Transcript The Economic Outlook – Alistair Bentley

The Economic Outlook
Alistair Bentley
Economist
October 2011
TWO SPEED GLOBAL GROWTH
Share of Global Economy (%)
70
65
Advanced Economies
60
55
50
45
40
Emerging Markets
35
30
1987
1991
1995
1999
2003
Forecast by TD Economics as at June 2011
Source: IMF, TD Economics
2007
2011
2015
2019
2023
2027
GLOBAL FINANCIAL RISK ELEVATED
Dow Jones Global Stock Price Index (Dec. 91 = 100)
350
300
250
200
150
100
50
0
2005
2006
Source: Wall Street Journal
2007
2009
2010
EUROPE IN FISCAL CRISIS
10-Year National Bond Yields Less 10-Year German Bunds
2,100
1,800
Portugal
Ireland
Spain
Italy
Greece
1,500
1,200
900
600
300
0
Jan-10
Mar-10
Jun-10
Source: Bloomberg, TD Economics
Sep-10
Dec-10
Feb-11
May-11
Aug-11
EMERGING MARKETS COOLING BUT REMAIN
STRONG
12
Real GDP, Annual Avg. % Chg.
10
2010
2011 F
2012 F
8
6
4
2
0
Advanced
Brazil
Forecast by TD Economics as at September 2011
Source: IMF, National Statistics Agencies, TD Economics
India
China
A U.S. RECESSION UNLIKE ANY
IN RECENT MEMORY
U.S. recessions & recoveries in real GDP
Real GDP growth 4-quarters post-trough (%)
9
1957-58
8
7
1953
1960-61
6
1974-75
1970
5
1981-82
4
1980
3
2
2008-09
1990-91
1
2001
0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Peak-to-trough decline in real GDP (%)
Source: Bureau of Economic Analysis, TD Economics
4.5
5.0
5.5
A BALANCE SHEET
RECESSION & RECOVERY
Net worth, % DPI*
Personal saving rate, % DPI*
650
14
600
12
550
10
500
8
450
6
400
4
Net worth (lhs)
350
2
Personal saving rate (rhs)
300
1960
0
1965
1970
1975
1980
1985
1990
*Disposable personal income
Source: Federal Reserve, Bureau of Economic Analysis
1995
2000
2005
2010
LOTS OF PENT UP DEMAND
U.S. light vehicle sales per 1,000 persons 16 years of age or older
110
100
90
80
70
30%
below
average
60
50
40
30
1967
1971
1975
1979
1983
1987
1991
1995
Source: Bureau of Economic Analysis, TD Economics
1999
2003
2007
2011
RECOVERY STILL VERY FRAGILE
Real GDP, annualized quarter/quarter % change
6
Recession
4
Forecast
2
0
-2
Forecast Y/Y % Chg.
(Q4/Q4 % growth)
2011F 1.5% (1.0%)
2012F 1.7% (2.2%)
-4
-6
-8
-10
2008
2009
2010
Forecast by TD Economics as at August 2011
Source: Bureau of Economic Analysis
2011F
2012F
JOB GROWTH IS KEY…
Output, hours worked, & productivity; year-over-year % change
15
Hours Worked
Labor Productivity
10
Output
5
0
-5
-10
1980
1985
1990
1995
*Real output per hour worked, non-farm business sector.
Source: Bureau of Labor Statistics
2000
2005
2010
…BUT RUNNING UP
AGAINST STRUCTURAL ISSUES
Median and average duration of unemployment; weeks
45
40
Average Duration of Unemployment
35
Median Duration of Unemployment
30
25
20
15
10
5
0
1995
1997
1999
2001
Source: Bureau of Labor Statistics
2003
2005
2007
2009
2011
ITS BEEN A TOUGH RIDE FOR
SOUTH ATLANTIC JOB MARKET
Non Farm Payrolls (Index, Jan 2007 = 100)
104
102
100
98
96
FL
GA
94
SC
NC
92
VA
US
90
88
07
08
Source: Bureau of Labor Statistics
09
10
11
HOUSING MARKET REMAINS A
MAJOR HEADWIND
Housing Starts (000's)
3,000
2,500
Fundamentally Supported Housing Starts ~ 1.6 mln
2,000
1,500
1,000
500
0
1959
1963
1967
1972
Source: Commerce Department
1976
1980
1985
1989
1993
1998
2002
2006
2011
PRICE EXCESSES ARE BEING UNWOUND
160
Price to rent and price to income ratio indexes (1994=100)
150
140
Price to rent
Price to income
130
120
110
100
90
80
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Source: National Association of Realtors, U.S. Census Bureau, Bureau of Labor Statistics
BUT THERE IS STILL TOO MUCH SUPPLY
Seriously delinquent (000s of mortgages)
4,500
4,000
3,500
Inventory of homes for sale* = 3.6 million
Home sales* (May, SAAR) = 4.8 million
"Shadow inventory" = 3.5 million
3,000
2,500
2,000
1,500
1,000
90+ days
delinquent
In foreclosure
500
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
