Transcript Global slowdown a near-term headwind US exporting more to the

The Economic Outlook
James Marple, Senior Economist
TD Economics
March 20, 2013
This time is different
Average real GDP growth three years after recession trough (annual rate)
9
8
7.8
Average recovery growth = 4.4%
7
5.8
5.8
6
5.2
5
4.5
4.2
4.0
4
3.2
3
2.9
2.4
2.2
2
1
0
194952
195457
195861*
196164
197073
197578
198083*
198285
199194
*Recessions contained within period. Source: Bureau of Economic Analysis
200104
200912
What’s in store for the economy?
 Lots of upside potential:
 Housing
 Consumer spending
 Investment & job creation
 Weighing on growth:
 Fiscal drag – tax hikes, sequestration…
 Global prospects & risks
Global slowdown a near-term headwind
Global trade volume (y/y %change)
Global PMI*, below 50 indicates contraction
25
75
20
70
15
65
10
60
5
55
0
50
-5
45
-10
40
Global PMI* (rhs)
-15
35
Global Trade Volume (lhs)
-20
30
-25
25
2000
2002
2004
2006
2008
2010
2012
*Purchasing managers index.
Source: TD Economics, Bloomberg, Haver Analytics. Grey area marks U.S. recession.
U.S. exporting more to the Americas,
less to Europe
Share of U.S. goods exports; %,12-month moving average
40
35
30
25
20
15
North America
Pacific Rim
Europe
South/Central America
10
5
0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: BEA, U.S. Census Bureau
Faster economic growth
is on the horizon…
Real GDP, annualized quarter/quarter % change
6
Forecast
Recession
4
2
0
-2
Forecast Y/Y % Chg.
(Q4/Q4 % growth)
2013F 1.9% (2.3%)
2014F 2.8% (3.1%)
-4
-6
-8
-10
2008
2009
2010
2011
Forecast by TD Economics as of March 2013
Source: Bureau of Economic Analysis
2012
2013F
2014F
…In Pennsylvania too
Real gross domestic product; annual % change
4
3
2
1
0
-1
-2
-3
Forecast
Pennsylvania
United States
-4
-5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Bureau of Economic Analysis. Forecasts by TD Economics
Private “deleveraging”
giving way to public
U.S. net saving/borrowing by sector; % of GDP
10
Net Saving
8
6
4
2
0
-2
-4
-6
Foreigners
-8
Net Borrowing
Business
-10
Households & nonprofits
-12
Government
-14
1990
1992
1994
1996
1998
Source: Federal Reserve Flow of Funds
2000
2002
2004
2006
2008
2010
2012
Federal deficits are getting smaller…
Total federal deficit (% of GDP)
4
Forecast
2
0
-2
-4
-6
-8
-10
-12
2000
2002
2004
2006
2008
2010
Source: Congressional Budget Office, February 2013 Baseline Forecast
2012
2014
…At least for now…
Federal government spending, % of GDP
16
Healthcare
14
Social Security
11.4%
Everything else (except interest)
12
10
5.5%
8
6
4
2
0
2000
2010
2020
2030
Source: Congressional Budget Office, Long Term Forecast, June 2012
2040
2050
Housing headwind becoming a tailwind
Contribution to real GDP growth, percentage points
1.5
Forecast
1.0
Housing Wealth
Residential Investment
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Housing wealth estimates by TD Economics. Source: Bureau of Economic Analysis
Construction to catch up
to household growth
Housing starts (units, 000s); change in households (000s)
2,500
Fcst.
2,000
1,500
1,000
Demographic adjusted households + depreciation
500
Housing starts
0
1980
1983
1986
1989
1992
1995
Source: U.S. Census Bureau, TD Economics
1998
2001
2004
2007
2010
2013
Market is clearing and house
prices are growing
U.S. home prices; year-over-year % change
20
S&P Case-Shiller HPI*
15
CoreLogic HPI
10
5
0
-5
-10
-15
-20
2002
2004
2006
2008
2010
Source: CoreLogic, S&P Case-Shiller, Haver Analytics. As of February 2013.
*Twenty city composite.
2012
Auto sales still have room to grow
U.S. light vehicle sales per 1,000 persons 16 years of age or older
110
100
90
80
18%
below
average
70
60
50
40
30
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003
Source: Bureau of Economic Analysis, TD Economics
2007 2011
Credit conditions are improving
Net-percentage of banks tightening C&I loans to small firms*
120
Qualifying standards
100
Spreads
80
60
Tightening
40
20
0
-20
-40
-60
Easing
-80
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
*Small firms are classifed as having annual sales of less than $50 million.
Source: Federal Reserve Senior Loan Officer Survey. As of March 1st 2013.
2010
2012
Uncertainty keeping firms on sidelines
Index of Economic Policy Uncertainty (1995-2009 average = 100)
300
Debt Ceiling, Euro
Crisis
250
Lehman and
TARP
Sept. 11
200
Balanced
Budget Act
1st Gulf War
Black
Monday
150
2nd Gulf War
Clinton
Election
Bush
Election
Stimulus
Debate
Russian
Crisis/LTCM
100
50
1985
1988
1991
1994
1997
2000
2003
2006
2009
Source: "Measuring Economic Policy Uncertainty", (2012), Scott R. Baker, Nicholas
Bloom and Steve Davis, Stanford mimeo.
2012
Layoffs down, but need more hiring
Percent of total employment
6
Separation rate
Hiring rate
Quit rate
Firing rate
5
4
3
2
1
2001
2002
2003
2004
2005
2006
2007
2008
Source: BLS - Job Openings and Labor Turnover Survey
2009
2010
2011
2012
Fed will continue to prime the pumps
3.0
Monetary Base, US$ Trillions
Monetary Base
2.5
Monetary Base = Currency + Bank Reserves
2.0
1.5
Bank Reserves
1.0
0.5
Currency
0.0
2006
2007
2008
Source: Federal Reserve Board
2009
2010
2011
QE
2012
2013
America still has a jobs deficit
Private Sector Jobs, Jan. 2008 =100
102
100
98
96
94
92
US
Pennsylvania
New Jersey
New York
90
2008
2009
2010
Source: BLS, TD Economics. Data to January 2013
2011
2012
2013
Employment growth
is key to reducing vacancies
Office vacancy rate, Philadelphia; %
Completions, Absorptions; (000s SF)
16%
2000
14%
1500
12%
1000
10%
500
8%
0
6%
Net Completions
Net Absorptions
4%
-500
-1000
Vacancy rate
2%
-1500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Source: Property & Portfolio Research
Low interest rates
likely here for a while
U.S. interest rates; percent
10
Fcst.
9
3-month T-Bill
8
10-Year government bond
7
6
5
4
3
2
1
0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Federal Reserve Board; Forecast by TD Economics at September 2012
2012
2014
The bottom line
• Housing improvement a fillip to economic growth
• Tax hikes & spending cuts are a drag
• Global growth improving, but risks remain
• Fed to remain stimulative
• Real GDP growth of ~2.0% in 2013, ~3.0% in 2014
TD Economics
www.td.com/economics
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