Transcript US Real GDP - Rotary Club of York

The U.S. Economic Outlook
Jay Bryson, Global Economist
December 3, 2008
U.S. Real GDP
National Economic Overview
Real GDP
Bars = Compound Annual Rate
8%
The U.S. economy
held up reasonably
well in the first part of
the year, but now is
clearly struggling
Line = Yr/ Yr % Change
8%
6%
6%
4%
4%
2%
2%
0%
0%
Real GDP: Q3 @-0.5%
Real GDP: Q3 @0.7%
-2%
-2%
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
2
U.S. Real GDP
National Economic Overview
Real Final Sales to Domestic Purchasers
Bars = Compound Annual Rate
8%
The domestic
economy is even
weaker than the
negative headline
GDP number would
suggest
Line = Yr/ Yr % Change
8%
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
Final Sales to Dom. Purch.: Q3 @-2.30%
Final Sales to Dom. Purch.: Q3 @-0.26%
-2%
-2%
-3%
-3%
96
97
98
99
00
01
02
03
04
05
06
07
08
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
3
LIBOR Rates
National Economic Overview
3-Month LIBOR Fixings
Rate
The credit crunch has
caused the outlook to
deteriorate
significantly
8.00%
8.00%
6.00%
6.00%
4.00%
4.00%
2.00%
2.00%
Dollar LIBOR: Nov @2.196%
Pound LIBOR: Nov @3.964%
Euro LIBOR: Nov @3.930%
0.00%
Jan-07
0.00%
Jul-07
Jan-08
Jul-08
Source: Bloomberg L.P. and Wachovia
Wachovia Economics Group
4
ISM Manufacturing Index
National Economic Overview
ISM Manufacturing Composite Index
Diffusion Index
65
There are signs the
U.S. economy has hit
an air pocket recently
65
60
60
55
55
50
50
45
45
40
40
ISM Composite Index: Oct @38.9
12-Month Moving Average: Oct @48.1
35
35
87
89
91
93
95
97
99
01
03
05
07
Source: Institute of Supply Management and Wachovia
Wachovia Economics Group
5
Auto Sales
National Economic Overview
Light Vehicle Sales
Millions, SAAR
Auto sales are very
weak
22
22
20
20
18
18
16
16
14
14
12
12
10
10
8
8
6
6
4
4
2
2
Light Vehicle Sales: Oct @10.5 Million
0
0
2004
2005
2006
2007
2008
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
6
Initial Jobless Claims
National Economic Overview
Initial Claims for Unemployment
Seasonally Adjusted, In Thousands
600
550
The labor market has
weakened sharply
600
Year-Over-Year Percent Change: Nov-15 @62.8%
Initial Claims: Nov-15 @542.0 Thousand
4 Week Moving Average: Nov-15 @506.5 Thousand
52 Week Moving Average: Nov-15 @396.8 Thousand
550
500
500
450
450
400
400
350
350
300
300
250
250
86
88
90
92
94
96
98
00
02
04
06
08
Source: U.S. Department of Labor and Wachovia
Wachovia Economics Group
7
Housing Starts
National Economic Overview
Housing Starts
Seasonally Adjusted Annual Rate - In Millions
2.4
2.4
Housing Starts: Oct @0.791 Million
2.0
2.0
1.6
1.6
1.2
1.2
0.8
0.8
0.4
0.4
Are housing starts
nearing a bottom?
87
89
91
93
95
97
99
01
03
05
07
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
8
Business Inventories
National Economic Overview
Inventory Change in GDP
Quarterly Change, Annual Rate, Billions of Dollars
$150
Most of the inventory
swing should be
behind us
$150
$100
$100
$50
$50
$0
$0
-$50
-$50
Change in Inventories: Q3 @-$29.1B
-$100
1992
-$100
1994
1996
1998
2000
2002
2004
2006
2008
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
9
Productivity Growth
National Economic Overview
Productivity - Total Nonfarm
Year-over-Year Percent Change, 3-Year Moving Average
5.0%
Productivity growth
should remain rather
solid
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
0.0%
Nonfarm Productivity: Q3 @1.6%
-1.0%
-1.0%
60
65
70
75
80
85
90
95
00
05
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
10
Oil Prices
National Economic Overview
Crude Oil
NYMEX Front-Month Contract, Dollars per Barrel
$160
Growth Sustained
Remains Below
Trend
The decline in
PCE Continues
to
energy
prices should
Maintain
Strength
help
to prop
up real
disposable income
Residential
Weakness Yet to
Infect Economy
$160
$140
$140
$120
$120
$100
$100
$80
$80
$60
$60
$40
$40
$20
$20
Crude Oil: Nov @$49.93
$0
2000
$0
2001
2002
2003
2004
2005
2006
2007
2008
Source: New York Mercantile Exchange (NYMEX) and Wachovia
Wachovia Economics Group
11
The U.S. Consumer
National Economic Overview
Real Disposable Income vs. Real PCE
Both Series are 3-M Moving Averages, Year-over-Year Percent Change
8%
Real Personal Consumption Expenditure: Sep @0.0%
Real Disposable Income: Sep @0.5%
7%
Continued growth in
real disposable
income should help to