*Existing homes. Source: Mortgage Bankers Association, TD Economics
2009
2010
2011
DELINQUENCIES RATES ARE FALLING
Mortgage delinquencies, percent of total loans
6
30 days past due
5
60 days past due
90 days past due
4
3
2
1
0
1980
1985
1990
1995
2000
Source: Mortgage Banker's Association, Moody's Economy.com
2005
2010
MORE DELINQUENT MORTGAGES ARE
BECOMING CURRENT
Percent of Mortgages Delinquent 30-60 Days
60
50
40
30
Transitioning into Current
Transitioning into 90+ Delinquent
20
10
0
2000
2001
2002
2003
2004
2005
2006
2007
Source: Quarterly Report on Household Debt and Credit, FRBNY
2008
2009
2010
2011
MORTGAGE MODIFICATIONS
OFTEN RE-DEFAULT
12-month re-default performance* (%) by delinquency status at modification
70
60
Principal Mod
Interest Rate Mod
50
Capitalization Mod
40
30
20
10
0
<=2 DQ
3-6 DQ
7-12 DQ
Source: Amherst Securities Group LP, CoreLogic. *data for 20-40% pay relief
>12 DQ
FORECLOSURE COMPLETIONS
RUNNING BEHIND STARTS
Monthly foreclosure actions (thousands)*
160
140
Foreclosure starts
Foreclosure completions
120
100
80
60
40
20
0
2005
2006
2007
2008
2009
*Non-agency loans. Source: Bloomberg, RealtyTrak, TD Economics
2010
2011
SO, FORECLOSURES REMAIN ELEVATED
Millions of mortgages
3.5
Jan-08
Jan-09
Jan-10
Jan-11
Jul-11
3.0
2.5
2.0
1.5
1.0
0.5
0.0
30 days
60 days
Source: Lender Processing Services
90+ days
Foreclosure
RENTAL MARKET ABSORBING
HOUSING DEMAND
120
Households, Mlns
Homeownership Rate, %
70
68
80
Renters
66
64
40
Homeowners
0
62
60
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
Source: Census Bureau
SOUTH CAROLINA HOME PRICES
FHFA Home Prices (Index 1990Q1 = 100)
240
220
US
200
SC
180
160
140
120
100
1990Q1
1993Q1
Source: FHFA
1996Q1
1999Q1
2002Q1
2005Q1
2008Q1
2011Q1
U.S. POLITICAL DIVISION INJECTS MORE
UNCERTAINTY INTO OUTLOOK
Fiscal stimulus, percentage point impact on real GDP growth
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
If $1.5T deal is not reached
-1.5
Full expiration of Bush tax cuts
Partial expiration of Bush tax cuts
-2.0
Fiscal stimulus/drag
-2.5
-3.0
2009
2010
Estimates by TD Economics
2011F
2012F
2013F
BIG CUTS AT STATE & LOCAL LEVEL
State & local government spending; percent of real GDP
16
15
14
13
12
11
10
1956
1961
1966
1971
1976
1981
1986
Source: Bureau of Economic Analysis, TD Economics
1991
1996
2001
2006
2011
MAJOR LONG-RUN FISCAL CHALLENGES
U.S. Federal Surlpus/Deficit (-) as a % of GDP
4
Forecast
2
0
-2
-4
-6
-8
-10
-12
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Congressional Budget Office/Haver Analytics
THE FED’S DUAL MANDATE:
LOW INFLATION VS FULL EMPLOYMENT
%
12
Unemployment Rate
10
Headline CPI (Y/Y)
Core CPI (Y/Y)
8
6
4
2
0
-2
-4
2000
2002
Source: Bureau of Labor Statistics
2004
2006
2008
2010
SIZE AND MAKE UP OF
FED’S BALANCE SHEET
Federal Reserve Securities Held Outright, $U.S. (billions)
3,500
3,000
Liquidity Programs & Other
Treasury securities
Agency securities
Mortgage backed securities
Total
2,500
2,000
1,500
1,000
500
0
2007
2008
Source: Federal Reserve Board
2009
2010
2011
FEDERAL RESERVE ON HOLD UNTIL MID-2013,
LONG-TERM YIELDS TO REMAIN LOW
U.S. Bond Yields, %
18
16
3-mth T-Bill
14
30-Year Bond
12
Forecast
10
8
6
4
2
0
1982
1985
1988
1991
1994
1997
Forecast by TD Economics as at August 2011
Source: Federal Reserve, TD Economics
2000
2003
2006
2009
2012
FINAL THOUGHTS
 U.S. economy likely to struggle to break through to
capacity absorbing growth.
 Headwinds to economic growth include: housing, credit,
structural unemployment, and government restraint.
 As the headwinds ebb and flow, it will create volatility in
economic performance.
 The financial implications are continued low interest rates
for the foreseeable future, and a relatively weak U.S. dollar.
TD Economics
www.td.com/economics
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