pbctpbct 1 2003 economic summit outlook: economy at the cross-roads what’s next? may 30, 2003...
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2003 Economic Summit Outlook:2003 Economic Summit Outlook:
Economy At The Cross-RoadsEconomy At The Cross-RoadsWhat’s Next?What’s Next?
May 30, 2003
Foxwoods Resort Casino
Todd P. MartinFirst VP & chief economist
People’s Bank203.338.4826 [email protected]
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What’s Next? What’s Next?
"The things we don't know. That's what's got Americans on edge. We are a nation that likes to know. We want to know if we're going to war. We want to know whom we can trust. We want to know if our jobs are secure.
We want to know if the stock market is a better deal than the racetrack. We want to know if our next medical bill will set us back a year's wages. We want to know if boarding airplanes makes us targets. And following the Columbia tragedy, we want to know if our technologies can live up to the faith we put in them.
The short answer to all these things: We don't know."
USA Today, 2/04/03
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Wall of Worry Wall of Worry
• Jobs• War
• Code Orange - Terrorism
• SARS & Mad Cow
• Deflation
• Weak Dollar
• Corporate Malfeasance
• Weak Global Growth
• North Korea - Iran
• Widening Federal & State Budget Deficits
• Widening Trade Deficit
• Weak Capital Spending
• High Debt Levels
• Wake of Stock Bubble - Negative Wealth Effect
• Excess Capacity
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Reasons To Be Encouraged Reasons To Be Encouraged
• 40-Year low Interest Rates
• Federal Tax Cuts
• Strong Productivity
• Weaker Dollar
• Saddam Gone - War Went Well
• Falling Oil Prices
• Housing Booming
• Confidence Rebounds
• Stocks Up From Lows
• Improving Corporate Profits
• 94% Employed - Real Income Growth Positive
• Economy Has Been Remarkably Resilient
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US Economic Outlook US Economic Outlook
• Economic Growth will remains sub-par for the first half of 2003 due to high level of uncertainty
• The Fed will err on the side of accommodative monetary policy – Risk assessment: Risk of deflation greater than inflation
– Watching Post-War data closely - will not tighten until unemployment rate falls decisively.
• The Consumer has kept expansion alive with record mortgage refinance and zero % auto loans. Longer-term, corporate profits, capital investment, and job growth needs to improve to sustain recovery.
• Risks to the downside, but combination of stimulative fiscal & monetary policy, strong productivity, low inflation, weaker dollar, and improving corporate profits should set the stage for better growth in the second half of 2003.
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The economy looks better than it feels….The economy looks better than it feels….
Source: Conference Board, People’s Bank
Gross Domestic Product (CW$)
Transformation: %Chg, AR Source: Bureau of Economic Analysis
-2
-4
0
2
4
6
8
90 91 92 93 94 95 96 97 98 99 00 01 02 03
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……But feels worse than it looksBut feels worse than it looks
Source: Conference Board, BLS, People’s Bank
Establishment Employment, Nonfarm
Transformation: %Chg, AR Source: Bureau of Labor Statistics
-1
-2
-3
-4
0
1
2
3
4
5
6
90 91 92 93 94 95 96 97 98 99 00 01 02 03
monthly change (thousands) SA
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Productivity is soaringProductivity is soaring
Source: Conference Board, People’s Bank
Index, Business Sector, Output per Hour, All Persons
Transformation: %Chg, YA Source: Bureau of Labor Statistics
0
1
2
3
4
5
6
89 90 91 92 93 94 95 96 97 98 99 00 01 02
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Interest Rates are at 40-50 year lowsInterest Rates are at 40-50 year lows
Source: Conference Board, Bloomberg, People’s Bank
10 Year Treasury Note Yield vs. Targeted Fed Funds Rate %
Fed Funds vs. 10 Year T-Note
10 Year T-Note Yield Targeted Fed Funds Rate
1
3
5
7
9
11
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
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Mortgage refi helps fuel consumer spendingMortgage refi helps fuel consumer spending
Source: MBA, People’s Bank
Mortgage Refinace Index
0
1000
2000
3000
4000
5000
6000
7000
8000
9000
10000
1/3
/19
97
4/3
/19
97
7/3
/19
97
10
/3/1
99
7
1/3
/19
98
4/3
/19
98
7/3
/19
98
10
/3/1
99
8
1/3
/19
99
4/3
/19
99
7/3
/19
99
10
/3/1
99
9
1/3
/20
