Transcript It`s Not About Liquidity - University of Colorado Boulder

“Everything You Wanted to Know About the
Current Financial/Economic Crisis, but were
Afraid to Ask”
Or: Where are we, how did we get here and
where are we headed?
Professor Michael Palmer
Leeds School of Business
Presentation to Eastside Residential Brokers
Bellevue, Washington
December 5, 2008
Quick Bio
• Michael Palmer, Professor of Finance, Leeds
School of Business, University of Colorado.
• Education: Ph.D. University of Washington,
1967 (Finance and Macro-economics)
• Visiting Professor Status: Kansai Gaidai
University, Osaka, Japan; Jiao Tong
University, Shanghai, China; Semester at Sea
• Academic Director: London Seminar in
International Finance
Ben Bernanke’s View and My View
• Ben Bernanke (April 10, 2008):
– "We now know the lessons from [the Depression]. We are
certainly going to make sure that the financial system remains
in good functioning order.“
• My view:
– We are in an unprecedented economic slowdown, caused by a
combination of (1) a historically financial market freeze, (2) a
massive negative wealth effect resulting from a dual real estate
and stock market collapse and (3) a collapse of consumer
confidence.
– In this unique environment, the past is probably not a
particularly good road map for the present nor the future.
• True for policy makers and forecasters.
Goal of this Presentation
• Three primary issues to be covered
today:
– (1) The Past: How did we get here; aka How
Did we Get into this Mess in the First Place?
– (2) The Present: Where Are we Today?
– (3) The Future: Where Might we be Going?
• With focus on the national and global
economies.
Theme of Presentation
• The country is caught in an unprecedented
crisis involving a:
• (1) lack of confidence in its financial markets
and financial institutions.
– Affecting interbank and external lending and
essentially freezing these critical markets.
• (2) a collapse of stock prices and real estate
prices.
– Resulting in massive negative wealth effects.
• (3) a collapse of confidence of consumers in the
economy and in their situation.
– Affecting household spending
What we Must do
• We cannot let the financial system fail.
– The financial system is the grease that keeps the
economy going.
– We need to shore up financial market liquidity and
provide direct lending where markets are not
functioning.
• We need to address mounting home foreclosures.
– Currently in foreclosure (2.97% of all mortgages) and 30
days overdue 6.99% – both figures at the highest level
since data was collected 29 years ago.
• We need to restore consumer confidence.
– No magic bullet here, but it is likely a combination of
political and fiscal stimulus.
Issue #1: How Did We Get Here
• How did this happen?
– The 2002-2006 period was characterized by
over-stimulative monetary and fiscal policies
which contributed to a surge in (1) financial
and real asset prices along with (2)
skyrocketing consumer debt.
• And created unsustainable “Super Bubbles”
– The first bubble to burst was the housing
bubble.
Housing Leads the Way
• August 2007, the sub-prime mortgage market
surfaces as a potential issue.
• A combination of economic and financial
factors results in rising home foreclosures.
– Foreclosures in 3Q06: 223,223
– Foreclosures in 3Q07: 446,726 (+100%)
– Foreclosures in 3Q08: 765,558 (+71%) and the highest
since records began in January 2005.
And Housing Continues to Suffer
• Housing prices, starts and sales slide.
– New house prices 3Q08: -16.6% from 3Q07 (Median price of
$218,000 in Oct is lowest since September 2004)
– Existing house prices: Oct 08: Median price $183,000, down
11.1% from a year ago.
– Housing starts: Oct 08: 791,000 annual rate (lowest since
records began in 1959).
– Sales of new homes: Oct 08: -5.3% annual rate to 433,000
annual units (lowest since January 2001 and 40% lower than a
year ago)
– Sales of existing homes: Oct 08: -3.1% annual rate to 4.98
million units
Enter Securitization
• Financial institutions were also involved in the
“securitization” (i.e., pooling and distribution) of
loans (sub-prime mortgage loans, commercial
real estate loans, consumer loans, student loans).
