Transcript The Recession of 2009

The Recession of 2009:
What Indicators Should We Watch?
 NIFA: 2009 Housing Innovation Marketplace
 Ernie Goss Ph.D. Professor of Economics,
Creighton University & MacAllister Chairholder
 Websites:
 www.ernestgoss.com www.outlook-economic.com
 Podcast: Itunes
http://coba3.creighton.edu/econoutlook/goss-rss3.xml
Short Term Drivers of U.S., and regional economies
Investment Climate
New jobs
interest rates &
competitiveness
Housing
U.S. home ownership and
Fannie & Freddie interest proceeds, 1995-2008
Hom e ow ne rs hip rate (le ft s cale )
70.0
Loan proce e ds (Fannie & Fre ddie ) (right s cale ) $3,000,000,000,000
69.0
$2,500,000,000,000
68.0
$2,000,000,000,000
67.0
66.0
$1,500,000,000,000
65.0
$1,000,000,000,000
64.0
$500,000,000,000
63.0
20
0
20 7
08
05
20
03
20
01
20
99
19
97
$0
19
19
95
62.0
U.S. housing vacancy rates and
Housing price growth, 1999-2008 (Quarterly Case-Shiller Index)
3.0%
30.0%
2.8%
20.0%
10.0%
2.2%
0.0%
2.0%
-10.0%
1.8%
1.6%
-20.0%
1.4%
Vacancy rate s (le ft s cale )
1.2%
-30.0%
Hous ing price s (right s cale )
'0
7
Q
'1
'0
5
Q
'1
'0
3
Q
'1
'0
1
-40.0%
Q
'1
'9
9
1.0%
Q
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Vacancy rate
2.4%
Case-Shiller housing prices
2.6%
U.S. Housing Affordability,1987-2008
201.0%
161.0%
141.0%
121.0%
101.0%
81.0%
61.0%
41.0%
21.0%
Ratio hous ing price s to incom e (actual)
Expe cte d
'8
7
1.0%
Q
'1
Housing prices / per capita income
181.0%
How big is the problem (bailout)?
 Homeownership rates:
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1995 64.8%
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2005 68.9% (highest ever)
 Relaxing standards brought 4.5 million new and
mostly unqualified buyers into market
 With no growth in per capita income, housing prices
would have to drop by another 14% by the end of
2009 to return to historical ratio
 This estimates assumes housing prices do not
plummet below pre-bubble trend
 A partial solution: 1) Tax credit for all for home
purchases, 2) Reduce the hours to achieve active
home investor status (500 to 50)
Investment Climate
Stock values vs. U.S. economy, 1952-2008
14.5
12.5
10.5
8.5
Carter Presidency begins
6.5
4.5
2.5
Clinton Presidency begins
 Graph profiles value of S&P divided by value of U.S. economy (times 100)
Housing Prices, Omaha v. U.S. 2006 - 2007
67%
$240
66%
Omaha prices as % of U.S.
65%
$200
64%
$180
63%
62%
$160
61%
$140
60%
Om aha as % of U.S. (le ft s cale )
59%
$120
U.S. (r ight s cale )
Om aha (r ight s cale )
58%
$100
2006.IV
2007.I
2007.II
2007.III
2007.IV
Median house price in thousands
$220
Oil prices, 1999-2008
$140
$120
$100
$80
$60
$40
$20
Europe a n compa nie s
U.S. com panie s
08
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20
08
20
07
20
06
20
05
20
04
20
02
20
03
20
01
20
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19
99
$0
$49 of the run-up in oil prices to $133 was due to decline in value of dollar
Jobs
The Mainstreet Economy
 A monthly survey of community bank CEOS
 Colorado, Illinois, Iowa, Kansas, Missouri,
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Nebraska, South Dakota, Wyoming
Intended to gauge the economic conditions in
the non-urban areas of region
Average community size is 1,300 population
Available at:
www.outlook-economic.com
www.economictrends.blogspot.com
The Mainstreet Economy
(index over 50 indicates expansion)
Area economic index
Loan volume
Checking deposits
Certificates of deposit
Farmland prices
Farm equipment sales
Home sales
Hiring in area
Retail business
Confidence index
Jan-08
55.7
51.7
70.0
60.8
81.0
71.1
24.6
46.6
42.4
43.2
Dec-08
25.0
44.7
62.9
63.6
37.1
31.6
15.9
25.8
20.9
15.6
Jan-09
24.6
48.3
60.8
57.6
36.6
29.4
26.7
18.3
24.2
25.9
The Mainstreet Economy, 2006-09
90
Overall economy
Hiring
Farm land price growth
80
70
60
50
40
30
20
10
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Other outcomes from recent surveys:
Less than 13 percent of bankers indicate
that they will participate in the latest U.S.
