Transcript I-Day 2012 Economic Outlook

RIMS IDay 2012
U.S. and Washington State
Economic Outlook
March 9, 2012
Fred DeKay, Ph.D.
Albers School of Business and Economics
The Economic Climate:
• Historical, Current, and Forecasts
• GDP, Employment, and Inflation for the US
and Washington State
• The US Housing Market
• Global Conditions
Credits: Arun Raha, Former Chief Economist of the State of
Washington Economic Forecast Council
http://www.erfc.wa.gov/
Conclusions:
• U.S. Output has recovered to previous levels. We
are growing, but slower than expected. Recent
evidence is positive, but uncertainty persists.
• Employment growth will lag the recovery in output.
It may take two more years to get back to where
we were in 2007, four or five to get to full
employment.
• Downside risks are high but moderating.
• Washington State Economy is hampered by
construction and state and local governments.
Three Questions:
• Where are we now?
• Where are we going?
• What risks do we face?
The Current Economic Climate
Output
Employment
Inflation
The Recession: How bad was it?
• Business Cycle Dating Committee:
• Recession started in December 2007
• Recession ended June 2009 18 months
• Output fell -0.3% in 2008 and fell -3.5% in 2009.
This was the worst recession since
WW II
Recession
1948-49
1953-54
1957-58
1960-61
1969-70
1973-75
1980
1981-82
1990-91
2001
Average
2007-09
Peak-to-trough decline
Real GDP
Employment
Recession
Duration
percent
percent
months
1.6
2.5
3.1
0.5
0.2
3.2
2.2
2.6
1.4
0.7
1.8
4.1
5.0
3.4
4.2
2.3
1.2
1.9
2.3
3.1
1.4
1.7
2.6
6.1
11
10
8
10
11
16
6
16
8
8
10
18
Source: NBER, ERFC, Washington State Economic and Revenue Forecast Council
GDP is Growing Again…but…
slowly
…It is still far below potential
Recently, GDP growth is slow, but improving
2009: -3.5%
2010: 3.0%
2011: 1.7%
2nd half: 2.4%
Source: BEA, data through 2011 Q3 Data published December 22, 2011
How long did it take us to recover?
Growth was +3.0% in 2010, and continued to be
positive in 2011, so by the 3rd quarter of 2011,
we were back to the previous peak in 2007.
Output is back to its previous peak, but jobs are
another story.
Employment
• It may take another two years to get to our
previous peak.
•It may take another 5 years to get back to full
employment.
How long will it take us to recover?
United States Job Losses
Months after Recession Start
0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52
10000
Thousands (SA)
8000
6000
4000
5.0
million
2000
0
-2000
-4000
-6000
-8000
-10000
1981-82 Recession
2007-2009 Recession
2001-02 Recession
U.S. Unemployment Rate
June 2011: 9.1%
October 2011: 8.9%
November 2011: 8.7%
December 2011: 8.5%
January 2012: 8.3%
Good improvement.
The Bright Side of the News
We are now producing our pre-recession GDP
with 5.0 million fewer jobs.
Labor Productivity has increased.
Inflation- CPI
•
•
•
•
•
Consumer Price Index: stabilizing
2008 : 3.8%
2009 : -0.3%
2010 : 1.6%
2011 : 3.1%
•
•
•
•
Slowdowns are deflationary; excess capacity
The risk is persistent deflation
October 0.0%, Nov. 0.1%, Dec. 0.0%, Jan. 0.2%
Core rate has been 0.1%, 0.2%, 0.1%, 0.2%
Where are we going?
US and WA Unemployment Rate, 1987-2015
Percent Unemployed
12
Forecasts
10
8
6
4
2
US UE Rate
WA UE Rate
ERFC Global Insights: February
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
0
Monetary Policy: Fed Funds Rate
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Fiscal policy is mildly stimulative
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SURVEY of OUTPUT FORECASTS
2012-2013
• Federal Reserve Board: Low and High
range: January
• Congressional Budget Office: August
• Governors Council of Ec. Adv.: February
• Survey of Professional Forecasters by the
Philadelphia Fed; May, August, November
2012-2014 OUTPUT FORECASTS
• Federal Reserve Board:
• Feb 29: Low and High Central Tendency:
• 2012: 2.2% - 2.7%
• 2013: 2.8% - 3.2%
• 2014: 3.3% - 4.0%
• Congressional Budget Office: December*
(Does not include payroll tax cut)
• 2012: 2.2%
• 2013: 1.0%
• 2014: 3.6%
2012-2014 OUTPUT FORECASTS
• Survey of Professional Forecasters: February
•
•
•
•
2012:
2013:
2014:
2015:
2.3%
2.7%
3.0%
3.1%
• WA Governor’s Council of Economic
Advisors(Global Insight): February
• 2012: 2.2%
• 2012: 2.6%
WA : 1.1%
WA : 2.8%
Some GDP Forecasts are Stabilizing
Revisions in the Survey of Professional
Forecasters, May, August 2011 and January 2012
3.3
3.5
3
3
2.7
2.9
2.8
3.1
3
2.7
2.6
2.3
2.5
2
2011
2012
2013
2014
1.8
1.7
1.5
1
11
12
13 14
11
12
13 14
11
12
13 14
0.5
0
May
August
Philadelphia Federal Reserve Bank
January
What is Needed to Sustain the
Recovery?
