Growth to Slow, But Inflation Lurking

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Growth to Slow, But Inflation Lurking Whats a
Fed to Do?
ACCRA 46th Annual Conference Charlotte, NC June
9, 2006
Gina Martin Wachovia Economics 704.383.6805 gina.m
artin_at_wachovia.com
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U.S. Economic Growth Slowing Down
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Survey Says Business Investment Steady
ISM Business Activity Indices
75 Expect Better Revenues in 2006 Manufacturing
Capacity 5.3 Non-manufacturing Capacity
3.7 Manufacturing CapX 9.0 Non-manufacturing
CapX 11.1 Prices Are Not Expected to Rise as
Quickly Labor and Benefit Costs a Concern
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Low Rates Have Helped Clean Up Balance Sheets
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Will Consumers Crack?

• Housing and Home Equity
• Energy and Health Care Costs
• Debt Loads

Net Worth/Balance Sheets Tightening Labor
Market Expected Income Growth
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Spending Beyond Our Means Real Personal
Consumption and Real Disposable Income
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Home Equity Withdrawals and Income
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Debt Levels Have Not Changed
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Housing Wealth Effect in the U.K.
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Net Worth and Saving
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Homeowners Equity and Mortgage Debt
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Debt to Assets Ratios of U.S. Households
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Wage Pressures Building
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Components of Personal Income - 2005
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Bernankes Unwelcome Developments
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Inflation Worries
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Inflation Trends Devil in the Details CPI
Goods vs. Services
Core Excluding Food and Energy
Both Series are Year to Year Percent Changes
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Short Rates Still Accommodative, But the Gap is
Closing
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What About Long Term Rates?
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Twin Deficits Remain a Weight
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Still Buying? Net Purchases of U.S. Treasuries by
the Rest of the World
4 Quarter Moving Average, Billions of Dollars
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Dollar Slide To Continue?
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Which Dollar?
Dollar Index, 1/5/2001 100 OITP Latin
America, Asia, Middle East, Eastern Europe Trade
Weighted Australia, Canada, Japan, Sweden,
Switzerland, UK, Euro 11
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Social Security, Medicare, and Medicaid Spending
as a Percent of GDP
Medicare
Percent of GDP
Entitlements A Major Threat Going Forward
Medicaid
Social Security
Note Social Security and Medicare projections
based on the intermediate assumptions of the 2004
Trustees Reports. Medicaid projections based on
CBOs January 2004 short-term Medicaid estimates
and CBOs December 2003 long-term Medicaid
projections under mid-range assumptions. Source
GAO analysis based on data from the Office of the
Chief Actuary, Social Security Administration,
Office of the Actuary, Centers for Medicare and
Medicaid Services, and the Congressional Budget
Office.
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