Transcript From the Great Recession to the New Normal

From the Great Recession
to the New Normal
MARK ZANDI, CHIEF ECONOMIST
FROM MOODY’S ECONOMY.COM
The Great Recession Is Over
Recessions since World War II
Duration in Months
Peak-to-Trough % Change
Recession
Expansion
Peak to Trough Trough to Peak
Real
GDP
Industrial
Production
Nonfarm
Employment
Jobless Rate
Peak
Trough
Dec-07
Aug-09
20
73
-3.9%
-19.2%
-6.2%
4.4% 10.3%
5.9%
Mar-01
Nov-01
8
120
-0.4%
-6.3%
-2.0%
3.8%
6.3%
2.5%
Jul-90
Mar-91
8
92
-1.3%
-4.3%
-1.5%
5.0%
7.8%
2.8%
Jul-81
Nov-82
16
12
-2.9%
-9.5%
-3.1%
7.2% 10.8%
3.6%
Jan-80
Jul-80
6
58
-2.2%
-6.2%
-1.3%
5.6%
7.8%
2.2%
Nov-73
Mar-75
16
36
-3.1%
-14.8%
-2.7%
4.6%
9.0%
4.4%
Dec-69
Nov-70
11
106
-1.0%
-5.8%
-1.4%
3.4%
6.1%
2.7%
Apr-60
Feb-61
10
24
-1.3%
-6.2%
-2.3%
4.8%
7.1%
2.3%
Aug-57
Apr-58
8
39
-3.8%
-12.7%
-4.4%
3.7%
7.5%
3.8%
Jul-53
May-54
10
45
-2.7%
-9.0%
-3.3%
2.5%
6.1%
3.6%
Nov-48
Oct-49
11
37
-1.7%
-8.6%
-5.1%
3.4%
7.9%
4.5%
10
57
-2.0%
-8.3%
-2.7%
4.4%
7.6%
3.2%
Average
Low
High Change
Sources: NBER, BEA, FRB, BLS, Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
2
Policymakers Stabilize the Banking System…
Difference between 3-mo Libor and Treasury bill yields
5.0
TARP fails to
pass Congress
4.5
4.0
3.5
3.0
Bear hedge
funds liquidate
2.5
2.0
Bear Stearns
collapse Lehman
No asset
purchases
Stress
tests
failure
1.5
1.0
Bank funding
problems
0.5
0.0
Jan-07
Jul-07
Jan-08
Fannie/Freddie
takeover
Jul-08
Jan-09
Jul-09
FROM MOODY’S ECONOMY.COM
3
…And the Stimulus Provides a Meaningful Boost
Contribution to real GDP growth, ppt
4
3
2
1
0
(1)
09Q1
09Q2
09Q3
09Q4
10Q1
10Q2
10Q3
10Q4
Source: Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
4
U.S. Households Are Fixing Their Finances...
Contribution to personal saving rate, 4-qtr MA
12
95%-100%
80%-95%
60%-80%
40%-60%
0%-40%
10
8
6
4
2
0
-2
-4
-6
90
92
94
96
98
00
02
04
06
08
Source: Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
5
…With Some Success
Number of trades 30-90 days delinquent, mil
24
23
22
21
20
19
18
07
08
09
Sources: Equifax, Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
6
Layoffs Abate, but Hiring Remains Dormant…
Ths, 3-mo MA
6,000
2,600
Hires
Layoffs
5,500
2,400
5,000
2,200
4,500
2,000
4,000
1,800
3,500
1,600
04
05
06
07
08
09
Source: BLS
FROM MOODY’S ECONOMY.COM
7
…Threatening to Undermine Compensation
1985Q1-2009Q2
Compensation growth
6
2009Q2
Unemployment rate=9.3%
Natural rate=5.3%
Compensation growth=1.5%
5
4
3
2
y = -0.48x + 3.40
R2 = 0.32
1
0
-3
-2
-1
0
1
2
3
4
Difference between actual and natural unemployment rate
5
Source: BLS
FROM MOODY’S ECONOMY.COM
8
The Foreclosure Crisis Continues to Mount
Ths of first mortgage loans
4,500
90 days and over delinquent
Auction & REO
Notice of default
4,000
3,500
3,000
2,500
2,000
1,500
1,000
500
0
05
06
07
08
09
Sources: Equifax, Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
9
Commercial Real Estate Boom and Bust
Repeat-sales indices: 2000Q4=100
190
Commercial RE prices
House prices
180
170
160
150
140
130
120
110
100
01
02
03
04
05
06
07
08
09
Sources: Moody’s Investors Service, REAL, Fiserv
FROM MOODY’S ECONOMY.COM
10
State and Local Government Revenues Collapse
State and local tax revenue, % change yr ago
20
15
10
5
0
-5
-10
50
55
60
65
70
75
80
85
90
95
00
05
Source: BEA
FROM MOODY’S ECONOMY.COM
11
Credit Markets Remain Dysfunctional
Bond issuance, $ bil, annualized
2,000
CDO
ABS
CMBS
RMBS
1,500
1,000
500
0
00
01
02
03
04
05
06
07
08
09 ytd
Source: Thomson Reuters
FROM MOODY’S ECONOMY.COM
12
The Federal Reserve Will Remain Aggressive…
Federal funds rate
7
Funds rate target
6
Moody's Economy.com Taylor rule
5
4
3
2
1
0
-1
00
01
02
03
04
05
06
07
08
09
Sources: Federal Reserve, Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
13
…Even Committing to More Credit Easing…
3.00
2.75
2.50
800
Difference between Freddie
mortgage rate and 10-year
Treasury yield (L)
600
2.25
400
2.00
1.75
1.50
1.25
Jan-09
Fed holdings of
Fannie and
Freddie MBS,
$ bil (R)
Apr-09
200
Jul-09
0
Oct-09
Sources: Freddie Mac, Federal Reserve
FROM MOODY’S ECONOMY.COM
14
…And Fiscal Policymakers Are Not Finished
» More aid to unemployed workers—extended benefits and
COBRA payments.