– This took place at the same time that rating services
were unable (or unwilling) to successfully evaluate
the risk associated with these loan packages.
• Regulations, unfortunately, did not keep pace
with changing financial structure.
Financial Market Freeze
• While there were “sub-prime market” danger signs
as far back as August 2007, U.S. financial markets
really began to “freeze up” in early to midSeptember 2008 around the time of:
–
–
–
–
–
–
the Fannie Mae/Freddie Mac bailout (Sept 8),
Lehman Brothers failure (Sept 12),
Merrill Lynch take-over by BofA (Sept 15),
AIG $85 billion rescue plan (Sept 16th)
Washington Mutual take-over by JPMorgan (Sept 25th)
Federal Reserve rescue of commercial paper markets (Oct
7).
Manifestations of Financial
Market Freeze
• Freeze was manifested in:
– Spreads of investment grade corporate bonds (e.g., Aaa
and Baa) over Treasury bonds rising to record levels.
– Commercial paper market and investment grade bond
markets shutting down.
– Money market fund outflows (some “broke the buck”).
– Increasing interbank lending spreads to default free
returns (in the Fed funds and LIBOR markets)
• Reflecting a lack of confidence in financial institutions
and over-all risk aversion
Corporate Spreads
Baa – Aaa and Baa- Gov’t
600
• Both a measure of risk
aversion and confidence.
500
• Baa-Aaa average spread
400
(1977 to Present): 107basis
300
points.
Baa-10Yr Gov
200
100
• Baa-10 yr Gov’t average
spread (1977 to Present: 208 0
basis points.
– Dec 2, 2008: +612
Baa-Aaa
01/1977,
09/1978,
05/1980,
01/1982,
09/1983,
05/1985,
01/1987,
09/1988,
05/1990,
01/1992,
09/1993,
05/1995,
01/1997,
09/1998,
05/2000,
01/2002,
09/2003,
05/2005,
01/2007,
09/2008,
– Dec 2, 2008: +349
Basis Point Spreads
TED Spread: Interbank Market’s
Lack of Confidence in One Another
TED Spread
• TED Spread (another measure of
confidence and risk aversion):
TED = 3-month $LIBOR rate –
3-month T-Bill rate
• January 1990 to July 2007 the TED
spread averaged 41 basis points.
• In October 2008 the spread reaches
464 basis points (the highest since
data collection began in 1971.
• Reflected a frozen interbank
market.
2007 - Present
Response of U.S. to Freeze
• U.S. responded with $700 billion bailout package
(Troubled Asset Relief Program, Oct 3rd ) and
Federal Reserve interest rate reductions and
Federal Reserve emergency loans/liquidity
injections.
– TARP program has thus far injected $350 billion ($250
billion to buy equity states in banks and $100 billion to
AIG).
• On November 24, the Government announces it
(Treasury and Fed) is prepared to lend more
than $7.4 trillion to rescue financial markets.
– This is roughly equal to 50% of nominal U.S. GDP
Result of U.S. Credit Freeze on
Financial Players and Markets
• Bailouts or sales of financial institutions (Fannie
Mae, Freddie Mac, AIG, Merrill Lynch, Citigroup)
– Disappearance of stand-alone U.S. investment banking
firms.
• Bankruptcies of long standing financial
institutions (Lehman Brothers and Bear Sterns)
• And, within a short period of time, the U.S. credit
freeze spreads to overseas financial markets.
Freeze Spreads to Real Economy
• The ripple effects of the credit freeze quickly
spread to the consumer sector where we saw a
rapid decline in consumer spending.
– The combined freezing of credit and the decline in
consumer spending become the main drivers in
pushing down the real economy.
• At the same time, and in response to the crisis, an
erosion of confidence in the financial system and
in the economy itself takes hold.
– Further affecting consumer and business spending.
But how Did We Get to this Point?
