2013 garriga presentation - icapweb.files.wordpress.com
TRANSCRIPT
August 16, 2013
Carlos Garriga Federal Reserve Bank of St. Louis
These comments do not necessarily represent the views of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
The Outlook for 2013 and Beyond for the Economy and Housing Markets
1
2
The Outlook for 2013 and Beyond for the Economy and Housing Markets
The economy in 2013 and beyond
Still struggling to overcome the legacy of the housing bubble Short-term outlook: Deleverage and labor market conditions Long-term outlook: A “new normal” is emerging
Housing outlook Many housing markets may have hit bottom in 2012 The return of “location, location, location”
The Economy 2013 and Beyond
3
4
Unemployment Remains High in Southwest and Eastern Half of Nation
Source: Bureau of Labor Statistics and GeoFRED, http://geofred.stlouisfed.org/
Very low
Low
High
High
Low High
Very high
High
Low
Very high
Very high
Very high
St. Louis MSA Unemployment RateKansas City MSA Unemployment Rate
Chicago MSA Unemployment RateU.S. Unemployment Rate
15100500Sources: BLS /Haver
12
11
10
9
8
7
6
5
4
3
2
12
11
10
9
8
7
6
5
4
3
2
Midwest Microcosm of the Nation: From Sunbelt (KC) to Rustbelt (CHI)
5
Percent
Quarterly data through Q4.2012
St. Louis
Kansas City
Chicago
United States
St. Louis MSA Nonfarm Employment (average level in 2005 equals 100)Kansas City MSA Nonfarm Employment (average level in 2005 equals 100)
Chicago MSA Nonfarm Employment (average level in 2005 equals 100)Total U.S. Nonfarm Employment (average level in 2005 equals 100)
1514131211100908070605Sources: BLS, BLS, BLSILDES /Haver
106
104
102
100
98
96
94
106
104
102
100
98
96
94
Job Growth Looks Worse than Unemployment Rate
6
Index level equals 100 in
2005
Quarterly through Q4.2012
St. Louis
Kansas City
Chicago
United States
Five-Year Trailing Average Growth of Real Disposable Personal Income Per CapitaAnnualized percent change
Annual Change in Real Disposable Personal Income per CapitaAnnual percent change
151005009590Sources: Bureau of Economic Analysis /Haver Analytics
6
5
4
3
2
1
0
-1
-2
-3
-4
6
5
4
3
2
1
0
-1
-2
-3
-4 7
Income Growth Has Collapsed
Percent
5-year moving average of real DPI growth
Gray shading indicates period of national economic recession as defined by the National Bureau of Economic Research.
Annual data through 2012
8
Logarithm of real GDP in trillions of chained 2005 dollars
Potential GDP Is Lower Now
Actual level of real GDP
Linear trend extrapolated from actual data, 1947-2007
Non-linear trend estimated from actual data with the Hodrick-
Prescott (HP) filter, 1947-2007
Actual level of real GDP
Conventional view St. Louis Fed view
Ratio of Household Debt to Personal Income
Percent
1510050095908580757065605550Source: Haver Analytics
120
100
80
60
40
20
0
120
100
80
60
40
20
0
What‘s Wrong with Households? Too Much Debt!
9
Source: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q3.2012
Percent Household debt-to-income ratio
Inflation-Adjusted Per-Capita Household LiabilitiesChained 2009 dollars
Inflation-Adjusted Disposable Per-Capita Personal IncomeChained 2009 dollars
151005009590Source: Haver Analytics
50000
45000
40000
35000
30000
25000
20000
50000
45000
40000
35000
30000
25000
20000
Sources: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q2.2013
Our Biggest Short-Term Problem: Too Much HH Debt Built Up During Bubbles
Chained 2009 dollars
Per-capita household debt
Per-capita disposable
income
11
Most Affected By Mortgage Debt Overhang: Young Homeowners
Inflation-Adjusted Per-Capita Equity-Market HoldingsThousands of 2005 dollars
Inflation-Adjusted Per-Capita Value of Homeowners' EquityThousands of 2005 dollars
151005009590Source: Haver Analytics
1009080706050
40
30
20
10
1009080706050
40
30
20
10 12
Stock-Market Wealth Has Recovered More Rapidly Than Homeowners‘ Equity
Thousands of 2005 dollars Equity holdings
Sources: Federal Reserve Board; Bureau of Economic Analysis Quarterly through Q3.2012
Homeowners’ equity
Est. Feb. 2013
Est. Feb. 2013
Source: CoreLogic Q2 2012 13
Negative Equity Likely to Linger For Years, Driving Millions of Additional Foreclosures
14
The New Normal: Deleveraging Hampers Growth
Sweden Japan United States Banking-crisis period 1991-94
Deleveraging period 1988-98
Average annual growth of real GDP during 8 years preceding banking-crisis period
2.6%
Average annualized growth of real GDP during deleveraging period (to date in U.S.)
