Federal Reserve Bank of New York

33 Liberty Street, New York, NY 10045

Second District Advisory Council

Thursday, March 5, 2020

AGENDA 10:30 a.m. – 10:40 a.m. Welcome Remarks, John Williams, President & CEO

Committee Protocols, Claire Kramer Mills, AVP

10:40 a.m. – 10:55 a.m. National Economy Update, David Lucca, VP

10:55 a.m. – 11:10 a.m. International Update, Matthew Higgins, VP

11:10 a.m. – 11:40 a.m. Facilitated Discussion, Claire Kramer Mills, AVP

11:40 a.m. – 11:45 a.m. Concluding Remarks, John Williams, President & CEO

Federal Reserve Bank of New York

33 Liberty Street, New York, NY 10045

Second District Advisory Council

Thursday, March 5, 2020

ATTENDEE LIST

SDAC Advisory Members

Donnel Baird

Founder & CEO

BlocPower

Jaswinder Chadha

President & CEO

Axtria, Inc.

Michellene Davis

EVP, Chief Corporate Affairs Officer

RWJBarnabas Health

Lynn Marie Finn

President & CEO

Broadleaf Results

Sarah LaFleur

Founder & CEO

M.M.LaFleur

Melanie Littlejohn

VP NY Customer & Community Engagement

National Grid

Steve Priest

EVP & CFO

JetBlue Airways Corp.

Anthony E. Shorris

John Weinberg/Goldman Sachs Visiting Scholar &

Senior Advisor

Princeton University, McKinsey & Company

Federico Stubbe, Jr.

President

PRISA Group

Federal Reserve Bank of New York

John Williams

Michael Strine

Jack Gutt

David Erickson

Rosanne Notaro

David Lucca

Matthew Higgins

Jaison Abel

Claire Kramer Mills

Tony Davis

Edison Reyes

Rebecca Landau

President & CEO

First Vice President

EVP, Communications & Outreach

SVP, Outreach & Education

VP, Legal

VP, Research & Statistics

VP, Research & Statistics

AVP, Research & Statistics

AVP, Outreach & Education

Officer, Outreach & Education

Associate, Outreach & Education

Senior Analyst, Outreach & Education

March 2, 2020

U.S. Economic ConditionsDavid Lucca

The views expressed here are those of the presenter and do not necessarily represent those of the Federal Reserve Bank of New York or the Federal Reserve System.

2

Real GDP grew 2.1% (annual rate) in 2019:Q4:

Growth in personal consumption expenditure moderated, residential investment picked up but business investment declined for the third quarter in a row.

Labor market remained strong in January; inflationary pressures remained muted.

Significant uncertainty stemming from increased confirmed cases of the new coronavirus disease (COVID-19) outside China.

Overview

3

-10

-8

-6

-4

-2

0

2

4

6

8

-10

-8

-6

-4

-2

0

2

4

6

8

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Percent Change, Annual Rate

Note: Data through 2019:Q4. Shading shows NBER recessions. Source: BEA.

Percent Change, Annual Rate

Remains StrongReal GDP Growth Fluctuating Around 2%

4

-2

0

2

4

6

8

10

-2

0

2

4

6

8

10

2014 2016 2018 2020

Percent Percent

Personal Savings Rate

Growth in Real Consumption

Note: Data through January 2020. Annualized consumption growth from three-month average level over three month prior. Savings rate as percent of disposable income. Source: BEA.

Consumer Spending Moderated

5

0

20

40

60

80

100

120

140

160

0

20

40

60

80

100

120

140

160

2000 2005 2010 2015 2020

Index

Note: Data through February 2020. Shading shows NBER recessions. Source: The Conference Board, University of Michigan.

Index

Conference Board

Michigan Survey

Consumer Confidence Remained High

6

0

2

4

6

8

10

12

58

59

60

61

62

63

64

65

66

67

2006 2008 2010 2012 2014 2016 2018 2020

Percent

Note: Data through January 2020. Shading shows NBER recessions. Source: BLS.

Percent

Unemployment Rate(Right Axis)

Labor Force Participation Rate

(Left Axis)

Employment-to-Population Ratio

(Left Axis)

Labor Market Remained Strong

7

-2

-1

0

1

2

3

4

5

-2

-1

0

1

2

3

4

5

2000 2005 2010 2015 2020

12 Month Percent Change

Note: Data through January 2020. Shading shows NBER recessions. Source: BEA.

12 Month Percent Change

Total PCE

Core PCE

FOMC Objective

Core PCE Inflation Rising but Still MutedPCE Inflation Remained Muted

8

45

50

55

60

65

45

50

55

60

65

2014 2016 2018 2020

Index

Note: Data through February 2020 except for ISM non-manufacturing. PMI non-manufacturing is flash estimate. Source: IHS Markit and Institute for Supply Management.

Index

PMIISMManufacturingNon-Manufacturing

National Business Activity Moderated

9

0

1000

2000

3000

4000

5000

6000

7000

0

10000

20000

30000

40000

50000

60000

70000

80000

22-Jan 3-Feb 15-Feb 27-Feb 10-Mar

Cases Cases

North America

Europe

OceaniaSouth America

Africa

China(Left Axis) Asia ex China

Note: Confirmed cases through March 1. Except for China and rest of Asia, cases on the right axis. Source: Johns Hopkins CSSE.

Increased COVID-19 Cases Outside China

10

0

500

1000

1500

2000

2500

3000

3500

1

2

3

4

5

6

7

8

9

10

2010 2012 2014 2016 2018

Percent

Note: Data through February 28. Source: Federal Reserve Board, Financial Times.

