march 12, 2008 economic outlook ccim. wachovia economics group 2 economic growth we are now...
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Wachovia Economics Group 2
Economic Growth
We Are Now Forecasting A Modest Decline In Real GDP
The first half of 2008 has
gotten off to a very slow start
Real GDP Bars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1998 2000 2002 2004 2006 2008
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
GDPR - CAGR: Q4 @ 0.6%GDPR - Yr/Yr Percent Change: Q4 @ 2.5%
Forecast
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Wachovia Economics Group 3
Economic Growth
Final Domestic Demand Is Much Weaker Than The GDP Figures Imply. Much Of This Weakness, However, Is Falling On Foreign Producers
Domestic demand will fall in three of the next four quarters
Real Final Sales to Domestic PurchasersBars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
1998 2000 2002 2004 2006 2008
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Real Final Sales to Dom. Purchasers - CAGR: Q4 @ 1.2%Real Final Sales to Dom. Purchasers - Yr/Yr Percent Change: Q4 @ 1.9%
Forecast
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Wachovia Economics Group 4
Employment Growth
Nonfarm Employment Has Fallen For Two Months In A Row. Employment Conditions Are Likely Weaker Than The Headline Figures Suggest
Nonfarm payrolls will likely hold up better than they did in the last recession
Nonfarm Employment ChangeTotal Employed in Thousands
-400
-300
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008
-400
-300
-200
-100
0
100
200
300
400
500
Nonfarm Employment Change: Feb @ -63,000
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Wachovia Economics Group 5
Labor Markets
The Unemployment Rate Has Risen But Remains Relatively Low As Job Seekers Have Exited the Labor Force
We do not expect to see
problematic stagflation as there is no evidence of a wage-price spiral
Unemployment and Wage RatesSeasonally Adjusted
3%
4%
5%
6%
7%
8%
86 88 90 92 94 96 98 00 02 04 06 08
1%
2%
3%
4%
5%
6%
Unemployment Rate: Feb @ 4.8% (Left Axis)Hourly Earnings: Feb @ 3.7% (Right Axis)
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Wachovia Economics Group 6
Consumer Spending
Consumer Spending Is Primarily Driven By Income Growth, Which Remains Solidly Positive. However, The Housing Slump Will Slow Retail Sales
“Tax Rebates” will likely give retail sales a boost late this
spring
Retail Sales Ex. Auto and Gas vs. Income Growth3 Month Moving Averages
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
96 97 98 99 00 01 02 03 04 05 06 07 08
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
Disposable Personal Income Yr/Yr % Change: Jan @ 5.3%3 Month Annual Rate: Jan @ 1.9%
Stock Market Bubble
Tax Cut 1
Tax Cut 2 Housing Refi Boom
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Wachovia Economics Group 7
ISM Manufacturing
Manufacturing activity is
consistent with a slowdown but not necessarily a recession
ISM Manufacturing Composite IndexDiffusion Index
35
40
45
50
55
60
65
87 89 91 93 95 97 99 01 03 05 07
35
40
45
50
55
60
65
ISM Composite Index: Feb @ 48.312 Month Moving Average: Feb @ 51.0
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Wachovia Economics Group 8
Housing
The Bulk Of The Declines In Homebuilding Are Behind Us, However They Will Continue Until Early 2009
Permits in many of the most challenged markets are rapidly
approaching zero
Real Residential InvestmentBars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
1998 2000 2002 2004 2006 2008
-40.0%
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Res. Investment - CAGR: Q4 @ -25.2%Res. Construction - Yr/Yr Percent Change: Q4 @ -18.6%
Forecast
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Wachovia Economics Group 9
Housing
We Overbuilt Homes for Five Straight Years & We Will Need to Under-Build For A Few Years Before the Excess Inventory is Corrected
Housing starts will not
meaningfully rebound before the end of the
decade
Housing StartsMillions of Units
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1Dashed Line is Underlying Demographic Trend
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Wachovia Economics Group 10
OFHEO Home Price Index
Over Sixty Percent of the U.S. Population Live in Cities With Positive Home Price Growth
OFHEO
Source: OFHEO and Wachovia Corp.
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OFHEO Home Price IndexQ4-2007 vs. Q4-2006
Greater than 4.9%3.1% to 4.9%1.5% to 3.1%
-2.0% to 1.5%Less than -2.0%
Wachovia Economics Group 11
Non-Owner Occupied Purchase Loans: 2006
Investors Were Responsible For More than Half of the Purchases in Some Markets in 2006
Investor & Second-Home Mortgages
Non-Owner Occupied Purchase LoansPercent of Total Value of Purchase Loans
Greater than 25%15.0% to 25.0%10.0% to 15.0%
7.5% to 10.0%Less than 7.5%
Source: HMDA and Wachovia Corp.
