I don’t think so. Personally, I could think of equally plausible reasons that we could get stronger aggregate demand growth or somewhat weaker aggregate demand growth over the next year. We highlighted one possibility in the Greenbook with regard to the weaker investment scenario. Another could be the housing ...

We were busy.

Let me first comment specifically on our consumption forecast and the larger question that we raised. Dave may want to add some comments. With regard to our consumption forecast, as I had mentioned and as we suggested by the alternative simulation that we showed in Part 1 of the Greenbook ...

The final exhibit presents your forecasts for 2007 and 2008. I’ll be mercifully brief. The central tendency shows real GDP increasing 2½ to 3 percent this year and roughly the same next year, with the unemployment rate holding in the range of 4½ to 4¾ percent during both years ...

Thank you, Mr. Chairman. I’ll wait for my colleagues to come to the table. We’ll be using the chart package that you all should have on the economic outlook. Separating the signal from the noise in the recent economic data has not been easy—what with the motor ...

We maintained the same path as in the September Greenbook.

Let me first talk a bit about the near-term outlook. Most of the economic data that we’ve gotten since the September Greenbook have come in to the soft side of our expectations. The PCE number for August was surprisingly weak. Auto sales dropped sharply in September. Shipments and orders ...

Just as a factoid to throw out here, one of my colleagues on the Board staff, Jeremy Nalewaik, has estimated some of these models looking at switching between high- growth periods and low-growth periods, where a low-growth period does not necessarily have to be a recession. Using the GDP data ...

Yes. The way to think about it is that we switched into a low-growth period. Whether it is precisely a recession or just simply a low-growth period shouldn’t be the demarcation point. We still think that the economy is operating in a low-growth period. There is probably not as ...

It’s hard for me to think of it in these probabilistic terms. I would say that we still think that the economy is going to have these negative effects that are associated with periods of low growth. Now, whether that is precisely a recession or simply just a low-growth ...

We expect foreclosures to rise—and to rise appreciably. One thing we have done in thinking about house prices is, in effect, to build in some extra house-price depreciation, above and beyond what our price–rent model would want to say, to reflect the kinds of factors that you are ...

Last week, the Washington Post ran a front page story with the headline, “Why We’re Gloomier than the Economy.” Like the author of the Post article, we too have noticed the difference between what people are saying about the economy in surveys and what they apparently are producing and ...

Let me start, and then Dave may want to add a few comments as well. Clearly, we did revise down the forecast. The downward revision was based in part, as I said in my briefing, not only on the incoming data but also on some of the other factors that ...

The final exhibit presents your forecasts for 2006 and 2007. Compared with February, you have edged down your projections for the growth of real GDP in both years and raised your forecast of core inflation. The forecast for the unemployment rate is essentially unchanged. That concludes our presentation, and we ...

Thank you, Mr. Chairman. Many of the spending indicators that we’ve received over the past few weeks have been coming in to the weak side of our expectations. As you can see by comparing the red and blue striped bars in the top left panel of exhibit 1, in ...

Absolutely. And as I pointed out, that 2.8 percent saving rate that we’ve written down for the end of 2005 still is a bit below target, so we could clearly get a more complete correction to target and maybe even some movement above that target.

In the extended Greenbook simulations that are presented in the Bluebook, we have real interest rates rising out to 2010. Consistent with the baseline of that extended forecast in the Bluebook, we would have by 2010 a target saving rate on the order of 6 percent. But that’s not ...

I was using what I thought was constructive ambiguity there. [Laughter] I’m not sure what most observers think of as the normal rate, but when one reads Wall Street newsletters and things like that, one often sees numbers like 6 or 7 percent. I prefer the term “target” because ...

Mr. Chairman, unfortunately there is a charting error on chart 1in the exhibit on nonfarm business productivity at the bottom left. I just want to point it out so that no one is confused. Rather than plotting the quarter-to-quarter percent changes in those bars we inadvertently plotted the percent change ...

