Transcript Office 2007 - Sample Slides - Iowa Rural Water Association

February 2013
Jim Maras
Lead Relationship Manager
Your Water System and the Economy
Confidential and
Proprietary
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Headwinds or Tailwinds?
 Employment
 Weakness in labor income reflecting the impact of high
unemployment on wages and employers’ reluctance to hire
aggressively
 The U.S. unemployment rate was at 7.8% in December. It peaked at 10%
in Oct 2009. Iowa is at 4.9% compared to 5.6% a year ago.
 The so-called underemployment rate is 14.7 % as compared to 18.5% last
year.
 The Consumer Price Index over the last 12 months increased 1.7 %.
However, November saw a .3% decrease, the first in three years.
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Headwinds or Tailwinds?
 Housing
Market
 The Case-Schiller Home Price Indices, the leading measure of U.S.
home prices, show that the U.S. National Home Price Index for the 20City Composite was up 5.52% from last year.
 Nationally, home prices are
at 2003 levels.
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Headwinds or Tailwinds?
 Consumer
Saving
 Households continue to repair personal balance sheets. Evidence of
consumer deleveraging may be seen in the rise of the personal
savings rate.
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Headwinds or Tailwinds?
 Consumer
Credit
 In November, consumer credit increased at a seasonally adjusted
annual rate of 7%.
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Headwinds or Tailwinds?
 Business
Concerns
 New orders for manufactured goods increased 4.6% in December, up 7
of the last 8 months. This area of the economy has been a key support
for the recovery.
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Headwinds or Tailwinds?
 Economic
Growth
 GDP is expanding 2.1% in 2013, after rising 2.2% last year, steering
clear of recession as long as the euro-zone debt crisis is contained.
 Uncertainty around political, regulatory and tax environment is
delaying and/or reducing business investment.
 As a result of the sequester cuts, deficits would be reduced by nearly
$1.2 trillion over 10 years - half from Defense and half from Domestic
spending. At the same time, economists say it could help push the
country back into recession by abruptly pulling so much money out of
the economy.
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Headwinds or Tailwinds?
 Government
Concerns
 Fitch said a downgrade was still likely later in the year if
Washington failed to use the new breathing space to put in place a
credible debt reduction plan.
 The Oct – Dec deficit was $292.3 billion, as compared to $321.7
billion last year.
 The government has run a surplus two months since September
2008.
 We are borrowing $.31 of every dollar we spend.
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Headwinds or Tailwinds?

The European debt league: Greece (163%), Italy (120%), Belgium (98%) Ireland
(105%), Portugal (106%), Germany (81%).
 Federal debt has breached 100% of GDP twice since 1900:
 During World War II & Now
United Kingdom and Canada are 85% and 82%, Japan is 229%
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Headwinds or Tailwinds?
 Fiscal
Cliff
Debt Limit
 January legislation kicked the can down the road to May 19
Sequestration
 Delayed until end of February
Budget Continuing Resolution
 Through March 27
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What’s Going On In The Credit Markets?
50 Years – Ten Year U.S. Treasury Rates
The all-time low for the 10-Year was 1.55% reached in 1945 at the
end of World War II, until July 24, 2012 when it hit 1.40%
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What’s Going On In The Credit Markets?
 Pressures
on interest rates
 Government sector taking on new debt, risk of crowding-out private
sector
 Banks (especially European) still need to raise more capital
 European Sovereign Debt Crisis
 De-leveraging
 Political/Natural events
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What’s Going On In The Credit Markets?
5 Years – Ten year U.S. Treasury Rates
 Below 2% from May 2012 until Jan 30, 2013
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Federal Reserve Action
 QE
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 Continue purchasing additional mortgage-backed securities at a pace
of $40 billion per month and longer-term Treasury securities at a pace
of $45 billion per month
 Keep the target range for the federal funds rate at 0 to 1/4 percent
 as long as the unemployment rate remains above 6.5%
 inflation between one and two years ahead is projected to be no
more than 2.5%
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Federal Reserve Action
Since the financial crisis began the Federal Reserve has pumped
$1.8 trillion into the financial system with freshly printed cash
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16
How Will People Be Impacted?
 Economy
and Credit Market Impact
 General tightening of credit, making access to credit more difficult
 Consumer more sensitive
 Growth limited (Ag sector excepted)
 Shrinking Federal budget
 Recent increases in the monetary base are far greater than any time in
American history, surely a "noble experiment" in policymaking. Will
these policies be successful without accelerating inflation?
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Opportunities
 Credit
Opportunities
Refinance to lower rates
Save monthly payments
Shorten maturity
Capital expenditures/Strengthen system
Fix long term interest rates
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CoBank’s Geographic Profile
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CoBank Water Team Contact Info
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