Transcript Presentation

US Economic Outlook:
The Home Stretch
Ryan Wang
US Economist
HSBC Securities (USA) Inc.
[email protected]
+1 212 525 3181
October 2012
Disclaimer & Disclosures: This report must be read with the disclosures and the
analyst certifications in the Disclosure appendix, and with the Disclaimer, which
forms part of it
US Economic Outlook: The Home Stretch
 Since coming out of recession in the middle of 2009, the US economy
has expanded at about a 2% rate. We expect a similar pace of growth in
2013.
 Moderate GDP growth has been too slow to generate a rapid recovery in
the labor market.
 Export growth has weakened this year, reflecting a widespread
slowdown in global economic growth.
 The federal government is approaching a “fiscal cliff” at the end of this
year. Abrupt spending cuts and tax increases could derail an already
fragile recovery.
 Recent developments point to a turnaround in the housing market.
Higher house prices could eventually lead to stronger economic growth.
2
US GDP growth has averaged 2.2% over the past 3 years
4
3
2
1
0
-1
-2
-3
Real GDP growth, % year-on-year
-4
-5
05
06
07
08
09
10
11
12
Source: Bureau of Economic Analysis
3
Employment gains have only matched population growth
65
64
63
62
61
60
59
58
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Employment-to-population ratio, %
Source: Bureau of Labor Statistics
4
Unemployment and labor force participation
68
11
10
67
9
8
66
7
65
6
5
64
4
63
3
99
00
01
02
03
04
05
06
Unemployment rate (left axis, %)
07
08
09
10
11
12
Participation rate (right axis, %)
Source: Bureau of Labor Statistics
5
The labor market is a dynamic place
Source: Bureau of Labor Statistics, HSBC
6
Orders for capital equipment are falling
70
65
60
55
50
45
05
06
07
08
09
Monthly capital goods orders (nondefense ex-air), USDbn
10
11
12
6-month average, USDbn
Source: Census Bureau
7
Export growth slowing fast
30
65
20
60
10
55
0
50
-10
45
ISM Export Index, 3m avg, 3m lead (RHS)
-20
40
US exports, % Yr (LHS)
-30
35
07
08
09
10
11
12
13
Source: Institute for Supply Management, Census Bureau
8
Global growth still intertwined despite divergences
10
8
10-yr differential
Real GDP growth, advanced economies
Real GDP growth, emerging and developing economies
6
4
2
0
-2
-4
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: International Monetary Fund
9
Fiscal policy and the growth in federal debt
 Combination of recession and deliberate fiscal stimulus has
pushed federal borrowing up to record levels.
 Commitments for income support and medical care for the
elderly population have created longer-term fiscal problems.
 The Budget Control Act of 2011 fell short of the $4.0 trillion in
deficit reduction necessary to stabilize the nation’s debt to GDP
ratio – a key criterion for a triple-A credit rating.
 The federal government is approaching a “fiscal cliff” at the end
of this year. Abrupt spending cuts and tax increases could derail
an already fragile recovery.
10
Record federal government budget deficits
10.0
Federal Deficit as % of GDP
7.5
5.0
2.5
0.0
-2.5
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
Source: OMB
11
US debt outlook is becoming unsustainable
100
Federal Debt as a % of GDP
90
80
Current policy projections
2007 projections
70
2011 = 68%
60
50
40
30
20
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
2015
2018
2021
Source: Congressional Budget Office, HSBC
12
Federal pension and health care expenditures rise inexorably
13
Social Security and Health Care Programs, % GDP
12
11
10
9
8
7
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
Source: Congressional Budget Office
13
Higher debt leads to higher future interest payments
4.0
Interest payments, % GDP
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
21
22
Source: Congressional Budget Office
14
State and local gov’ts: Budgetary stress despite stable debt
70
65
Outstanding US bond market debt as a % of GDP:
Municipal
Treasury
60
55
50
45
40
35
30
25
20
2004
2005
2006
2007
2008
2009
2010
2011
Source: Securities Industry and Financial Markets Association, Bureau of Economic Analysis
15
Four years of state and local government layoffs
40
30
Monthly change in state and local gov't
payrolls ('000), 6-month average:
20
10
0
-10
-20
-30
-40
05
06
07
08
09
10
11
12
Source: Bureau of Labor Statistics
16
Three years of falling public construction
300
280
260
240
State and local government construction spending
(USDbn, 12-month total)
220
200
05
06
Source: Census Bureau
07
08
09
10
11
12
Fiscal austerity has been a heavy drag on growth
1.0
Government contribution to real GDP growth over the past year, percentage points:
0.8
0.6
0.4
0.2
0.0
-0.2
Federal government
State and local government
Total government
-0.4
-0.6
-0.8
05
06
07
08
09
10
11
12
Source: Bureau of Economic Analysis
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Housing market and household deleveraging
 Home sales are rising and house prices have bottomed out.
 Higher house prices should eventually lead to the end of
household deleveraging, setting the stage for stronger
economic growth.
 Timing will depends on the speed of the housing recovery.
 Mortgage credit is likely to contract for at least another year.
19
Housing market starting to show some signs of life
7.5
Existing home sales, millions
7.0
6.5
6.0
So far in 2012
(annual rate)
5.5
5.0
4.5
4.0
3.5
3.0
99
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: National Association of Realtors
20
Home prices have turned up a little
105
100
95
90
85
80
75
70
65
CoreLogic National House Price Index
60
55
50
45
00
01
02
03
04
05
06
07
08
09
10
11
12
Source: CoreLogic
21
Homeowners’ equity dropped from 60% to 40%
75
Home equity to home value ratio, %
70
65
60
55
50
45
40
35
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Federal Reserve
22
What would it take to get back to 50% housing equity?
24
22
20
18
LOSS OF
HOUSING
WEALTH
16
14
50% housing
equity ratio
12
10
8
6
4
00
01
02
03
04
05
06
07
Household real estate assets, USDtrn
08
09
10
11
12
13
14
Home mortgages, USDtrn
Source: Federal Reserve
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Disclosure appendix
Analyst Certification
The following analyst(s), economist(s), and/or strategist(s) who is(are) primarily responsible for this report, certifies(y) that the opinion(s) on the subject
security(ies) or issuer(s) and/or any other views or forecasts expressed herein accurately reflect their personal view(s) and that no part of their compensation
was, is or will be directly or indirectly related to the specific recommendation(s) or views contained in this research report: Ryan Wang
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