Transcript Quarterly Forecast Conference

NATIONAL FORECAST UPDATE
Dr. Rajeev Dhawan
Director
ECONOMIC
FORECASTING
CENTER
Presented at the
Quarterly Forecast Conference
GSU Student Center
May 25th, 2005
Office: 404-651-3291
email: [email protected]
http://www.robinson.gsu.edu/efc
Today’s Special: Conundrums
Why Hasn’t Oil Crossed the
$60 Mark?
Why Hasn’t Housing Moderated?
Why is the 10-Year Rate
Falling Despite the FED’s 8
Rate Hikes?
Why is GM’s Debt
at Junk Bond Status?
Why Haven’t Record Trade-Deficits
Produced a Dollar Meltdown?
Forecast Theme
The Economy’s Inexorable
Forward March – Despite
Emerging Conundrums
Data Revisions and the
Employment Report
Latest Month of Data
Month Report Published
Nov
Dec
Jan’05
Feb
March
April
Dec
Jan’05
Feb
Mar
Apr
May
High Pay
Jobs
Low Pay
Jobs
112
137
132
132
132
132
19
48
157
133
155
155
155
14
43
146
132
124
124
13
34
262
243
300
44
149
110
146
23
46
274
20
112
GE Revenue History
2000q1 to 2004q4
50000
Cisco Revenue History
2000q1 to 2004q4
8000
45000
7000
40000
6000
35000
5000
30000
25000
4000
20000
3000
15000
2000
10000
1000
5000
0
0
00q1 00q2 00q3 00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4
00q1 00q2 00q3 00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4
Wal-Mart Revenue History
2000q1 to 2004q4
90000
Microsoft Revenue History
2000q1 to 2004q4
12000
80000
10000
70000
60000
8000
50000
6000
40000
4000
30000
20000
2000
10000
0
0
00q1 00q2 00q3 00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4
00q1 00q2 00q3 00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4
20%
Dow 30 Revenue Growth
15%
10%
5%
0%
-5%
00q4 01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4
Announced Corporate Layoffs
(Thous.)
250
200
150
100
50
0
AUG DEC APR AUG DEC APR AUG DEC APR AUG DEC APR AUG DEC APR
2000
2001
2002
2003
2004
2005
Yield Spread Between Treasury and
Corporate Bonds
(%)
4.5
Baa - 10 Year T-Bond
4.0
3.5
3.0
2.5
2.0
1.5
1.0
MAY SEP JAN MAY SEP JAN MAY SEP JAN MAY SEP JAN MAY SEP JAN MAY
2000
2001
2002
2003
2004
2005
Banks are Opening Up!
(%)
50
(% Ch.)
10
9
40
8
30
7
20
6
10
5
0
4
-10
3
2000
2001
2002
Home Equity
Commercial & Industrial
2003
2004
Prime Rate
2005
Breakdown of Retail Sales
Y-O-Y
Apr’05
Category
2004
2003
05 Q1
% Y/Y
% Y/Y
1.
Motor Veh. (26%)
10.0
5.4
3.9
3.0
2.
Furnishings (6%)
3.1
4.0
6.0
2.8
3.
Build. Mat. (10%)
7.4
11.3
14.1
6.5
4.
Food (15%)
5.2
4.9
4.0
2.3
5.
Health (6%)
6.2
6.1
5.6
6.4
6.
Gasoline (8%)
19.8
17.6
16.3
9.5
7.
Clothing (5%)
7.9
4.3
6.1
3.3
8.
Gen. Merch. (14%)
7.4
5.8
6.9
4.7
9.
Non-store (5%)
12.4
13.0
13.2
7.4
8.6
7.3
7.2
4.2
Overall
Measured Hikes by FED
(% Ch.)
8
($/Barrel)
60
6
50
4
40
2
30
0
20
-2
10
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real GDP
Federal Funds Rate
Oil Price (Right)
Consumption and Real GDP Growth
(%)
6
5
4
3
2
1
0
-1
1991
1993
1995
Consumption
1997
GDP
1999
2001
2003
2005
2007
Housing Market and Auto Sales Gyrations
(Mil.)
2.0
(Mil.)
17.6
+25%
17.4
1.9
17.2
1.8
17.0
1.7
16.8
-17%
1.6
1.5
16.6
2000
2001
2002
2003
Housing Starts (Left)
2004
2005
2006
Auto Sales (Right)
2007
16.4
Residential Slowdown and "Total" Investment
(% Ch. of 4-Qtr. Mov. Avg.)