Enter Alan Greenspan
• Federal Reserve responds to
the 2000 “dot-com” stock
market crash and “terroristattack” induced recession of
2001.
– NASDAQ loses 72% of its value;
S&P 500 loses 46%; DJ loses
29%
• Greenspan pushes Fed funds
rate to 1.0% (levels not seen
since the 1950s)
Fed Funds Rate
Greenspan Pushes Real Interest
Rates Below Zero
Concept of Real Rate
• The real rate of interest is the
market rate adjusted for the
rate of inflation (or market
interest rate – inflation)
– A high real rate is regarded as
a very restrictive policy
stance, while
– A low or negative rate is seen
as very easy policy stance.
• Why? Lenders will pay
back loans with cheaper
money.
Real Fed Funds Rate
And Real Interest Rates Fall on
Long term Debt as Well
Corporate Bond Rates
Mortgage Rates
Creation of Super Bubbles
Seeds of the Bubbles
Economic Growth
• Excessively expansionary
monetary policy, results in:
• Falling real rate of interest
• Which in turn overstimulates borrowing and
economic activity.
• And creates the seeds for
the super bubbles!
Creation of The Super Bubbles
Stock Market: 2003 –
2007: Dow Up 76.5%
Housing Market: 19982006 Real House Prices Up
8% per year
And Super “Debt” Bubbles
Debt Market: Household
Debt Rising to 130% of
GDP (While Savings Falls)
Total U.S. Debt as a % of
GDP Over 325%
U.S. and the Rest of the World
U.S. Debt with the Rest of the
World: Current Account Deficit
$200 Billion a Year by 2007
And our Dollar Starts to
Fall
End of the Super Bubbles: Negative
Wealth Effects
Stock Market: Oct 2007 to
Present: – 44% (-$100 - $3
in consumer spending)
Housing Prices: Peak 2Q06;
- 18% (-$100 = -$13 in
consumer spending)
Consumer Confidence Goes South
Consumer Confidence
Index (CCI)
• This is probably the most
widely reported consumer
confidence measure.
• The index is released by
the Conference Board on
the last Tuesday of each
month (ever since 1967).
– CCI is a mail survey of about
5,000 households.
CCI: October 07: 95.6
CCI: October 28: -23.04
CCI: November 25: +44.0
And Consumers Cut Back on
Spending
Why is this Sector
Important?
• Household spending
represents 68% of GDP
• Household spending peaked
in 2Q08 (May 2008).
• Consumer spending fell by
3.7% in the 3Q08 (which was
the first quarterly negative
change since 1991)
Consumption Excluding
Real Estate (monthly data)
But As Noted Slowdown Started Earlier in
Residential Real Estate
Why is this Sector Important?
• While residential housing
represents about 3.5% of real
GDP, it is one of the most volatile
components in GDP (fluctuations
of +/- 20% in one year).
• This sector has a large economic
spillover effect (indirect effects)
which is estimated at from +/- .5
to 1.1 percentage points to GDP
growth.
• GDP account peaked in 4Q05
Real Residential Investment,
Billions of $
Spillover to Business Sector
Producer’s Durables
• Producers’ durable
equipment (machinery,
trucks, communications
equipment, etc) represents
about 11% of real GDP.
• It is regarded as a
“derived” investment.
– Based on final demand.
• Peaked in 2Q08
Peaked in early 2008
Quick Review of Current Situation
• U.S. in a housing lead slowdown
• Financial crisis spilling over to real economy through:
– Growing loss of confidence resulting in:
– Frozen financial markets
• Falling asset prices (Good-bye Super Bubbles)
– Negative wealth effects from equities and real estate continue.
• Consumers cutting back and,
• Negative GDP growth (NBER 12 month to date recession)
• Now nicknamed the “Great Recession.”
• Weakened financial institutions requiring ongoing government
assistance.
• Weak household balance sheets (too much debt).