Index

10-Year Treasury Yield (Left Axis)

S&P500 Index(Right Axis)

Moody’s BAA Yield (Left Axis)

Sharp Movements in Financial Conditions

1

Global Economic Outlook and Risks

Second District Advisory CouncilMatthew Higgins, 5 March 2020

The views expressed here are those of the author, and do not necessarily reflect those of the Federal Reserve Bank of New York or the Federal Reserve System

Roadmap

Global business conditions before the COVID-19 outbreak

Economic impact of outbreak in China

Early economic echoes outside China

Lessons from prior global pandemics

2

-1

0

1

2

3

4

5

6

7

8

9

12 13 14 15 16 17 18 19 20

China

Quarterly percent change, annualized

EMEs outside China

Advanced economies outside U.S.

Source: national sources, staff calculations. AE series is a GDP-weighted average for the euro area, Japan, UK, the Nordic countries, Switzerland and Australia. EME ex. China series is a GDP-weighted average for 24 countries.

Global growth was sluggish ahead of virus outbreak

2.4

0.7

6.0

2019:Q4

25

30

35

40

45

50

55

60

65

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

NBS purchasing managers’ indexes (> 50 signals expansion)

Source: China Federation of Logistics and Purchasing.

35.7February

29.6

Services

Manufacturing

Chinese surveys show plunge in activity

3

0

10

20

30

40

50

60

70

80

90

100

-15 -10 -5 0 5 10 15 20 25 30 35 40

Passenger volume (persons x hours, in millions)

Sources: Wind, Ministry of Transportation, UBS. Index includes rail, highway, waterway and air transport. Day 1 of Chinese New Year is Jan. 25 in 2020, and various dates in prior years.

2019

2020

Chinese daily indicators show little rebound in activity

Chinese New Year March 2

30

40

50

60

70

80

90

-30 -25 -20 -15 -10 -5 0 5 10 15 20 25 30 35 40 45

Coal consumption at six major power generators (10,000 metric tons)

Source: Wind, Standard Chartered. Day 1 of Chinese New Year is Jan. 25 in 2020, and various dates in prior years.

Average 2017-19

2020

Daily coal consumption reflects factory shutdowns

Chinese New Year

March 2

4

0

5

10

15

20

25

30

Sources: World Bank World Development Indicators, IMF Direction of Trade Statistics.

share of global totals, U.S. dollar terms

Exports

2003 2019

Industrial Production

GDP

2003 2019 2003 2019

China occupies key role in global production, trade

40.0

42.5

45.0

47.5

50.0

52.5

55.0

57.5

60.0

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Diffusion index, > 50 signals expansion

Source: Markit Economics. Series is a GDP-weighted average for roughly 45 economies.

Average 2004 – 2008:Q1 = 56.8

February46.1

Average 2011 – 2019:Q4 = 52.8

Global survey data weakened in February

5

45.0

47.5

50.0

52.5

55.0

57.5

10 11 12 13 14 15 16 17 18 19 20

Diffusion indexes, > 50 signals expansion

Source: Markit Economics.

February47.1, 47.2

Services

Manufacturing

Manufacturing and services both contracted

44

46

48

50

52

54

56

58

10 11 12 13 14 15 16 17 18 19 20

Diffusion indexes, > 50 signals expansion

Source: Markit Economics, JPMorgan.

45.3, 45.0

February

New Export Orders

New Orders

Manufacturing new orders point to further weakness

6

-8

0

8

16

24

00 01 02 03 04 05 06

GDP growth in Hong Kong, Singapore and Taiwan (annual rate)

Global Recession

SARS Epidemic

Global Industrial Soft Patch

Note: Weighted average based on 2003 GDP in $U.S.

Growth in EMEs followed see-saw pattern during SARS

Hospitality and transport saw the sharpest swings

Hong Kong, Singapore and Taiwan, Selected GDP Components ( percent change, SAAR )

2003:Q1 2003:Q2 2003:Q3

Goods Producing -4.1 -6.8 20.8

Trade 1.1 -11.6 29.4

Hotels, Restaurants1/ -1.7 -41.7 119.5

Tranport & Comm. 13.4 -19.2 34.5

Financial Services1/ -8.3 20.0 25.7

1/ Singapore and Taiw an. Sources: Local statistical agencies, via Haver Analytics. Individual country percent changes weighted by 2003 $U.S. GDP.

7

-3

-2

-1

0

1

2

1915 16 17 18 19 20 21 22 23 24

U.S. industrial production and trade ( standardized* )

NBER recessions shaded

U.S. economy slumped during 1918-19 pandemic

Source: NBER Macrohistory Database. * Series shows normalized deviations from average activity levels (mean = 0.0, STD = 1.0).

Reference Charts

8

-12.5

-10

-7.5

-5

-2.5

0

2.5

5

7.5

10

12.5

-12.5

-10.0

-7.5

-5.0

-2.5

0.0

2.5

5.0

7.5

10.0

12.5

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Industrial production growth, 3-mo. change, annualized

Source: CPB World Trade Monitor. Data exclude construction.

Average 2005 – 2008:Q1Average 2011 – 2019:Q4

Dec.0.2

Global industrial activity has slumped since mid-2018

-25

-20

-15

-10

-5

0

5

10

15

20

25

-25

-20

-15

-10

-5

0

5

10

15

20

25

04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Trade volume growth, 3-mo. change, annualized

Source: CPB World Trade Monitor. Data are the average of global import and export volume growth.

Average 2005 – 2008:Q1

Average 2011 – 2019:Q4

Dec.-1.5

Trade growth has also slumped

9

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Core CPI, percent change from year earlier

Emerging Economies

Foreign Advanced

Source: Federal Reserve Bank of Dallas. Core CPI excludes food (or fresh food) and energy. Series are GDP-weighted averages.

1.4

2.9

Core inflation has been low and stable worldwide