00
4/3
/20
00
7/3
/20
00
10
/3/2
00
0
1/3
/20
01
4/3
/20
01
7/3
/20
01
10
/3/2
00
1
1/3
/20
02
4/3
/20
02
7/3
/20
02
10
/3/2
00
2
1/3
/20
03
4/3
/20
03
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ISM index shows sharp drop in manufacturingISM index shows sharp drop in manufacturing
Source: Conference Board, ISM, People’s Bank
Institute of Supply Management Survey (formally NAPM)
Purchasing Managers' Index
Transformation: Level Source: NAPM
30
35
40
45
50
55
60
90 91 92 93 94 95 96 97 98 99 00 01 02 03
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Jobless Claims trend higher againJobless Claims trend higher again
Source: Bloomberg, BLS, People’s Bank
US Weekly Initial Jobless Claims - 4 week MA
200.0
250.0
300.0
350.0
400.0
450.0
500.0
550.0
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Core Inflation rate up just 1.5%Core Inflation rate up just 1.5%
Source: Conference Board, Bloomberg, People’s Bank
CPI & CPI less food & energy - YOY% change
CPI vs. CPI less Food & Energy
CPI CPI less F&E
1
2
3
4
5
6
7
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
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CT Economic OutlookCT Economic Outlook
• People’s Bank Business Barometer shows Connecticut Economy has stalled-out
• Downturn was not a repeat of early 1990s due to more diversified employment mix (defense a stabilizing factor) - balanced real estate markets - banks have adequate capital & credit available.
• Job losses continue, unemployment rates by LMAs have more than doubled since mid-2000, but the Stamford, Danbury & New London LMAs still have relatively tight job markets.
• CT vulnerable to national (and global) economy, falling stocks, rising oil prices, and deteriorating state fiscal condition.
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People's Bank Business Barometer stallsPeople's Bank Business Barometer stalls
Source: People’s Bank, Centerprise Advisors
People's Bank Business Barometer - 1992=100
Transformation: Level Source: Centerprise Advisors, User
50
57
64
71
78
85
92
99
106
113
120
69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03
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The CT economy is bouncing along the bottomThe CT economy is bouncing along the bottom
Source: People’s Bank, Centerprise Advisors
People's Bank Business Barometer - (YOY% change SAAR)
Transformation: %Chg, YA Source: Centerprise Advisors, User
-1
-2
-3
-4
-5
0
1
2
3
4
5
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
Current downturn milder than early 1990s recession
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CT unemployment rate still lower than US rateCT unemployment rate still lower than US rate
Source: CT Labor Department
Unemployment Rate CT vs. US
Unemployment Rate CT Unemployment Rate US
2
4
6
8
10
89 90 91 92 93 94 95 96 97 98 99 00 01 02
% of labor force (SA)
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CT unemployment claims still too high, but lower CT unemployment claims still too high, but lower than early 1990s peakthan early 1990s peak
Source: CT Labor Department
CT Average Weekly Initial Unemplyment Claims
Transformation: Level Source: Ct Dept. of Labor, U, User
3000.00
4000.00
5000.00
6000.00
7000.00
8000.00
9000.00
90 91 92 93 94 95 96 97 98 99 00 01 02 03
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Unemployment rates have more than doubled Unemployment rates have more than doubled CT Unemployment Rates % by Labor Market Area (NSA)
3.5
3.7
4.2
4.7
5.0
5.6
5.9
6.1
6.5
7.3
1.1
1.3
1.3
1.9
2.0
1.5
2.0
2.3
2.3
2.3
0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Stamford
Danbury
Lower River
New London
New Haven
Torrington
Hartford
Danielson
Bridgeport
Waterbury
8/31/2000
3/31/2003
Source: CT Labor Dept.
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CT employment growth under-performs USCT employment growth under-performs US
Source: BLS, CT Labor Department
CT vs. US Employment Growth YOY% change
CT Non-Farm Employment US Non Farm Employment
-1
-2
-3
-4
-5
0
1
2
3
4
5
6
83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
Better performance than early 90’s recession, but starting to slip again
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CT Job losses across the board YOYCT Job losses across the board YOY
-4,200
-3,900
-3,600
-2,500
-1,900
-1,900
-1,700
-1,600
-1,400
-1,100
-1,000
-800
-800
-600
-600
-400
-5,000 -4,500 -4,000 -3,500 -3,000 -2,500 -2,000 -1,500 -1,000 -500 0
Construction & Mining
State Gov.
