Download - Rob strand
The Winding Road of Economic Recovery
Bank Capital Markets and Tax Institute
November 14, 2013
Rob StrandSenior Economist, ABA
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Inflation-Adjusted GDP
Source: U.S. Bureau of Economic Analysis and NBER
$13
$14
$15
$16
2003 2005 2007 2009 2011 2013
$Trillion
Recession
State Indexes of Leading Indicators
Over 2
1—2
0—1
Decline
Source: Federal Reserve Bank of Philadelphia, August 2013
Business Confidence
Source: NFIB, Thompson Reuters/University of Michigan
Index Values (2
005=10
0)
50
60
70
80
90
100
2005 2007 2009 2011 2013
Small Business Optimism
Consumer Sentiment
$0
$4
$8
$12
2000 2004 2008 2012
Bank Deposits and Loans
Deposits
Loans
$Trillions
Source: Federal Deposit Insurance Corporation
Quarterly Inflation-Adjusted GDP Growth
‐6%
‐3%
0%
3%
6%
2009 2010 2011 2012 2013Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
Government Pullback
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
‐6%
‐3%
0%
3%
6%
2009 2010 2011 2012 2013
Total GDP Municipal Government Federal Government
Business Firms are Wary
‐6%
‐3%
0%
3%
6%
2009 2010 2011 2012 2013
Total GDP Net Exports Business Investment & Inventories
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
Consumer-Driven U.S. Economy
‐6%
‐3%
0%
3%
6%
2009 2010 2011 2012 2013
Total GDP Consumer Spending
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
Source: Clay Bennett, The Christian Science Monitor
Federal Receipts, Outlays & Deficit to GDP
0%
20%
40%
60%
80%
1973 1983 1993 2003 2013 2023
Source: U.S. Congressional Budget Office
Receipts
Outlays
––– Forecast –––
Federal Deficit
FY2013: $680B, 4.1% of GDP
FY2012: $1.1T, 6.9% of GDP
Entitlements will Overwhelm Revenue
Source: U.S. Congressional Budget Office (September 2013)
0%
5%
10%
15%
20%
25%
30%
35%
2000 2010 2020 2030 2040 2050 2060 2070
Social Security
Medicare
Medicaid
Other
Forecast
Interest
% of GDP
Deal of October 17
• Continuing Resolution to January 15
• Raises the Debt Limit to carry to February 7
• Bicameral committee to report by December 13
• 16 days back pay for 850,000 federal workers
• Requires a process for income verification for ObamaCare health insurance subsidy applicants
• $3.3B new funding for dams, floods, forest firesSource: Continuing Appropriations Act, 2014
Impact of a Federal Default
• 20% cut in outlays in an average month
Economic slowing Deeper cuts
• Higher interest rates?
Less investment, home buying, etc.
Capital losses for financial institutions
Weaker dollar more exports
• Weaker consumer and business confidence
Treasury Bill Interest Rates
0.00%
0.05%
0.10%
0.15%
0.20%
0.25%
0.30%
0.35%
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov
Source: Federal Reserve
Twelve-Month Three-MonthSix-Month One-Month
FY2014 Revenue Deficiency
None1%—3%3%—5%6%
Source: National Association of State Budget Officers
Revenue/ExpensesShortfall
Assets/Liabilities for Municipal Pensions
Source: Boston College Center for Retirement Research
0%
25%
50%
75%
100%
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Median for 126 State and Municipal Pension Plans
FY2014 State General Fund Spending
• Projected $728 billion, up 4.1% Surpassed pre-Great-Recession high
(non inflation-adjusted)
• Major categories: Medicaid ~ 24% K-12 Education ~ 20% Higher Education ~ 10%
Source: National Association of State Budget Officers
Source: Scott Adams, Dilbert, September 6, 2013
Business is Growing
Business Indexes
80
90
100
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013
Industrial ProductionISM Non-
Manufacturing
Contraction Expa
nsion
ISM Manufacturing
Sources: Federal Reserve, Institute for Supply Management
U.S. Exports
($150)
($100)
($50)
$0
$50
$100
2007 2008 2009 2010 2011 2012 2013
GoodsServices
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
$Billions, Quarterly Change on SAAR,
Corporate Profits
Source: U.S. Dept. of Commerce: Bureau of Economic Analysis
$0.0
$0.5
$1.0
$1.5
$2.0
2001 2003 2005 2007 2009 2011 2013
With inventory valuation and capital consumption adjustments, SAAR, $Billions
Domestic
0
400
800
1200
1600
2005 2006 2007 2008 2009 2010 2011 2012 2013
S&P 500 Index
Source: Standard & Poor’s
Up 134%
Up 15%
VIX Index of S&P Volatility Futures
0
20
40
60
80
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Source: Chicago Board of Exchange
Consumer Driven Recovery
Don't sit there mumblin', talkin' trash.
If you wannahave a ball,
you gotta go out and spend some cash …
Let the good times roll.