1.6%
Difference
-1.0%
Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis
15
The New Normal: Deleveraging Hampers Growth
Sweden Japan United States Banking-crisis period 1991-94 1992-97
Deleveraging period 1988-98 1999-2007
Average annual growth of real GDP during 8 years preceding banking-crisis period
2.6% 4.9%
Average annualized growth of real GDP during deleveraging period (to date in U.S.)
1.6% 1.5%
Difference
-1.0% -3.4%
Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis
16
The New Normal: Deleveraging Hampers Growth
Sweden Japan United States Banking-crisis period 1991-94 1992-97 2007-09
Deleveraging period 1988-98 1999-2007 2008-2018??
Average annual growth of real GDP during 8 years preceding banking-crisis period
2.6% 4.9% 2.6% (8 years through
Q2.2007)
Average annualized growth of real GDP during deleveraging period (to date in U.S.)
1.6% 1.5% 0.6% (4.75 years from Q1.2008 through
Q4.2012)
Difference
-1.0% -3.4% -2.0%
Sources: IMF, April 2012 Global Financial Stability Report, Table 1.3; and Bureau of Economic Analysis
Inflation-Adjusted Per-Capita Gross Federal-Government DebtChained 2009 dollars
Inflation-Adjusted Disposable Per-Capita Personal IncomeChained 2009 dollars
151005009590Source: Haver Analytics
50000
45000
40000
35000
30000
25000
20000
50000
45000
40000
35000
30000
25000
20000
Sources: Federal Reserve Board, Bureau of Economic Analysis Quarterly through Q2.2013
Our Biggest Medium-Term Problem: Too Much Govt. Debt Built Up Since 2001
Chained 2009 dollars
Per-capita federal-
government debt
Per-capita disposable
income
Q2.2001: $23,714
Q2.2008: $31,154
Q2.2013: $49,510
Average annual growth rate of real per-capita federal-government debt vs. disposable income:
Reagan 8.9% 2.8% Bush I 6.7% 1.0% Clinton 0.4% 2.5% Bush II 6.0% 1.5% Obama 7.0% 0.5%
Working-Age Population (18-64) as Share of Total Population
Percent
6055504540353025201510050095908580Source: Haver Analytics
64
63
62
61
60
59
58
57
56
64
63
62
61
60
59
58
57
56
Source: Census Bureau Annual data through 2012; projections through 2060
We‘re on the Verge of A Demographic Tsunami: Retirement of Baby Boomers
Percent
History Forecast
Working-age population as share of
total population
Where we are right now
Projected U.S. Working-Age Population (18-64): 2012 Level = 100Projected Missouri Working-Age Population (18-64): 2012 Level = 100Projected Illinois Working-Age Population (18-64): 2012 Level = 100
3025201510Source: Haver Analytics
105
104
103
102
101
100
99
98
97
96
95
105
104
103
102
101
100
99
98
97
96
95
Source: Census Bureau Annual data through 2012; projections through 2030
The Demographics of the Midwest Will Resemble Japan
Index levels equal 100 in
2012
History Forecast
Where we are right now
Working-age population: U.S.
Working-age population: Missouri
Working-age population: Illinois
Projected Texas Working-Age Population (18-64): 2012 level = 100Projected Georgia Working-Age Population (18-64): 2012 level = 100
Projected U.S. Working-Age Population (18-64): 2012 level = 100
3025201510Source: Haver Analytics
125
120
115
110
105
100
95
125
120
115
110
105
100
95
Source: Census Bureau Annual data through 2012; projections through 2030
The Demographics of the Sunbelt Will Resemble An Emerging Market
Index levels equal 100 in
2012
History Forecast
Where we are right now
Working-age population: U.S.