• Global contagion effect (economic slowdowns in Europe and
Asia) which complicate U.S. recovery
Impact of Credit Freeze and Spending
Reductions: Issue #2 Where are We Today?
In a Recession!!!
• Traditional definition:
– Two consecutive quarters
decline in real GDP.
– In the 3rd quarter of 2008, GDP
fell -0.5%, after rising 2.8% in
the 2rd quarter.
• NBER data:
– Put the beginning of this
recession as December 2007.
– Which would put us 12
months into current recession.
Real GDP
What Has been the Federal Reserve’s “Monetary
Policy” Response to the Financial Crisis?
Lowered Interest Rates:
From 5.25 to 1.0%
Injected Liquidity:
Monetary Base: Oct +33%
Observations on Interest Rate Changes
• While lower interest rates might make us “feel better”
-- they have done little up to now to stimulate buying
or lending or to restore confidence.
• Questions regarding interest rate policy:
– (1) Are we getting dangerously close to a “Keynesian
liquidity trap” where low interest rate discourage lending?
And if so,
– (2) Has the Fed really adopted a “quantitative easing policy”
whereby injecting financial markets with liquidity become
the overriding policy? And if so,
– (3) Is the Fed setting the stage for the next bubble?
What’s the Problem with Lowering Interest
Rates Even More?
Keynesian Liquidity Trap
Elastic Demand for Liquidity
• We may be facing a form of the
Keynesian liquidity trap?
– “Liquidity-preference may become
virtually absolute in the sense that
almost everyone (i.e., banks)
prefers cash (reserves) to holding a
debt (a loans) which yields so low a
rate of interest....”
• John M. Keynes, General Theory (1936)
– Monetary policy will not work at
this point because lenders are not
willing to make loans.
And if we are at this point, has the
Fed Adopted Quantitative Easing?
26-Nov
25-Nov
24-Nov
23-Nov
22-Nov
21-Nov
20-Nov
19-Nov
18-Nov
17-Nov
16-Nov
15-Nov
14-Nov
13-Nov
12-Nov
11-Nov
10-Nov
9-Nov
8-Nov
7-Nov
6-Nov
5-Nov
4-Nov
3-Nov
2-Nov
1-Nov
31-Oct
30-Oct
29-Oct
Effective Fed Funds Rate Versus
Target Rate Since Oct 29th
1.2
1
0.8
0.6
Effective FF Rate
Target FF Rate
0.4
0.2
0
And What’s been Happening to the
Real Interest Rate During this Time?
Fed Reserve Interest Rate
Policy
• With its initial easing of
the fed funds rate in
September 2007, the fed
has lowered rates 9 times
from 5.25% to 1.0%.
• In December 2007 the real
rate reached 0%.
• Since that time it has been
negative.
Real Fed Funds rate
Observations on Liquidity Injections
• Fed and Treasury Department have responded
with injections (actual and announced) of large
amounts of liquidity into the financial system.
• 3 Issues to think about:
– (1) The government is becoming a major shareholder
in banks and other financial institutions.
• Globally, governments have estimated holdings of $500
billion in their banks, or about 25% of current market
values.
• Is there a risk of creeping intervention in the day-to-day
management of these banks (e.g., Japan in the 1990s).
• How will governments sell back such large positions?
Observations on Liquidity Injections
• (2) How does the government prevent banks and
other financial institutions from simply choosing to
shore up their capital base as opposed to making
loans to sound business firms and households.
– This is bank-lending liquidity trap.
• U.S. position thus far has been to “encourage lending”
-- but there is not much accountability.
• France has actually mandated lending quotas to their
banks.
– Should the U.S. do this?
Observations on Liquidity Injections
• (3) There is the danger that the Fed and Treasury
Department will go too far, setting the stage for a
big rise in inflation or more asset bubbles in the
future.
– At this point, however, the downside risk with
this massive liquidity injection is overshadowed
by the risk that the economy could spiral into a
deflationary nosedive.
