after the fall:
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AFTER THE FALL: What Kind Of Recovery In California & In The Rest Of The U.S. From The “Great Recession” Of 2008-09? A Presentation To The California Municipal Treasurers Association Annual Conference Sacramento, California April 21, 2010. - PowerPoint PPT PresentationTRANSCRIPT
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AFTER THE FALL:What Kind Of Recovery In California &
In The Rest Of The U.S. From The “Great Recession” Of 2008-09?
A Presentation To The California Municipal Treasurers Association Annual Conference
Sacramento, CaliforniaApril 21, 2010
AFTER THE FALL:What Kind Of Recovery In California &
In The Rest Of The U.S. From The “Great Recession” Of 2008-09?
A Presentation To The California Municipal Treasurers Association Annual Conference
Sacramento, CaliforniaApril 21, 2010
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2 2
-7.5%
-5.5%
-3.5%
-1.5%
0.5%
2.5%
Dec-04 Sep-05 Jun-06 Mar-07 Dec-07 Sep-08 Jun-09 Mar-10
California
Source: U.S. Dep't Of Labor
CALIFORNIA LAGS THE U.S. ECONOMY, AGAIN, IN THIS ECONOMIC CYCLENon-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
U.S.
3/10
Recession Period 2/10
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3 3
-8.0%
-5.7%
-3.4%
-1.1%
1.2%
3.5%
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
Bay Area
Central Valley
Source: U.S. Dep't Of Labor
WILL SOUTHERN CALIFORNIA BE FIRST "OUT?"Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
2/10Southern California
Recession Period
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4 4
-9%
-6%
-3%
0%
3%
6%
Dec-05 Sep-06 Jun-07 Mar-08 Dec-08 Sep-09 Jun-10
L.A.-Long Beach
2/10
Riverside-San Bernardino
Source: U.S. Dep't Of Labor
L.A.-LONG BEACH IS CLOSEST TO AN ECONOMIC RECOVERY IN SOUTHERN CALIFORNIA ...Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
Orange County
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5 5
-9%
-7%
-5%
-3%
-1%
1%
3%
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08 Dec-09
San Francisco
2/10
San Jose
Source: U.S. Dep't Of Labor
…WHILE ACTIVITY HAS CONVERGED IN THE BAY AREA'S THREE MAJOR ECONOMIES...Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
Oakland
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6 6
-7.0%
-5.5%
-4.0%
-2.5%
-1.0%
0.5%
2.0%
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09 Jun-10
Sacramento
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
Source: U.S. Dep't Of Labor
…AND IN THE CENTRAL VALLEY
2/10
Central Valley, Ex. Sacramento
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7 7
-22%
-17%
-12%
-7%
-2%
3%
8%
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10
AN IMPROVING--BUT STILL DISAPPOINTING--PERFORMANCE BY CA'S "EXPORT" INDUSTRIESYear-Ago Percent Change In Non-Farm Payroll Employment
"Housing-Related"*
"Export" Industries*
2/10
Source: California Employment Development Department
* "Housing-related" includes residential construction, specialty trade contractors, furniture, home furnishings and building materials retail stores, real estate leasing and finance. "Export industries" include high tech, aerospace, travel and tourism, motion pictures and sound recording.
Health Care
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8 8
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09
U.S. AND CALIFORNIA METRO HOME PRICES BACK "ABOVE WATER"Year-Ago Percent Change; Seasonally Adjusted Data
1/10
20 U.S.-Metro Average
San Francisco Bay Area
Source: Standard & Poors, Inc.
L.A.-San Diego Average
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TOWARD SELF-SUSTAINING ECONOMIC GROWTH
• The Saving Rate Steadying At An Historically Low Level
• Household Debt Burdens At A Nine-Year Low
• “Purchasing Power” On The Verge Of Recovery
• An Early Rebound In Investment Spending
• Export Growth Still Near A Thirty-Five-Year High
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10 10
-4%
-3%
-2%
-1%
1%
2%
3%
4%
Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-090
1
2
3
4
5
6
7
HOUSEHOLDS DIP INTO SAVINGS TO FINANCE A SPENDING RECOVERY
Source: U.S. Commerce Dep't.
2/10
Personal Saving Rate(Right Scale)
Inflation-Adjusted Spending, Ex. Autos
(Left Scale)
Yr-Ago % Chg; 3-Mo Moving Avgs. Percent of After-Tax Income
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15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
Mar-81 Mar-85 Mar-89 Mar-93 Mar-97 Mar-01 Mar-05 Mar-09
* Interest, principal & auto-lease payments, rent, home owner property taxes & insurance.Sources: Federal Reserve Board
HOUSEHOLD DEBT-PAYMENT BURDENS AT A NINE-YEAR LOW Financial Obligations* Ratio, In Percent
'09Q4
Note: Bars Denote Recession Periods
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12 12
-14%
-10%
-6%
-2%
2%
6%
10%
Dec-06 Jun-07 Dec-07 Jun-08 Dec-08 Jun-09 Dec-09
2/10
HOUSEHOLD "PURCHASING POWER" FINALLY HITS BOTTOMPercent Changes In Three-Month Moving Average Data
Sources: U.S. Commerce Department
Avg. Annual % Chg, 1975-2009=2.3% P.A.
