

Class II FOMC—Restricted (FR) I-21

confidence intervals probably understate the risks on both sides of our inflation forecast.
We judge the risks to our price forecast as roughly balanced.
Alternative Scenarios
In this section, we consider risks to the baseline projection using simulations of the
FRB/US model. The first two scenarios explore the ramifications of a jobless recovery, in
which labor demand falls because productivity continues to expand for a few years at the
rapid pace seen recently, rather than decelerating as in the baseline forecast. However,
aggregate output responds differently in the two scenarios: In the first, aggregate demand
picks up as household and business spending reacts to a higher level of potential output;
in the second, the more elevated unemployment rate leads to a greater apprehension on
the part of households that restrains demand. In the third scenario, we consider the
possibility that aggregate demand will be weaker than in the baseline forecast. The
fourth scenario features the opposite risk and shows real activity recovering more rapidly
than we anticipate. The fifth scenario combines the more robust recovery from the
previous simulation with an increase in inflation expectations—a combination that
advances the liftoff of the federal funds rate to early 2011. Finally, the sixth scenario
assumes that inflation falls more significantly in response to economic slack than in the
baseline projection. In each of these scenarios, the federal funds rate is assumed to
follow the prescriptions of a version of the Taylor rule (subject to an effective lower
bound of 12½ basis points), and nontraditional policy is assumed to follow the baseline
path.
Jobless recovery. As the economic recovery continues next year, the baseline forecast
assumes that firms will begin to boost payrolls and that output per hour (which has been
rising rapidly this year) will decelerate, thereby moving back in line with its long-run
trend. This trajectory for productivity would differ from the pattern seen during the 2002
“jobless” recovery, when productivity gains remained robust for some time. In this
scenario, we assume that labor productivity continues to expand at a rapid rate exceeding
3 percent per year through 2012, boosted by a series of favorable shocks to the level of
structural multifactor productivity. As a result, labor demand is more subdued than in the
baseline, given that aggregate demand does not immediately shift up with the
improvement in aggregate supply. In fact, the initial shift in the distribution of income
away from labor and toward capital would, by itself, tend to damp spending somewhat.
But the greater productivity also implies a higher level of both potential output and, over
time, labor income. The recognition by households and businesses of those more

Class II FOMC - Restricted (FR)

I-22
Alternative Scenarios

(Percent change, annual rate, from end of preceding period except as noted)

2009
Measure and scenario
H2

2010 2011 2012 201314

Real GDP
Extended Greenbook baseline
Jobless recovery
Jobless recovery and more caution
Weaker aggregate demand
V-shaped recovery
Earlier liftoff
Greater disinflation

3.1
3.2
3.1
2.2
4.3
4.3
3.1

3.4
4.0
3.4
2.0
4.8
5.1
3.3

4.4
5.6
4.4
4.4
5.6
5.6
4.1

5.0
6.4
5.0
5.4
4.8
4.2
4.9

4.0
4.7
5.1
4.6
3.2
2.8
4.8

Unemployment rate1
Extended Greenbook baseline
Jobless recovery
Jobless recovery and more caution
Weaker aggregate demand
V-shaped recovery
Earlier liftoff
Greater disinflation

10.1
10.2
10.2
10.2
10.0
10.0
10.1

9.5
10.1
10.3
10.2
8.9
8.8
9.5

8.2
9.2
9.8
8.9
7.2
7.1
8.3

6.1
6.6
7.8
6.6
5.2
5.3
6.3

4.7
4.5
5.5
4.7
4.6
5.0
4.3

Core PCE inflation
Extended Greenbook baseline
Jobless recovery
Jobless recovery and more caution
Weaker aggregate demand
V-shaped recovery
Earlier liftoff
Greater disinflation

1.3
1.3
1.3
1.3
1.3
1.2
1.0

1.1
.9
.9
1.0
1.1
1.6
.4

1.0
.4
.2
.8
1.1
2.0
.1

1.1
.4
.0
.9
1.2
2.2
-.1

1.5
1.1
.5
1.3
1.7
2.9
.0

Federal funds rate1
Extended Greenbook baseline
Jobless recovery
Jobless recovery and more caution
Weaker aggregate demand
V-shaped recovery
Earlier liftoff
Greater disinflation

.1
.1
.1
.1
.1
.1
.1

.1
.1
.1
.1
.1
.1
.1

.1
.1
.1
.1
.8
2.3
.1

2.1
.6
.1
1.3
3.1
4.5
.1

3.9
3.7
1.7
3.7
4.4
5.5
2.1

1. Percent, average for the final quarter of the period.

Domestic Developments

Class II FOMC—Restricted (FR) I-23

favorable longer-run prospects gradually leads to an increase in aggregate demand
relative to the baseline. (Asset valuations are only modestly higher over the next two
years, however, because households and businesses recognize that the shocks to the level
of productivity do not imply a permanently faster rate of economic growth.) All told,
these developments cause real GDP to expand 4 percent in 2010 and 5½ percent in 2011,
even as the unemployment rate remains near 10 percent through the end of next year and
then declines only to more than 9¼ percent in late 2011. Output continues to expand
faster than in the baseline beyond 2011 as the level of real activity gradually comes into
alignment with the higher level of potential GDP; this realignment in turn leads to a
sustained increase in hiring that eventually brings the unemployment rate back to
baseline. Inflation drops to ½ percent in 2011 and remains persistently below baseline
thereafter, both because higher productivity lowers unit labor costs directly and because
resource utilization is lower than in the baseline. With resource utilization and inflation
both below baseline, the federal funds rate does not lift off from the zero bound until the
end of 2012.
Jobless recovery and more cautious households. The series of shocks to productivity
assumed in the first scenario are repeated in this alternative. But in this scenario we
assume that the favorable effect of productivity gains on labor income is offset for a
while by other influences—perhaps because the prolonged weakness in the labor market
reduces workers’ bargaining power. (Indeed, the strength observed in labor productivity
recently has been accompanied by very weak labor compensation.) We also assume that
the more unfavorable labor market conditions weigh on consumer sentiment and lead to
additional restraint on household spending of sufficient magnitude to hold real GDP close
to its baseline path through 2012. With aggregate demand weaker than in the first
scenario, the unemployment rate remains near 10 percent through 2011; thereafter, it
declines appreciably but is still well above baseline through 2014. Inflation drops to zero
by 2012 and remains very low thereafter. Under these conditions, the federal funds rate
remains at the zero lower bound until mid-2013.
Weaker aggregate demand. The strength in demand suggested by the positive tone of
the data received in recent months could easily prove short-lived. For example, the
baseline may understate the degree to which spending will be weighed down by impaired
balance sheets of banks, many households, and some nonfinancial firms. In this scenario,
we assume that these factors directly damp demand more significantly than assumed in
the baseline and weigh more on consumer and business sentiment. In addition, these

I-24

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

factors result in greater restraint on credit availability and more-elevated external finance
premiums for borrowers.
In response, the stock market falls about 15 percent below baseline next year while the
spread of BBB-rated corporate bonds over 10-year Treasuries widens by 50 basis points
over the same horizon. With these stronger financial headwinds, the economic recovery
is tepid relative to the baseline, with real GDP rising only 2 percent in 2010, and the
unemployment rate still at 10¼ percent at yearend. Consequently, this scenario also
yields a jobless recovery, but one that results from weak demand rather than strong
productivity. Core PCE inflation falls below 1 percent in 2011.
V-shaped recovery. The recent surprising strength in final demand has brought into
sharper focus some upside risks to the baseline projection. In the recession, household
and business spending on durable goods and structures dropped to extraordinarily low
levels relative to replacement demand. A snapback in such expenditures is a feature of
many cyclical recoveries, but occurs in only a muted fashion in the baseline projection.
In this scenario, spending in these categories jumps a bit more than 10 percent above
baseline by the end of 2010, bringing such spending (relative to GDP) into a more
historically-typical range. Accompanying and supporting the stronger rebound in real
activity are further declines in risk spreads on private securities and mortgages. In line
with these developments, real GDP expands at an annual rate of 4¾ percent in 2010.
This rebound puts unemployment on a more pronounced downward trajectory: The
unemployment rate drops below 9 percent by the end of 2010 and then continues to move
steadily down. With less slack in this scenario, inflation is a little higher than in the
baseline, and the federal funds rate moves up from the zero bound in the middle of 2011.
Earlier liftoff. In this scenario, the rapidly improving economy of the V-shaped
recovery is assumed to be accompanied by an increase in long-run inflation expectations,
perhaps reflecting concerns over the ability or willingness of monetary policymakers to
restrain inflationary pressures that might accompany a strong rebound in economic
activity, particularly in light of the expansion of the Federal Reserve’s balance sheet.
Specifically, we assume that long-run inflation expectations rise to 3 percent by late next
year, an expectation that becomes partly self-fulfilling. Core PCE inflation averages
1½ percent in 2010 and then climbs steadily, reaching around 3 percent by 2014. The
combination of falling unemployment and rising inflation brings forward the liftoff in the
federal funds rate to the beginning of 2011. Relative to the V-shaped scenario, real
activity is a bit stronger early on but rises less rapidly thereafter, reflecting the earlier and
sharper rise in the federal funds rate.

Domestic Developments

Class II FOMC—Restricted (FR) I-25

Greater disinflation. The modest deceleration in prices projected in the baseline reflects
our assessment that inflation expectations are reasonably well-anchored, which attenuates
the influence that the slowdown in actual inflation has on long-run inflation expectations
and hence the persistent element in actual inflation. In this scenario, we assume that
inflation expectations fall more significantly in response to economic slack and the
slowdown in actual inflation, in a manner more in line with many accelerationist Phillips
curve models. As a result, core PCE inflation drops to 1 percent in the second half of this
year and moves down close to zero in 2011, where it remains through 2014. With the
federal funds rate pinned at the zero lower bound, the drop in inflation puts the real
federal funds rate above its path in the baseline, weakening real activity a bit. In the
longer-run, however, monetary policy is able to respond to the unwelcome disinflation by
holding the nominal funds rate below baseline, pushing gains in real GDP above baseline
in 2013 and 2014.

Class II FOMC - Restricted (FR)

I-26

Selected Greenbook Projections and 70 Percent Confidence Intervals Derived
from Historical Greenbook Forecast Errors and FRB/US Simulations
Measure
Real GDP
(percent change, Q4 to Q4)
Projection
Confidence interval
Greenbook forecast errors
FRB/US stochastic simulations
Civilian unemployment rate
(percent, Q4)
Projection
Confidence interval
Greenbook forecast errors
FRB/US stochastic simulations
PCE prices, total
(percent change, Q4 to Q4)
Projection
Confidence interval
Greenbook forecast errors
FRB/US stochastic simulations
PCE prices excluding
food and energy
(percent change, Q4 to Q4)
Projection
Confidence interval
Greenbook forecast errors
FRB/US stochastic simulations
Federal funds rate
(percent, Q4)
Projection
Confidence interval
FRB/US stochastic simulations

2009

2010

2011

2012

2013

2014

-.3

3.4

4.4

5.0

4.8

3.2

-.9-.2
-.9-.3

1.7-5.1
2.1-5.1

3.0-5.8
2.7-6.4

...
2.7-6.9

...
2.5-7.1

...
1.0-5.5

10.1

9.5

8.2

6.1

4.9

4.7

10.0-10.2
9.9-10.3

8.8-10.2
8.8-10.1

7.2-9.2
7.1-9.1

...
5.0-7.2

...
3.8-6.0

...
3.5-5.8

1.1

1.4

1.0

1.2

1.4

1.6

.9-1.4
.9-1.5

.3-2.6
.6-2.4

-.2-2.2
.0-2.2

...
.1-2.3

...
.4-2.6

...
.6-2.8

1.4

1.1

1.0

1.1

1.4

1.6

1.2-1.7
1.2-1.6

.4-1.7
.4-1.7

.0-1.9
.2-1.9

...
.3-2.0

...
.7-2.3

...
.9-2.6

.1

.1

.1

2.1

3.5

3.9

.1-.1

.1-.1

.1-1.6

.4-3.9

2.1-5.2

2.5-5.6

Notes: Shocks underlying FRB/US stochastic simulations are randomly drawn from the 1969-2008 set of
model equation residuals.
Intervals derived from Greenbook forecast errors are based on projections made from 1979-2008, except
for PCE prices excluding food and energy, where the sample is 1981-2008.
. . . Not applicable. The Greenbook forecast horizon has typically extended about two years.

