1 michael feroli senior us economist jpmorgan october 2009 click to edit master title style the us...
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1
Michael FeroliSenior US EconomistJPMorgan October 2009
Click to edit Master title style
The US economic outlook
2
Economic outlook Evidence of recovery building in the data
Recovery—Policy support—Pent-up demand, inventory cycle—Drags fading
Structural drags remain—Consumer rebalancing—Financial headwinds
Risks V-shaped recovery W-shaped recovery L-shaped recovery
For (almost) all scenarios, long-term damage from recession is large Unemployment Deflation Fiscal imbalances
3
With final sales stabilizing, production has a lot of catching up to do
12000
12500
13000
13500
14000
billions, real $
Production and final sales
2005 2006 2007 2008 2009 2010
GDP
Final sales
Forecast
4
Leading to period of above-trend growth
-10
-5
0
5
10
%ch at annual rate
Real GDP
97 99 01 03 05 07 09
Forecast:
Q3 09 - Q4 10
5
Fading of uncertainty shock stabilizing demand
20
40
60
80
100
120
140
-20
-10
0
10
20
30
Index, %less-%more
Employment expectations and real consumer spending
% ch, oya
78 83 88 93 98 03 08
U Mich survey, expected unemployment over next year
Real durables spending
6
Saving rate secondary to income outlook
400
450
500
550
600
650 -2
0
2
4
6
8
10
12
Ratio
Houshold net worth in relation to disposable income and saving rate
Percent
84 89 94 99 04 09
Net worth to
incomeSaving rate
(inverted scale)
3Q09 wealth to income ratio
7
Leverage more a housing than consumption story
0
20
40
60
80
100
120
%, debt-to-income
Household leverage
60 65 70 75 80 85 90 95 00 05
Mortgage
debt
Consumer
credit
20
40
60
80
100
62
64
66
68
70
%, both scales
Homeownership and mortgage debt
65 70 75 80 85 90 95 00 05
Homeownership
rate
Mortgage debt-
to-income
8
Homebuilding coming up from the dead
500
1000
1500
2000
2500
thousands
Vacant, for-sale housing units
95 97 99 01 03 05 07 09
500
1000
1500
2000
2500
3000
3500
thousands, saar
Construction and demographics
69 74 79 84 89 94 99 04 09
New housing units started
Household growth (5-yr average)
9
Capital spending near a trough
-30
-20
-10
0
10
20
% change over year-ago
Real capital spending
97 99 01 03 05 07 09
Structures
Equipment and
software
-20
-10
0
10
20
30
Index, 3mma, weighted average of
regional Fed manufacturing surveys
Capex plans
00 02 04 06 08
10
Stimulus has been important 2H support
-3
-2
-1
0
1
2
3
4
%ch, saar (note: includes expiration of Bush tax cuts)
Estimated contribution of fiscal policy to GDP growth
2009 2010 2011
11
Federal support has helped states and localities
-10
0
10
20
30
% ch, oya
State and local government receipts