* Inflation as measured by the PCE deflator.
Annualized % Change From 3 Months Ago
Year-Ago % Change
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POISED FOR ANOTHER “MINI-BURST” OF ECONOMIC GROWTH?
* Pent-Up Consumer Demand
* Deferred Equipment Spending --Liquid Assets High, Manufacturing Capacity Falling
* Pent-Up Housing Demand From Depressed Household Formations, Labor Mobility
* Extraordinarily “Lean” Payrolls
* Ample “Liquidity,” “Thawing” Credit Markets
* Historically High Operating Leverage
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15 15
90%
100%
110%
120%
130%
140%
150%
Mar-64 Mar-70 Mar-76 Mar-82 Mar-88 Mar-94 Mar-00 Mar-06
OPERATING LEVERAGE SOARS Non-Fin'l Corps. Revenue Per Dollar Of Labor & Capital Costs
* Normalized revenue growth based on rolling, 5-year average annual gains.Source: U.S. Department Of Commerce
'09Q4
Avg., 1960-2008=118%
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Avg. Ann. % Chg, '04 -
'07Avg. '08 -
'09 2010F 2011F 2012F
"Real" Personal Income U.S. 3.3 -1.2 2.3 3.4 2.0 California 3.1 -1.7 1.3 3.7 4.5
Payroll Employment U.S. 1.4 -2.5 -0.2 2.5 1.8 California 1.3 -3.7 -0.7 2.3 3.0
Unemployment Rate (%) U.S. 5.1 7.6 9.7 9.3 8.6 California 5.5 9.3 11.8 10.4 9.7
Housing Starts/Permits U.S. (Starts, MM) 1.8 0.7 0.6 0.7 0.8 California (Permits, Thousands) 175 51 82 140 167
OTHER KEY CALIFORNIA DATA
Taxable Retail Sales (% Chg.) 5.1 -7.0 1.2 5.2 6.9Non-Residential Constr. (% Chg.) 2.4 -31.0 -4.4 19.1 26.3
Population (% Chg.) 1.2 1.1 1.0 1.0 1.0Net Immigration (Thousands) 117 83 66 85 118
Source: The UCLA Anderson Forecast, March 2010; WCM Forecast.
ECONOMIC OUTLOOK: THE U.S. AND CALIFORNIA ECONOMIES COMPAREDYear-To-Year Percent Change, Unless Otherwise Specified
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17 17
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
0 5 10 15 20 25 30 35 40Years To Maturity
12/31/08
Source: Bloomberg Financial News, Inc.
10/1/09
THE SHAPE OF THINGS TO COME?The Treasury Yield Curve, Selected Periods; Yields In Percent
Fed Funds Target Rate (12/16/08)=0-0.25%)
4/13/10
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18 18
-15%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
12%
Dec-07 Apr-08 Aug-08 Dec-08 Apr-09 Aug-09 Dec-09
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
"CORE," OR UNDERLYING INFLATION TAKES A DIVEYear-Ago Percent Change
Source: Bureau Of Labor Statistics
CPI(Left Scale)
2/10
"Core" CPI (Excluding Food & Energy)
(Right Scale)
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19 19
14
17
20
23
26
29
32
35
38
Dec-99 Jun-01 Dec-02 Jun-04 Dec-05 Jun-07 Dec-08 Jun-10
WILL BROADENING "DEFLATION" HELP SHAPE MONETARY POLICY? Percent Of PCE Components Declining; Three-Month Moving Average
Jan. '10=36%
Average, 2/77-12/08=21.6%
Sources: U.S. Commerce Department; Federal Reserve Bank Of Dallas
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RISKS TO A DELAYED, GRADUAL RISE IN U.S. INTEREST RATES
• Market Appetite For Dollar-Denominated Assets
Dries Up
--A Loss Of Confidence In U.S. Economic Policies
• Unexpectedly Strong Economic Growth, And A Less
Sanguine Inflation Outlook
• Heightened Financial-Market Uncertainties,
Volatility Amid A “Sea Change” In Monetary Policy
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21 21THEMES SHAPING LONGER-TERM ECONOMIC PERFORMANCE
• Asset-Price Volatility In A Low-Inflation, Low Interest-Rate
Economy
--”Financialization” Of Commodities
• Trade Protectionism In A Slower Growing Global Economy
--Diminishing “Tail Winds” From “Globalization?”
• An Aging Population’s Impact On Potential Growth, Spending
& Investment
• Toward A Higher-Taxed, “Managed” Capitalist, U.S. Economy?