Class II FOMC - Restricted (FR)

I-27

Forecast Confidence Intervals and Alternative Scenarios
Confidence Intervals Based on FRB/US Stochastic Simulations
Extended Greenbook baseline
Jobless recovery
Jobless recovery and more caution

Weaker aggregate demand
V−shaped recovery

Real GDP

Earlier liftoff
Greater disinflation

Unemployment Rate
4-quarter percent change

Percent
9

11.0
10.5

8

10.0

90 percent interval

7

70 percent interval

9.5

6

9.0

5

8.5
8.0

4

7.5

3

7.0

2

6.5
6.0

1

5.5

0

5.0

−1

4.5
4.0

−2

3.5
−3

3.0

−4
2007

2009

2011

2013

2.5
2007

PCE Prices excluding Food and Energy

2009

2011

2013

Federal Funds Rate

4-quarter percent change

Percent
3.5

7

3.0

6

2.5

5

2.0

4

1.5
3
1.0
2
0.5
1
0.0
0
−0.5
2007

2009

2011

2013

2007

2009

2011

2013

I-28
Class II FOMC - Restricted (FR)

Evolution of the Staff Forecast
Change in Real GDP
Percent, Q4/Q4
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0

2011

1/24

3/14

5/2

6/20

2010

2009

2008

8/2

9/12

10/24 12/5

1/23

3/13

4/23

2007

6/18

7/30

9/10

10/22

12/10 1/22

3/12

4/22

2008

6/17

8/6

9/16

10/29 12/9

5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0

2009

Greenbook publication date

Unemployment Rate
Percent, fourth quarter
10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5

2011

2010
2009

2008
1/24

3/14

5/2

6/20

8/2

9/12

10/24 12/5

1/23

3/13

4/23

2007

6/18

7/30

9/10

10/22

12/10 1/22

3/12

4/22

2008

6/17

8/6

9/16

10/29 12/9

10.5
10.0
9.5
9.0
8.5
8.0
7.5
7.0
6.5
6.0
5.5
5.0
4.5

2009

Greenbook publication date

Change in PCE Prices excluding Food and Energy*
Percent, Q4/Q4
3.0

3.0

2.5

2.5

2.0

2.0
2008

2009

1.5

1.5
2010

1.0

2011

0.5
0.0

1.0
0.5

1/24

3/14

5/2

6/20

8/2

2007

9/12

10/24 12/5

1/23

3/13

4/23

6/18

7/30

9/10

10/22

12/10 1/22

2008

3/12

4/22

6/17

8/6

9/16

2009

Greenbook publication date
*Because the core PCE price index was redefined as part of the comprehensive revisions to the NIPA, projections prior to the
August 2009 Greenbook are not strictly comparable with more recent projections.

10/29 12/9

0.0

-2.9
3.7
4.4
5.1
5.6
5.6

.1
.4
4.7
5.6
2.6
-1.4
4.0
5.4

Two-quarter2
2009:Q2
Q4
2010:Q2
Q4
2011:Q2
Q4

Four-quarter3
2008:Q4
2009:Q4
2010:Q4
2011:Q4

Annual
2008
2009
2010
2011
2.6
-1.3
4.1
5.3

.1
.4
4.8
5.5

-2.7
3.7
4.7
4.9
5.5
5.6

-4.6
-.8
4.2
3.1
5.0
4.5
4.7
5.0
5.4
5.5
5.6
5.5

10/29/09

.4
-2.6
2.9
4.3

-1.9
-.5
3.5
4.5

-3.8
2.8
3.0
4.0
4.4
4.6

-6.4
-1.0
2.5
3.2
2.8
3.2
3.8
4.2
4.4
4.5
4.6
4.6

09/16/09

.4
-2.5
3.0
4.1

-1.9
-.3
3.4
4.4

-3.6
3.1
3.2
3.7
4.3
4.5

-6.4
-.7
3.4
2.8
3.2
3.2
3.5
3.9
4.2
4.4
4.5
4.5

10/29/09

Real GDP

3.3
.2
1.5
1.1

1.7
1.0
1.3
1.0

-.1
2.1
1.4
1.2
1.0
1.0

-1.5
1.3
2.9
1.4
1.4
1.4
1.3
1.2
1.1
1.0
1.0
1.0

09/16/09

3.3
.2
1.8
1.1

1.7
1.1
1.4
1.0

-.1
2.4
1.6
1.3
1.1
1.0

-1.5
1.4
2.8
2.0
1.8
1.5
1.3
1.2
1.1
1.0
1.0
1.0

10/29/09

PCE price index

October 29, 2009

2.4
1.5
1.2
1.0

2.0
1.4
1.1
1.0

1.6
1.3
1.1
1.1
1.0
1.0

1.1
2.0
1.5
1.2
1.1
1.1
1.1
1.1
1.0
1.0
1.0
1.0

09/16/09

2.4
1.5
1.2
1.0

2.0
1.4
1.1
1.0

1.6
1.3
1.0
1.1
1.0
1.0

1.1
2.0
1.4
1.2
1.0
1.1
1.1
1.1
1.0
1.0
1.0
1.0

10/29/09

5.8
9.2
9.5
8.4

2.1
3.0
-.7
-1.3

2.3
.7
-.3
-.4
-.7
-.6

8.1
9.2
9.6
9.9
9.8
9.6
9.4
9.2
8.8
8.5
8.2
7.9

09/16/09

5.8
9.2
9.8
8.7

2.1
3.2
-.6
-1.3

2.3
.9
-.2
-.4
-.6
-.7

8.1
9.2
9.6
10.1
10.1
9.9
9.7
9.5
9.2
8.9
8.6
8.2

10/29/09

Core PCE price index Unemployment rate 1

Changes in GDP, Prices, and Unemployment
(Percent, annual rate except as noted)

1. Level, except for two-quarter and four-quarter intervals.
2. Percent change from two quarters earlier; for unemployment rate, change is in percentage points.
3. Percent change from four quarters earlier; for unemployment rate, change is in percentage points.

-4.6
-1.0
3.1
4.2
4.3
4.4
5.0
5.3
5.6
5.6
5.6
5.6

09/16/09

Nominal GDP

Quarterly
2009:Q1
Q2
Q3
Q4
2010:Q1
Q2
Q3
Q4
2011:Q1
Q2
Q3
Q4

Interval

Class II FOMC
Restricted (FR)

I-29

Q1

.6
.6
3.9
1.9
-.3
-38.2
-38.2
-39.2
-39.2
-36.4
-36.4
-43.6
-43.6
-386
-386
-29.9
-36.4
-2.6
-2.6
-4.3
-5.1
-2.5
-1.5

Final sales
Previous Greenbook
Priv. dom. final purch.
Previous Greenbook

Personal cons. expend.
Previous Greenbook
Durables
Nondurables
Services

Residential investment
Previous Greenbook

Business fixed invest.
Previous Greenbook
Equipment & software
Previous Greenbook
Nonres. structures
Previous Greenbook

Net exports2
Previous Greenbook2
Exports
Imports

Gov’t. cons. & invest.
Previous Greenbook
Federal
Defense
Nondefense
State & local
-160
-165
-163
2

6.7
6.5
11.4
14.0
6.1
3.9

-330
-332
-4.1
-14.7

-9.6
-10.3
-4.9
-6.2
-17.3
-17.1

-23.3
-22.9

-.9
-.9
-5.6
-1.9
.2

.7
.5
-2.7
-2.8

-.7
-1.0

Q2

2.4
1.5
3.0
1.6

3.4
2.5

Q3

-131
-134
-134
3

2.3
1.8
7.9
8.4
6.8
-1.1

-348
-339
14.7
16.3

-3.8
-3.8
1.1
4.8
-12.3
-18.0

20.9
3.0

3.4
2.3
22.2
2.0
1.2

2009

-60
-45
-64
4

1.8
4.3
4.8
1.0
13.6
-.1

-343
-342
9.6
6.4

-6.4
-11.3
3.5
-3.0
-23.3
-25.9

.1
4.0

.7
.8
-7.6
1.9
1.7

.4
.3
-.1
-.5

2.8
3.2

Q4

-36
-25
-41
4

3.0
3.1
6.5
4.8
9.9
.7

-346
-351
8.2
7.4

.9
-.3
6.2
5.2
-9.4
-11.0

9.3
7.0

2.4
2.5
10.2
2.3
1.3

2.5
2.2
2.4
2.3

3.2
2.8

Q1

-30
-20
-35
3

2.1
2.0
3.6
2.4
6.3
1.2

-340
-351
8.5
5.5

5.5
4.8
10.3
10.2
-4.3
-5.9

9.7
12.4

2.3
2.8
10.9
1.9
1.2

3.0
3.1
2.9
3.3

3.2
3.2

Q2

0
7
-4
3

1.0
.7
.6
1.9
-2.1
1.3

-341
-359
8.9
7.5

7.2
7.2
10.9
11.8
-.8
-2.3

8.1
15.4

2.1
2.9
7.0
1.7
1.5

2.5
2.9
2.9
3.7

3.5
3.8

Q3

2010

29
33
25
3

.6
.6
-.4
.3
-1.8
1.3

-341
-367
9.4
7.7

9.4
8.7
12.7
12.3
2.3
.7

13.1
17.0

2.4
3.3
8.3
2.1
1.7

3.0
3.4
3.5
4.3

3.9
4.2

Q4

55
58
52
3

1.0
1.0
1.3
.6
2.6
.9

-348
-374
8.9
8.9

9.8
9.2
13.5
12.8
1.7
1.1

15.5
20.2

3.0
3.3
10.1
2.8
2.0

3.4
3.6
4.1
4.4

4.2
4.4

Q1

Changes in Real Gross Domestic Product and Related Items
(Percent, annual rate except as noted)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.
2. Billions of chained (2005) dollars.

-114
-114
-115
0

-4.1
-4.1
-7.2
-7.2

Real GDP
Previous Greenbook

Change in bus. inventories2
Previous Greenbook2
Nonfarm2
Farm2

-6.4
-6.4

Item

Class II FOMC
Restricted (FR)

70
71
67
3

1.0
1.0
1.1
.4
2.6
.9

-348
-379
8.5
7.1

9.0
10.3
12.9
15.0
.2
-.2

22.4
23.9

3.3
3.6
10.3
3.1
2.3

3.9
4.1
4.5
4.9

4.4
4.5

Q2

80
85
77
3

1.0
1.0
1.2
.5
2.6
.9

-351
-385
8.5
7.6

10.4
9.8
15.0
14.4
-.4
-.9

24.1
26.8

3.6
3.6
12.1
3.2
2.5

4.2
4.2
5.0
5.0

4.5
4.6

Q3

2011

89
87
87
3

.5
1.0
.5
-.5
2.6
.5

-350
-387
9.1
7.3

9.0
10.3
12.9
14.9
-.3
-.8

28.7
30.5

3.6
3.8
11.0
3.2
2.6

4.3
4.6
5.0
5.4

4.5
4.6

Q4

-116
-114
-119
2

2.0
2.5
4.8
4.3
5.8
.3

-352
-350
-4.1
-9.5

-16.1
-17.4
-10.8
-11.7
-25.1
-27.0

-13.0
-15.5

.9
.7
2.6
.9
.7

-.2
-.5
-1.9
-2.3

-.3
-.5

20091

-9
-1
-14
3

1.7
1.6
2.5
2.3
2.9
1.1

-342
-357
8.7
7.0

5.7
5.0
10.0
9.8
-3.2
-4.7

10.0
12.9

2.3
2.9
9.1
2.0
1.4

2.7
2.9
2.9
3.4

3.4
3.5

20101

73
75
71
3

.9
1.0
1.0
.2
2.6
.8

-349
-381
8.8
7.7

9.5
9.9
13.6
14.3
.3
-.2

22.6
25.3

3.4
3.6
10.9
3.1
2.3

3.9
4.1
4.7
5.0

4.4
4.5

20111

October 29, 2009

I-30

1. Billions of chained (2005) dollars.

Change in bus. inventories1
Previous Greenbook1
Nonfarm1
Farm1
17
17
17
0

1.6
1.6
5.7
8.4
.7
-.5

Gov’t. cons. & invest.
Previous Greenbook
Federal
Defense
Nondefense
State & local

11.5
11.5

Residential investment
Previous Greenbook

-604
-604
6.2
5.1

3.4
3.4
8.9
3.9
2.2

Personal cons. expend.
Previous Greenbook
Durables
Nondurables
Services

Net exports1
Previous Greenbook1
Exports
Imports

3.8
3.8
4.2
4.2

Final sales
Previous Greenbook
Priv. dom. final purch.
Previous Greenbook

5.9
5.9
7.5
7.5
1.3
1.3

3.8
3.8

Real GDP
Previous Greenbook

Business fixed invest.
Previous Greenbook
Equipment & software
Previous Greenbook
Nonres. structures
Previous Greenbook