20
10
0
-10
-20
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Total
Business Fixed
Residential
International Country Analysis
Top US Trading
Partners
GDP Growth
2003
2004
2005(F)
Current
Account
(% of GDP)
Inflation
Exchange
Rate
(per US$)
ShortTerm
Rate
2004
2004
Latest
Latest
1. Canada
2.0
2.8
2.8
2.9
1.8
1.26
2.45
2. Japan
1.4
2.6
1.1
3.4
0.0
104.6
0.02
3. Mexico
1.6
4.4
3.8
-1.2
4.7
11.08
9.61
4. UK
2.2
3.1
2.5
-2.0
1.3
1.91
4.88
5. Netherlands
-0.9
1.3
1.4
2.9
1.4
1.29
2.13
6. Germany
-0.1
1.7
0.9
4.4
1.8
1.29
2.13
7. China
9.3
9.5
8.6
2.4
3.9
8.28
2.10
8. France
0.5
2.3
1.9
-0.6
2.3
1.29
2.13
9. Ireland
3.7
4.7
5.0
-1.6
2.3
1.29
2.13
10. Belgium
1.3
2.7
2.0
4.5
1.9
1.29
2.13
Euro Area
0.5
2.0
1.5
0.8
2.2
1.29
2.13
Source: IMF & Blue Chip International
Global Health and Export Growth
(% Ch.)
15
(index 2000 = 100)
10
100
5
90
0
80
-5
-10
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real Export Growth (L)
70
Real Exchange Rate (R)
Short-Term Forecast Comparison
Real GDP
05Q2
05Q3
05Q4
06Q1
06Q2
EFC
3.0
2.7
3.0
3.2
3.3
Blue Chip
3.0
3.4
3.3
3.2
3.3
(Bottom 10)
2.5
2.8
2.6
2.5
2.8
(Top 10)
3.7
4.0
4.0
3.8
3.9
10.3
9.3
10.9
9.2
8.6
8.4
8.0
10.3
6.1
7.6
-2.7
-11.5
-10.1
-3.7
-5.4
2.5
-0.5
0.0
-1.4
-4.6
Bus. Fixed Invest
EFC
Philadelphia
Res. Fixed Invest
EFC
Philadelphia
Prediction Vs. Reality
1st Quarter 2005
GDP Growth
Components
Consumption (60% of GDP)
Durable (12%)
Nondurable (30%)
Services (58%)
Pvt. Invest. (16% of GDP)
Res. Const. (5% of GDP)
Inventories (0.4% of GDP)
Exports (10% of GDP)
Imports (13% of GDP)
Federal Govt. (7% of GDP)
S&L Govt. (12% of GDP)
Actual Feb 05 Grade
3.1%
2.8%
A+++
3.5%
0.0%
4.9%
3.6%
4.7%
5.7%
82.5
7.0%
14.7%
0.6%
0.5%
2.1%
-2.8%
2.1%
5.1%
8.8%
-1.4%
38.7
5.6%
4.3%
5.2%
3.8%
BC+
C+
B+
AC
C
ABD
D
Anonymous Ventor
My girlfriend demanded that I
take her to someplace expensive,
so I took her to a gas station
Source: AJC, April 21st, 2005
OIL’S WELL
Excerpts from an interview with Art Smith, a veteran energy investor
There's Saudi Arabian security and Middle Eastern security.
Another big concern is Hugo Chavez in Venezuela. He is just an
unpredictable fellow.
He denied a bunch of drilling plants for the industry. Then he raised
royalty rates on heavy oil. Venezuela is a very important supplier.
Russia was our hope for new incremental supplies, yet post-Yukos there has been a
real chill on investment programs there.
…terror premium out of the current price. Who knows what that is, but it could be easily
$10 a barrel because of concerns over not having any oil.
Source: Barron’s, April 4th, 2005
Testimony of Chairman Alan Greenspan
Before the Economics Club of New York, May 20th 2005
Since the end of 2003, the rise in the value of
imported oil—essentially a tax on U.S. residents
—has amounted to about ¾ percent of GDP.