— B.B. King
Housing Starts
Source: U.S. Department of the Census
0
1
2
1963 1970 1977 1984 1991 1998 2005 2012
1959–2010 Average
August2013:891K
Millions of Units
Conventional 30-Year Mortgage Rate
Source: Federal Reserve
0%
3%
6%
9%
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
4.2%
Home Sales
-
3
6
9
1999 2001 2003 2005 2007 2009 2011 2013
Millions of UnitsSAAR
Sources: Census Bureau, National Association of Realtors
New Homes
Existing Homes
26 Million Millenial’s Live with Relatives
43%
39%
35%
36%
2012
2007
1981
1968
Source: Pew Research Center on 18-31-year-olds
Highest in Four Decades
Retail Sales
Inflation & Seasonally‐Adjusted Semi‐Annual Growth Rate on Quarter Average
‐15%
‐10%
‐5%
0%
5%
10%
1994 1998 2002 2006 2010Source: U.S. Dept. of Commerce: Bureau of Economic Analysis
Automobile Sales
Source: Autodata Corp.
0
5
10
15
2010 2011 2012 2013
SAAR in Millions
Average Age of Vehicles
Source: HIS/Polk
0
4
8
12
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Passenger Cars Light TrucksYears
Consumer Credit
Revolving Non‐Revolving
Seasonally Adjusted Change Over the Last 6 Months
$75 Billion
($1 Billion)
Source: Federal Reserve
Student Loan Debt
Source: Federal Reserve Bank of New York
$0
$300
$600
$900
2005 2006 2007 2008 2009 2010 2011 2012
$292
$307
$154
$106
$ Billions
Under 30
60+
Average Tuition, Fees, Room and Board
Source: The College Board Annual Survey of Colleges
$0
$10,000
$20,000
$30,000
$40,000
1973‐1974 1981‐1982 1989‐1990 1997‐1998 2005‐2006 2013‐2014
Public 4‐Year School(3.2% 2003‐2013 annual growth rate)
Private 4‐Year School(2.1% 2003‐2013 annual growth rate)
2013 Dollars
Proportion with Home-Secured Debt at 30
0%
10%
20%
30%
40%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Have Student LoansNo Student Loan
Source: Federal Reserve Bank of New York
Unemployment Rate
0%
5%
10%
15%
1994 1998 2002 2006 2010
7.3%
Source: U.S. Department of Labor, Bureau of Labor Statistics
13.8%
Unemployment
Underemployment
Under 4%
4%—5½%
5½%—7%
7%—8½%
Over 8½%
Unemployment Rate
Source: U.S. Dept. of Labor, Bureau of Labor Statistics, Aug 2013
9.5%
3.0%
7%
3.8%
8.7%
U.S. Payroll Growth
Source: U.S. Department of Labor, Bureau of Labor Statistics
(900,000)
(700,000)
(500,000)
(300,000)
(100,000)
100,000
300,000
500,000
2005 2006 2007 2008 2009 2010 2011 2012 2013
8.7 Million Jobs Lost
7.2 MillionJobs Recovered
GDPBroke Even
Loss in Payrolls from Pre-Recession Peak
‐8%
‐4%
0%
0 10 20 30 40 50 60 70
1948 1953 1957 1960 1969 19731980 1981 1990 2001 2007
Source: U.S. Department of Labor, Bureau of Labor Statistics
Unemployment Duration
Source: U.S. Department of Labor, Bureau of Labor Statistics
0
5
10
15
1971 1978 1985 1992 1999 2006 2013
Less than 5 Weeks
5–14 Weeks
Millions
27+ Wks
Labor Force Participation at 1978 Level
Source: U.S. Department of Labor, Bureau of Labor Statistics
45%
55%
65%
75%
1976 1982 1988 1994 2000 2006 2012
Men
Women
Personal Income
Source: U.S. Dept. of Commerce, Bureau of Economic Analysis
‐12%
‐6%
0%
6%
12%
2001 2003 2005 2007 2009 2011 2013
Seasonally‐Adjusted Quarterly Growth on Quarterly Average
Median Family Income
$40,000
$45,000
$50,000
$55,000
1985 1989 1993 1997 2001 2005 2009 2013
Sources: Census Department and Sentier Research, LLC
Rebuilding Wealth
Source: Bureau of Economic Analysis and Federal Reserve
Household Wealth0%
2%
4%
6%
$0
$20
$40
$60
2004 2006 2008 2010
Savings Rate
Household Net Worth
2013
$Trillions
Lots of Liquidity from the Fed
Federal Funds Rate Hikes in the Past
Source: Federal Reserve
0%
1%
2%
3%
4%
5%
6%
7%
‐1 1 3 5 7 9 11 13 15 17 19 21 23 25
Fed
Fund
s Ta
rget
Rat
e
Months Since Tightening Began
19942004
2000
Long Term Forecast
Fed’s Balance Sheet Growth
Source: Federal Reserve
$0
$1
$2
$3
2008 2009 2010 2011 2012 2013
$Trillion
MBS & Agency Debt
Treasuries
November 6: $3.8 Trillion$1.5T
$2.1T
Economic Uncertainties
• Federal budget, debt and taxes
• ObamaCare (Affordable Care Act)
• Interest rates
• Global demand
• Fannie, Freddie and QM/QRM standards
• Student debt
U.S. Traditional Advantages Continue
• Strong global competitor
• Robust entrepreneurial culture
• Flexible capital and labor markets
• Technological leader
• Highly diverse mix of industries
For more, see our blogs:
Dodd-Frank TrackerRegReformTracker.ABA.com
Banks and the Economywww.BanksAndTheEconomy.blogspot.com
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