– But at some point, this liquidity will have to be
neutralized (“sterilized” or withdrawn).
Let’s See What the Market Done
With Some of this Liquidity?
A Flight to “Safety”
• Investing in “Safe-Haven”
financial assets because of an
increase in risk aversion
– Moving into U.S. Treasury
bills and U.S. Treasury notes.
• A global movement.
• Biggest impact on shorter
segment of U.S. yield
curve; pushing down the
short end of the curve.
Impact on Yield Curve: July
2007 – End of October
And the Yield Curve Now
All Maturities are Down
• Reflecting:
– On going flight to safety
– Continued easing by Fed in
fed funds market.
– Expectations for Fed
involvement in longer term
segment of Treasury
market.
• http://stockcharts.com/charts/
yieldcurve.html
Early Nov to Dec 4, 2008
Issue #3: Where are we Headed?
NABE Forecast
• November 17th National
Association of Business
Economists survey found
the following GDP
forecasts:
– 3Q08 actual: -0.5%
– 4Q08 forecast: -2.6%
– 1Q09 forecast: -1.3%
• Forecast for 3 quarters
decline in GDP
Bloomberg Forecast
• November 12th survey of
59 economists found the
following GDP forecasts:
– 3Q08: actual: -0.5%
– 4Q08 forecast: -3.0%
– 1Q09 forecast: -1.5%
• Forecast for 3 quarters
decline in GDP
How Long Might this Recession Last?
Recall we are about 12 months into it
1902 – 2001 Recessions:
Average length 13 months
1973 – 2001 Recessions:
Average length 10.8 months
Consumer is an Important Key to
the Future of this Economy
• Consumer spending will be affected by:
– Confidence (thus far a negative effect of the financial and
economic crisis on consumer confidence)
– Income levels (thus far negative effects from income and
unemployment trends)
– Wealth effects (thus far negative effects of declining stock
market and housing prices)
• Look for signal from upcoming holiday season:
– Will the recent reduction in gas prices provide a boost to
retail sales?
• Black Friday sales up a “decent” 3% from a year ago (smallest
since .9% decline in 2005; 6.0% in 2006; 8.3% in 2007).
• Cyber Monday (Dec 1) sales were up 15%, the second biggest
increase on record.
Follow Consumer Spending and Income
Monthly Consumer Data
• Monthly data released by the
Commerce Department the last
Wednesday of the month:
• Consumer spending:
– September: -0.3%
– October: -1.0%, the most since the
2001 recession.
• Personal income
– September: +0.1%
– October: +0.3%
• Difference represents an increase
in household savings (savings
rate now at 2.4% of disposable
income; a 5 year high)
–
Consumer Sentiment Index
Unemployment Rates
Unemployment
• Affects consumer confidence and
consumer spending decisions.
• Unemployment rates normally lag
behind a business cycle recovery
thus tending to rise even after a
recovery is underway.
• Average lag since 1949 (7
recessions) has been 10.4 months,
but the variation is very large (1
to 19 months).
– Nov 2001 recession ended and
unemployment peaked in June 2003
(19 months later).
Unemployment Rate now
at a 14 year high (Nov
6.7%; Oct 6.5%; Sept 6.1%)
Follow the Stock Market
Halfway Rule
• Forecasters have noted that
historically investors start
discounting a recovering about
half way through an average
recession.
• Historically, stock prices move
up (on average) about 5 to 6
months before a recession ends.
• Has the market bottomed out?
– Last week (Nov 24 – 29) stocks
posted their biggest weekly gain
since 1974
2001
Stock Market Signals
1970s
1980s – Early 1990s
Follow Important Interest Rates
Interbank Rates
• Measure the confidence in
the interbank markets and
possible “thawing”
• TED Spread (3-month
LIBOR – 3-Month T-bill)
– Dec 3: down to 218Bpts
– Link to daily data at:
– http://www.bloomberg.co
m/apps/quote?ticker=.TED
SP%3AIND
TED +464 in October; Has
TED Peaked?