The effects were far larger in the crises of the 1970’s
Gas Spending Dings Discretionary Expenses
(Bil.$)
260
(%)
10.0
240
8.0
220
6.0
200
4.0
180
2.0
160
140
0.0
I
2002
II
III
IV
I
II
2003
III
IV
I
2004
II
III
Spending on Gasoline (Left)
Grow th in Food, Clothing & Shoe Spending (Right)
IV
I
2005
Consumer Sentiment and Stock Market Wealth
(Index: 1966 = 100)
160
(Bil.)
16000
140
14000
120
12000
100
10000
80
8000
60
6000
40
1996
1997
1998
1999
2000
Consum er Confidence (L)
2001
2002
2003
Wilshire 5000 (R)
2004
2005
4000
Why Oil Will Touch $105 by 2007!




Global Rig Count Peaked in 1981
Tanker Transportation Limits
Oil Refining Capacity Limits
New Oil Investments are a Two
Decade Cycle
Why Oil Will Touch $105 by 2007!
Source: Allison Nathan, NABE Spring Conference, Washington DC 2005
Anonymous Vent
$5 a gallon for gas will cure
Atlanta’s traffic problems!
Source: AJC, April 5th, 2005
Why Oil Won’t Touch $105 by 2007
 Alternate Fuels Become Viable at a
Sustained Price of $35/barrell, Which Leads
to a Reduction in Crude Oil Demand
 Higher Prices Reduce Demand by Itself:
–
–
–
Conservation
Change in Driving Habits
Lower Speed Limits
 New Supplies Rush into the Market in
Response to High Prices:
–
–
Tar Sands in Alberta
Oil-Rigs Erected in Our Backyards!
Breakdown of Consumer Prices
3-Month Rate
Category
Weight
Apr’05
Dec’04
Dec’03
1.
Core
79%
2.8%
2.3%
1.0%
2.
Non Durables
29%
3.5%
6.7%
2.4%
3.
Durables
11%
0.5%
2.8%
-6.3%
4.
Services
60%
3.7%
2.7%
2.6%
5.
Housing
40%
3.7%
2.8%
1.7%
6.
Commodities
40%
4.9%
4.6%
-1.3%
7.
Food
15%
1.9%
2.9%
4.8%
8.
Gasoline
3%
38.7%
25.5%
-12%
9.
New Cars
5%
1.8%
2.7%
-1.9%
10.
Medical
6%
5.4%
3.9%
4.2%
2.1%
3.6%
0.9%
Overall
Testimony of Governor Donald Kohn
To the International Research Forum, Frankfurt am Main, May 20th 2005
…,the degree to which core inflation
picked up in 2004 and 2005 also caught
many economists, including this one on
FOMC, by surprise.
Is the Bond Market Listening to the FED?
5
10-Year is DOWN
by 60 Basis Points!
4.5
4
3.5
8 Hikes Totaling 200 Basis
Points in 10 Months
29-June'04
3
18-May'05
2.5
2
1.5
1
3-month
6-month
1-year
2-year
5-year
10-year
Trade Deficit: Should We Worry?
(Bil. $)
0
-200
-400
-600
Almost 6% of GDP!
-800
-1000
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
10-Year Bond Rate and Trade Deficit
10-Year Bond Regression
Source: May 2005, Forecast of the Nation
10-Year Bond Rate
4.3
4.5
5.2
5.4
CPI Inflation
2.7
2.8
2.1
1.8
1.8
2.4
2.3
2.3
Core
Governor
Ben S. Bernanke
TRADE DEFICIT
March 10th, 2005
“I see … the emergence of a global saving glut in the
past eight to ten years.”
“…global supply of saving is the recent
metamorphosis of the developing world from a net
user to a net supplier of funds to international capital
markets.”
