us economy update october 2009

Download Us Economy Update October 2009

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  • 1. Techcom systems. processes. people. simplified.Update on the US Economy October 2009Prepared by:Dan Kreis and Noah Stayton Techcom US and Mexico - Confidential -

2. Techcomsystems. processes. people. simplified. In this update, we provide an overview of the key issues facing three major sectors of the economy. Consumer confidence has rebounded off recent lows.Consumers 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.Businesses Despite lower sales and increasing financialdifficulties, however, business optimism is on the rise. Across all loan types, late payments and defaults are at record orBanks near-record highs. With over 100 banks failing in 2009 YTD, many institutions remaincautious about the future.Implications: The consumer and business sectors are beginning to show signs of recovery. Banks remain wary, however.- Confidential - 2 3. Techcomsystems. processes. people. simplified.Consumers- Confidential - 4. Techcomsystems. processes. people. simplified. The upward trend in consumer confidence that beganearlier this year has continued, despite a few dips. Consumers Perception of Current Economy1201985 = 100Oct. 09 = 70.6 100 801966 = 100 60 40 20 Oct. 09 = 47.7 0Oct-05Oct-06 Oct-07Oct-08 Oct-09Consumer Sentiment Index Consumer Confidence Index However, consumers outlook about the future has yet to return to pre-recession levels. Source: University of Michigan Consumer Sentiment Index via Federal Reserve; Consumer Confidence Index4 via the Conference Board. - Confidential - 5. Techcom systems. processes. people. simplified.As another positive sign, households have begun to rebuild their net worth.Net Worth of Households & Non-Profits ($ Bil.)$63,335$63,911 $58,823$52,494 $52,917 $51,142 $53,140$46,9022003 200420052006 2007 2008 Q1 2009 Q2 2009Changefrom12% 12% 8% 1%-17% -3% 4%PreviousA slight increase in real estate asset values and a noteworthydecrease in credit balances are the primary driver of this change. Source: Federal Reserve Flow of Funds Report. Note: Sector includes farm households and domestic hedge funds. - Confidential -5 6. Techcomsystems. processes. people. simplified. Americans have begun saving more to compensate for adeteriorating employment outlook. Personal Savings ($ Bil.) & Civilian Unemployment Rate $8009.5% 10%8.5% 7.2% 8% $600 6.2% $5465.4%5.6%4.8% 4.4% 4.9% 5.1%$409 $4036% $400$374$304 $235 4%$236$179 $200 $128 $126 2% $-0% 2004 2005 2006 2007Q1Q2 Q3 Q4 Q1 Q2 20082008 2008 2008 2009 2009Personal Savings Unemployment Rate The most recent data from the Bureau of Labor Statistics show thatunemployment has risen again, to 10.2%. Source: Federal Reserve, BLS. - Confidential -6 7. Techcomsystems. processes. people. simplified. Although credit card delinquencies remain very high,the pace of deterioration has slowed.Consumer Credit Card Delinquencies National Average Rate 6.7%6.7%5.6%4.6% 4.9% 4.9% 4.7%4.0%20062007 Q1 2008 Q2 2008 Q3 2008Q4 2008 Q1 2009 Q2 2009 Source: Federal Reserve. Note: 2005 2007 figures 7 are Q4 results. All figures seasonally adjusted.- Confidential - 8. Techcom systems. processes. people. simplified. Fluctuations in the value of the housing stock also seem to have stabilized. Value of Household Real Estate ($ Trillion) EquityDebt $21.4 $21.9 $20.4 $19.8$18.6$19.6 $19.1 $18.3 $17.9 $18.3$16.220032004 200520062007 Q1Q2Q3Q4 Q1 Q2 2008200820082008 2009 2009 58%58% 59% 55% 49%47%46% 45% 43%42%43%Percent Equity However, the equity value of the US housing sector still remains below 50%. Source: Federal Reserve. - Confidential - 8 9. Techcomsystems. processes. people. simplified.The mortgage market, now regarded as a key driver ofthe recession, has also seen more late payments. Residential Real Estate Loan Delinquencies National Average Rate8.8% 7.9%6.3% 5.3%4.5% 3.7%3.0%1.9%20062007 Q1 2008 Q2 2008 Q3 2008Q4 2008 Q1 2009 Q2 20098.8% is the highest mortgage delinquency rate on record. Source: Federal Reserve. Note: 2006 2007 figures 9 are Q4 results. All figures seasonally adjusted.- Confidential - 10. Techcom systems. processes. people. simplified. Following several quarters of low or negative growth,the US economy grew by 3.5% in the third quarter.Annualized GDP Growth/Decline3.2% 3.6% 3.5% 2.1% 1.2% 1.5%-0.7%-2.7% -5.4% -6.4% -0.7%A major contributor to growth in the most recent quarter was the governments Cash for Clunkers automotive incentive program. Source: Bureau of Economic Analysis, seasonally- Confidential -10 adjusted figures. 11. Techcom systems. processes. people. simplified.Businesses - Confidential - 12. Techcom systems. processes. people. simplified.The Small Business Optimism Index continues to hoverin the high 80s.Small Business Perception of Current Economy120 1986 = 100 Sept. 09 = 88.8 100 80 60 40Sept. 09 = 9% 20 0 Sep '06Sep '07 Sep '08 Sep '09 NFIB Small Business Optimism IndexNext 3 Months "Good Time to Expand" % A significantly higher percentage of business (9% vs. 5%), now viewthe next 3 months as a good time to expand, however. Source: NFIB.