» Another round of help to financially stressed state and local
governments—FMAP and educational programs.
» Extend higher conforming loan limits and housing tax credit for firsttime homebuyers. Mortgage modifications with principal write-down.
» Extend accelerated depreciation and NOL carryback for businesses.
Direct lending to small businesses by the SBA.
FROM MOODY’S ECONOMY.COM
15
The Wrongs Will Be Slowly Righted
Vacant homes for sale and rent, ths
6,500
6,000
5,500
5,000
4,500
Housing supply=
Single-family=
Multifamily=
Manufactured=
600,000
450,000
100,000
50,000
Actual
Housing demand= 1,300,000
HH formations=
750,000
Obsolescence=
350,000
Second homes=
200,000
Trend
4,000
3,500
90
92
94
96
98
00
02
04
06
08
FROM MOODY’S ECONOMY.COM
16
Confidence Will Be Restored
Business confidence diffusion index
50
40
30
20
Lehman
10
0
Bear Stearns
Iraq invasion
-10
-20
-30
-40
03
04
05
06
07
08
09
Source: Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
17
An Inflection Point for U.S. Consumers…
Saving vs. wealth, 1960-present
Household saving rate (%)
25
20
15
10
5
0
07Q2
09Q2
-5
4.0
4.5
5.0
5.5
6.0
6.5
Household net worth-to-disposable income ratio
FROM MOODY’S ECONOMY.COM
18
…But Global Customers Will Pick Up the Slack
Expansion
Recovering
Moderating recession
In recession
Source: Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
19
Tough Job Market for Years to Come…
140
11
138
10
Jobless rate (R)
9
136
8
134
7
132
6
Jobs, mil (L)
130
5
128
4
07
08
09
10
11
12
Sources: BLS, Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
20
…But Businesses Will Eventually Need to Hire
Trend labor productivity growth, % change yr ago
4.0
3.5
4%
3.0
2.5
0%
2.0
2%
1.5
1.0
90
95
00
05
10
FROM MOODY’S ECONOMY.COM
21
Fiscal Austerity Dead Ahead...
Federal debt-to-GDP ratio under the president’s budget
85
75
65
55
45
35
08
09
10
11
12
13
14
15
16
17
18
19
Source: CBO
FROM MOODY’S ECONOMY.COM
22
…But Progress Is Being Made
Consumer price inflation, 12-mo MA, % change yr ago
10
Healthcare
Total ex healthcare
8
6
4
2
0
90
92
94
96
98
00
02
04
06
08
FROM MOODY’S ECONOMY.COM
23
Economic Timeline
Banking system
stabilizes
Economic
downturn
ends
Foreclosures
peak
House prices
Employment
resume rising
bottoms
Stock market
trough
Housing starts
bottom
09Q1
Home sales
bottom
Inflation
accelerates
Fiscal pressures
intensify
Fed raises
rates
09Q2 09Q3 09Q4 10Q1
10Q2 10Q3 10Q4 11Q1
House prices
bottom
Retailing
firms
Securities markets
up and running
Jobless rate
peaks
11Q2 11Q3
11Q4
Extraordinary
bank failures end
Self-sustaining
expansion begins
Source: Moody’s Economy.com
FROM MOODY’S ECONOMY.COM
24
www.economy.com
FROM MOODY’S ECONOMY.COM
25
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