2003

66
66
58
8

.6
.6
2.3
2.4
2.3
-.4

-688
-688
7.1
10.9

7.0
7.0
8.8
8.8
1.7
1.7

6.6
6.6

3.5
3.5
5.5
3.0
3.4

2.8
2.8
4.2
4.2

3.1
3.1

2004

50
50
50
0

.7
.7
1.2
.4
2.6
.4

-723
-723
6.7
5.2

4.4
4.4
6.1
6.1
-.1
-.1

5.3
5.3

2.7
2.7
2.1
3.3
2.6

2.7
2.7
3.1
3.1

2.7
2.7

2005

59
59
63
-4

1.5
1.5
2.2
4.4
-2.3
1.2

-729
-729
10.2
4.1

7.8
7.8
6.0
6.0
13.0
13.0

-15.7
-15.7

3.3
3.3
6.3
3.2
2.8

2.8
2.8
2.5
2.5

2.4
2.4

2006

19
19
20
-1

2.5
2.5
3.4
2.6
5.2
1.9

-648
-648
10.2
.9

7.9
7.9
3.2
3.2
18.9
18.9

-20.5
-20.5

2.0
2.0
4.6
1.5
1.7

2.7
2.7
1.4
1.4

2.5
2.5

2007

-26
-26
-20
-5

3.0
3.0
8.9
9.5
7.5
-.3

-494
-494
-3.4
-6.8

-6.0
-6.0
-10.7
-10.7
3.2
3.2

-21.0
-21.0

-1.8
-1.8
-11.8
-2.9
.3

-1.4
-1.4
-3.2
-3.2

-1.9
-1.9

2008

-116
-114
-119
2

2.0
2.5
4.8
4.3
5.8
.3

-352
-350
-4.1
-9.5

-16.1
-17.4
-10.8
-11.7
-25.1
-27.0

-13.0
-15.5

.9
.7
2.6
.9
.7

-.2
-.5
-1.9
-2.3

-.3
-.5

2009

-9
-1
-14
3

1.7
1.6
2.5
2.3
2.9
1.1

-342
-357
8.7
7.0

5.7
5.0
10.0
9.8
-3.2
-4.7

10.0
12.9

2.3
2.9
9.1
2.0
1.4

2.7
2.9
2.9
3.4

3.4
3.5

2010

73
75
71
3

.9
1.0
1.0
.2
2.6
.8

-349
-381
8.8
7.7

9.5
9.9
13.6
14.3
.3
-.2

22.6
25.3

3.4
3.6
10.9
3.1
2.3

3.9
4.1
4.7
5.0

4.4
4.5

2011

October 29, 2009
Changes in Real Gross Domestic Product and Related Items
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

Item

Class II FOMC
Restricted (FR)

I-31

Q1

.4
.4
.3
.3
-.1
-1.3
-1.3
-5.3
-5.3
-3.0
-3.0
-2.3
-2.3
2.6
2.6
-4.0
6.6
-.5
-.5
-.3
-.3
-.1
-.2

Final sales
Previous Greenbook
Priv. dom. final purch.
Previous Greenbook

Personal cons. expend.
Previous Greenbook
Durables
Nondurables
Services

Residential investment
Previous Greenbook

Business fixed invest.
Previous Greenbook
Equipment & software
Previous Greenbook
Nonres. structures
Previous Greenbook

Net exports
Previous Greenbook
Exports
Imports

Gov’t. cons. & invest.
Previous Greenbook
Federal
Defense
Nondefense
State & local
-1.4
-1.5
-1.5
.1

1.3
1.3
.9
.7
.2
.5

1.7
1.6
-.5
2.1

-1.0
-1.1
-.3
-.4
-.7
-.7

-.7
-.7

-.6
-.6
-.4
-.3
.1

.7
.5
-2.3
-2.4

-.7
-1.0

Q2

-.4
-.4
.1
.3
-.4
-.7

.5
.1

2.4
1.6
1.5
.3
.6

2.4
1.5
2.5
1.3

3.4
2.5

Q3

.9
1.0
.9
.0

.5
.4
.6
.4
.2
-.1

-.6
-.2
1.5
-2.0

2009

2.3
2.8
2.2
.1

.4
.9
.4
.1
.3
.0

.1
-.1
1.0
-.9

-.6
-1.1
.2
-.2
-.8
-.9

.0
.1

.5
.6
-.6
.3
.8

.4
.4
-.1
-.4

2.8
3.2

Q4

.7
.6
.7
.0

.6
.6
.5
.3
.3
.1

-.1
-.3
.9
-1.0

.1
.0
.4
.3
-.3
-.3

.2
.2

1.7
1.8
.7
.4
.6

2.5
2.2
2.0
1.9

3.2
2.8

Q1

.2
.1
.2
.0

.5
.4
.3
.1
.2
.1

.2
.0
.9
-.8

.5
.4
.6
.6
-.1
-.2

.2
.3

1.7
2.0
.8
.3
.6

3.0
3.1
2.4
2.7

3.2
3.2

Q2

1.0
.8
1.0
.0

.2
.2
.0
.1
-.1
.2

-.1
-.3
1.0
-1.1

.6
.6
.7
.7
.0
-.1

.2
.4

1.5
2.1
.5
.3
.8

2.5
3.0
2.4
3.1

3.5
3.8

Q3

2010

.9
.8
.9
.0

.1
.1
.0
.0
.0
.2

.0
-.2
1.1
-1.1

.9
.8
.8
.8
.1
.0

.3
.4

1.7
2.3
.6
.3
.8

3.0
3.4
2.9
3.5

3.9
4.2

Q4

.8
.8
.8
.0

.2
.2
.1
.0
.1
.1

-.3
-.2
1.0
-1.3

.9
.8
.8
.8
.1
.0

.4
.5

2.1
2.3
.7
.4
1.0

3.4
3.6
3.4
3.6

4.2
4.4

Q1

.5
.4
.5
.0

.2
.2
.1
.0
.1
.1

.0
-.2
1.0
-1.0

.8
.9
.8
.9
.0
.0

.6
.6

2.3
2.5
.7
.5
1.1

3.9
4.1
3.7
4.0

4.4
4.5

.3
.4
.3
.0

.2
.2
.1
.0
.1
.1

-.1
-.2
1.0
-1.1

1.0
.9
1.0
.9
.0
.0

.6
.7

2.5
2.6
.9
.5
1.2

4.2
4.2
4.1
4.1

4.5
4.6

Q3

2011
Q2

Contributions to Changes in Real Gross Domestic Product
(Percentage points, annual rate except as noted)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.

-2.4
-2.4
-2.4
.1

-4.1
-4.1
-6.1
-6.1

Real GDP
Previous Greenbook

Change in bus. inventories
Previous Greenbook
Nonfarm
Farm

-6.4
-6.4

Item

Class II FOMC
Restricted (FR)

.3
.1
.3
.0

.1
.2
.0
.0
.1
.1

.0
-.1
1.1
-1.1

.8
.9
.8
1.0
.0
.0

.8
.8

2.5
2.7
.8
.5
1.2

4.2
4.6
4.1
4.4

4.5
4.6

Q4

-.1
.0
-.2
.1

.4
.5
.4
.2
.1
.0

1.0
1.0
-.5
1.5

-1.8
-2.0
-.8
-.8
-1.1
-1.1

-.4
-.5

.7
.5
.2
.1
.3

-.2
-.5
-1.6
-1.9

-.3
-.5

20091

.7
.6
.7
.0

.3
.3
.2
.1
.1
.1

.0
-.2
1.0
-1.0

.5
.5
.6
.6
-.1
-.1

.2
.3

1.7
2.0
.6
.3
.7

2.8
2.9
2.4
2.8

3.4
3.5

20101

.5
.4
.5
.0

.2
.2
.1
.0
.1
.1

-.1
-.2
1.0
-1.1

.9
.9
.9
.9
.0
.0

.6
.7

2.4
2.5
.8
.5
1.1

3.9
4.1
3.8
4.1

4.4
4.5

20111

October 29, 2009

I-32

Q1

.3
.3
-4.7
-4.7
-5.0
-5.0
-9.4
-9.4

Nonfarm business sector
Output per hour
Previous Greenbook
Compensation per hour
Previous Greenbook
Unit labor costs
Previous Greenbook

Core goods imports chain-wt. price index3
Previous Greenbook3
-2.3
-2.4

7.0
6.6
.4
.4
-6.2
-5.8

.7
.7

1.3
1.3
2.4
2.4

1.4
1.3
-2.0
-2.2
-3.6
-3.6
2.0
2.0

.0
.0

Q2

1.0
3.5

7.2
5.2
1.9
1.8
-5.0
-3.2

1.7
1.7

3.6
3.6
1.5
1.5

2.8
2.9
41.1
39.5
-2.1
-1.5
1.4
1.5

.8
.7

Q3

2009

4.4
3.5

4.2
2.9
1.6
1.6
-2.5
-1.2

1.6
1.6

2.6
1.8
1.5
1.5

2.0
1.4
20.3
4.9
-.8
1.8
1.2
1.2

.3
1.0

Q4

2.6
2.0

2.4
1.4
1.6
1.6
-.8
.3

1.7
1.7

2.3
1.6
1.2
1.2

1.8
1.4
15.2
6.0
1.3
1.7
1.0
1.1

1.7
1.4

Q1

1.4
1.3

.8
1.4
1.7
1.7
.9
.3

1.7
1.7

1.8
1.7
1.1
1.2

1.5
1.4
7.8
6.2
1.5
1.6
1.1
1.1

1.3
1.2

Q2

1.0
1.0

.6
1.1
1.8
1.8
1.2
.7

1.8
1.8

1.5
1.5
1.2
1.2

1.3
1.3
4.5
4.5
1.5
1.5
1.1
1.1

1.2
1.1

Q3

2010

Changes in Prices and Costs
(Percent, annual rate except as noted)

1. Change from fourth quarter of previous year to fourth quarter of year indicated.
2. Private-industry workers.
3. Core goods imports exclude computers, semiconductors, oil, and natural gas.

.7
.7

-2.4
-2.4
1.5
1.5

ECI, hourly compensation2
Previous Greenbook2

Previous Greenbook
Ex. food & energy
Previous Greenbook

CPI

-1.5
-1.5
-36.7
-36.7
-1.1
-1.1
1.1
1.1

GDP chain-wt. price index
Previous Greenbook

PCE chain-wt. price index
Previous Greenbook
Energy
Previous Greenbook
Food
Previous Greenbook
Ex. food & energy
Previous Greenbook

1.9
1.9

Item

Class II FOMC
Restricted (FR)

1.0
1.0

.7
1.3
1.9
1.9
1.3
.6

1.9
1.9

1.4
1.3
1.2
1.2

1.2
1.2
3.7
3.5
1.0
1.0
1.1
1.1

1.1
1.1

Q4

1.0
1.0

.7
1.1
2.0
2.0
1.3
.9

2.0
2.0

1.3
1.2
1.1
1.1

1.1
1.1
3.2
2.8
.7
.7
1.0
1.0

1.2
1.2

Q1

1.0
1.0

.8
1.6
2.0
2.0
1.2
.4

2.0
2.0

1.2
1.1
1.1
1.1

1.0
1.0
2.3
2.0
.7
.7
1.0
1.0

1.1
1.1

Q2

1.0
1.0

.9
1.6
2.1
2.1
1.2
.5

2.1
2.1

1.2
1.1
1.1
1.1

1.0
1.0
2.1
1.9
.7
.7
1.0
1.0

1.0
1.0

Q3

2011

1.0
1.0

.9
1.5
2.1
2.1
1.2
.6

2.1
2.1

1.2
1.1
1.2
1.1

1.0
1.0
2.0
1.8
.7
.7
1.0
1.0

1.0
1.0

Q4

-1.7
-1.4

4.6
3.7
-.2
-.3
-4.7
-3.8

1.2
1.2

1.3
1.1
1.7
1.7

1.1
1.0
1.3
-2.4
-1.9
-1.1
1.4
1.4

.7
.9

20091

1.5
1.3

1.1
1.3
1.8
1.8
.7
.5

1.8
1.8

1.7
1.5
1.2
1.2

1.4
1.3
7.7
5.0
1.3
1.5
1.1
1.1

1.3
1.2

20101

1.0
1.0

.8
1.4
2.1
2.1
1.2
.6

2.0
2.0

1.2
1.1
1.1
1.1

1.0
1.0
2.4
2.1
.7
.7
1.0
1.0

1.1
1.1

20111

October 29, 2009

I-33

1.9
1.9
8.6
8.6
3.2
3.2
1.5
1.5
2.0
2.0
1.2
1.2

PCE chain-wt. price index
Previous Greenbook
Energy
Previous Greenbook
Food
Previous Greenbook
Ex. food & energy
Previous Greenbook

CPI

5.0
5.0
5.7
5.7
.6
.6
1.6
1.6

Nonfarm business sector
Output per hour
Previous Greenbook
Compensation per hour
Previous Greenbook
Unit labor costs
Previous Greenbook