Working-age population: Texas
Working-age population: Georgia
Housing Markets in the Area (MO, KS, IL)
21
Year-over-Year Percent Change in FHFA Expanded Data House-Price IndexPercent (left scale)
Conference Board's Consumer-Confidence Index: Present SituationAverage level in 1985 equals 100 (right scale)
15100500Sources: FHFA, CB /Haver
15
10
5
0
-5
-10
-15
200
160
120
80
40
20 22
Consumer Confidence Tracks House Prices With a Lag
Year-over-year change in U.S. house prices
Consumer-confidence index
San Francisco Metro Home-Value Index (dollars)Los Angeles Metro Home-Value Index (dollars)
Atlanta Metro Home-Value Index (dollars)Dallas Metro Home-Value Index (dollars)
1510050095Sources: ZILLOW /Haver
800000
600000
400000
200000
100000
70000
800000
600000
400000
200000
100000
70000 23
House Prices
San Francisco
Los Angeles
Dallas
Atlanta
Dallas Nonfarm Employment (index equals 100 in 1995)Atlanta Nonfarm Employment (index equals 100 in 1995)
San Francisco Nonfarm Employment (index equals 100 in 1995)Los Angeles Nonfarm Employment (index equals 100 in 1995)
1510050095Sources: BLS /Haver
140
130
120
110
100
90
140
130
120
110
100
90 24
Employment
San Francisco
Los Angeles
Dallas
Atlanta
Chicago Metro Home-Value IndexDollars
St. Louis Metro Home-Value IndexDollars
1510050095Sources: Zillow.com /Haver Analytics
300000
250000
200000
150000
100000
50000
300000
250000
200000
150000
100000
50000 25
House Prices
Chicago
St. Louis
St. Louis MSA Unemployment RateKansas City MSA Unemployment Rate
Chicago MSA Unemployment RateU.S. Unemployment Rate
15100500Sources: BLS /Haver
12
11
10
9
8
7
6
5
4
3
2
12
11
10
9
8
7
6
5
4
3
2
St. Louis Economy is Improving
26
Percent
Quarterly data through Q4.2012
St. Louis
Kansas City
Chicago
United States
St. Louis Share of Mortgaged Single-Family Homeowners in Negative Equity (%)Chicago Share of Mortgaged Single-Family Homeowners in Negative Equity (%)
U.S. Share of Mortgaged Single-Family Homeowners in Negative Equity (%)
141312111009Sources: Zillow.com /Haver Analytics
50
40
30
20
10
0
50
40
30
20
10
027
St. Louis Share of Negative-Equity Homeowners Close to U.S. Average
St. Louis
Chicago
United States
28
March 2006: At the Peak of the Housing Boom, Mortgage Conditions Were Pristine
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2006
Source: Lender Processing Services
J
J
J J J
J J
J
J
J J
J
J
J
J
J
J
J
J
J J J
J
J
29
March 2007: Falling House Prices, Slowing Economy Begin to Show
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2007
Source: Lender Processing Services
30
March 2008: Financial Crisis Is Underway, Economy Has Entered Recession
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2008
Source: Lender Processing Services
31
March 2009: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2009
32
March 2010: At Its Worst, Mortgage Distress Was Concentrated in SW, SE, and MW
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2010
33
March 2011: Mortgage Distress Remains Elevated Despite Economic Stabilization
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2011
34
March 2012: Mortgage Distress Remains Elevated Despite Economic Stabilization
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County March 2012
35
December 2012: Double-Digit Rates of Delinquency Are Common in Judicial States
Source: Lender Processing Services
Percent of Mortgages 30+ Days Past Due or in Foreclosure, By County December 2012
J
J
J J J
J J
J
J
J J
J
J
J
J
J
J
J
J
J J J
J
J
36
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing Services
St. Charles
St. Louis
Jefferson
Lincoln
Warren
Franklin
Pike
Montgomery
Gasconade
Calloway
Osage
Washington
Audrain
Maries
Cole
Boone
City of St. Louis
37
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing
Services
Montgomery
Bond
Clinton
Macoupin
Madison
Randolph
Jersey
St. Clair
Calhoun
Monroe Washington
Perry
Marion
Jefferson
Fayette
38
Mortgage Conditions by ZIP Code: Dec. 2012
Percent of mortgages delinquent or in foreclosure
Source: Lender Processing Services
Lake
Cook
DuPage
McHenry
Kendall
LaSalle
Boone
Grundy
Winnebago
Dekalb
Will
Kane
e
e
39
Share of Mortgages 30+ Days Delinquent or in Foreclosure Recession
Dec. 2007 to June 2009
Illinois (judicial)
Missouri (non-judicial)
Total U.S.