Professional & Business Services
Computer & Electronic Product
Machinery
Transportation Equipment
Information
Wholesale Trade
Fabricated Metal
Chemicals
Credit Intermediation
Printing & Related
General Merchandise
Electrical Equipment
Federal Gov.
Insurance
Change in CT Non-Farm Employment Mar. 2003 vs. Mar. 2002 ( Not SA)
Source: CT Labor Department
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Fewer job gains than losses in CT YOYFewer job gains than losses in CT YOY
200
400
500
600
700
700
800
900
1,000
1,400
1,900
2,800
0 500 1,000 1,500 2,000 2,500 3,000
Local Gov.
Other Services
Securities & Commodity
Other Non-Durable Goods
Food & Beverage Stores
Other Retail
Arts, Ent. & Recreation
Building Materials
Other Durable Goods
Accommodation & Food Services
Educational Services
Health Care & Social Assistance
Change in CT Non-Farm Employment Mar. 2003 vs. Mar. 2002 ( Not SA)
Source: CT Labor Department
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Housing permits off to a weaker start this yearHousing permits off to a weaker start this year
Source: CT DECD
% Change in CT New Housing Permits Authorized YTD Jan. - Mar. 2003 vs. 2002 by LMA
-48.6%
-41.7%
-37.2%
-31.1%
-22.5%
-7.7%
-6.2%
0.0%
93.8%
-15.7%
-6.7%
-75.0% -25.0% 25.0% 75.0% 125.0%
Danbury
New Haven
Waterbury
Bridgeport
New London
Torrington
Danielson
Hartford
Lower River
Stamford
Connecticut
Weaker activity due to weather, lack of land, & more stringent zoning
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CT Home Price growth starting to moderateCT Home Price growth starting to moderate
Source: FHLMC, People’s Bank
Conventional Mortgage Home Price index - annual growth rates %
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0BRIDGEPORT CT PMSA
DANBURY CT PMSA
HARTFORD CT PMSA
STAMFORD-NORWALK CT PMSA
NEW HAVEN-MERIDEN CT PMSA
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Housing is not overbuild like the mid-1980sHousing is not overbuild like the mid-1980s
Source:CT DECD, New England Economic Project
Total housing permits authorized in CT in units
16,9
27 19,3
92
26,2
46
30,1
63
27,4
15
19,5
47
11,9
70
7,58
0
7,48
0
8,01
0
9,25
0
9,46
0
8,55
0
8,53
7
9,31
1 11,8
63
10,6
37
9,37
6
9,25
4
9,60
7
8,92
3
9,29
6
8,94
1
8,93
9
0.0
5,000.0
10,000.0
15,000.0
20,000.0
25,000.0
30,000.0
35,000.0
2002-2005 is forecast
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Auto registrations down just 0.6% YTD in 2003Auto registrations down just 0.6% YTD in 2003
Source: CT Labor Department
Connecticut New Auto Registrations Processed YTD - (Jan. - Mar.)
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
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Tax revenues up 3.1% over last yearTax revenues up 3.1% over last year
Source: State of CT Dept. of Revenue Services
Year-to-Date % change in CT Tax Revenues ( FY 02-03 vs. FY 01-02 July - Mar.)
-3.9%
0.9%
14.0%
3.1%
76.3%
38.0%
6.6%
-10.0%
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0%
Income
Sales & Use
Motor Fuel
Real Estate Conv.
Corp. Business
Cigarette
Total Up $221 million
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Fall in income taxes offset by increases in other taxesFall in income taxes offset by increases in other taxes
Source: State of CT Dept. of Revenue Services
Year-to-Date change in CT Tax Revenues ( FY 02-03 vs. FY 01-02 July - Mar.)
103
81
21
13
-135
13
20
28
-180 -130 -80 -30 20 70 120
Corporation Business Tax
Cigarette Tax
Estate Tax
Total Motor Fuel Tax
Sales & Use Tax
Total Insurance Taxes
Real Estate Conveyance
Income Tax
$ Millions
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SummarySummary• Growth will remain sub-par through first half 2003 - Iraq
overshadowed economic data through mid-April
• Fed may err on the side of lower rates by the June FOMC meeting but short-term rates should begin to rise by mid-2004
• Connecticut economic growth has stalled - meaningful job growth not likely until at least 2004 - Higher Taxes will hamper recovery
• Watch: Jobless Claims - employment - purchasing managers’ index - oil prices - home prices - consumer confidence - chain store sales - ‘geopolitical uncertainties’