Core goods imports chain-wt. price index2
Previous Greenbook2
3.6
3.6

1.5
1.5
3.4
3.4
1.9
1.9

3.8
3.8

3.4
3.4
2.2
2.2

3.0
3.0
18.6
18.6
2.7
2.7
2.2
2.2

3.2
3.2

2004

2.2
2.2

1.4
1.4
3.5
3.5
2.0
2.0

2.9
2.9

3.8
3.8
2.1
2.1

3.3
3.3
21.5
21.5
1.5
1.5
2.3
2.3

3.5
3.5

2005

1. Private-industry workers.
2. Core goods imports exclude computers, semiconductors, oil and natural gas.

4.0
4.0

ECI, hourly compensation1
Previous Greenbook1

Previous Greenbook
Ex. food & energy
Previous Greenbook

2.1
2.1

2003

2.5
2.5

.9
.9
4.5
4.5
3.5
3.5

3.2
3.2

1.9
1.9
2.7
2.7

1.9
1.9
-3.7
-3.7
1.7
1.7
2.3
2.3

2.9
2.9

2006

3.5
3.5

2.8
2.8
3.6
3.6
.7
.7

3.0
3.0

4.0
4.0
2.3
2.3

3.6
3.6
19.7
19.7
4.7
4.7
2.5
2.5

2.7
2.7

2007

3.8
3.8

.9
.9
2.6
2.6
1.6
1.6

2.4
2.4

1.5
1.5
2.0
2.0

1.7
1.7
-9.1
-9.1
6.8
6.8
2.0
2.0

1.9
1.9

2008

-1.7
-1.4

4.6
3.7
-.2
-.3
-4.7
-3.8

1.2
1.2

1.3
1.1
1.7
1.7

1.1
1.0
1.3
-2.4
-1.9
-1.1
1.4
1.4

.7
.9

2009

Changes in Prices and Costs
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

GDP chain-wt. price index
Previous Greenbook

Item

Class II FOMC
Restricted (FR)

1.5
1.3

1.1
1.3
1.8
1.8
.7
.5

1.8
1.8

1.7
1.5
1.2
1.2

1.4
1.3
7.7
5.0
1.3
1.5
1.1
1.1

1.3
1.2

2010

1.0
1.0

.8
1.4
2.1
2.1
1.2
.6

2.0
2.0

1.2
1.1
1.1
1.1

1.0
1.0
2.4
2.1
.7
.7
1.0
1.0

1.1
1.1

2011

October 29, 2009

I-34

Q1

-969 -1,294 -1,321 -1,212
-37
-25
-10
16
11.2
-2.5

Net federal saving8
Net state & local saving8

Gross national saving rate3
Net national saving rate3
9.7
-3.4

69.7
9.7

10.1
-3.0

-29.5
8.8

6.5
10.5

4.5
.3
2.6
3.2
3.8

.8
12.1

4.5
5.1
4.9
5.2
70.1
70.0

.7
9.9
9.6
-7.1
-6.5

Q2

10.2
10.6

4.7
3.2
3.4
3.4
4.0

.9
12.5

5.0
5.5
5.2
5.6
71.3
71.2

.5
9.7
9.4
-6.8
-6.1

Q3

6.2
10.6

5.0
3.7
3.7
3.7
4.1

.9
13.2

6.3
6.2
7.0
6.7
72.8
72.7

.7
9.5
9.2
-6.4
-5.6

Q4

10.1
-2.9

10.3
-2.6

10.7
-2.2

11.1
-1.7

-1,427 -1,359 -1,372 -1,370
51
55
59
63

105.5
10.4

5.0
3.6
1.9
3.6
3.8

.8
10.9

3.9
5.3
3.7
5.1
69.0
68.8

.0
10.1
9.8
-7.3
-6.8

Q1

2010

4.3
10.7

5.5
4.1
3.9
3.5
3.9

1.1
13.9

5.5
5.8
6.1
6.5
75.4
75.4

.9
8.9
8.5
-5.5
-4.7

Q2

5.7
10.7

5.6
4.4
4.2
3.7
4.0

1.2
14.7

7.2
7.0
8.2
7.9
77.1
77.0

1.0
8.6
8.2
-5.0
-4.2

Q3

5.7
10.7

5.5
4.3
4.3
3.8
4.1

1.3
15.2

8.2
8.7
9.3
9.9
79.0
79.0

1.0
8.2
7.9
-4.5
-3.6

Q4

11.3
-1.5

11.7
-1.0

11.9
-.7

12.2
-.4

-1,250 -1,217 -1,209 -1,183
17
15
6
1

6.7
10.7

5.4
1.0
1.8
3.3
3.8

1.0
13.6

5.9
6.0
6.6
6.6
74.2
74.0

.9
9.2
8.8
-6.0
-5.2

Q1

2011

1. Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise indicated.
2. Change, millions.
3. Percent, annual values are for the fourth quarter of the year indicated.
4. Percent difference between actual and potential GDP; a negative number indicates that the economy is operating below potential.
Annual values are for the fourth quarter of the year indicated.
5. Percent change, annual rate.
6. Level, millions, annual values are annual averages.
7. Percent change, annual rate, with inventory valuation and capital consumption adjustments.
8. Billions of dollars, annual values are annual averages.

10.1
-3.4

15.6
8.6

3.1
-.1
1.0
3.3
3.9

22.8
8.3

4.2
-3.5
-3.4
3.3
3.8

.7
9.9

6.4
5.0
6.2
4.9
68.1
67.7

Corporate profits7
Profit share of GNP3

-.8
3.8
3.9
4.9
5.0

.6
11.5

5.2
4.3
7.1
6.3
66.8
66.6

-.5
10.1
9.9
-7.6
-6.9

-4.6
.2
.2
3.7
3.7

.5
9.6

-10.3
-10.5
-8.7
-9.0
65.4
65.3

-.9
9.6
9.6
-7.6
-7.2

Q4

Income and saving
Nominal GDP5
Real disposable pers. income5
Previous Greenbook5
Personal saving rate3
Previous Greenbook3

Industrial production5
Previous Greenbook5
Manufacturing industr. prod.5
Previous Greenbook5
Capacity utilization rate - mfg.3
Previous Greenbook3

-1.5
9.2
9.2
-7.8
-7.3

Q3

.5
9.5

-19.0
-19.0
-22.0
-22.0
66.7
66.7

Employment and production
Nonfarm payroll employment2
Unemployment rate3
Previous Greenbook3
GDP gap4
Previous Greenbook4

Q2

2009

Other Macroeconomic Indicators

Housing starts6
Light motor vehicle sales6

-2.1
8.1
8.1
-7.0
-6.6

Item

Class II FOMC
Restricted (FR)

26.5
10.6

4.8
2.7
2.9
3.7
4.1

.8
12.2

4.9
5.5
5.2
5.6
72.8
72.7

2.0
9.5
9.2
-6.4
-5.6

20101

5.6
10.7

5.5
3.4
3.6
3.8
4.1

1.2
14.4

6.7
6.9
7.5
7.7
79.0
79.0

3.9
8.2
7.9
-4.5
-3.6

20111

10.1
-3.0

11.1
-1.7

12.2
-.4

-1,199 -1,382 -1,215
-14
57
9

14.2
8.8

.4
.1
.4
3.3
3.9

.6
10.1

-5.0
-5.6
-5.2
-5.7
68.1
67.7

-5.1
10.1
9.9
-7.6
-6.9

20091

October 29, 2009

I-35

-376
-39
14.3
2.5

Net federal saving7
Net state & local saving7

Gross national saving rate2
Net national saving rate2
14.3
2.7

-379
-8

21.9
10.5

6.4
3.5
3.5
3.6
3.6

2.0
16.8

3.0
3.0
3.6
3.6
77.3
77.3

2.0
5.4
5.4
-.7
-.8

2004

15.5
3.5

-283
26

19.6
11.8

6.3
.6
.6
1.5
1.5

2.1
16.9

2.6
2.6
3.8
3.8
79.2
79.2

2.4
4.9
4.9
-.3
-.4

2005

16.3
4.2

-204
51

3.7
11.6

5.4
4.6
4.6
2.5
2.5

1.8
16.5

1.8
1.8
1.2
1.2
79.0
79.0

2.1
4.4
4.4
-.3
-.4

2006

13.8
1.6

-236
22

-5.7
10.3

5.3
1.0
1.0
1.5
1.5

1.4
16.1

1.8
1.8
1.9
1.9
78.7
78.7

1.2
4.8
4.8
-.4
-.5

2007

12.2
-.7

-643
-40

-25.1
7.8

.1
.3
.3
3.8
3.8

.9
13.1

-6.7
-6.7
-8.7
-8.7
70.9
70.9

-2.3
6.9
6.9
-4.8
-4.6

2008

10.1
-3.0

-1199
-14

14.2
8.8

.4
.1
.4
3.3
3.9

.6
10.1

-5.0
-5.6
-5.2
-5.7
68.1
67.7

-5.1
10.1
9.9
-7.6
-6.9

2009

11.1
-1.7

-1382
57

26.5
10.6

4.8
2.7
2.9
3.7
4.1

.8
12.2

4.9
5.5
5.2
5.6
72.8
72.7

2.0
9.5
9.2
-6.4
-5.6

2010

12.2
-.4

-1215
9

5.6
10.7

5.5
3.4
3.6
3.8
4.1

1.2
14.4

6.7
6.9
7.5
7.7
79.0
79.0

3.9
8.2
7.9
-4.5
-3.6

1. Change, millions.
2. Percent, values are for the fourth quarter of the year indicated.
3. Percent difference between actual and potential GDP; a negative number indicates that the economy is operating below potential.
Values are for the fourth quarter of the year indicated.
4. Percent change.
5. Level, millions, values are annual averages.
6. Percent change, with inventory valuation and capital consumption adjustments.
7. Billions of dollars,values are annual averages.

12.2
9.1

1.8
16.6

Housing starts5
Light motor vehicle sales5

Corporate profits6
Profit share of GNP2

1.6
1.6
1.8
1.8
74.6
74.6

Industrial production4
Previous Greenbook4
Manufacturing industr. prod.4
Previous Greenbook4
Capacity utilization rate - mfg.2
Previous Greenbook2

6.0
3.9
3.9
3.6
3.6

-.1
5.8
5.8
-1.6
-1.7

Employment and production
Nonfarm payroll employment1
Unemployment rate2
Previous Greenbook2
GDP gap3
Previous Greenbook3

Income and saving
Nominal GDP4
Real disposable pers. income4
Previous Greenbook4
Personal saving rate2
Previous Greenbook2

2003

Item

2011

October 29, 2009

Other Macroeconomic Indicators
(Change from fourth quarter of previous year to fourth quarter of year indicated, unless otherwise noted)

Class II FOMC
Restricted (FR)

I-36

-706
1.3
1.0
1.0

-491

-1099

-563

1.8
0.8
0.8

1.0
0.9

0.7

-844

-1377

2348
3691
1052
701
351
2639
-1343
165

250

1499
25
-70

2192
3646
-1454
-1419
-1547
92

-0.2
-0.0

-0.2

-838

-1292

2529
3790
1089
723
366
2701
-1262
167

250

1207
0
-20

2473
3660
-1187
-1149
-1312
125

0.0
0.0

1.1

-639

-999

2251
3220
954
643
311
2266
-969
152

269

465
98
-114

442
891
-449
-449
-468
19

Q1a

0.7
0.7

1.5

-875

-1330

2211
3506
979
663
316
2527
-1294
159

318

338
-49
16

599
904
-305
-305
-382
77

275

379
43
-90

516
847
-331
-345
-320
-11

Q3

0.3
0.2

-0.2

-846

-1356

2217
3538
1003
680
322
2535
-1321
162

2009
Q2a

0.3
0.3

-0.9

-705

-1246

2369
3581
1020
684
336
2561
-1212
162

85

220
191
-34

499
876
-378
-423
-420
42

Q4

2010
Q2

Q3

240

241
15
-5

665
916
-251
-228
-321
70

250

347
-10
-5

560
892
-332
-313
-323
-9

235

349
15
-5

562
922
-359
-352
-408
49

Q4

0.3
0.2

1.3

-920

-1462

0.2
0.2

-0.4

-861

-1394

0.1
0.1

0.1

-888

-1407

0.0
0.1

0.1

-903

-1403

Seasonally adjusted annual rates
2310
2341
2373
2410
3737
3700
3746
3781
1052
1065
1070
1072
701
707
712
714
351
358
358
357
2685
2635
2676
2709
-1427
-1359
-1372
-1370
164
166
167
167

255

690
-170
-26

468
962
-494
-455
-482
-12

Not seasonally adjusted

Q1

-0.2
-0.1

-0.6

-811

-1281

2527
3776
1088
723
365
2689
-1250
166

220

396
15
-5

526
932
-406
-395
-410
4

Q1

-0.0
-0.0

-0.1

-807

-1247

2567
3784
1095
725
369
2689
-1217
167

240

172
-20
-5

756
903
-147
-136
-223
76

Q2

250

290
-10
-5

629
904
-275
-266
-271
-4

Q3

-0.1
-0.1

0.1

-832

-1238

2611
3820
1102
728
373
2719
-1209
167

2011

-0.2
-0.2

0.0

-841

-1210

2655
3838
1107
730
378
2731
-1183
166

235

309
15
-5

603
922
-319
-317
-366
47

Q4

October 29, 2009

1. Budget receipts, outlays, and surplus/deficit include corresponding social security (OASDI) categories. The OASDI surplus and the Postal Service surplus are excluded from the on-budget
surplus and shown separately as off-budget, as classified under current law.
2. Other means of financing are checks issued less checks paid, accrued items, and changes in other financial assets and liabilities.
3. Gross saving is the current account surplus plus consumption of fixed capital of the general government as well as government enterprises.
4. HEB is gross saving less gross investment (NIPA) of the federal government in current dollars, with cyclically sensitive receipts and outlays adjusted to the staff’s measure of potential output and the
NAIRU. Quarterly figures for change in HEB and FI are not at annual rates. The sign on Change in HEB, as a percent of nominal potential GDP, is reversed. FI is the weighted difference of discretionary
changes in federal spending and taxes in chained (2005) dollars, scaled by real GDP. The annual FI estimates are on a calendar year basis. Also, for FI and the change in HEB, positive values indicate
aggregate demand stimulus.
a--Actual