support consumer
spending
8%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
92
94
96
98
00
02
04
06
08
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
12
The U.S. Consumer
National Economic Overview
Household Indicators in the United States
Percent of Gross Domestic Product
140%
Growth in consumer
spending and
residential investment
likely will be subdued
until the household
sector reduces
leverage
78%
120%
76%
100%
74%
80%
72%
60%
70%
Household Liabilities: 2007 @104.3% (Left Axis)
Consumer Spending & Res. Investment: 2007 @74.9% (Right Axis)
40%
68%
1990
1994
1998
2002
2006
Source: Federal Reserve Board and Wachovia
Wachovia Economics Group
13
U.S. GDP Forecast
National Economic Overview
Wachovia U.S. Economic Forecast
Actual
2005
The United States will
probably experience
its worst recession
since the early 1980s
Real Gross Domestic Product
Personal Consumption
Business Fixed Investment
Equipment and Software
2
3
Consumer Price Index
Corporate Profits Before Taxes
10-Year Treasury Note
1
3
2006
Forecast
2007
2008
2009
2010
2.9
3.0
7.2
9.3
3.4
2.8
3.0
7.5
7.2
3.2
2.0
2.8
4.9
1.7
2.9
1.3
0.4
2.4
-1.6
4.3
-1.0
-0.9
-9.5
-10.0
1.7
1.4
1.5
-6.1
-1.8
2.4
11.9
4.39
16.0
4.71
-0.6
4.04
-8.7
3.70
-19.8
4.00
8.3
4.50
Forecast as of: November 12, 2008 2Compound Annual Growth Rate 3 Year-over-Year Percent Change
Source: Wachovia
Wachovia Economics Group
14
York Economy
York, Pennsylvania
York MSA Unemployment Rate
Seasonally Adjusted
8%
8%
Unemployment Rate: Sep @5.1%
12-Month Moving Average: Sep @4.4%
York appears to be
outperforming the
national economy at
present
7%
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
90
92
94
96
98
00
02
04
06
08
Source: Bureau of Labor Statistics and Wachovia
Wachovia Economics Group
15
York Housing Market
York, Pennsylvania
York MSA Housing Permits
4
Thousands of Permits, Seasonally Adjusted Annual Rate
4
Single-Family: Sep @1,260 Permits
Single-Family, 12-Month Mov. Avg.: Sep @1,015 Permits
Multi-Family, 12-Month Mov. Avg.: Sep @131 Permits
There was not much
over-building in York
3
3
2
2
1
1
0
0
1990
1993
1996
1999
2002
2005
2008
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
16
York Housing Market
York, Pennsylvania
York MSA Home Prices
OFHEO Home Price Index
25%
20%
Home prices are
starting to edge
lower, but they
probably won’t crash
25%
Quarterly Change, Annual Rate: Q2 @-5.5%
Year-over-Year Percent Change: Q2 @0.4%
20%
15%
15%
10%
10%
5%
5%
0%
0%
-5%
-5%
-10%
-10%
90
92
94
96
98
00
02
04
06
08
Source: Office of Housing Enterprise Oversight and Wachovia
Wachovia Economics Group
17
York Population
York, Pennsylvania
York MSA Population Growth
In Thousands
10
Population growth is
starting to slow
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
80
82
84
86
88
90
92
94
96
98
00
02
04
06
Source: U.S. Department of Commerce and Wachovia
Wachovia Economics Group
18
Global GDP Growth
Global Economic Outlook
Real Global GDP Growth
Compound Annual Growth Rate
8.0%
Growth Sustained
Remains Below
Trend
A period of subPCE
Continues
trend
global to
Maintain
economicStrength
growth
appears likely
Residential
Weakness Yet to
Infect Economy
8.0%
6.0%
6.0%
Period Average
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
1970
1975
1980
1985
1990
1995
2000
2005
Source: International Monetary Fund and Wachovia
Wachovia Economics Group
19
Global Forecast
Global Economic Outlook
Wachovia International Economic Forecast1
(Year-over-Year Percentage Change)
2008
There appears to be
a global recession
underway
Global
Major Economies
United States
Eurozone
Germany
France
Italy
UK
Japan
Canada
Developing Economies
China
India
Mexico
Brazil
1
GDP
2009
2010
2008
CPI
2009
2010
3.4%
1.7%
3.4%
5.8%
3.1%
3.0%
1.3%
1.0%
1.3%
0.7%
-0.2%
0.8%
0.3%
0.7%
-1.0%
-0.3%
-0.2%
-0.3%
-0.4%
-1.0%
-0.5%
0.0%
1.4%
1.8%
2.0%
1.8%
1.4%
1.5%
1.6%
2.4%
4.3%
3.4%
2.9%
3.3%
3.5%
3.7%
1.5%
2.6%
1.7%
1.6%
1.5%
1.5%
1.6%
2.1%
0.2%
1.9%
2.4%
1.4%
1.4%
1.4%
1.4%
1.3%
0.1%
1.7%
9.5%
6.8%
1.9%
5.0%
8.0%
6.1%
0.4%
2.0%
8.8%
7.5%
2.4%
3.0%
6.2%
7.2%
4.8%
5.6%
3.0%
5.6%
3.8%
4.4%
3.4%
4.6%
2.8%
3.9%
Data As of: November 12, 2008
Wachovia Economics Group
20
Foreign Currency
Global Economic Outlook
Wachovia Major Currency Outlook1
(End of Quarter Rates)
2008
Q4
2009
Q1
Q2
2010
Q3
Q4
Q1
Q2
Q3
Major Currencies
Euro ($/ €)
U.K. ($/ £)
U.K. (£/ €)