I’m just looking at my chart, and I think it may be misplotted.

Yes, that model suggests that house prices could rise faster than what we’ve put into our baseline. So we’ve tried to take a position somewhere between those two.

Let me be perfectly clear about one thing. We have a couple of different ways in which we try to make an assessment about what is happening to house prices. One of those doesn’t take into account the arbitrage condition, as it were, between house prices and rents; it ...

I will agree with you. [Laughter] It is true that in our baseline forecast we don’t see any bubbles. We’ve tried to lay out the possibility of risks and point out to you where, if we are wrong in that judgment, bubbles could occur. For example, by our ...

They’ve started to fall. Rather, the rate of increase is coming down.

Right.

It’s the flow of funds saving rate.

Right. So that’s why we do all of our work using the NIPA data. Obviously we do look at what’s happening to household balance sheets, and the flow of funds saving rate is a part of that household balance sheet system.

Yes, and we can’t definitively say which has won over the other. In all of our work we stay with the NIPA measure because then we are working with a consistently measured system.

I understand, but I don’t have any third source of the real world against which to compare the other two. The one thing we can perhaps do is to ask ourselves which of the two measures, in terms of the econometrics, helps us best in transforming the data into ...

I don’t think we have a conclusion on that. Accuracy has to be defined as relative to what?

For the chart show, Sandy Struckmeyer, Steve Kamin, and I will be referring to the packet of materials that was distributed to you. While putting together the Greenbook, two of the questions we asked ourselves were, first, “Where is the economy now?” and, second, “What are the forces that should ...

Well, the one other thing that I would note, as we pointed out in the Greenbook as well, is that the level of new orders has been running above the level of shipments, implying an increase in unfilled orders for some time now for the “all other” category. So, again ...

We’ll have an upward revision to Q1 and probably a downward revision to Q4.

Thank you, Mr. Chairman. We have distributed to you an extra sheet that has the latest information from this morning’s release on the orders and shipments data. The lines that we typically like to look at are the orders excluding aircraft, shown part way down the table, and the ...

I don’t have a good answer for you. We’ll have to look into it.

I don’t think so. We’ll look into that issue.

It certainly could be stronger, and that would be an important risk I would point to. Is there a possibility that we’ve been low-balling productivity growth? Perhaps. I wouldn’t put a lot of weight on that one. As for the stimulus associated with past changes in monetary policy ...

Granted. But you’re asking for the upside risks, and I’m just saying that I think there is some upside risk there.

Let me go through a couple of the other issues you raised and try to address some of them. The main question you asked was, in effect, where are the upside risks in this forecast. If I were to go through the upside risks, an important one would be capital ...

I’ll start, and others can join in. First, let me make a brief comment on our forecast versus those of many outsiders. It’s hard to know exactly, but I think one of the main differences between our forecast and many of the outside forecasts—especially when we’re ...

Well, the simplest answer is that empirically we’ve never actually been able to find a relationship between debt burdens and consumer spending at the aggregate level. We attempt to look at some of these data at a more disaggregated level, and the bottom left panel is one way of ...

Yes, we may have to send something to you on that later.

Well, I think that was many years ago, and that’s because we used capital stock growth rather than capital services and we would then make the adjustment for changes in composition. But when we shifted over to using capital services, which incorporates that effect, we no longer showed that ...

It’s in there through the way we calculate the capital services part of the capital deepening.

The final chart presents your forecasts for 2003. You have revised down your projection for the growth of real GDP and raised your forecast of the unemployment rate. Your projection for PCE prices this year has been lowered a touch. That concludes our prepared remarks, Mr. Chairman. We’d be ...

Before we start the chart show itself, I want to give you an update on the data released yesterday on orders, shipments, and inventories. These are on the separate sheet inserted in the chart show package. As shown on line 1, new orders for nondefense capital goods rose 2.8 ...