Fiscal indicators4
High-employment (HEB)
surplus/deficit
Change in HEB, percent
of potential GDP
Fiscal impetus (FI),
percent of GDP
Previous Greenbook

275

2282
3346
973
659
314
2374
-1065
158

372

Cash operating balance,
end of period

1743
96
-423

2105
3522
-1417
-1431
-1554
137

2011

Staff Projections of Federal Sector Accounts and Related Items
(Billions of dollars except as noted)

2010

Fiscal year
2009a

2534
3074
914
620
294
2160
-540
141

768
-296
-13

Means of financing
Borrowing
Cash decrease
Other2

NIPA federal sector
Receipts
Expenditures
Consumption expenditures
Defense
Nondefense
Other spending
Current account surplus
Gross investment
Gross saving less gross
investment3

2524
2983
-459
-459
-642
183

2008a

Unified budget
Receipts1
Outlays1
Surplus/deficit1
Previous Greenbook
On-budget
Off-budget

Item

Class II FOMC
Restricted (FR)

I-37

.2
-.8
.9
2.3

5.9
4.0
5.9
5.3

5.4
3.3
8.2
6.3
4.1
4.5
4.1
2.8
7.3
5.3
5.2
5.3
4.9
5.3
5.1
5.2

2008
2009
2010
2011

Quarter
2008:1
2
3
4
2009:1
2
3
4
2010:1
2
3
4
2011:1
2
3
4

2.3
-.5
-2.5
-1.8
-.1
-1.4
.9
1.0
.5
.5
.6
.7
.8
.9
1.0
1.1

-.7
.1
.6
1.0

13.5
13.2
11.1
6.6

Home
mortgages

Households

4.5
4.1
.6
-2.9
-3.7
-6.5
-6.8
-5.2
-2.5
-.4
1.1
3.0
4.5
6.0
7.3
8.4

1.6
-5.4
.3
6.7

5.6
4.5
4.1
5.7

Consumer
credit

7.8
6.4
5.1
1.7
-.0
-1.8
-1.5
.1
.8
1.7
2.3
2.8
2.8
3.3
3.2
3.2

5.3
-.8
1.9
3.2

6.3
8.8
10.5
13.4

Business

3.6
.9
3.3
-.2
4.5
3.6
5.4
7.0
4.2
4.1
4.2
4.2
4.0
4.0
3.9
3.9

1.9
5.2
4.2
4.0

7.4
10.2
8.2
9.3

State and local
governments

Change in Debt of the Domestic Nonfinancial Sectors
(Percent)

8.1
5.9
39.2
37.0
22.6
28.2
20.7
10.5
30.1
18.0
15.6
14.4
12.3
12.7
11.3
11.2

24.2
22.1
21.0
12.4

9.0
7.0
3.9
4.9

Federal
government

1.0
3.5
1.4
-5.4
-4.6
-.8
4.2
3.1
5.0
4.5
4.7
5.0
5.4
5.5
5.6
5.5

2.6.3 FOF

.1
.4
4.8
5.5

6.4
6.3
5.4
5.3

Memo:
Nominal
GDP

October 29, 2009

Note. Quarterly data are at seasonally adjusted annual rates.
1. Data after 2009:Q2 are staff projections. Changes are measured from end of the preceding period to end of period indicated except for annual nominal
GDP growth, which is calculated from Q4 to Q4.

2.9
.2
-.5
-1.8
-1.1
-1.7
-.3
.1
.3
.7
1.0
1.5
1.8
2.1
2.5
2.8

11.1
11.1
10.1
6.6

Total

8.9
9.5
9.0
8.7

Total

Year
2004
2005
2006
2007

Period 1

Class II FOMC
Restricted (FR)

I-38

26.6
-68.5
40.2
127.4
231.4
-335.1
566.6
41.6
212.7

Households
Net borrowing 2
Home mortgages
Consumer credit
Debt/DPI (percent) 3

Business
Financing gap 4
Net equity issuance
Credit market borrowing

State and local governments
Net borrowing
Current surplus 5

415.1

-465.7

1402.9
1402.9
1462.2

116.8
222.9

-178.8
11.1
-89.9

-103.8
10.7
-140.9
126.3

240.1
9.3

1338.0
11.1
1326.9

2009

77.4

1627.7
1627.7
1436.1

99.8
274.9

-207.0
-75.0
209.4

118.8
61.7
7.4
122.5

242.2
13.9

1980.7
-75.0
2055.7

2010

89.3

1167.2
1167.2
1147.2

97.8
232.3

-74.7
-100.0
356.9

318.7
102.1
165.0
119.5

242.9
12.4

1840.5
-100.0
1940.5

2011

-774.8

1486.6
378.7
330.8

123.1
204.5

-284.3
114.5
-167.5

-39.1
95.0
-173.0
125.7

241.2
9.8

1517.6
114.5
1403.1

Q3

Q4

-70.9

793.7
220.4
377.6

161.8
231.2

-239.2
-80.0
12.0

16.2
104.5
-128.8
125.1

241.4
6.8

903.7
-80.0
983.7

2009

-399.2

2337.5
690.4
493.9

97.8
267.2

-235.5
-20.0
87.2

35.2
47.5
-60.7
123.5

241.5
17.5

2537.7
-20.0
2557.7

Q1

104.0

1504.2
241.1
251.0

97.8
272.1

-228.9
-80.0
188.2

97.0
57.0
-8.9
123.1

242.7
12.8

1807.2
-80.0
1887.2

2.6.4 FOF

Q2

Q3

-610.5

1359.2
346.8
331.8

101.8
277.3

-202.3
-100.0
253.0

143.6
66.5
26.7
122.0

243.0
12.5

1757.5
-100.0
1857.5

2010

Flow of Funds Projections: Highlights
(Billions of dollars at seasonally adjusted annual rates except as noted)

Note. Data after 2009:Q2 are staff projections.
1. Average debt levels in the period (computed as the average of period-end debt positions) divided by nominal GDP.
2. Includes change in liabilities not shown in home mortgages and consumer credit.
3. Average debt levels in the period (computed as the average of period-end debt positions) divided by disposable personal income.
4. For corporations, excess of capital expenditures over U.S. internal funds.
5. NIPA state and local government saving plus consumption of fixed capital and net capital transfers.
n.s.a. Not seasonally adjusted.

Depository institutions
Funds supplied

1239.2
1239.2
680.5

226.0
13.0

Borrowing indicators
Debt (percent of GDP) 1
Borrowing (percent of GDP)

Federal government
Net borrowing
Net borrowing (n.s.a.)
Unified deficit (n.s.a.)

1538.9
-335.1
1874.0

2008

Domestic nonfinancial sectors
Net funds raised
Total
Net equity issuance
Net debt issuance

Category

Class II FOMC
Restricted (FR)

1215.4

1309.8
349.5
359.5

101.8
283.1

-161.5
-100.0
309.3

199.4
76.0
72.5
120.9

243.2
12.7

1820.3
-100.0
1920.3

Q4

-77.9

1160.0
396.0
406.0

97.8
237.9

-121.4
-100.0
320.5

248.1
85.5
111.7
120.8

243.0
11.9

1726.4
-100.0
1826.4

Q1

-180.2

1228.0
172.0
147.0

97.8
236.8

-86.4
-100.0
375.1

294.4
95.0
148.1
119.8

242.9
12.9

1895.3
-100.0
1995.3

Q2

Q3

411.7

1132.0
290.0
275.0

97.8
229.2

-58.2
-100.0
364.4

346.3
109.2
185.3
118.9

242.7
12.3

1840.5
-100.0
1940.5

2011

203.7

1148.8
309.2
319.2

97.8
225.5

-32.9
-100.0
367.5

386.0
118.7
215.1
118.2

242.6
12.6

1900.0
-100.0
2000.0

Q4

October 29, 2009

I-39

(Page I-40 is intentionally blank.)

Class II FOMC—Restricted (FR)

International Developments
Economic recovery abroad is strengthening and becoming more broadly based. While
the emerging Asian economies are still outperforming the rest of the world, the change in
real GDP in the other emerging market economies (EMEs) as well as in the advanced
foreign economies (AFEs) is estimated to have turned positive in the third quarter, with
Latin America showing a particularly hefty rebound. Overall, trade-weighted foreign
economic growth is estimated to have been nearly 4½ percent in the third quarter. We
expect some cooling in the pace of expansion in the EMEs in the current quarter, bringing
average foreign growth to about 3½ percent. Foreign economic growth is expected to
continue at around 3½ percent next year and to pick up to 4 percent in 2011.
However, there are significant risks to this forecast. It is not yet clear to what extent the
recovery is self-sustaining, particularly given the important role that policy stimulus has
played in the revival of demand so far. Performance remains mixed across the AFEs,
with the U.K. economy continuing to contract in the third quarter. External demand
played a key role in the rapid growth of many EMEs prior to the crisis, and it remains to
be seen how durable their recoveries will be if growth of exports to advanced economies
is less vigorous over the forecast period.
Following earlier declines induced by falling commodity prices, consumer prices
increased in most countries during the third quarter (with the continued notable exception
of Japan). We expect foreign inflation to average about 2 percent in the current quarter
and to ease a bit going forward in response to more muted increases in commodity prices
and sizeable continued economic slack.
Financial conditions abroad are generally little changed on balance since September,
although equity prices have moved lower in some key foreign economies. The broad real
dollar is down slightly since the last forecast. The dollar is expected to depreciate at an
average rate of around 2 percent over the forecast period, similar to the previous
projection.
The broadening recovery, along with a greater-than-expected reduction in U.S. oil
inventories, also appears to have been a factor in the approximately $9 per barrel jump in
the spot price of West Texas Intermediate (WTI) crude oil to $77.46 since mid-October.
We project oil prices will move up to about $86 by the end of the forecast period, in line
with the path of futures prices. Similarly, prices of other commodities, which also have
rebounded this year, are projected to continue to rise, but at slower rates, going forward.

I-41

I-42

Part 1: Summary and Outlook, October 29, 2009

Class II FOMC—Restricted (FR)

Summary of Staff Projections
(Percent change from end of previous period, annual rate, except as noted)
Projection
2009

Indicator

2009
2010

2011

Q1

Q2

Q3

Q4

Previous Greenbook

-8.6
-8.6

1.7
1.7

4.4
3.8

3.6
3.2

3.6
3.5

4.1
4.1

Foreign CPI
Previous Greenbook

-1.0
-1.0

1.0
1.0

1.5
1.7

2.0
1.7

1.7
1.6

1.8
1.8

Foreign output

Contribution to growth
(percentage points)
U.S. net exports
Previous Greenbook

2.6
2.6

1.6
1.6

-.6
-.2

.1
-.1

.0
-.2

-.1
-.2

Note: Changes for years measured as Q4/Q4.