Judicial foreclosures are slowing recovery in about half of all states.
Source: Lender processing Services Monthly data through Oct. 2012
40
Can We Expect Economic Lift-Off in 2014?
Yes—but the economy will cruise at a lower altitude than before Significant demographic transition underway Balance-sheet restructuring will continue Midwest will lag
Questions?
41
Appendix: Differences Across U.S. Regions
42
43
Regional Recoveries Vary Widely
Employment Strongest recoveries in:
Texas Northern Great Plains Mountain States Pacific Northwest
Weakest recoveries in: California Great Lakes New England
Housing Most regions are now—or always were—reasonably
valued Signs of “froth” re-emerging in Sand States
Employment in Mountain Census DivisionEmployment in Pacific Census Division excluding California
Employment in California
2015100500Source: Haver Analytics
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 44
Weak Recovery: No Net Job Gains in CA in 12½ Years
MTN: AZ, CO, ID, MT, NV, NM, UT, WY
PAC ex CA: AK, HI, OR, WA
CA
Index levels equal 100 in
2000
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
CA
PAC MTN
Employment in West South Central Census DivisionEmployment in West North Central Census DivisionEmployment in East South Central Census DivisionEmployment in East North Central Census Division
2015100500Sources: BLS/H /Haver
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 45
Employment is Stronger West of the Mississippi
WSC: AR, LA, OK, TX
WNC: IA, KS, MN, MO, NE, ND, SD
ESC: AL, KY, MS, TN
ENC: IL, IN, MI, OH, WI
Index levels equal 100 in
2000
WSC
WNC ENC ESC
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
Employment in South Atlantic Census DivisionEmployment in Middle Atlantic Census DivisionEmployment in New England Census Division
2015100500Sources: Bureau of Labor Statistics/Haver Analytics
120
115
110
105
100
95
90
85
120
115
110
105
100
95
90
85 46
Southeast Tracks National Recovery; Northeast Lags
SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV
MAT: NJ, NY, PA
NEW: CT, ME, MA, NH, RI, VT
Index levels equal 100 in
2000
SAT
MAT NEW
Source: Bureau of Labor Statistics Quarterly data through Q2.2013
Total U.S. House-Price-to-Income RatioAverage level in 2000 equals 100
Fair-Value Line Based on House-Price-to-Income Ratio in 2000Constant at 100
20151005009590Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 47
On Average, U.S. House Prices Appear Moderately Undervalued
Index levels equal 100 in
2000 Average house prices are “overvalued” if their ratio to per-capita income is > 100
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Average house prices are “undervalued” if their ratio to per-capita income is < 100
Maximum overvaluation of 27.2% in Q4.2005
USA Maximum undervaluation of 15.0% in Q1.2012
California House-Price-to-Income RatioMountain Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 48
Western House Prices Rising Sharply Again
Index levels equal 100 in
2000
MTN: AZ, CO, ID, MT, NV, NM, UT, WY
CA
USA
MTN CA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
West South Central Census Division House-Price-to-Income RatioEast South Central Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 49
Houses Are Fairly Valued in Dixie—and Always Were
Index levels equal 100 in
2000
WSC: AR, LA, OK, TX
ESC: AL, KY, MS, TN
WSC ESC
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
West North Central Census Division House-Price-to-Income RatioEast North Central Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 50
Upper-Midwest Houses Still Cheap
Index levels equal 100 in
2000
WNC: IA, KS, MN, MO, NE, ND, SD
ENC: IL, IN, MI, OH, WI
WNC ENC
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Florida House-Price-to-Income RatioSouth Atlantic Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 51
Florida and Southeast House Values Rising Again
Index levels equal 100 in
2000
SAT: DE, DC, FL, GA, MD, NC, SC, VA, WV
FL
SAT FL
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013
Middle Atlantic Census Division House-Price-to-Income RatioNew England Census Division House-Price-to-Income Ratio
Total U.S. House-Price-to-Income Ratio
2015100500Source: Haver Analytics
200
150
100
50
0
200
150
100
50
0 52
Northeast Houses Still Expensive
Index levels equal 100 in
2000
MAT: NJ, NY, PA NEW: CT, ME, MA,
NH, RI, VT
MAT NEW
USA
Sources: Bureau of Economic Analysis, Federal Housing Finance Agency Quarterly data through Q1.2013