Japan (¥/ $)
1.32
1.60
0.83
100
1.26
1.55
0.81
105
1.22
1.50
0.81
108
1.18
1.45
0.81
112
1.14
1.43
0.80
115
1.13
1.42
0.80
118
1.12
1.40
0.80
120
1.12
1.40
0.80
120
Other Industrialized
Canada (C$/ US$)
Switzerland (CHF/ $)
Norway (NOK/ $)
Sweden (SEK/ $)
Australia (US$/ A$)
1.15
1.13
6.70
7.50
0.72
1.20
1.17
6.90
7.90
0.67
1.25
1.23
7.10
8.10
0.62
1.28
1.28
7.30
8.35
0.58
1.32
1.33
7.40
8.50
0.56
1.33
1.35
7.50
8.60
0.55
1.34
1.37
7.60
8.65
0.54
1.34
1.37
7.60
8.65
0.54
1
Data as of: November 12, 2008
Wachovia Economics Group
21
Summary of Near-Term Outlook
Growth
Insert slide callout
Summary
Interest Rates
 The credit crunch has probably
 We believe the Federal Reserve will
caused the U.S. economy to enter its
deepest recession since the early
1980s. Business conditions likely will
remain challenging for the next few
years as consumers retrench.
 It appears that most major foreign
economies have also slipped into
recession. However, economic
fundamentals in many developing
countries are sounder now than in
previous cycles.
cut rates a bit further as the economy
contracts. Steps taken to date should
help to shore up the financial system.
 Central banks in major foreign
countries probably will cut rates
further in the months ahead. Inflation
should recede in most countries,
which will give scope to central banks
in developing countries to ease policy
as well.
Other Financial Markets
 The stock market should stabilize as credit markets start to function again and risk
aversion abates. However, a significant rally in equity markets does not seem likely
until the longevity of the global recession can be better assessed.
 Slower global growth means that most commodity prices, which have declined over
the past few months, should not shoot up again. However, a return of commodity
prices to 2003-like levels does not seem likely either because growth in the developing
world is not falling completely apart.
 The dollar has rallied over the past few months. Although the greenback could give up
some of its gains in the near term, we project that the dollar will continue to appreciate
in 2009 as the U.S. current account deficit shrinks and as foreign central banks cut
rates.
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Appendix
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Title
Recession to Persist for Next Six Months
Employment Chartbook: November 2008
Trends, Cycles and Dangers of Historical Extrapolation
Global Chartbook - November 2008
The Grinch May Roil Holiday Sales This Year
Authors
Silvia & Iqbal
Silvia, York & Whelan
Silvia & Iqbal
Bryson & Quinlan
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Global Chartbook - October 2008
Housing Chartbook - October 2008
Everyone Seems To Have Gotten The Message
Bryson
Bryson & Quinlan
Vitner & York
Vitner & Bryson
Recession Probability Remains Very High
Silvia
Story Continues: No Bright Light Marking End of Sub-Par Growth Silvia
Implications of the Treasury' s Plan for the Dollar
Bryson
Global Central Banks Work to Soothe Fears
Vitner
FOMC September Meeting - No Change
Vitner
FOMC September Meeting - Workout Continues
Silvia
Global Chartbook - September 2008
Bryson
California is Still Managing to Eke Out Modest Gains
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“ Older and More Diverse Nation by Midcentury”
Commercial Real Estate Quarterly: Second Quarter
Consumers Feeling A Little Blue This Year
The Outlook for U.S. Export Growth Revisited
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Vitner &
Vitner &
Vitner &
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York
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Economics Group


Appendix
John E. Silvia, Ph.D.
Mark Vitner
Jay H. Bryson, Ph.D.
Chief Economist
Senior Economist
Global Economist
[email protected]
U.S. Macro Economy
Interest Rates
Monetary Policy

[email protected]
U.S. Macro Economy
Real Estate
Regional Economics

[email protected]
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Foreign Exchange
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Azhar Iqbal
Adam G. York
Economist
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Econometrician
Economic Analyst
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Macro Economy
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