Follow Important Interest Rates
External Market Rates
• Mortgage rates
– After the Fed’s Nov 26
announcement to purchase $600
billion of mortgage related debt,
the 30 year fixed fell to 5.47%
from 5.94% the week before
– This might help bring housing
demand in line with supply?
– For the last week mortgage
applications soared 112%.
(includes both new purchase and
refinancing)
Mortgage Rates: October 2
to Present (30 year fixed);
Weekly Averages
6.6
6.4
6.2
6
5.8
5.6
5.4
5.2
5
4.8
Follow Political Announcements
Out-going Administration
•
•
•
No new fiscal stimulus package
should be expected.
Perhaps ongoing capital infusions
into banks and other key financial
institutions.
Expanded debt buyouts and direct
market involvement as needed.
– Federal Reserve involvement in
commercial paper markets and
more recently in mortgage markets.
•
FDIC initiated “foreclosure
prevention plan” (involving loan renegotiations) perhaps expanding to
Treasury
In-coming Administration
• Look to “team”
– Role of Paul Volcker
• Early fiscal stimulus.
– What will it include?
– Need for quick start state by
state infrastructure projects.
– Business and personal tax
cuts.
• Help for the home sector.
– Expanded policies to deal with
foreclosure.
Follow Fed Policies and Statements
Policies
Statements Worth Noting
•
• “We are clearly behind the
curve on mortgage
foreclosures.”
– Shelia Blair (December 2,
2008)
• Despite good-faith efforts by
both the private and public
sectors, the foreclosure rate
remains high. More needs to be
done.”
– Ben Bernanke (Dec 4, 2008)
Fed funds rate.
– Not likely to move to 0% but still a
little downward flexibility.
•
Also look to spread of effective rate
to target rate.
– If the effective rate moves closer to
the target this might signal the Fed is
more confident in financial situation.
•
Any other policy initiatives?
– Look for Fed open market operations
in longer term Government securities
markets. This could ease longer term
interest rates.
Now Add this to the Mix: Recession is
Becoming a Global Phenomenon
Europe
• Iceland is bankrupt
• Germany and the rest of the
Euro-zone (with the exception of
France) have experienced 2
consecutive quarters decline in
real GDP.
• The United Kingdom has its own
housing mess (house prices have
fallen for 13 straight months).
– Forecasting worse recession in
30 years with a turnaround not
expected until 2010.
Asia and the Americas
• Japan is in a recession having
experienced 2 consecutive
quarters decline in real GDP.
– First recession since 2001.
• China is slowing
– World Bank 2009 estimates
7.5% down from 9.2%
– Also experiencing a deflating
housing bubble
• Russia is in trouble.
• Canada is forecasting a
recession through 2Q09
Foreign Central Banks Have Also
Lowered their Interest Rates
Previous Rates
•
•
•
•
•
•
•
•
•
Canada: 2.50%
England: 3.0%
Japan: 0.5%
ECB: 3.25%
Switzerland: 2.0%
Australia: 5.25%
New Zealand 6.5%
Korea: 4.25%
China: 6.66%
Current Rates/Change
•
•
•
•
•
•
•
•
•
Canada: 2.25%; Oct 21/08
England: 2.0%; Dec 04/08
Japan: 0.3%; Oct 31/08
ECB: 2.50%; Dec 04/08
Switzerland: 1.0%; Nov 20/08
Australia: 4.25%; Dec 02/08
New Zealand: 5.0%; Dec 04/08
Korea: 4.0%; Nov 07/08
China: 5.58%; Nov 26/08
Are there Foreign Countries that
We Should Monitor?
Europe
• Nothing here to help global
economy.
– U.K. expected to suffer its
worse recession in 30 years.
– Germany in recession and
government running a fiscal
surplus.
• Both U.K. and Eurozone have
introduced their own
stimulus packages.