We estimate that the contribution of net exports to real GDP growth was about negative
½ percentage point in the third quarter, with exports and imports both up sharply
following second-quarter declines. In the fourth quarter, we expect net exports to add
slightly to growth as the improvement in foreign activity and previous declines in the
dollar provide substantial support to exports. For the remainder of the forecast period, we
expect export growth of nearly 9 percent at an annual rate and import growth averaging
about 7½ percent. These increases are considerably faster than projected GDP growth
both here and abroad, consistent with the typical pattern during cyclical recoveries.
Although export growth is projected to outpace that of imports, net exports are expected
to make a very small negative contribution to GDP growth over this period because of the
higher level of imports. Relative to the September Greenbook, our projection for the
contribution is a little less negative on average, as a result of the slightly lower path for
the dollar.
International Financial Markets
Since the September Greenbook, the dollar has declined about ½ percent on net against
the major foreign currencies. During the first several weeks of the period an apparent
increase in risk appetite and better prospects for global economic activity, combined with
some stabilization in funding conditions, seemed to foster further unwinding of the crisis-

International Developments

Class II FOMC—Restricted (FR) I-43

induced demand for dollars. Later in the period, however, the dollar reversed part of its
decline, as weaker-than-expected U.S. data on consumer confidence and home sales
sparked some concern about the strength of the recovery. On balance, the dollar was
little changed against most of the major foreign currencies, but it fell 4½ percent versus
the Australian dollar, as the Reserve Bank of Australia became the first G-20 central bank
to hike policy rates. The dollar depreciated 1 percent against the currencies of our other
important trading partners despite intervention by several Asian and Latin American
central banks to stem appreciation of their currencies. All told, these developments left
the starting point for the projected path of the staff’s broad real index of the dollar down
nearly 1 percent relative to the September Greenbook. We project that the broad real
value of the dollar will depreciate 1½ percent next year and about 2¾ percent in 2011.
The greater depreciation for 2011 partly reflects an expected step-up in the rate of
appreciation of the Chinese renminbi.
Expected policy rates 12 months from now have risen broadly in the major advanced
foreign economies despite indications that monetary policy in most countries will remain
accommodative for some time. The Bank of England kept its policy rate and its assetpurchase program unchanged, as expected. Although the October Monetary Policy
Committee minutes were seen by market participants as suggesting earlier rate increases
than had been anticipated, as well as a diminished likelihood of an increase in asset
purchases, last week’s lower-than-expected GDP data pared back such expectations. The
ECB left its policy rate unchanged at 1 percent at its last meeting, and its second
12-month long-term refinancing operation was again conducted at a fixed rate of
1 percent, temporarily damping market expectations for rate increases within the next
year. The Bank of Canada kept its key policy rate unchanged at its October meeting, and
the Bank reiterated its intention to maintain its stance through mid-2010.
Ten-year sovereign yields in Europe changed little on net and increased about 10 basis
points in Japan and Canada. Broad stock indexes were flat in the United Kingdom and
declined from 2 to 6 percent in the other AFEs. Stock prices in Mexico and Korea also
declined on net over the period, but rose in most of the other major EMEs. CDS spreads
on emerging market sovereign debt edged a bit lower.
Advanced Foreign Economies
Recent indicators for the AFEs are consistent with a moderate but uneven recovery of
economic activity in the third quarter. Industrial production and trade volumes
rebounded from first-half lows in most countries, with exports providing a particularly

I-44

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

large boost to the Japanese economy. Increases in new orders and purchasing managers’
indexes point to some momentum in the manufacturing sector, and retail sales data
suggest some improvement in consumption spending, which has been supported by fiscal
stimulus and a modest rise in consumer confidence. Labor market indicators show
continued stress in the euro area and Japan, but employment rose in both August and
September in Canada, where domestic demand shows signs of recovery. In the United
Kingdom, the preliminary estimate for GDP in the third quarter surprised on the
downside, with continued contraction at a 1½ percent rate; U.K. services output fell
despite strong retail sales and a marked rebound in services PMIs. For the AFEs in
aggregate, we estimate that GDP rose at a 1¾ percent annual rate in the third quarter after
five consecutive quarters of decline.
We project output growth to pick up to a 2½ percent rate in the fourth quarter, remain
there in 2010, and then rise to 3¼ percent in 2011. This path is only slightly stronger
than that in the previous Greenbook, as data have on balance confirmed our expectation
for a moderate recovery supported by stabilizing credit conditions, rebounding business
and consumer sentiment, and strengthening demand from the EMEs and the United
States.
After having dropped at an annual rate of ¾ percent in the first half of this year,
consumer prices in the AFEs are expected to rise around ¾ percent in the second half,
consistent with the projected path of oil and other commodity prices. For the remainder
of the forecast period, we project inflation to be around 1 percent. Despite significant
slack, we are not anticipating a substantial deceleration in prices, as core inflation has so
far been relatively stable (except in Japan, where it has fallen into negative territory) and
inflation expectations have remained well anchored.
We assume that major central banks will hold their policy rates unchanged at very low
levels through the remainder of this year and most of next year. The Bank of Canada is
expected to wait until late next year to begin raising its policy rate, consistent with its
conditional commitment to keep its policy rate at 25 basis points through 2010:Q2. The
Bank of England is expected to begin tightening soon thereafter, in early 2011. The ECB
is forecast to guide overnight rates, currently at around 35 basis points, back up toward its
1 percent policy rate during the next year and to begin raising this rate in 2011. In
contrast, the Bank of Japan is assumed to maintain its policy target at its current level,
which is near zero, throughout the forecast period.

International Developments

Class II FOMC—Restricted (FR) I-45

We expect fiscal stimulus to continue to boost economic growth in the second half of this
year across the major foreign economies but to have a minimal impact next year and to
subtract some from AFE growth in 2011.
Staff Projections for Foreign GDP Growth by Region
(Percent change from end of previous period, annual rate)
Projection
2009

Indicator

2009
2010

Q1

Q2

Q3

Q4

Advanced Foreign Economies -7.9

2011

Previous Greenbook

-7.8

-1.6
-1.5

1.8
2.1

2.5
2.1

2.6
2.5

3.2
3.2

Emerging Market Economies
Previous Greenbook

-9.6
-9.6

6.0
6.0

7.7
6.2

5.0
4.5

4.9
4.7

5.2
5.2

Note: Changes for years measured as Q4/Q4.

Emerging Market Economies
We estimate that economic growth in the EMEs picked up to a 7¾ percent pace in the
third quarter, somewhat higher than projected in the September Greenbook. Although
growth in emerging Asia moved down from its very rapid second-quarter pace, it did not
slow quite as much as we had anticipated. Meanwhile, the Latin American economies
are showing greater strength than previously projected.
Third-quarter GDP growth appears to have remained quite robust across emerging Asia.
Based on official data, we estimate that China’s real GDP grew at a 9¾ percent annual
rate in the third quarter, a sharp deceleration from the second-quarter pace but still above
trend. Korean real GDP increased at a 12 percent annual rate in the third quarter, as the
pace of inventory decumulation slowed and exports continued to rise. Singapore’s
preliminary GDP release suggests that real GDP grew at a 15 percent annual rate in the
third quarter. We continue to project that emerging Asia’s growth will ease to about
6 percent in the fourth quarter and beyond, as the Chinese authorities gradually withdraw
policy support and the temporary lift provided by the turn in the inventory cycle
dissipates.
Economic conditions have improved in Latin America. We estimate that the Mexican
economy rebounded at a 7¾ percent annual rate in the third quarter following a severe
contraction in the first half of the year. This estimate is higher than our projection in the

I-46

Class II FOMC—Restricted (FR)

Part 1: Summary and Outlook, October 29, 2009

September Greenbook, in line with stronger data on U.S. manufacturing production.
Brazil’s recovery, which began in the second quarter, has continued to be boosted by
strong consumption growth and job creation, and we expect this dynamism to persist. On
average, we project the Latin American economies to grow at a 5½ percent rate during
the second half of 2009, 1½ percentage points above our projection in the September
Greenbook. Thereafter, real GDP growth should slow to around 4¼ percent by the end of
the forecast period.
Consumer price inflation has continued to increase from low or negative rates in Asia. In
contrast, it has been receding from relatively high rates in Latin America, as the effects of
last year’s currency depreciations fade. We expect these trends to continue, with
aggregate quarterly inflation in the EMEs hovering at an annual rate of about 2½ percent
over the forecast period. This projection is little changed from the September
Greenbook.
Commodity Prices
After holding fairly steady around $70 per barrel for much of the intermeeting period, oil
prices began moving higher in mid-October. The spot price of WTI crude oil closed on
October 28 at $77.46 per barrel. The prices of futures contracts dated for delivery further
out also have moved up. Consistent with the path of futures prices, we currently project
that the spot price of WTI will rise to $86 per barrel by the end of next year. This
projection is nearly $9 per barrel higher, on average, over the forecast period than in the
September Greenbook.
While the magnitude of the recent price increase is somewhat surprising, it appears to
reflect continued improvement in the outlook for global economic activity. Additional
upward pressure on near-term futures prices may also be stemming from a series of
larger-than-expected U.S. inventory draws, which have pushed stocks at Cushing,
Oklahoma, the delivery point for WTI, down to levels not seen since late last year.
Nonfuel commodity prices have also moved up on average since the time of the
September Greenbook, continuing their rebound from earlier sharp declines. We
estimate that nonfuel commodity prices will rise at an annual rate of 11 percent in the
current quarter, up somewhat from the previous forecast, but still well below the
40 percent rates of increase seen in the previous two quarters. Going forward, we expect
only small further increases in commodity prices, consistent with readings from futures
markets.

International Developments

Class II FOMC—Restricted (FR) I-47

Prices of Internationally Traded Goods
Core import price inflation turned positive in the third quarter following three quarters of
decline, boosted by both a weaker dollar and the effect of increases in prices of
commodities on the cost of material-intensive imports. We expect core import prices to
rise at an annual rate of 4½ percent in the current quarter, reflecting continued dollar
depreciation as well as recent increases in commodity prices. Further out, we project
increases of about 1¼ percent on average in 2010 and 2011 as the dollar depreciates only
modestly and commodity prices flatten out.
Core export prices rose at an annual rate of 5.3 percent in the third quarter of this year,
partly reflecting the rebound in commodity prices. Prices for industrial supplies, capital
goods, and consumer goods rose, while prices of automotive and agricultural products
declined. We project core export prices to increase at around 4½ percent in the fourth
quarter, before decelerating to 2 percent in 2010 and to just above 1 percent in 2011,
consistent with the projected path for commodity prices.

Staff Projections of Selected Trade Prices
(Percent change from end of previous period, annual rate, except as noted)
Projection
2009

Trade category

2009
2010

2011

Q1

Q2

Q3

Q4

Imports
Core goods
Previous Greenbook

-9.4
-9.4

-2.3
-2.4

1.0
3.5

4.4
3.5

1.5
1.3

1.0
1.0

Oil (dollars per barrel)
Previous Greenbook

41.58
41.58

53.71
53.71

65.34
64.56

74.10
64.68

79.11
70.58

81.49
72.72

Exports
Core goods
Previous Greenbook

-12.5
-12.5

2.4
2.6

5.3
4.0

4.5
3.2

2.1
1.9

1.2
1.2

Note: Prices for core exports exclude computers and semiconductors. Prices for
core imports exclude computers, semiconductors, oil, and natural gas. Both prices
are on a national income and product account chain-weighted basis.
The price of imported oil for multiquarter periods is the price for the final quarter
of the period. Imported oil includes both crude oil and refined products.

I-48

Part 1: Summary and Outlook, October 29, 2009

Class II FOMC—Restricted (FR)

Trade in Goods and Services
Although August data were somewhat weaker than we had expected for both exports and
imports, the readings are still consistent with a strong cyclical rebound in trade in the
third quarter. We now estimate that real exports of goods and services rose nearly
15 percent at an annual rate in the third quarter, about 6 percentage points lower than in
the September Greenbook. We expect real exports to continue to recover over the
forecast period, increasing at an average annual rate of almost 9 percent. Projected
increases in exports are driven by recent and expected declines in the dollar, solid foreign
GDP growth, and a cyclical snapback in the ratio of trade to GDP. Beyond the current
quarter, this forecast is somewhat higher than in the September Greenbook, mainly due to
the lower path of the dollar.
Real imports of goods and services are estimated to have increased about 16 percent at an
annual rate in the third quarter, boosted notably by a sharp rebound in imports of
automotive products in July and August. This estimate is 2 percentage points lower than
in the September Greenbook. For the remainder of the forecast period, we expect imports
to grow about 7½ percent on average, supported by continued U.S. GDP growth and the
cyclical recovery in trade. This projection is about ½ percentage point lower than in the
previous Greenbook, owing in part to our lower path for the dollar.

Staff Projections for
Trade in Goods and Services
(Percent change from end of previous period, annual rate)
Projection
Measure

2009

2009
2010

2011

6.4
7.2

7.0
8.0

7.7
8.0

9.6
8.1

8.7
8.2

8.8
8.6

Q1

Q2

Q3

Q4

Real imports
Previous Greenbook

-36.4
-36.4

-14.7
-14.8

16.3
18.4

Real exports
Previous Greenbook

-29.9
-29.9

-4.1
-4.6

14.7
20.9

Note: Changes for years are measured as Q4/Q4.