Global Current Account Balances
(Billions of U.S. Dollars)
Countries
1996
2003
Countries
1996
2003
46.2
-342.3
Developing
-87.5
205.0
-120.2
-530.7
Asia
-40.8
148.3
Japan
65.4
138.2
China
7.2
45.9
Euro Area
88.5
24.9
Hong Kong
-2.6
17.0
France
20.8
4.5
Korea
-23.1
11.9
Germany
-13.4
55.1
Taiwan
10.9
29.3
Italy
39.6
-20.7
Thailand
-14.4
8.0
Spain
0.4
-23.6
-39.1
3.8
12.5
25.3
Argentina
-6.8
7.4
Australia
-15.8
-30.4
Brazil
-23.2
4.0
Canada
3.4
17.1
Mexico
-2.5
-8.7
Switzerland
21.3
42.2
Middle East and Africa
5.9
47.8
United Kingdom
-10.9
-30.5
E. Europe and ex-USSR
-13.5
5.1
Industrial
United States
Other
Latin America
Source: Remarks by Governor Ben S. Bernanke, March 10, 2005
Net Foreign Purchases of U.S. Financial Instruments
($. Bil)
500
T-Bonds
400
300
Corp. Bonds
200
100
0
Agency
Stocks
-100
-200
90
91
92
93
94
95
96
97
98
Source: FRB Flow of Funds Data
99
00
01
02
03
04
Trade and Holding of US Treasuries
by Central Banks
Trade in Goods and Services
U.S. Treasury Securities Holdings
Currency
2004
Change
2004
Change
Appreciation
Japan
-75.2
-9.3
702
353.7
4.3
China
-162
-38.1
196
49.4
0.0
South Korea
-19.8
-6.9
67.1
8.6
13.4
Taiwan
-12.9
1.2
59.1
18.2
6.7
Hong Kong
6.5
1.8
52.9
22.7
0.0
Singapore
4.3
2.9
26.9
4.1
4.1
Germany
-45.8
-6.6
59.5
19.5
8.0
UK
-10.4
-1.7
171
124.0
7.1
* All numbers are in billions of U.S. dollars
Source: BEA (Trade) and US Treasury Department
Dollar Depreciation Against Yen and Won
Since January 2004
(%)
20
15
Won
10
5
0
Yen
-5
-10
JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC JAN FEB MAR APR MAY
2004
2005
2004 US Balance in International Trade
What We Buy From Them
What They Buy From Us*
Crude Oil
-135.7
Airplanes
13.2
Vehicles
-123.2
Chemicals (Plastic)
10.9
Clothing
-67.9
Airplane parts
10.5
Home Electronics
-67.8
Soybeans
6.6
Office Electronics
-65.6
Corn
6.0
Petroleum Preparations
-28.3
Wheat
5.0
Furniture and Bedding
-23.7
Scientific Instruments
4.5
Natural Gas
-21.1
Cotton
4.2
Electrical Machinery
-20.2
Metal ores
3.2
Toys, Sporting good
-19.1
Animal Feeds
3.0
* Billions of Dollars
Source: US Bureau of Economic Analysis
2002 Passenger Car Production and Sales
Country
Production
Sales
Japan
8,117,563
4,289,683
Germany
5,301,189
3,341,718
Deficit/Surplus
 3,827,880
 1,959,471
U.S.
4,879,119
8,422,625
-3,543,506
France
3,181,549
2,254,732
926,817
S. Korea
2,471,444
1,065,161
1,406,283
Spain
2,211,172
1,437,192
773,980
Brazil
1,495,622
1,295,119
200,503
U.K.
1,492,365
2,458,769
-966,404
Canada
1,274,853
868,188
406,665
Mexico
1,000,715
667,565
333,150
China
703,521
780,604
-77,083
India
573,808
601,321
-27,513
Sweden
251,035
246,581
4,454
Source: Ward’s World Motor Vehicle Data
Is GM Just in Business to
Service Their Workers’ Pension Plans?
 GM Has Lost 75% of its Market Value
Since Spring of 2000
 Legacy Cost of $1600 Per Vehicle
 Union Contracts Make Labor a Fixed Cost
 Financing Arm Profits Were Financing
Production Operations
 No “Oomph” Factor in its Products
Toyota
GM
Source: Dhawan and Lieberman (2002), forthcoming in Management Science
Source: Dhawan and Lieberman (2002), forthcoming in Management Science
What’s the Solution?
 Dhawan & Lieberman (2002) Study
– Increase Volume/Plant by Adopting Toyota’s
JIT Practices
 Negotiate with Unions
 Bring Back Some Creative Designing
 Issue to Top Management & Workers
30-Year Company Bonds as Part of their
Compensation (with Restrictions on
Re-sales)
The Good, the Bad, and the Ugly
Georgia Sector or Area
Grade
Construction
A++
Tax Collections
A+
Small Business Hiring
A+
Exports
A+
Interest Rates
A
Healthcare Jobs
A
Business Serv./Hospitality Jobs
B+
Overall Job Growth
B+
Large Corporation Hiring
C
Oil Prices
C
Military (BRAC)
C
Manufacturing
F
Technology
F
Delta
F
Overall Georgia Economy
B
Residential Construction A++
Atlanta Housing Permits (quarterly)
(thous.)