– These will take time to turn
these economies around.
Perhaps Asia
• Japan
– In recession (consumer
spending has fallen for 8
straight months), but the least
G7 affected by credit freeze.
• China and India
– GDP slowing (still positive)
but recent fiscal and
monetary stimulus may
improve growth.
– Possible kick-starters for
global economy (through
import demand)
And What About the U.S. Dollar?
$ In Favor Again
• Over the last 6 months the
dollar has taken on a global
safe haven status
– The Japanese yen has also
strengthened due to
unwinding of carry trades.
• $ likely to remain strong if
global uncertainty continues
and as long as Europe
appears relatively weak.
• Will ease U.S. inflationary
pressures, but make it more
difficult for foreigners to
purchase U.S. real assets.
Turn around in July
Possible Macro-Economic
Scenarios
Scenario 1: V shape
Scenario 2: U, W or L shape
• Quick recovery
• Now we are thinking about
other possibilities:
– Within 2 quarters
• Three of the last 5 recession
have ended within 2
quarters.
• Early on optimism for quick
turnaround resulted from:
– Assumed positive lagged
response of Fed interest rate
cuts and Spring 08 tax
rebates.
– U: More gradual recovery
(e.g., 18+ months), or
– W: Recovery followed closely
by another recession (aka
“double dip” e.g., in 1981, or
– L: Prolonged recession (e.g.,
43 months in 1929 or Japan in
the 1990s).
My View: U-Shaped 18/21-Month
Recovery Most Likely Scenario
• Caveat: The factors underlying a U-shaped scenario are
notoriously difficult to predict.
– Specifically, exactly when and to what degree factors
impacting household and business behavior will kick in and
when they will translate into GDP.
• However, a U-Shaped recovery scenario is likely based on:
– Severity of the financial/real asset bubble collapse and the
financial market freeze and their affect on the real economy.
• Announced and anticipated layoffs (140,000 in the financial sector
plus lagged unemployment effect)
• Falling retail sales.
– Large household debt burdens
– Little, if any, help from the foreign sector.
• I see this recession ending in the 2Q09/3Q09 (Summer 09).
And What About Seattle?
• Seattle Housing Data:
– House prices down 17% a year ago and sales down
17.5% a year ago (35.8% down from last month)
• Seattle Economic Base:
– Increasing unemployment
• October 2008: State unemployment rate: 6.3% (4.8% a year
ago); Seattle area: 5.4% (4.0% a year ago). (see second slide)
• Negative: Impacts of recent layoffs (WaMu cutting 3,400
Seattle jobs)
– Positive: Global links
• Exporting
– Bellevue-Seattle-Tacoma Metropolitan Area is the fourth largest
export market in the nation (2007 data) with Japan, China, and
Canada the leading export destinations.
Seattle House Prices: More to Come?
Nominal Median Housing
Prices since Peak
• U.S.: peak, 2Q06
– Peak: $252,514
– Currently: $206,500
– Down: 18%
• Seattle: peak: Aug 07
– Peak: $501,000
– Currently: $415,000 (Nov)
– Down: -17%
•
Source: Professor Robert Shiller’s
data base and Seattle Post
Seattle Price Data
Seattle’s Unemployment Picture
Data
• In October 2008, about 203,820
people were out of work and
seeking employment in
Washington.
– the biggest job declines occurred
in retailing (down 1,700 jobs),
education services (down 1,700),
manufacturing (down 1,300) and
construction (down 1,100).
Economists don't count striking
workers as unemployed, so the
24,000 striking Boeing
Machinists didn't contribute to
the unemployment rate.
Comparisons
Final Quotes
• “An economic [forecaster] is an expert
who will know tomorrow why the things
he/she predicted yesterday didn't
happen today.”
– Laurence J. Peter
• “If past history was all there was to the
game, the richest people would be
librarians.”
– Warren Buffett
Questions and Answers and
Comments and Discussion
Follow-up Questions/Comments
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