International Developments

Class II FOMC—Restricted (FR) I-49

Alternative Simulations
We used a three-sector variant of the SIGMA model to examine two alternative
scenarios: a dollar risk-premium shock that causes a 10 percent depreciation of the broad
real dollar and a recovery in the EMEs that is stronger than we are currently projecting.
In the simulations, we assume that monetary policy in both the United States and an
aggregate AFE sector follows a Taylor rule subject to the zero lower bound constraint on
nominal interest rates, which are close to zero in the baseline. Nominal interest rates in
the third sector, an EME aggregate, are not near zero in the baseline, and monetary policy
is thus not similarly constrained from reducing policy rates if warranted.
Dollar depreciation. This shock, which occurs in 2009:Q4, causes the dollar to
depreciate 10 percent below baseline after a year, boosting growth of U.S. real GDP
¾ percentage point in 2010. Output rises both because U.S. exports become more
competitive abroad and because U.S. consumers substitute away from imports toward
domestically produced goods. Core PCE price inflation rises gradually in response to
higher import prices and greater resource utilization and peaks at ½ percentage point
above baseline in 2010:H1. Because the federal funds rate remains near zero through
2010, higher expected inflation causes short-term real interest rates to decline, raising
domestic demand and contributing to the rise in output. Policy rates begin rising in
2011:Q2, well before the 2012 liftoff embedded in our baseline. With higher policy rates
and some waning of the shock, the level of output gradually reverts toward baseline
beginning in 2012. The nominal trade balance as a percentage of GDP improves more
than 1 percentage point in 2011. In this simulation, the 10 percent depreciation of the
broad dollar is equally distributed across AFEs and EMEs.
Stronger EME demand. In this scenario, a demand shock in the EMEs beginning in
2009:Q4 raises EME growth 2 percentage points above baseline by the end of 2010. In
response, growth of U.S. real GDP increases about ½ percentage point in 2009:H2 and
slightly more in 2010. U.S. exports rise because of higher foreign activity and a modest
depreciation of the dollar. U.S. domestic demand also increases, spurred by a decline in
real interest rates given that the economy is at the zero lower bound. Core PCE price
inflation increases about ½ percentage point in 2009:H2 and ¼ percentage point in 2010,
reflecting both higher import prices due to dollar depreciation and greater resource
utilization.

I-50

Part 1: Summary and Outlook, October 29, 2009

Class II FOMC—Restricted (FR)

Alternative Scenario:
Dollar Depreciation
(Percent change from previous period, annual rate, except as noted)
2009

2010

Indicator and simulation

2011

2012-13

3.7
4.7
4.1

4.4
4.6
4.4

4.9
4.8
4.8

1.0
1.6
1.3

1.1
1.7
1.3

1.0
1.2
1.1

1.2
1.4
1.3

.1
.1
.1

.1
.1
.1

.1
.1
.1

.1
1.0
.5

3.5
4.1
3.8

-3.0
-2.8
-2.7

-3.0
-2.2
-2.6

-2.9
-1.7
-2.5

-2.9
-1.8
-2.6

-2.7
-1.9
-2.6

H2

H1

H2

U.S. real GDP
Baseline
Dollar Depreciation
Stronger EME Demand

3.1
3.2
3.6

3.2
3.8
4.0

U.S. PCE prices
(excluding food and energy)
Baseline
Dollar Depreciation
Stronger EME Demand

1.3
1.5
1.7

U.S. federal funds rate
(percent)
Baseline
Dollar Depreciation
Stronger EME Demand
U.S. trade balance
(percent share of GDP)
Baseline
Dollar Depreciation
Stronger EME Demand

Note: H1 is Q2/Q4; H2 is Q4/Q2. U.S. real GDP and U.S. PCE prices are the average rates over
the period. The federal funds rate and the trade balance are the values for the final quarter of the
period.

I-51

Evolution of the Staff Forecast

Current Account Balance
Percent of GDP

-2.0

-2.5
2011 -3.0

2010

-3.5
2009

-4.0
-4.5
-5.0
2008

-5.5
-6.0
-6.5

1/24

3/14

5/2

6/20

8/2

9/12 10/24 12/5

1/23

2007

3/13 4/23

6/18 7/30 9/10 10/22 12/10 1/22

3/12 4/22

2008
Greenbook publication date

6/17

8/6

9/16 10/29 12/9

-7.0

2009

Foreign Real GDP
Percent change, Q4/Q4

5

2011
4

2009

2010

3

2008

2
1
0
-1
-2

1/24

3/14

5/2

6/20

8/2

9/12 10/24 12/5

1/23

2007

3/13 4/23

6/18 7/30 9/10 10/22 12/10 1/22

3/12 4/22

2008
Greenbook publication date

6/17

8/6

9/16 10/29 12/9

-3

2009

Core Import Prices*
Percent change, Q4/Q4

2008

2010

2011

2009

1/24

3/14

5/2

6/20

2007

8/2

9/12 10/24 12/5

1/23

3/13 4/23

6/18 7/30 9/10 10/22 12/10 1/22

2008
Greenbook publication date
*Prices for merchandise imports excluding computers, semiconductors, oil, and natural gas.

3/12 4/22

6/17

2009

8/6

9/16 10/29 12/9

8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6

(Page I-52 is intentionally blank.)

October 29, 2009

-9.6
-2.7
0.5
6.5
-16.7
-21.2
-3.8

Emerging Market Economies
Asia
Korea
China
Latin America
Mexico
Brazil

5.0
5.7
3.8
10.0
4.5
4.7
4.5

3.3
2.5
2.4
1.6
2.4

2.5

3.6

4.7
5.8
3.8
8.8
3.7
3.5
4.0

3.1
2.1
1.9
1.6
2.1

2.3

3.3

4.8
5.8
4.4
8.2
4.0
4.0
4.0

3.1
2.1
2.5
2.0
2.2

2.6

3.5

5.0
5.9
4.4
8.2
4.2
4.2
4.0

3.3
2.0
2.8
2.3
2.4

2.7

3.7

5.2
6.1
4.4
8.5
4.4
4.5
4.0

3.3
2.0
3.0
2.6
2.7

2.9

3.9

5.1
6.0
4.4
8.6
4.3
4.5
4.0

3.8
2.0
3.0
2.7
2.8

3.1

4.0

5.2
6.0
4.4
8.7
4.3
4.5
4.0

3.8
2.0
3.0
2.8
3.0

3.2

4.1

5.2
6.1
4.4
8.8
4.3
4.5
4.0

3.9
2.0
3.2
3.0
3.5

3.3

4.1

5.2
6.0
4.4
8.8
4.3
4.5
4.0

3.9
2.0
3.2
3.0
3.6

3.3

4.1

0.0
0.1
-1.0
2.1
0.2
0.2

1.2
-0.1
3.0
1.0
0.8

0.9

1.0

1.8
-0.9
-2.2
1.5
-0.4
-0.4

-0.8

0.2
0.3
-1.7
2.0
0.3
0.3

-0.0

0.9

0.9
-1.1
2.6
0.9
0.6

0.6

1.5

1.2
-0.9
2.4
1.2
0.9

0.9

1.7

1.5
-0.6
1.9
1.4
1.2

1.1

1.8

1.5
-0.7
1.7
1.2
1.0

1.0

1.7

1.6
-0.7
1.2
1.2
1.1

1.0

1.7

1.7
-0.6
1.4
1.2
1.1

1.1

1.8

1.7
-0.6
1.6
1.3
1.1

1.1

1.8

1.8
-0.6
1.8
1.3
1.1

1.2

1.8

--------------------------- Four-quarter changes --------------------------

7.7
9.3
12.3
9.8
6.7
7.8
6.0

2.0
4.2
-1.6
1.8
2.7

1.8

4.4

1.
2.
3.
4.

Foreign GDP aggregates calculated using shares of U.S. exports.
Harmonized data for euro area from Eurostat.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.

Emerging Market Economies
2.7
1.6
1.2
1.7
2.4
2.5
2.4
2.4
2.4
2.5
2.5
2.5
Asia
1.0 -0.3 -0.5
0.6
1.8
2.2
2.2
2.1
2.1
2.2
2.2
2.2
Korea
3.9
2.8
2.0
2.0
2.1
2.0
2.0
2.2
2.2
2.3
2.3
2.3
China
-0.6 -1.5 -1.3 -0.2
1.3
1.7
1.8
1.7
1.7
1.8
1.9
1.9
Latin America
6.3
5.9
4.9
4.0
3.6
2.9
2.9
2.9
3.0
3.0
3.0
3.0
Mexico
6.2
6.0
5.1
4.0
3.5
2.7
2.5
2.5
2.5
2.5
2.5
2.5
Brazil
5.9
5.3
4.3
4.1
3.8
3.5
3.6
3.7
3.7
3.7
3.7
3.7
______________________________________________________________________________________________________________

Advanced Foreign Economies
of which:
Canada
Japan
United Kingdom (4)
Euro Area (2)
Germany

CONSUMER PRICES (3)
------------------Total Foreign

-3.4
2.3
-2.3
-0.7
1.3

-6.1
-12.4
-9.6
-9.6
-13.4
6.0
14.3
11.0
18.5
-1.8
-4.4
7.8

-1.6

1.7

-7.9

-8.6

-------------------- Quarterly changes at an annual rate ------------------

Advanced Foreign Economies
of which:
Canada
Japan
United Kingdom
Euro Area (2)
Germany

REAL GDP (1)
-----------Total Foreign

----------------------- Projected --------------------------2009
2010
2011
------------------------------------------------------------------Measure and country
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
______________________________________________________________________________________________________________

OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent changes)
______________________________________________________________________________________________________________

Class II FOMC
Restricted (FR)

I-53

October 29, 2009

1.8
2.3
0.5
1.4
2.3
2.1

1.3
1.7
-0.3
1.3
2.0
1.1

2.8
2.3
-1.0
2.1
2.3
2.2

1.6

2.3

5.9
7.7
5.2
10.3
4.0
3.5
3.7

3.1
2.9
2.4
2.1
1.6

2.8

4.1

1.4
0.3
2.7
1.8
1.3

1.4

2.1

5.9
7.2
4.6
10.8
4.7
4.0
4.6

1.9
2.1
2.8
3.5
4.3

2.5

4.0

2.5
0.5
2.1
2.9
3.1

2.2

3.7

6.4
8.2
5.7
12.3
4.5
3.7
6.1

2.8
1.9
2.4
2.2
1.6

2.5

4.2

1.9
1.0
3.8
2.3
1.7

2.0

3.3

-0.1
0.2
-3.4
6.9
-0.8
-1.7
1.2

-1.0
-4.5
-2.0
-1.8
-1.8

-1.6

-1.0

0.3
-1.7
2.0
0.3
0.3

-0.0

0.9

2.0
6.5
6.8
11.1
-2.3
-4.0
3.5

-1.1
-1.1
-2.9
-1.8
-2.0

-1.4

0.1

1.5
-0.7
1.7
1.2
1.0

1.0

1.7

4.9
5.9
4.2
8.4
4.1
4.0
4.0

3.2
2.0
2.6
2.1
2.3

2.6

3.6

1.8
-0.6
1.8
1.3
1.1

1.2

1.8

5.2
6.0
4.4
8.7
4.3
4.5
4.0

3.9
2.0
3.1
2.9
3.2

3.2

4.1

1.
2.
3.
4.

Foreign GDP aggregates calculated using shares of U.S. exports.
Harmonized data for euro area from Eurostat.
Foreign CPI aggregates calculated using shares of U.S. non-oil imports.
CPI excluding mortgage interest payments, which is the targeted inflation rate.

Emerging Market Economies
3.1
3.9
3.0
2.9
5.1
4.6
1.7
2.4
2.5
Asia
2.3
3.1
2.6
2.4
5.5
3.7
0.6
2.1
2.2
Korea
3.5
3.4
2.5
2.1
3.4
4.5
2.0
2.2
2.3
China
2.7
3.3
1.4
2.1
6.7
2.7
-0.2
1.7
1.9
Latin America
4.9
5.6
3.8
4.1
4.2
6.5
4.0
2.9
3.0
Mexico
3.9
5.3
3.1
4.1
3.8
6.2
4.0
2.5
2.5
Brazil
11.5
7.2
6.1
3.2
4.3
6.2
4.1
3.7
3.7
___________________________________________________________________________________________________

Advanced Foreign Economies
of which:
Canada
Japan
United Kingdom (4)
Euro Area (2)
Germany

2.1

4.5
6.9
3.7
10.3
1.8
1.3
1.0

Emerging Market Economies
Asia
Korea
China
Latin America
Mexico
Brazil

CONSUMER PRICES (3)
------------------Total Foreign

3.7
1.1
2.4
1.7
0.2

1.5
2.4
3.2
1.2
0.1
5.5
6.0
2.6
9.9
5.0
4.5
4.7

2.6

3.8

1.8

2.9

Advanced Foreign Economies
of which:
Canada
Japan
United Kingdom
Euro Area (2)
Germany

REAL GDP (1)
-----------Total Foreign

Measure and country
2003
2004
2005
2006
2007
2008
2009
2010
2011
___________________________________________________________________________________________________

-----Projected----

OUTLOOK FOR FOREIGN REAL GDP AND CONSUMER PRICES: SELECTED COUNTRIES
(Percent, Q4 to Q4)
___________________________________________________________________________________________________

Class II FOMC
Restricted (FR)

I-54

October 29, 2009

6.2
4.3
11.3
38.3
4.8
5.1
3.3
1.3
1.3
17.1
-0.1
5.3

Exports of G&S
Services
Computers
Semiconductors
Core Goods 1/

Imports of G&S
Services
Oil
Natural Gas
Computers
Semiconductors
Core Goods 2/

-0.2
0.7
-0.8

0.4
1.1
-0.7

5.2
2.3
1.3
13.7
12.5
7.5
5.8

6.7
3.6
14.2
17.6
7.2
4.1
7.1
-8.2
-10.1
14.3
-0.8
5.8

10.2
12.0
8.4
2.1
9.9
0.9
2.0
0.0
13.4
8.8
3.6
0.2

10.2
13.0
1.3
29.1
8.4

1.0
1.2
-0.2

Billions of Chained 2000 Dollars

10.9
8.8
10.7
4.9
23.2
9.8
10.9

7.1
9.1
5.8
-6.0
7.2

Percentage change, Q4/Q4

-0.9
0.7
-1.6

-6.8
0.2
0.3
-24.0
-11.3
-9.7
-9.8

-3.4
-3.5
-2.4
-12.7
-3.1

0.7
-0.4
1.2

-9.5
-3.5
-10.7
4.8
14.5
7.2
-12.8

-4.1
-1.6
5.0
19.5
-6.6

1.0
-0.5
1.5

7.0
3.9
-2.9
8.6
15.5
5.0
10.1

8.7
6.0
9.5
11.0
10.1

-0.0
1.0
-1.0

7.7
5.9
-0.8
0.9
15.5
5.0
10.0

8.8
5.9
9.5
11.0
10.2

-0.1
1.0
-1.1

51.0
112.7
-61.7

-495.0

-521.5
-4.7
73.4
150.9
-77.5

-610.0

-631.1
-5.3

78.8
173.2
-94.4

-715.3

-748.7
-5.9

54.7
174.0
-119.4

-760.4

-803.5
-6.0

97.9
236.7
-138.8

-701.4

-726.6
-5.2

125.5
249.9
-124.3

-695.9

-706.1
-4.9

83.9
205.0
-121.1

-378.0

-426.0
-3.0

108.9
230.8
-121.9

-439.0

-457.9
-3.1

117.0
252.0
-135.0

-453.5

-464.4
-3.0

1. Merchandise exports excluding computers and semiconductors.
2. Merchandise imports excluding oil, natural gas, computers, and semiconductors.