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Wachovia Economics Group 12
Office Vacancies
The national office market is essentially in equilibrium
Office Vacancy RatesPercent Vacant
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1990 1994 1998 2002 20060.0%
5.0%
10.0%
15.0%
20.0%
25.0%Metropolitan Office Vacancy Rate: Q4 @ 12.8%Suburban Office Vacancy Rate: Q4 @ 14.2%Downtown Office Vacancy Rate: Q4 @ 10.3%
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Wachovia Economics Group 13
Industrial Vacancies
Industrial markets are stronger than
the vacancy data suggest
Industrial Vacancy RatesPercent Vacant
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1980 1984 1988 1992 1996 2000 20040.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Industrial Vacancy Rate: Q4 @ 10.2%
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Wachovia Economics Group 14
Charlotte
The Charlotte area added close to 35,000 jobs
in 2007
Charlotte CMSA Job GrowthYear-over-year Change in Payrolls
-6%
-4%
-2%
0%
2%
4%
6%
8%
1991 1993 1995 1997 1999 2001 2003 2005 2007
-6%
-4%
-2%
0%
2%
4%
6%
8%
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Wachovia Economics Group 15
Charlotte
Unemployment remains near the national average
Charlotte MSA Unemployment RateSeasonally Adjusted
2%
3%
4%
5%
6%
7%
8%
90 92 94 96 98 00 02 04 06
2%
3%
4%
5%
6%
7%
8%Unemployment Rate: Dec @ 4.9%
12-Month Moving Average: Dec @ 4.7%
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Wachovia Economics Group 16
Charlotte
Home price growth has moderated
Charlotte MSA Home PricesOFHEO Home Price Index
-5%
0%
5%
10%
15%
90 92 94 96 98 00 02 04 06
-5%
0%
5%
10%
15%
Quarterly Change, Annual Rate: Q4 @ 0.2%Year-Over-Year Percent Change: Q4 @ 6.1%
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Wachovia Economics Group 17
Charlotte
Population growth has
surged during the past few
years, reflecting Charlotte’s positive buzz and troubles elsewhere
Charlotte CMSA Population GrowthThousands of Persons
0
10
20
30
40
50
60
70
80
80 82 84 86 88 90 92 94 96 98 00 02 04 06
0
10
20
30
40
50
60
70
80Greater Charlotte: 2006 @ 10.4Charlotte MSA: 2006 @ 61.5Charlotte CMSA: 2006 @ 72.0
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Wachovia Economics Group 18
Office Vacancies
Charlotte has one of the
lowest downtown vacancy rates of any metro area
Charlotte MSA Office VacanciesPercent Vacant
0%
5%
10%
15%
20%
25%
30%
84 86 88 90 92 94 96 98 00 02 04 06
0%
5%
10%
15%
20%
25%
30%Metropolitan Office Vacancy Rate: Q4 @ 11.1%Downtown Office Vacancy Rate: Q4 @ 2.3%Suburban Office Vacancy Rate: Q4 @ 16.5%
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Wachovia Economics Group 19
Industrial Vacancies
Industrial vacancy rates are trending
lower
Charlotte MSA Industrial VacanciesPercent Vacant
0%
4%
8%
12%
16%
20%
84 86 88 90 92 94 96 98 00 02 04 06
0%
4%
8%
12%
16%
20%Industrial Vacancy Rate: Q4 @ 10.2%
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Wachovia Economics Group 21
Monthly Outlook
Weekly Economic & Financial Commentary
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Date Title Authors
March-06 Liquidity, Bank Credit, and Monetary Policy Silvia
February-22 Will U.S. Export Growth Buckle? BrysonFebruary-14 The Outlook for Bank of England Monetary Policy BrysonFebruary-11 (When) Will the ECB Cut Rates? BrysonFebruary-11 Global Chartbook - February 2008 Bryson
January-30 Fed Lowers Target Funds Rate by 50 Basis Points SilviaJanuary-28 It Would Be So Much Easier To Be a Pessimist VitnerJanuary-28 U.S. Recession? Who Would be Next? BrysonJanuary-22 Fed Slashes the Funds Rate 75 Basis Points VitnerJanuary-22 Recession: The Measure of Economic Weakness Silvia & IqbalJanuary-16 2007 Holiday Sales Wrapped-Up KhanJanuary-16 Housing Outlook 2008 Vitner & YorkJanuary-09 Credit & The Real Economy: Part II SilviaJanuary-09 Global Chartbook - January 2008 BrysonJanuary-03 Credit & The Real Economy: Part I Silvia
December-19 State Personal Income - Third Quarter 2007 Vitner & YorkDecember-17 2008 Annual Outlook - What's to Come in the Year Ahead?December-12 Central Banks Take Step to Combat Credit Crunch BrysonDecember-11 FOMC Meeting - December 11, 2007 SilviaDecember-11 Housing Chartbook - December 2007 Vitner & YorkDecember-07 Holiday Sales Forecast Update Vitner & KhanDecember-04 Texas Feels Heat from the Housing Slump Vitner & YorkDecember-04 OFHEO House Price Index Vitner & YorkDecember-03 Recession Forecasting: A Statistical Approach Silvia & Lai
November-30 Is a Lasting Improvement in the Trade Deficit in the Cards? BrysonNovember-29 Impact of the Credit Crisis on Banks Silvia
Distribution Lists Recent Special Commentary
A Sampling of Our Recent Special, Regional & Industry Commentary
Economics Group Publications Appendix
Wachovia Economics Group 22
U.S. Macro Economy
Comprehensive Coverage of the U.S. Economy Monthly Economic Forecast Weekly Analysis & Outlook Timely Commentary on Daily Economic Data
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Economics Group Appendix
Wachovia Economics Group 23
John E. Silvia, Ph.D.Chief Economist
704.374. 7034 [email protected]
U.S. Macro EconomyInterest Rates Monetary Policy
704.383.5635 [email protected]
U.S. Macro EconomyReal EstateRegional Economics: State & MSA Level
704.383.3518 [email protected]
Global EconomiesForeign Exchange
Mark VitnerSenior Economist
Jay H. Bryson, Ph.D. Global Economist
Sam BullardEconomist
704.383.7372 [email protected]
Desk OperationsFinancial Services
704.383.6805 [email protected]
Quantitative Macro-Economic Modeling
Anika KhanEconomist
Azhar IqbalEconometrician
Adam G. YorkEconomic Analyst
704.715.9660 [email protected]
U.S. Macro EconomyReal EstateIndustrial Growth & Services
704.374.4407 [email protected]
U.S. Macro Economy
Tim QuinlanEconomic Analyst
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Economics Group Appendix
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