- Confidential -12 13. Techcom systems. processes. people. simplified.The effects of increased consumer savings rates can be readily seen in the latest retail sales data. Total Retail Sales ($ Bil.), January August$3,077$2,574$2,713$2,515 $2,3422005 200620072008 2009Year-Over-Year Change 10% 5%13%-18%Retail sales for the first eight months of the year are the lowest since 2005. Source: US Census Bureau. Note: August 2009 retail sales data are provisional results. Note: Sales levels not 13 adjusted for price changes.- Confidential - 14. Techcom systems. processes. people. simplified.Credit flows have been very weak, with slight signs of improvement on the borrowing side. Total Net Lending / Borrowing:Domestic Non-Financial Sectors ($ Bil.)$3,000$2,500$2,000$1,500$1,000 $500 $-$(500)2004 2005 20062007 Q1 Q2 Q3 Q4 Q1 Q22008 2008 2008 2008 2009 2009 $(1,000) Net LendingNet Borrowing Source: Federal Reserve (quarterly figures are 14 seasonally adjusted annual rates). - Confidential - 15. Techcom systems. processes. people. simplified. Through September of this year, the number of business bankruptcies has surpassed the last 3 years combined. Business Bankruptcy FilingsMajor96,648Bankruptcy Reform Enacted 39,401 43,456 34,317 28,322 19,965 20042005 20062007 2008 2009 Total business bankruptcies will likely surpass 100k by year-end.Source: American Bankruptcy Institute, AACER, New15 Generation Research. - Confidential - 16. Techcom systems. processes. people. simplified.Worsening conditions in the commercial lending market are likely to persist. Commercial Loan Delinquencies National Average RateQ2 08 Q2 09 7.9% ChangeCommercialReal Estate88% increase 6.4% Commercial & 5.4% Industrial 106% increase 4.8% 4.2% 3.4%3.7% 3.1%2.7% 2.6%1.8% 1.8% 1.3% 1.2% 1.3% 1.4% 20062007Q1 2008 Q2 2008Q3 2008 Q4 2008 Q1 2009Q2 2009 Commercial Real EstateCommercial & IndustrialSource: Federal Reserve. Note: 2005 2007 figures 16 are Q4 results. All figures seasonally adjusted. - Confidential - 17. Techcomsystems. processes. people. simplified.Banks- Confidential - 18. Techcomsystems. processes. people. simplified. The banking industry has increased its loan loss reserves to the highest levels on record. Loan Loss Reserve Ratio3.5(Loan Loss Reserve / Total Loans for All US Banks) 3.02.52.0 Q2. 09 = 2.941.51.00.50.0Jun-99 Jun-04Jun-09If the banking industrys perceptions about the future are any indication, the US economy will undergo a long recovery process. Source: Federal Reserve - Confidential - 18 19. Techcomsystems. processes. people. simplified.The average consumer credit card charge-off rate stands at an all-time high. Consumer Credit Card Charge-offs National Average Rate9.6%7.6% 6.4%5.3% 5.7% 4.7%4.0%4.2%20062007 Q1 2008 Q2 2008 Q3 2008Q4 2008 Q1 2009 Q2 2009 Source: Federal Reserve. Note: 2006 2007 figures 19 are Q4 results. All figures seasonally adjusted.- Confidential - 20. Techcomsystems. processes. people. simplified. Loss rates in the mortgage market have also skyrocketed to record levels. Residential Real Estate Loan Charge-offs National Average Rate 2.3% 1.8% 1.6% 1.5%1.2%0.9% 0.4%0.1%20062007 Q1 2008 Q2 2008 Q3 2008Q4 2008 Q1 2009 Q2 2009 Source: Federal Reserve. Note: 2006 2007 figures 20 are Q4 results. All figures seasonally adjusted.- Confidential - 21. Techcomsystems. processes. people. simplified.Decreased consumer activity has severely strained thebusiness community, causing rampant loan defaults. Commercial Loan Charge-offs National Average Rate Q2 08 Q2 09 Change Commercial Real Estate133% increase 2.3%2.3%Commercial &2.1%Industrial188% increase1.8%1.4% 1.4% 1.1%0.9% 0.8% 1.1%0.7% 0.6% 0.7%0.3% 0.4% 0.1% 20062007 Q1 2008Q2 2008Q3 2008 Q4 2008 Q1 2009Q2 2009Commercial Real Estate Commercial & Industrial A recent report of the Inspector General of the FDIC found that theagency failed to enforce its own guidelines regarding oversight of commercial real estate lending. Source: Federal Reserve. Note: 2006 2007 figures 21 are Q4 results. All figures seasonally adjusted.- Confidential - 22. Techcom systems. processes. people. simplified.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 20095 Worst Years for Bank Failures1987 2171988 2321989 5311151990 3811991 268 1934 1949 19641979 19942009On average, however, the assets of failed institutions during the current crisis are 40 times higher than the assets of institutions thatfailed during the S&L Crisis. Source: FDIC.- Confidential - 22 23. Techcom systems. processes. people. simplified. About Techcom Strategic Solutions Founded in 1994, approximately 40 employees. Headquartered near Toronto, Canada. Currently expanding