Treasury preferred stock “buyout” plan.
Farmland price growth turned negative for
a third straight month.
Rural Mainstreet Economy slows to
record low.
Bank indicators remain healthy.
Bankers expect high input prices to pose
the biggest economic threat for 2009.
43.9% of the bankers have tightened
credit standards
The Regional Economy:
Survey of Purchasing Managers&
Business Leaders
 A Partnership Among Creighton
University, and State Purchasing
Management Associations
Monthly Survey of Business Conditions
 Leading Economic Indicator
 Released First Business Day of Each
Month to Media
 Released Via WWWeb:
 www.outlook-economic.org
 www.ernestgoss.com
 Appears in media throughout U.S.
 Survey of supply managers in over 900
firms
Business Conditions Index, 2003-08
80
70
60
50
40
30
U.S.
Mid-America
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Prices Paid Index, 2003-08
105
95
85
75
65
55
45
35
U.S.
Mid-America
15
Outlook
 Decline in output growth for U.S. and Mid-America until
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last quarter of 2009 (less negative for Mid-America)
RECESSION
Negative employment growth for U.S. and Mid-America
for all of 2009 (less negative for Mid-America) RECESSION
Mortgage rates will fall below 5.0% in the months ahead.
Housing prices will decline by another 14% by the end of
2009.
Advancing dollar will help restrain inflation next three
months. (However, dollar will lose value in 2009)
Inflation is in the pipeline and significantly above Fed’s
target for 2010
Decline in farm income will slow the Mid-American for
2009.
Outlook will be influenced significantly by oil prices.
Important indicators: keep an eye on:
 The January PMI released February 2nd will be an economic indicator that will
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be very, very closely examined. ( www.outlook-economic.com and
www.ism.ws ). Another index below 35.0 will be a very, very bearish sign. I
expect the leading economic indicator to rise a bit to a still weak number.
4th Quarter advance GDP will be released by the Bureau of Economic Analysis
on Jan. 30th (www.bea.gov). I expect the number to show that the economy
declined at an annualized rate of 4.0%.
The employment report for January will be released on Feb. 6th I expect the
report to show job losses (and large) for a fourteenth straight month and an
increase in the unemployment rate to 7.5%.. (www.bls.gov)
First time and continuing claims for unemployment insurance. Released every
Thursday. First time claims below 450,000 and continuing claims less than 3.3
million would be bullish. I don’t expect this though. They will be worse.
(www.doe.gov ).
Keep an eye on the yield for 10-year U.S. Treasuries. Current yields are
artificially low and reflect unprecedented fear among investors. Large
increases will tell us that either 1) global investors are taking funds out of the
U.S. market, or 2) inflation expectations have increased, or 3) investors have
reduced the risk perceptions and are pulling money out of treasuries and
putting it into equity markets (http://finance.yahoo.com )
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The Risk Factors (Long & Short Term)
International uncertainty—terrorism, tariffs
and trade restrictions, abolition of 2001 and
2003 tax cuts, and even slower EU and
Asian growth.
The biggest risk is housing prices dropping
by another 25% for 2009 (overwhelming
pessimism)
Dollar weakens dramatically (not likely in
short-term )
Asian reduced buying of U.S. Treasuries
(Chinese de-link their currency to dollar).