Download - Us Economy Update October 2009

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Update on the US EconomyOctober 2009

Prepared by:

Dan Kreis and Noah Stayton

Techcom US and Mexico

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In this update, we provide an overview of the key issues facing three major sectors of the economy.

Banks

Businesses

Consumers• Consumer confidence has rebounded off recent lows.• Continued unemployment has caused consumers to save more;

the housing market still shows the effects of the recent downturn.

• Business bankruptcies are approaching 100k for the year.• Despite lower sales and increasing financial

difficulties, however, business optimism is on the rise.

• Across all loan types, late payments and defaults are at record or near-record highs.

• With over 100 banks failing in 2009 YTD, many institutions remain cautious about the future.

Implications: The consumer and business sectors are beginning to show signs of recovery. Banks remain wary, however.

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Consumers

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The upward trend in consumer confidence that began earlier this year has continued, despite a few dips.

Consumers’ Perception of Current Economy

Source: University of Michigan Consumer Sentiment Index via Federal Reserve; Consumer Confidence Index via the Conference Board.

0

20

40

60

80

100

120

Oct-05 Oct-06 Oct-07 Oct-08 Oct-09

Consumer Sentiment Index Consumer Confidence Index

1966 = 100

1985 = 100 Oct. ‘09 = 70.6

However, consumers’ outlook about the future has yet to return to pre-recession levels.

Oct. ‘09 = 47.7

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As another positive sign, households have begun to rebuild their net worth.

Net Worth of Households & Non-Profits ($ Bil.)

Source: Federal Reserve Flow of Funds Report. Note: Sector includes farm households and domestic hedge funds.

$46,902 $52,494

$58,823 $63,335 $63,911 $52,917 $51,142 $53,140

2003 2004 2005 2006 2007 2008 Q1 2009 Q2 2009

Change from

Previous12% 12% 8% 1% -17% -3% 4%

A slight increase in real estate asset values and a noteworthy decrease in credit balances are the primary driver of this change.

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Americans have begun saving more to compensate for a deteriorating employment outlook.

Personal Savings ($ Bil.) & Civilian Unemployment Rate

Source: Federal Reserve, BLS.

$304

$128

$235 $179

$126

$374

$236

$409 $403

$546 5.4%

4.8% 4.4% 4.9% 5.1% 5.6%6.2%

7.2%8.5%

9.5%

0%

2%

4%

6%

8%

10%

$-

$200

$400

$600

$800

2004 2005 2006 2007 Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Personal Savings Unemployment Rate

The most recent data from the Bureau of Labor Statistics show that unemployment has risen again, to 10.2%.

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Although credit card delinquencies remain very high, the pace of deterioration has slowed.

Consumer Credit Card Delinquencies – National Average Rate

4.0%4.6% 4.9% 4.9% 4.7%

5.6%

6.7% 6.7%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009

Source: Federal Reserve. Note: 2005 – 2007 figures are Q4 results. All figures seasonally adjusted.

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Fluctuations in the value of the housing stock also seem to have stabilized.

Value of Household Real Estate ($ Trillion)

Source: Federal Reserve.

However, the equity value of the US housing sector still remains below 50%.

2003 2004 2005 2006 2007 Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Equity Debt

$16.2$18.6

$21.4 $21.9 $20.4 $19.8 $19.6 $19.1 $18.3 $17.9

58% 58% 59% 55% 49% 47% 46% 45% 43% 42% 43%

Percent Equity

$18.3

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The mortgage market, now regarded as a key driver of the recession, has also seen more late payments.

Residential Real Estate Loan Delinquencies – National Average Rate

1.9%3.0%

3.7%4.5%

5.3%6.3%

7.9%8.8%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009


8.8% is the highest mortgage delinquency rate on record.

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Following several quarters of low or negative growth, the US economy grew by 3.5% in the third quarter.

Annualized GDP Growth/Decline

1.2%

3.2% 3.6%

2.1%

-0.7%

1.5%

-2.7% -5.4% -6.4% -0.7%

3.5%

Source: Bureau of Economic Analysis, seasonally adjusted figures.

A major contributor to growth in the most recent quarter was the government’s ‘Cash for Clunkers’ automotive incentive program.

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Businesses

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The Small Business Optimism Index continues to hover in the high 80’s.

Small Business’ Perception of Current Economy

Source: NFIB.

0

20

40

60

80

100

120

Sep '06 Sep '07 Sep '08 Sep '09

NFIB Small Business Optimism Index Next 3 Months "Good Time to Expand" %

Sept. ‘09 = 88.81986 = 100

A significantly higher percentage of business (9% vs. 5%), now view the next 3 months as a good time to expand, however.