47 52 57 62 67 72 77 82 87 92 97 02 07
Total receipts(including federal transfers)
Tax receipts
12
Narrowing current account here to stay
-1000
0
1000
2000
3000
$ billion
US Saving-investment balance
98 00 02 04 06 08
Gross investment
Gross saving
Net foreign lending
-15
-10
-5
0
5
10% GDP
Private and public domestic financial balance
70 75 80 85 90 95 00 05 10
Private
financial
balance
Government
financial balance
Forecast
13
Structural issues could restrain US potential growth
0
1
2
3
4
5
6
%ch, private nonresidential
60 65 70 75 80 85 90 95 00 05 10
Growth of the capital stock
Forecast
0
5
10
15
20
weeks, sa
Median duration of unemployment
67 72 77 82 87 92 97 02 07
15
Wage inflation has collapsed, recovery bodes more of the same
0
2
4
6
8
%ch at annual rate over 2 quarters
Employment cost index
82 87 92 97 02 07
16
Public ignoring gas prices and bad economics
0
1
2
3
4
5
6
-15
-10
-5
0
5
10
15
%
Michigan 1-year median inflation expectations
%ch, 3-mo saar
99 01 03 05 07 09
Headline CPI
Median 1-yr inflation expectations
17
Money creation unlikely to lead to inflation
0.5
1.0
1.5
2.0
2.5
3.0
Index, 1994=1.0
Japanese QE
94 96 98 00 02 04 06 08
Monetary base
GDP deflator
18
Core inflation heading under 1%
0
2
4
6
8
10
12
%ch at annual rate over 1 quarter
Core PCE deflator
60 65 70 75 80 85 90 95 00 05 10
Forecast
19
The US economic forecast in brief
Second half move into positive growth
Second half growth of 3-1/2% Fading of drags Policy support
Above trend growth in 2010
Output gap stays large Deflation risks grow Fed to stay accommodative through 2011
20
The US economic forecast in detail
%q4/q4 %y/y
1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 2008 2009 2010 2008 2009 2010Gross domestic productReal GDP -6.4 -1.0 4.0 3.0 3.0 4.0 4.0 3.5 -1.9 -0.2 3.6 0.4 -2.4 3.2 Final sales -4.1 0.4 2.1 0.4 2.0 3.0 3.9 3.8 -1.4 -0.4 3.2 0.8 -1.8 2.2 Domestic -6.4 -1.2 2.2 0.8 2.3 2.9 3.8 3.9 -2.1 -1.2 3.2 -0.4 -2.8 2.2 Consumer spending 0.6 -1.0 2.0 0.0 1.5 2.0 3.0 3.0 -1.8 0.4 2.4 -0.2 -0.8 1.5 Business investment -39.2 -10.9 -3.9 -3.2 0.5 3.4 7.0 7.9 -6.0 -15.7 4.7 1.6 -18.2 0.3 Equipment -36.4 -8.4 0.0 0.0 3.0 5.0 8.0 8.0 -10.7 -12.6 6.0 -2.6 -18.3 2.6 Structures -43.6 -15.1 -12.0 -10.0 -5.0 0.0 5.0 8.0 3.2 -21.5 1.9 10.3 -18.2 -4.7 Residential investment -38.2 -22.8 30.0 25.0 25.0 25.0 20.0 20.0 -21.0 -6.2 22.5 -22.9 -18.5 21.0 Government -2.6 6.4 2.4 2.6 2.6 2.6 2.5 2.4 3.1 2.1 2.5 3.1 2.0 2.8Net exports ($bn, chained $2000) -387 -332 -337 -352 -361 -358 -358 -365 - - - - - -Exports (goods and services) -29.9 -5.0 6.0 9.0 10.0 12.0 10.0 8.0 -3.4 -6.3 10.0 5.4 -11.7 8.6Imports (goods and services) -36.4 -15.0 6.0 11.0 10.0 9.0 8.0 8.0 -6.8 -10.7 8.7 -3.2 -15.7 7.4Inventories (ch $bn, chained $2000) -113.9 -159.2 -98.8 -14.4 16.0 46.7 50.4 42.5 - - - - - -Contribution to real GDP growth (% pts):Domestic final sales -6.6 -1.2 2.2 0.8 2.3 2.9 3.8 3.9 -2.2 -1.2 3.2 -0.4 -2.8 2.2Net exports 2.6 1.6 -0.1 -0.5 -0.2 0.2 0.1 -0.1 0.7 0.8 0.0 1.2 1.0 0.0Inventories -2.4 -1.4 1.9 2.6 1.0 1.0 0.1 -0.3 -0.4 0.2 0.4 -0.3 -0.6 1.1Income and profits (NIPA basis)Adjusted corp profits 22.8 24.9 35.0 15.0 12.0 20.0 12.0 9.0 -25.1 24.2 13.2 -11.8 -4.9 17.1Real disposable personal income 0.2 3.8 -3.5 0.0 2.5 2.5 3.0 3.5 0.3 0.1 2.9 0.5 0.4 1.5Saving rate1 3.7 5.0 3.6 3.6 3.9 4.0 4.0 4.1 - - - 2.7 4.0 4.0Prices and labor costConsumer price index -2.4 1.3 3.7 2.2 1.1 1.0 0.8 0.6 1.5 1.2 0.9 3.8 -0.4 1.6
Core 1.5 2.4 1.5 1.0 0.8 0.6 0.3 0.1 2.0 1.6 0.4 2.3 1.7 0.9Producer price index -6.2 1.1 7.0 3.0 1.0 0.5 0.5 0.5 1.4 1.1 0.6 6.4 -2.5 1.9
Core 2.2 1.3 1.5 1.0 0.8 0.5 0.0 0.0 4.4 1.5 0.3 3.4 2.7 0.7GDP chain-type price index 1.9 0.0 2.0 0.9 0.8 0.6 0.4 0.3 1.9 1.2 0.5 2.1 1.4 0.8Core PCE deflator 1.1 2.0 1.3 1.0 0.7 0.5 0.2 0.0 2.0 1.4 0.3 2.4 1.5 0.8S&P/C-S house price index (%oya) -19.1 -14.9 -10.5 -7.0 -3.0 -2.0 -1.5 0.0 -18.4 -7.0 0.0 -15.8 -13.1 -1.6Productivity 0.3 6.6 6.0 2.5 2.0 1.5 1.5 2.5 0.9 3.8 1.9 1.8 2.5 2.7Other indicatorsHousing starts (mn units, saar)1 0.528 0.539 0.600 0.650 0.700 0.750 0.790 0.830 - - - 0.900 0.579 0.768Industrial production, mfg. -22.1 -10.4 6.0 4.0 5.0 5.0 5.0 4.0 -8.7 -6.3 4.7 -3.2 -11.9 3.8Capacity utilization, mfg. (%)1 66.7 65.1 66.5 67.2 68.0 68.7 69.4 69.8 - - - 75.1 66.4 69.0Light vehicle sales (mn units, saar)1 9.5 9.6 11.4 9.5 10.5 11.2 11.5 12.2 - - - 13.2 10.0 11.4Unemployment rate1 8.1 9.3 9.7 10.0 9.9 9.8 9.6 9.4 - - - 5.8 9.3 9.7Nominal GDP -4.6 -1.0 6.1 3.9 3.8 4.6 4.4 3.8 0.1 1.0 4.2 2.6 -1.0 4.0Current account balance ($bn)1 -101.5 -97.0 -107.7 -94.8 -93.7 -91.0 -90.0 -90.7 - - - -706.1 -401.0 -365.5
% of GDP -2.9 -2.7 -3.0 -2.6 -2.6 -2.5 -2.4 -2.4 - - - -4.9 -2.8 -2.5Federal budget balance ($bn)1 - - - - - - - - - - - -454.8 -1600.0 -1350.0
% of GDP - - - - - - - - - - - -3.1 -11.2 -9.11. Entries are average level for the period. Federal balance figures are for fiscal years.
1Q07
Sep 4 3Q09 4Q09 1Q10 2Q10
Interest rate forecast (end of period)Fed funds target 0.13 0.13 0.13 0.13 0.133-mo LIBOR 0.31 0.35 0.35 0.35 0.353-month T-bill (bey) 0.13 0.20 0.20 0.20 0.20
2-yr Treasury 0.93 0.90 1.00 1.10 1.255-yr Treasury 2.36 2.40 2.50 2.65 2.9010-yr Treasury 3.44 3.50 3.60 3.75 4.0030-yr Treasury 4.27 4.30 4.35 4.50 4.60
%q/q, saar
21
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