14.5
14.0
13.5
13.0
12.5
12.0
11.5
57,100 Permits
in 1998
1998
1999
2000
2001
2002
2003
2004
 Georgia 4th in housing starts, 9th in population
 Atlanta Permits hit 57,700 in 2004, highest since 1998
Source: Nat. Realtors Assoc., US Census Bureau & Greater Atl. Homebuilder’s Assoc.
Commercial Construction A++
Georgia Construction Jobs
 Current $$ Projects:
–
–
–
–
–
Fifth Runway ($5.4B)
Atlantic Station ($2B)
Allen Plaza ($300)
Aquarium ($200M)
1180 P’tree ($100M)
(thous.)
200.0
+5,000 Jobs
198.0
196.0
194.0
192.0
2002
2003
2004
 5,000 construction jobs created since Q1 2003
 Construction jobs are 16% of all new jobs created
since Q1 2003
Georgia Tax Collections A+
Georgia Total Tax Revenue
4 quarter moving average
($ Millions)
3700
3600
3500
3400
3300
3200
3100
2001
2002
2003
2004
 7 Straight Quarters of Revenue Growth
 Total Tax Revenue Up 9.9% YTD
Source: Georgia Department of Revenue
2005
Small/Self Business Hiring A+
30,000 Payroll Jobs Created Last 12 Months
New Hires => More Personal Income Tax
Collections
– PIT Collections up 9.7% YTD
What Caused This Strong Growth?
– Few Hiring Sprees from Largest Firms
– HH Survey Reports 68,000 Jobs in Last 12
Months
=> Small Business + Self-Employed
Georgia 2004 Exports A+
Georgia and US Export Growth
4-Qtr Moving Average
 Georgia’s
Exports Grew
Faster than US
(%)
8
6
4
– Georgia 20.6%
– US 13.0%
2
0
-2
-4
-6
2000
2001
2002
Georgia Export Growth
Source: www.Wisertrade.org
2003
2004
US Export Growth
Georgia 2004 Exports A+
Top Export Increase Destinations
– Italy +$380 Mil ($300M in transport equipment)
– Mexico +$330 Mil. (Many categories)
– Singapore +$400 Mil. ($250 in transport equipment)
– China +$160 Mil. (many categories)
Main Products:
– Transportation Equipment +$1.4 Bil.
– Non-Electric Machinery +$900 Mil.
Source: www.Wisertrade.org
Georgia Jobs Growth B+
 Overall, Georgia Created 30,000 Jobs in the Last Year
 But Look at the QUALITY
– Lots of Low-Paying Jobs
– But NO High-Paying Jobs
Annual
Wages
Jobs Created in Last 12 Month
(Q1 2004 – Q1 2005)
$41K
30,000
$24
9,500
Biz Services (P&B)
$28K
15,500
Leisure & Hospitality
$17K
4,500
High-Paying Jobs
$57
-6,000
Manufacturing
$48
-7,300
Information
$61
-900
New Jobs Created
Low-Paying Jobs
Source: Georgia Department of Labor
2005 Benchmarking
Georgia
Employment
Original
2003 Level
(thous.)
Revised
March 2004
(thous.)
3,937
3,860
Diff.
Revised
March 2005
(thous.)
Diff.
Total
2004 BM +
2005BM
-77.4
3,845
-24.6
-102
Georgia’s 2003 Employment Level revised
downward AGAIN
– Revised down by 77,000 jobs in 2004 BM
– Revised down by 25,000 in 2005 BM
– Total of 102,000 less jobs than originally thought in
Dec 2003
What does this mean for 2004 Job Growth?
Source: Georgia Department of Labor
Georgia Benchmark Revisions
(Jobs Added)
Year
2005 BM
2004 BM
2003
2001
-5,700
-5,700
-5,800
2002
-74,000
-74,000
-38,000
2003
-24,600
-9,700
31,000
2004
44,800
34,200
Source: Georgia Department of Labor
Georgia’s March 2005 Benchmark Revisions
(For Year 2004) Revised
Annual
Wages
Old
(thous.)
March 2005
(thous.)