Sept. ‘09 = 9%

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The effects of increased consumer savings rates can be readily seen in the latest retail sales data.

Total Retail Sales ($ Bil.), January – August

Source: US Census Bureau. Note: August 2009 retail sales data are provisional results. Note: Sales levels not adjusted for price changes.

$2,342 $2,574 $2,713 $3,077

$2,515

2005 2006 2007 2008 2009

Year-Over-YearChange 10% 5% 13% -18%

Retail sales for the first eight months of the year are the lowest since 2005.

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Credit flows have been very weak, with slight signs of improvement on the borrowing side.

Source: Federal Reserve (quarterly figures are seasonally adjusted annual rates).

Total Net Lending / Borrowing: Domestic Non-Financial Sectors ($ Bil.)

$(1,000)

$(500)

$-

$500

$1,000

$1,500

$2,000

$2,500

$3,000

2004 2005 2006 2007 Q1 2008

Q2 2008

Q3 2008

Q4 2008

Q1 2009

Q2 2009

Net Lending Net Borrowing

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Through September of this year, the number of business bankruptcies has surpassed the last 3 years combined.

Business Bankruptcy Filings

Source: American Bankruptcy Institute, AACER, New Generation Research.

34,317 39,401

19,965 28,322

43,456

96,648

2004 2005 2006 2007 2008 2009

Major Bankruptcy

Reform Enacted

Total business bankruptcies will likely surpass 100k by year-end.

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Worsening conditions in the commercial lending market are likely to persist.

Commercial Loan Delinquencies – National Average Rate

1.3%

2.7%3.4%

4.2%4.8%

5.4%6.4%

7.9%

1.2% 1.3% 1.4% 1.8% 1.8%2.6%

3.1%3.7%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009Commercial Real Estate Commercial & Industrial


Q2 ‘08 – Q2 ‘09 Change

CommercialReal Estate 88% increase

Commercial & Industrial 106% increase

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Banks

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The banking industry has increased its loan loss reserves to the highest levels on record.

Source: Federal Reserve

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

Jun-99 Jun-04 Jun-09

Loan Loss Reserve Ratio(Loan Loss Reserve / Total Loans for All US Banks)

If the banking industry’s perceptions about the future are any indication, the US economy will undergo a long recovery process.

Q2. ‘09 = 2.94

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The average consumer credit card charge-off rate stands at an all-time high.

4.0% 4.2% 4.7%5.3% 5.7%

6.4%7.6%

9.6%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009

Consumer Credit Card Charge-offs – National Average Rate


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Loss rates in the mortgage market have also skyrocketed to record levels.

Residential Real Estate Loan Charge-offs – National Average Rate

0.1%

0.4%

0.9%

1.2%

1.5% 1.6%1.8%

2.3%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009


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Decreased consumer activity has severely strained the business community, causing rampant loan defaults.

Commercial Loan Charge-offs – National Average Rate

0.1%0.4% 0.6%

0.9%1.1%

2.3%

1.4%2.1%

0.3%0.7% 0.7% 0.8% 1.1%

1.4%1.8%

2.3%

2006 2007 Q1 2008 Q2 2008 Q3 2008 Q4 2008 Q1 2009 Q2 2009

Commercial Real Estate Commercial & Industrial


Q2 ‘08 – Q2 ‘09 Change

CommercialReal Estate 133% increase

Commercial & Industrial 188% increase

A recent report of the Inspector General of the FDIC found that the agency “failed to enforce its own guidelines” regarding oversight of

commercial real estate lending.

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The pace of bank failures has slowed in the second half of the year, and will likely not match the record highs.

Number of Bank Failures, 1934 – November 2009

1934 1949 1964 1979 1994 2009

Source: FDIC.

5 Worst Years for Bank Failures

1987 217

1988 232

1989 531

1990 381

1991 268

On average, however, the assets of failed institutions during the current crisis are 40 times higher than the assets of institutions that

failed during the S&L Crisis.

115

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About Techcom Strategic Solutions

Founded in 1994, approximately 40 employees.

Headquartered near Toronto, Canada.

Currently expanding to the United States and Mexico via our location in the Baltimore / Washington DC area.

Provides enterprise-wide Strategic Process Management (SPM) solutions to over 200 clients, including retailers, major banks, collection agencies, governments, and real estate companies.

Dan KreisDirector of US and Mexico Operations

[email protected]

Contact Information

Noah StaytonProject Coordinator

[email protected]

mailto:[email protected]�

mailto:[email protected]�

Download - Us Economy Update October 2009

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