after the recession: the shape of the recovery david wyss chief economist 212-438-4952...
TRANSCRIPT
After the Recession:The Shape of the Recovery
David WyssChief Economist
September 2003
2
The Recession Is Over
• The good news: it wasn’t much of a recession
• The bad news: It’s not much of a recovery
• The recession was mild because:– The Fed shoved interest rates down– Fiscal policy turned very expansionary– And consumers are resilient
• But consumers are already spending all their money
• And excess capacity and war fears have business spending on hold
• The world economic stagnation is widening the trade gap
• What will the recovery look like – V, U, or W?
3
0
2
4
6
8
1993 1995 1997 1999 2001 2003 2005 2007
Federal Funds Rate 10-Year Treasury Bond Yield
(Percent)
The Fed Loosened Aggressively
4
World Growth Remains Weak
-2
0
2
4
6
8
US Europe Japan Other Asia LatinAmerica
2000 2001 2002 2003 2004
(Real GDP, % change)
5
Can the Consumer Keep Spending?
• Confidence plunged after September 11• The stock market has wiped out wealth• Debts and defaults are at record highs• Employment continues to drop• And the saving rate is low• But the tax cuts are providing extra income• The stock market is off its lows• Lower mortgage rates have freed up funds• And confidence has improved after the war• Net result will be a slowdown, not a retreat• But the saving rate will remain flat
6
Car Sales Remain Strong
10
12
14
16
18
20
1990 1992 1994 1996 1998 2000 2002 2004 20060%
2%
4%
6%
8%
10%
Light vehicles Consumer spending
(millions of units) (4-quarter percent change)
7
Home Prices Are High Relative to Household Income
2
2.5
3
3.5
4
1975 1979 1983 1987 1991 1995 1999 2003 2007
Existing New
(Ratio of average home price to average household disposable income)
8
-5
0
5
10
15
20
1946-66 1966-81 1981-2000 2002-2012
Nominal Real
Long Bull Markets Are Followed by Periods of Weakness
(Percent return on S&P 500 and corrected by CPI)
9
Advertising Comes Back
• After a sharp drop in 2001• From record 2000 levels• TV is coming back quicker• Responding to strong consumer sales• Magazines are lagging• Nonmedia (direct mail, etc), doing better than media• Expect 4.8% overall growth in 2003• TV up 4% this year, but 8% next
10
-15
-10
-5
0
5
10
15
20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Magazine Newspaper TV Total
Advertising Comes Back
(Percent change)
11
Bottom Line: The Economy Recovers, But Slowly
• Consumers are spending near max• Businesses will not take over the lead yet• But strong stimulus from fiscal policy• Interest rates rise gradually next year• Housing prices and starts slow• Weak recovery for stock market• Risk of recession remains if:
– Further terror attacks – War disrupts oil supplies– Deflation
12
Risks to the Economy
-2%
0%
2%
4%
6%
8%
2000 2001 2002 2003 2004 2005 2006 2007
Deflation Iraq war Baseline
(Real GDP, percent change year ago)
13
The Recession Has Been Concentrated on the Coasts
• Three waves of recession:– High tech affected coasts and Texas– Capital spending cut into Midwest and Carolinas– Tourism after September 11 hit Florida, Arizona, Nevada,
Washington
• Coming back in reverse order• Southeast and Northern Plains states least affected• Pacific Coast and Great Lakes hardest hit• Manufacturing continues to lag recovery
14
Unemployment Rates Are Moderate
4.5-5.4 Under 4.5
5.5 – 5.9 6.0 +
(Unemployment rate, July 2003)
15
Manufacturing States Suffer Most
0.1 – 1 Down
1.1 – 1.9 2 +
(Change in unemployment rate, July 2003 vs. Oct 2000)
16
Manufacturing Concentrated in Midwest and Southeast
8-11 Under 8
11-15 Over 15
(Manufacturing as percent of state employment)