Difference
$41K
3,894
3,890
-4.I
High-Paying Jobs
$57
922
909
-12.8
Low-Paying Jobs
$24
1,222
1,223
-0.9
Biz Services (P&B)
$28K
254
265
11.3
Prof & Biz Services
$47K
503
510
7.4
Retail
$26K
440
443
3.6
Leisure & Hospitality
$17K
355
358
3.5
Transportation
$36K
156
157
1.2
Wholesale Trade
$62K
206
207
1.1
Mgt/Companies (P&B)
$62K
52
53
.5
Accounting (P&B)
$45K
28
27
-0.8
Construction
$43K
201
198
-2.5
Information
$61K
126
119
-7.9
Other Services
$27K
174
156
-17.9
Total
Tourism B+
 Hotel Occupancy and Employment Up
– Hotel Occupancy Up by 5.9% in 2004
– Added 7,000 jobs in calendar year 2004
 GWCC Reservations Coming Back
–
–
–
–
56% in 2003
59% in 2004
55% in 2005 (booked)
45% in 2006 (booked)
 But Ultra-Large Conventions Look Elsewhere
– Las Vegas, Orlando, Chicago have more space and more
hotel rooms
Sources: GWCC and PKF Consulting
Base Realignment and Closure C




6 Georgia Facilities on Pentagon List
Largest Recommended Closings in Atlanta
Final List from BRAC Committed Released in Sept. 05
Net-Net: Local Mero Pain But Georgia May Come Out
Ahead
Georgia Military Facilities on BRAC List
Metro
Area
Facility
Employees
Payroll
($mil.)
6,000
$512
700
$48
300
$8.7
Columbus
n/a
n/a
Rome
10
n/a
Fort Gillem & Fort McPherson
Atlanta
Naval Air Station Atlanta
Atlanta
Naval Supply School
Athens
U.S. Army Reserve Center
Inspector/Instructor
Source: Source: Department of Defense 2002 Base Structure Report
Georgia Military Affairs Coordinating Committee, Rome Chamber of Coommerce
Large Firm Hiring C
Revenue Growth for the Largest Georgia-Based Companies
1993 – 2000
2000 – 2003
2004
NPM ‘04
1. Home Depot
27.2%
14.9%
11.3%
6.6%
2. SunTrust
15.8%
- 6.4%
12.0%
24.8%
3. Georgia Pacific
8.7%
- 2.8%
-3.0%
3.2%
4. Bellsouth
7.4%
- 4.7%
-10.3%
24.0%
5. UPS *
7.2%
4.0%
9.2%
9.1%
6. The Coca-Cola
5.2%
1.9%
4.2%
22.1%
7. Delta Airlines
4.9%
- 7.4%
12.5%
-15.4%
8. Southern Co.
2.5%
3.8%
6.0%
12.9%
* UPS data is available from 1995 only
Delta / Air Transportation F
Fuel Prices Still Very High
– Underestimated Current Fuel Costs by 16%
– Currently $1.43/gallon, 50% above a year ago
Crunch Time
– Posted $1.1 Billion in Losses Q1 2005
– Delta needs an extra $625 Million in 2005
– Hoping to renegotiate $1.1 Billion financing deal
with Amex and GE
Competition Getting Breaks
– United Dumped $6.6 Billion in Pension Costs
– US Air and America West Merger
Information and Technology F
Georgia InformationJobs
 Mergers Often Bring
Job Losses:
– Qwest and MCI
– Sprint and Nextel
– AT&T and Cingular
 Layoffs:
– AT&T -350
– Cingular: -10%
– AT&T/SBC -13,000
(thous.)
150
145
140
135
130
125
120
115
2001
2002
2003
2004
2005
Home Depot Revenue History
2000q1 to 2004q4
21000
?
18000
15000
12000
9000
6000
3000
0
2000q1 2000q2 2000q3 2000q4 2001q1 2001q2 2001q3 2001q4 2002q1 2002q2 2002q3 2002q4 2003q1 2003q2 2003q3 2003q4 2004q1 2004q2 2004q3 2004q4
Employment Gains: History and Forecast
Total vs. High Paying
(Thous.)