• A return to normal consumer spending
patterns which depends on a virtuous
circle of:
• Improved employment
• Recovery in the housing market and wealth
• Improved Consumer Confidence
• How do these look now?
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250.00
Case-Shiller Home Price Index Seattle, 20 Cities
Composite, CPI: 2000-2011
Still falling, on average
200.00
150.00
100.00
50.00
WA-Seattle
Composite-20
US CPI
0.00
Source: Standard and Poors
U.S. Housing Permits
Housing Market
• Foreclosure sales still depressing prices
• 8% of mortgages are seriously delinquent
in the US, down from 20% in 2010
• 6% seriously delinquent in Washington
• 29% of house sales are distressed
properties
• Permits are depressed: Where are all
those kids going?
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Consumer confidence is volatile
© Copyright 2012, Advisor Perspectives, Inc.
Consumer Sentiment Index, up 1.3 to 75.3 in February
Consumer Confidence Index up in January
The Growth of Public Debt: July 2011
Other Drivers of Future
Consumer Spending
•Household formation demand is accumulating
•Net worth is rising
•Our cars are older than ever: pent up demand
•Savings is declining from 4.1% to 3.6% to 3.5%
in November
US Index of Leading Economic
Indicators
• Continues to rise after a dip in 2011:
• increased .4% in January 2012
• 7 of 10 components rose: January 2012
• increased .5% in December 2011
Index of Leading Economic
Indicators
USA:
https://www.conferenceboard.org/pdf_free/press/Press
PDF_4407_1329469190.pdf
Euro area:
https://www.conferenceboard.org/pdf_free/press/PressP
DF_4416_1330277142.pdf
Global Trends: GDP Growth
2010
5.2
World
Advanced Economies 3.2
3
USA
1.9
Euro Area
7.3
Emerging economies
9.5
Asia
10.4
China
6.1
Latin America
2011
3.8
1.6
1.8
1.6
6.2
7.9
9.2
4.6
2012
3.3
1.2
1.8
-0.5
5.4
7.3
8.2
3.6
IMF World Economic Outlook, January 2012
2013
3.9
1.9
2.2
0.8
5.9
7.8
8.8
3.9
Global Trends: Govt. Debt/GDP%
World
Advanced Economies
USA
Euro Area
Italy
Spain
Japan
Emerging economies
2010
70
100
98
85
118
61
219
41
2011
70
104
102
88
121
70
233
38
2012
71
108
108
91
125
78
241
36
International Monetary Fund, January 2012
2013
71
110
112
93
127
84
247
35
2012 Positives
•
•
•
•
•
We are growing, but slowly
Inflation seems stable
Housing market seems to be closer to bottom
Index of Leading Economic Indicators is up
Aerospace, Software and Agriculture Exports
are doing well in Washington
• We will likely muddle through an slow patch
in 2012
2012 Risks
• Housing Market fails to stabilize: 1/4th of
mortgages are underwater
• Unemployment continues to restrain
consumer spending and confidence
• Middle East tensions are rising
• Asia growth is slowing
• European debt situation threatens a new
recession
2012 Risks
• European Debt Situation
• Greece (165%), Italy(121%), Spain(70%),
Ireland(109%), Portugal(103%), Eurozone(88%)
• Threaten German and French Banks, which
threaten the US Banks
• Growth of US Public Debt: now about 102%
of GDP: 2011
• Political gridlock in DC
Conclusions:
• We expect the U.S. and WA economies will
experience slow growth, muddle through conditions.
• The risk of another recession remains elevated, but
has receded modestly since September.
• Uncertainty remains high, but forecasts are no longer
being revised downward.
• Employment growth will lag the recovery in output. It
may take four or five years to get to full employment.
• Consumer confidence remains weak.
Conclusions:
• The European debt and uncertainty in the Middle
East are threats to recovery.
• The federal government needs to balance the need
for further stimulus in the short term with the need for
a credible long term fiscal policy.
• WA is likely to underperform the nation despite good
performance by aerospace, software publishing, and
agriculture.
• The slowdown in Asian economic growth threatens
Washington State.
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Resources
State of Washington Economic Forecast Council.
http://www.erfc.wa.gov/
Federal Reserve Economic Data Base, St. Louis Fed.
http://research.stlouisfed.org/fred2/
Standard and Poors, Case-Shiller House Price Index.
Charles P. Kindleberger and Robert Aliber, Manias, Panics and Crashes: A
History of Financial Crises, 5th ed.,Wiley, 2005
IMF, World Economic Outlook,
http://www.imf.org/external/ns/cs.aspx?id=29
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Inflation: Annual Rates
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