Other Income & Transfers,Net
-77.5
-94.5
-112.2
-97.9
-123.1
-135.7
-131.9
-127.9
-127.9
________________________________________________________________________________________________________________

Investment Income, Net
Direct, Net
Portfolio, Net

Net Goods & Services (BOP)

US CURRENT ACCOUNT BALANCE
Current Acct as Percent of GDP

Billions of dollars

Net Goods & Services
-603.9
-688.0
-722.7
-729.2
-647.7
-494.3
-352.0
-341.8
-349.2
Exports of G&S
1116.8
1222.8
1305.1
1422.0
1546.1
1629.3
1456.6
1582.7
1723.1
Imports of G&S
1720.7
1910.8
2027.8
2151.2
2193.8
2123.5
1808.5
1924.5
2072.3
________________________________________________________________________________________________________________

-0.1
0.6
-0.7

Percentage point contribution to GDP growth, Q4/Q4

Net Goods & Services
Exports of G&S
Imports of G&S

NIPA REAL EXPORTS and IMPORTS

------ Projected -----2003
2004
2005
2006
2007
2008
2009
2010
2011
________________________________________________________________________________________________________________

OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
________________________________________________________________________________________________________________

Class II FOMC
Restricted (FR)

I-55

October 29, 2009

0.4
1.6
-1.2

7.8
16.1
-20.8
-50.2
24.8
2.4
14.0

Exports of G&S
Services
Computers
Semiconductors
Core Goods 1/

Imports of G&S
Services
Oil
Natural Gas
Computers
Semiconductors
Core Goods 2/

-0.7
0.1
-0.8

1.9
1.8
0.1

-0.3
0.4
-0.7

0.7
0.6
0.1

1.4
2.0
-0.6

4.9
1.3
22.1
26.1
17.3
17.4
0.6

0.6
1.5
-9.6
-14.2
1.6
-0.5
10.0
-30.1
-42.2
3.1
-17.3
5.8

17.8
29.1
19.0
-13.3
14.5
4.3
0.4
0.8
52.8
39.0
7.3
3.1

3.5
4.7
11.6
23.7
1.5
-0.5
2.1
14.7
54.0
-15.4
2.6
-3.6

5.2
2.8
-15.4
26.3
6.4
3.7
8.6
-3.4
36.5
-2.2
-0.4
4.1

18.5
27.2
11.5
4.7
15.4

Billions of Chained 2000 Dollars, s.a.a.r.

4.5
1.8
5.0
80.0
13.0
-2.8
3.1

6.9
5.6
8.9
19.5
6.7

14.5
19.2
0.0
69.9
10.8

2.2
1.6
0.6

-3.6
-2.9
-10.4
-48.5
21.6
4.9
-2.5

Percentage change from previous period, s.a.a.r.

0.0
0.7
-0.7

Percentage point contribution to GDP growth

-2.5
3.0
-1.5
-5.0
12.7
5.6
-5.1

-0.1
-9.0
8.7
15.0
3.5

0.4
-0.0
0.4

-5.0
-7.1
-9.3
-38.2
8.6
8.9
-3.2

12.1
7.8
33.5
-3.8
14.3

2.4
1.5
0.9

-2.2
6.1
2.7
12.2
-15.9
-6.3
-5.1

-3.6
-7.7
1.3
6.5
-2.2

-0.1
-0.5
0.4

-16.7
-0.9
10.3
-49.5
-39.9
-38.2
-24.2

-19.5
-4.3
-38.3
-50.7
-23.7

0.5
-2.7
3.1

-764.7
57.7
175.2
-117.5

Net Goods & Services (BOP) -766.5

Investment Income, Net
Direct, Net
Portfolio, Net

44.0
163.1
-119.1

-797.2

-859.2
-6.4
54.6
183.9
-129.3

-713.1

-752.1
-5.5

45.8
186.7
-140.9

-712.2

-796.4
-5.8

58.2
204.4
-146.2

-710.2

-762.1
-5.4

120.7
252.7
-132.0

-685.9

-686.5
-4.8

167.0
303.0
-136.0

-697.4

-661.3
-4.6

154.0
284.6
-130.6

-730.6

-717.2
-5.0

112.3
241.9
-129.6

-731.4

-750.9
-5.2

143.7
268.0
-124.2

-743.8

-736.7
-5.1

92.1
205.1
-113.0

-578.0

-619.5
-4.3

1. Merchandise exports excluding computers and semiconductors.
2. Merchandise imports excluding oil, natural gas, computers, and semiconductors.

Other Inc. & Transfers, Net -90.5 -101.3 -106.0
-93.6 -130.0 -110.1 -121.3 -130.9 -140.6 -131.8 -136.7 -133.6
___________________________________________________________________________________________________________________________

62.4
173.9
-111.5

-808.3
-6.1

-794.6
-6.0

US CURRENT ACCOUNT BALANCE
Current Account as % of GDP

Billions of dollars, s.a.a.r.

Net Goods & Services
-732.6 -732.8 -756.5 -694.9 -705.0 -683.4 -638.4 -564.0 -550.9 -476.0 -479.2 -470.9
Exports of G&S
1388.8 1412.1 1414.1 1473.2 1485.9 1504.8 1569.9 1624.0 1623.4 1670.4 1655.2 1568.0
Imports of G&S
2121.3 2144.9 2170.5 2168.1 2190.8 2188.1 2208.3 2188.0 2174.3 2146.5 2134.4 2038.9
___________________________________________________________________________________________________________________________

16.5
13.6
18.1
22.1
17.6

Net Goods & Services
Exports of G&S
Imports of G&S

NIPA REAL EXPORTS and IMPORTS

2006
2007
2008
--------------------------------------------------------------------------------Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
___________________________________________________________________________________________________________________________

OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
___________________________________________________________________________________________________________________________

Class II FOMC
Restricted (FR)

I-56

October 29, 2009

2.6
-4.0
6.6

-36.4
-11.5
-15.9
5.9
-22.3
-47.8
-46.7

Exports of G&S
Services
Computers
Semiconductors
Core Goods 1/

Imports of G&S
Services
Oil
Natural Gas
Computers
Semiconductors
Core Goods 2/

-0.6
1.5
-2.0

0.1
1.0
-0.9

-0.1
0.9
-1.0

0.2
0.9
-0.8

-0.1
1.0
-1.1

16.3
2.8
1.4
-17.6
57.3
57.0
21.7

14.7
2.8
30.2
61.7
19.7
6.4
3.1
-4.5
41.6
12.9
29.2
9.2

9.6
5.5
21.4
19.3
11.1
7.4
6.4
-3.4
41.3
15.5
5.0
9.6

8.2
5.2
9.5
11.0
9.6
5.5
-0.1
-4.5
-13.3
15.5
5.0
9.7

8.5
5.8
9.5
11.0
9.9
7.5
4.2
-1.4
30.6
15.5
5.0
10.0

8.9
6.3
9.5
11.0
10.2

Billions of Chained 2000 Dollars, s.a.a.r.

-14.7
-7.5
-21.9
-2.4
24.7
24.7
-18.6

-4.1
0.1
-10.8
27.7
-7.2

9.4
6.7
9.5
11.0
10.8

-0.0
1.1
-1.1

7.7
5.1
-2.3
-12.9
15.5
5.0
10.9

Percentage change from previous period, s.a.a.r.

1.7
-0.5
2.1

Percentage point contribution to GDP growth

8.9
5.5
3.9
9.6
15.5
5.0
10.8

8.9
6.3
9.5
11.0
10.2

-0.3
1.0
-1.3

7.1
5.9
-4.6
-15.9
15.5
5.0
10.3

8.5
5.8
9.5
11.0
9.9

-0.0
1.0
-1.0

7.6
6.0
-1.0
27.2
15.5
5.0
9.3

8.5
5.7
9.5
11.0
9.9

-0.1
1.0
-1.1

7.3
6.1
-1.4
-11.6
15.5
5.0
9.5

9.1
5.7
9.5
11.0
10.9

0.0
1.1
-1.1

-332.0
72.8
196.8
-124.0

Net Goods & Services (BOP) -369.6

Investment Income, Net
Direct, Net
Portfolio, Net

86.7
204.8
-118.1

-383.3

-436.1
-3.1
95.7
213.6
-117.9

-427.2

-455.1
-3.2

102.5
220.6
-118.2

-441.0

-476.0
-3.3

106.5
227.9
-121.4

-435.4

-452.3
-3.1

111.9
234.4
-122.6

-438.4

-453.5
-3.0

114.9
240.3
-125.3

-441.3

-449.9
-3.0

118.8
246.8
-128.0

-453.4

-472.0
-3.1

119.0
251.3
-132.3

-451.8

-456.2
-2.9

116.7
254.0
-137.3

-454.6

-464.9
-3.0

113.3
255.8
-142.4

-454.4

-464.6
-2.9

1. Merchandise exports excluding computers and semiconductors.
2. Merchandise imports excluding oil, natural gas, computers, and semiconductors.

Other Inc. & Transfers, Net-128.6 -135.9 -139.5 -123.6 -137.5 -123.4 -127.0 -123.6 -137.5 -123.4 -127.0 -123.6
___________________________________________________________________________________________________________________________

80.4
204.8
-124.4

-395.2
-2.8

-417.8
-2.9

US CURRENT ACCOUNT BALANCE
Current Account as % of GDP

Billions of dollars, s.a.a.r.

Net Goods & Services
-386.5 -330.4 -348.3 -342.7 -345.9 -339.7 -340.8 -340.7 -348.0 -348.3 -351.0 -349.7
Exports of G&S
1434.5 1419.5 1469.1 1503.2 1533.0 1564.7 1598.4 1634.6 1669.9 1704.5 1739.7 1778.1
Imports of G&S
1821.0 1749.8 1817.3 1845.9 1879.0 1904.4 1939.2 1975.3 2017.9 2052.8 2090.7 2127.8
___________________________________________________________________________________________________________________________

-29.9
-13.6
-14.0
-17.1
-38.3

Net Goods & Services
Exports of G&S
Imports of G&S

NIPA REAL EXPORTS and IMPORTS

----------------------------- Projected -------------------------------2009
2010
2011
--------------------------------------------------------------------------------Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
___________________________________________________________________________________________________________________________

OUTLOOK FOR U.S. INTERNATIONAL TRANSACTIONS
___________________________________________________________________________________________________________________________

Class II FOMC
Restricted (FR)

I-57

(Page I-58 is intentionally blank.)

Class II FOMC—Restricted (FR)

Abbreviations
AFE

advanced foreign economy

BEA

Bureau of Economic Analysis

BOE

Bank of England

C&I

commercial and industrial

CDS

credit default swap

E&S

equipment and software

ECB

European Central Bank

EME

emerging market economy

EUC

emergency unemployment compensation

FDIC

Federal Deposit Insurance Corporation

FOMC

Federal Open Market Committee; also, the Committee

G-20

Group of Twenty

GDP

gross domestic product

IP

industrial production

LTRO

long-term refinancing operation

MBS

mortgage-backed securities

MPC

Monetary Policy Committee

NAIRU

non-accelerating inflation rate of unemployment

NIE

newly industrialized economy

PCE

personal consumption expenditures

WTI

West Texas Intermediate

I-59
Last page of Part 1