150
100
50
0
-50
-100
1995
1997
Total
1999
High Paying
2001
2003
2005
2007
Georgia Forecast
Jobs Added (000’s)
2005
2006
2007
73.7
85.1
82.6
6.4
8.4
12.6
Feb 05 Report
14.6
14.1
14.6
% Total
9%
10%
15%
32.1
32.7
33.3
44%
39%
40%
Total Jobs*
High Paying **
Low Paying
% Total
*Calendar Year Calculations (January to December)
** High Paying Jobs are in Manufacturing, Information, Air Transport, Management of
Companies, Accounting, Scientific, Computers, Finance & Insurance
Employment Gains: History and Forecast
Information vs. Healthcare
(Thous.)
15
10
5
0
-5
-10
-15
1995
1997
Information
1999
2001
Healthcare
2003
2005
2007
Employment Gains: History and Forecast
Hospitality vs. Admin & Support
(Thous.)
25
20
15
10
5
0
-5
-10
-15
1995
1997
Hospitality
1999
2001
Admin & Support
2003
2005
2007
Employment Gains: History and Forecast
Government vs. Trade
(Thous.)
25
20
15
10
5
0
-5
-10
-15
1995
1997
Government
1999
Trade
2001
2003
2005
2007
Atlanta Forecast
Jobs Added (000’s)
Total Jobs*
High Paying **
% Total
Low Paying
% Total
2005
2006
2007
50.4
51.7
53.2
6.2
9.1
10.4
12%
18%
20%
22.5
18.6
18.2
45%
36%
34%
*Calendar Year Calculations (January to December)
** High Paying Jobs are in Manufacturing, Information, Air Transport, Management of Companies,
Accounting, Scientific, Computers, Finance & Insurance
Metro Atlanta Housing Forecast
Permits (000’s)
2005
2006
2007
41.2
-11.4
9.6
-14.5
40.0
-2.9
9.6
0.2
39.9
-0.1
8.4
-12.4
50.8
% change
-12.0
US Housing Starts -3.2
49.6
-2.3
-12.7
48.4
-2.5
-1.5
Single-Family
% change
Multi-Family
% change
TOTAL PERMITS
Georgia’s 7 New MSA’s
 Based on the 2000 Census, 7 of Georgia’s small
cities grew enough to be qualified as a metro area
 Georgia now has 7 new MSA’s:
–
–
–
–
–
–
–
Brunswick
Dalton
Gainesville
Hinesville
Rome
Valdosta
Warner Robins
 All of Georgia’s original 7 MSA’s (except Macon)
expanded their metro area
MSA Forecast – Best and Worst
Employment Growth Rates
Metro Area
2005
2006
Savannah
3.2
2.3
Valdosta
1.9
1.4
Brunswick
1.0
1.5
Columbus
0.4
1.2
Dalton
0.2
0.6
Macon
-0.3
0.5
TOP 20 MSAs with HIGHEST House Price Appreciation
MSA
1-Year
1-Qtr
5-Year
1. Las Vegas, NV
36.23
1.67
84.09
2. Bakersfield, CA
30.46
5.15
92.41
3. Reno-Sparks, NV
30.09
4.52
79.48
4. Riverside-San Bernardino-Ontario, CA
29.58
3.83
112.14
5. Visalia-Porterville, CA
27.23
3.97
67.44
6. Palm Bay-Melbourne -Titusville, FL
26.25
3.79
85.86
7. Salinas, CA
25.71
3.28
116.19
8. Los Angeles - Long Beach - Glendale, CA
25.19
2.73
102.73
9. Fresno, CA
25.10
3.99
103.49
10. Santa Barbara - Santa Maria-Goleta, CA
24.98
3.21
121.06
11. Santa Ana-Anaheim-Irvine, CA
24.56
1.88
106.48
12. Merced, CA
24.45
5.12
115.10
13. San Diego-Carlsbad - San Marcos, CA
24.41
1.99
119.40
14. Oxnard-Thousand Oaks - Ventura, CA
23.90
1.65
105.53
15. Yuba City, CA
23.80
5.54
111.57
16. West Palm Beach-Boca Raton-Boynton Beach, FL
23.36
2.90
94.38
17. Sacramento-Arden-Arcade-Roseville, CA
23.19
2.80
111.79
18. Stockton, CA
23.16
4.32
104.98
19. Port St. Lucie-Fort Pierce, FL
22.87
3.00
97.29
20. Punta Gorda, FL
22.87
4.31
92.18
Source: OFHEO Report, 4th quarter 2004
Percentage of House an
Average Family can Afford
SAN DIEGO
ORANGE COUNTY
LOS ANGELES
SAN FRANCISCO
NEW YORK
HONOLULU
MIAMI
LAS VEGAS
JERSEY CITY
Home Price
Appreciation Q3/Q3
54%
55%
57%
63%
64%
67%
77%
91%
96%
Share of Interest-only
Mortgages
32.3%
67%
33.9%
53%
32.0%
43%
24.7%
61%
17.7%
19%
3.5%
19%
25.4%
22%
31.1%
45%
33.0%
15%
FT. LAUDERDALE
97%
26.3%
36%
BOSTON
97%
23.0%
27%
Household Debt Service Ratio
Ratio of Debt Serv ice Payments to Disposable Personal Income
(%)
14
13
13
12
12
11
11
10
1980
1983
1986
1989
1992
1995
1998
2001
2004
Testimony of Chairman Alan Greenspan
…today sub-prime mortgages account for roughly 10
percent of the number of all mortgages outstanding, up
from just 1 or 2 percent in the early 1990s.
