Transcript Lowered - Meetup

Why We Are in a Recession
August 2010
Daryl Montgomery
August 31, 2010
Copyright 2010, All Rights Reserved
The contents of this presentation are not intended as a recommendation to buy or sell any security.
Current Views on a Double-Dip Recession
• Mainstream Economists:
- None or almost none think it will happen.
- Uber Bear Nouriel Roubini says 40% chance
- Consensus GPD growth forecasts have been
lowered to +2.5% for Q3 and Q4.
• Federal Reserve:
- Lowered 2010 GDP forecast to +3.0% to +3.5%
- Has restarted some minor quantitative easing.
- Article that public should ignore bloggers.
• Bloggers are the only ones predicting it.
Leading Indicators Predict Recession
• ECRI weekly leading indicator:
- Turned negative in early June.
- Was as low as -10.2 in early August
- A drop to minus 10 has always indicated recession
• Consumer Metrics Institute measure of consumer demand
- Turned negative in January (leads economy 6 months)
• Consumer Confidence highest level during ‘recovery’
about same as worse level in previous 4 recessions.
• Global collapse in interest rates
- U.S. 2-year series of record lows
- Germany, UK, and Japan
- Advanced economies all falling into a liquidity trap.
ECRI Weekly Leading Indicators
Chart Updated to August 13, 2010
Long-Term History of ECRI
Chart Doesn't Include July and August Data
Consumer Metrics
Consumer Metrics: 2010 Versus 2008
Consumer Confidence 2000 to 2010
Red Line Bottom of Previous Recession
Consumer Confidence – Present Situation
Red Line Bottom of Last Recession
Employment Picture
• Job losses in July 131,000, in June 221,000. First
job losses took place in August 2007.
• Unemployment rate (U-3) for July was 9.5%,
Alternative figure (U-6) was 16.5%
• Youth unemployment is 19.1%, a record high
(labor force participation at record low).
• 6.6 million students graduated in May, June but
labor force decreased by 1 million. Huh?
• Weekly claims hit 500,000. Have not been below
400,000 (recession level) since July 2008.
Weekly Unemployment Claims
Unemployment Post World War II
Long-Term Unemployment 1965-2010
Housing Market Collapsing
• New Home Sales plunged 33% in May to record
low of 300,000; July then fell to 276,000; Peak
was around 1,400,000.
• Existing Home Sales plunged 27% in July to
3.8 million annual rate. Inventory > 12 months.
• Mortgage rates have hit record lows.
• Fed tax credit expiration hurt market; HAMP
has been a major failure.
• Housing in worse shape than at bottom of Credit
Crisis.
New Home Sales 1963 to 2010
Not Adjusted for Population
Existing Home Sales
Green Line is Credit Crisis Low
Housing Starts
Mortgage Delinquency Rate
Banking System Still Not Functioning
• Fed has pumped huge amounts of money into
banking system, but banks are not lending.
• Commercial loans down.
• Credit card available credit lower by 9.5% in Q2,
consumer savings up, consumer wage and salary
income down, yet consumer spending is up.
• $1.3 trillion in consumer debt delinquent.
• The FDIC has taken over 118 banks in 2010.
There are 775 troubled banks. Failures
accelerating. FDIC will be bailed out by end of
this year.
Change in Bank Loans
Business Loans Post World War II
Small Businesses are Main Source of New Jobs
Consumer Credit: Number of Accounts
GDP During ‘Recovery’
• GDP for 4 quarters of recovery (% Inventory):
- Q3 2009 +1.6% (69%)
- Q4 2009 +5.0% (57%)
- Q1 2010 +3.7% (71%)
- Q2 2010 +1.6%
• Q2 2010 GDP without government spending,
was up 0.7%, stimulus spending peaked in Q2.
• Computers and software up 24.9%.
• Intel just lowered earnings projections for next
quarter because of rapidly slowing business.