At the Federal Reserve System’s 4th Annual Research Conference, April 8th, 2005
Fannie's and Freddie's purchases of their own or each other's
mortgage-backed securities with their market-subsidized debt
do not contribute usefully to mortgage-market liquidity, to the enhancement of
capital markets in the United States, or to the lowering of mortgages rates
for homeowners
Before the Committee on Banking, Housing, and Urban Affairs, April 6th 2005
Home Price Appreciation and Aggregate Income Growth by State
(1991:1 - 2004:4)
17
Annualized home price appreciation (%)
Median = 4.97
DC
Red Zone
15
CA
13
11
NV
FL
NY
VA
Median = 7.74
MN
9
AZ
PA
7
WA
5
NC
OH
GA
TX
TN
Safe Zone
3
1
3
3.5
4
4.5
5
5.5
6
Annualized aggregate income grow th (%)
6.5
7
7.5
Home Price Appreciation and Volatility by State
17
DC
Median = 5.23
Annualized home price appreciation (%)
15
CA
Red Zone
13
NV
FL
11
NY
VA
Median = 7.74
9
MN
AZ
PA
7
WA
GA
5
NC
3
TX
OH
TN
Safe Zone
1
2
3
4
5
6
7
8
Standard deviation of year-over-year grow th of OFHEO index (1975:1 1991:1)
9
10
10-Year
Estate
Cycles
10-YeartReal
Real
Estate
Cycles
Los
Angeles
Los
Angeles&
& NYC
NYC
(1990=100)
140
120
100
80
60
40
84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00
Los Angeles
NYC
PIMCO’s
Bill Gross
HOW TO STRUCTURE
YOUR PORTFOLIO
February 17th, 2005
“In general, do not own nominal notes in 2-10 year paper in countries with
average or vibrant demographic conditions which are able to inflate their
way out of the global aggregate demand predicament… it is also most
vulnerable to foreign central bank diversification or “buyer’s strike” even if
probabilities of the latter are low.”
“Focus on bond market economies that are decaying demographically and
that are deflation prone. Euroland is the primary candidate. Japan is
becoming more attractive.”
“Invest in the U.S. in TIPS since inflation in demographically stable
economies is a natural result of low real interest rates and the asset
inflation which it produces.”
“Be alert to developments which may reverse this “perfect Goldilocks”
environment - geopolitical, LTCM look-alikes, trade legislation, dollar crisis, oil.”
EFC @ GSU
Rajeev Dhawan
DR. DHAWAN’s
PORTFOLIO INSIGHTS*
May 25th, 2005
1) Go long on Euro-denominated bonds vs. US long-term Treasury
2) Oil stocks (especially exploration) and Emerging Economy bonds
(Russia, Brazil, Chile, South Africa) make for a pair!
3) Non-energy commodity firms (GE, Caterpillar, Microsoft) are good bets
4) Drug companies are undervalued
5) Avoid consumer cyclicals, financials (plus Steel, Cement, Germany) and
buy State, Local and Municipal Bonds
* Important Disclaimer: This in no way constitutes an investment advice and you should
independently evaluate this information and consult an independent financial advisor before
making any investments based on this speech, slide or write-up.
Forecast Net-Net
 Balanced Growth is Expected; Foreign
Partners Health is a Drag
 High Trade Deficits Will be the Norm in the
Coming Years
 Local and State Job Prospects are Improving
But Keep Your Fingers Crossed for Delta and
Commercial Builders