opening keynoterobstrand

Strength of the United States Economy

Bank and Capital Markets Tax Institute WestSan Francisco Marriott MarquisSan Francisco, CA

December 2, 2014

Rob StrandSenior EconomistAmerican Bankers Association

“The world is a mess.” Madeline Albright, July 27, 2014

Source: Council on Foreign Relations, CNN, POLITICO

The World is a Mess

• Argentinean debt crisis• Palestinian-Israeli conflict • Syrian civil war• Ukrainian – Russian conflict• Egyptian coups • Lebanese crisis• Iraqi war and ISIS• Iranian nuclear crisis• North Korean turmoil• Thai coup• Ebola in West Africa• Yemeni terrorist insurgence• Military coup in Burkina FasoSource: Council on Foreign Relations, CNN, POLITICO

Quarterly Inflation-Adjusted GDP Growth

‐9%

‐6%

‐3%

0%

3%

2008 2009 2010 2011 2012 2013 2014Source: U.S. Bureau of Economic Analysis

90

100

110

120

130

2005 2008 2011 2014

GDP by Country

Sources: U.S. Bureau of Economic Analysis and OECD

Index (1Q05=100)

United States

Germany

France

Japan

Source: National Bureau of Economic Research

-40

0

40

80

120

WWII ends

Post WW II Average

Business Cycles

MonthsExpansion

Recession

Current

0

400

800

1200

1600

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

S&P 500 Index

Source: Standard & Poor’s

Up 156%

Source: U.S. Bureau of Economic Analysis

-5%

0%

5%

2012 2013 2014

InventoriesNet ExportsGovernmentFixed InvestmentPersonal Consumption

Contrib

ution to GDP

 Growth

Total GDP Growth

Consumption Drives Growth

Consumer Confidence

Source: Thomson Reuters and University of Michigan

50

60

70

80

90

100

2007 2008 2009 2010 2011 2012 2013 2014

Debt Talks

Index Value

RecessionFiscal Cliff

Debate

FederalShutdown

-900

-700

-500

-300

-100

100

300

500

2005 2007 2009 2011 2013

Source: U.S. Bureau of Labor Statistics

8.7 Million Lost

9.8 Million Recoveredin 48 months of growth

Monthly Payroll Growth

0%

4%

8%

12%

16%

1994 1998 2002 2006 2010 2014

Source: U.S. Bureau of Labor Statistics

Underemployed 11.8%

5.9%Unemployed

Unemployment Rate

0%

4%

8%

12%

1994 1998 2002 2006 2010 2014

Source: U.S. Bureau of Labor Statistics, Eurostat

U.S. 6.1%

Unemployment Rate Comparison

Euro Area 11.6% 

June

Initial Claims Back to Normal Levels

0

100

200

300

400

500

600

700

1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Source: U.S. Department of Labor (4-week moving average)

Initial Unemployment Claims, 000s

400K

295K

Voluntary Quits and Layoffs Picking Up

Source: U.S. Bureau of Labor Statistics

0

1,000

2,000

3,000

2000 2002 2004 2006 2008 2010 2012

Recession

Layoffs

Voluntary Quits

0

5

10

15

1971 1976 1981 1986 1991 1996 2001 2006 2011

Less than 5 Weeks

5–14 Weeks

Millions

27+ Weeks

Duration of Unemployment

Source: U.S. Bureau of Labor Statistics

-24% -20% -16% -12% -8% -4% 0% 4% 8%

Health Services

Prof. & Bus. Services

Leisure & Hospitality

Education

Trade & Transportation

Financial Services

Government

Information

Manufacturing

Construction

Change in Employment from Pre-2011 Peak

Source: U.S. Bureau of Labor Statistics

Over 3%

2%—3% 

1½%—2%

1%—1½%

¼%—1%

Employment Growth Since 2010

Source: U.S. Bureau of Labor Statistics, May 2014

6.5%

Home Prices

Source: Case-Shiller/S&P 20-City Index. Not seasonally adjusted

0

50

100

150

200

2002 2004 2006 2008 2010 2012 2014

Conventional 30-Year Mortgage Rate

0%

2%

4%

6%

8%

10%

1990 1993 1996 1999 2002 2005 2008 2011 2014

Source: Federal Reserve

Home Sales

-

3

6

9

1999 2004 2009 2014

Millions of UnitsSAAR

Sources: U.S. Census Bureau, National Association of Realtors

New Homes

Existing Homes

0

1

2

1963 1970 1977 1984 1991 1998 2005 2012

Housing Starts

Source: U.S. Census Bureau

Millions of Units

1959‐2010 Average

Retail Sales

Inflation & Seasonally‐Adjusted Semi‐Annual Growth Rate on Quarter Average

‐15%

‐10%

‐5%

0%

5%

1994 1999 2004 2009 2014Source: U.S. Bureau of Economic Analysis

Retail Sales without Gas

Source: U.S. Department of the Census

$100

$110

$120

$130

$140

2007 2008 2009 2010 2011 2012 2013 2014

Thou

sand

s

$Billions, Seasonally Adjusted

Price of a Gallon of Gas vs. Milk

$3.00

$3.50

$4.00

2012 2013 2014

Premium Gas

Whole Milk

Source: BLS and US Energy Information Administration

Crude Oil Exports

0

100

200

300

400

2002 2004 2006 2008 2010 2012 2014

Source: U.S. Energy Information Administration

Thousands of Barrels per Day

$0

$5

$10

$15

1960 1970 1980 1990 2000 20100%

8%

16%

24%

Debt / Assets

Trillions

Household Liabilities

Source: Federal Reserve Flow of Funds

Household Financial Obligation Ratio

10%

12%

14%

16%

18%

1980 1985 1990 1995 2000 2005 2010Source: Federal Reserve

Overhang of Student Debt

$0

$5,000

$10,000

$15,000

$20,000

$25,000

0%

10%

20%

30%

40%

50%

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Proportion with Student Loans at age 25

Source: Federal Reserve Bank of New York

Balance of those with Student Loans

Corporate Profits

Source: U.S. Bureau of Economic Analysis

$0

$5

$10

$15

2002 2004 2006 2008 2010 2012 2014

With inventory valuation and capital consumption adjustments, SAAR, $Billions

Business Indexes

80

90

100

30

40

50

60

2006 2007 2008 2009 2010 2011 2012 2013 2014

Industrial ProductionISM Non-

Manufacturing

Contraction          Expa

nsion

ISM Manufacturing

Sources: Federal Reserve, Institute for Supply Management

Small Business Optimism

Source: National Federation of Independent Business

Index Values (2

005=10

0)

50

60

70

80

90

100

2006 2008 2010 2012 2014

-2%

0%

2%

4%

6%

2007 2010 2013

Target

Source: U.S. Bureau of Labor Statistics (CPI), ECB

U.S. and Euro Inflation

United States

Euro Zone

Source: FOMC (September 2014)

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

2014 2015 2016 Long Run

FOMC Federal Funds Rate Forecast

FOMC Fed Funds Forecast for 2015

0%

1%

2%

3%

March 2014 FOMC Meeting

September 2014 FOMC Meeting

Source: Federal Reserve Federal Open Market Committee

Federal Reserve Timeline

$25

$15

$0Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec

Asset Purchases ($B)Fed Funds Rate

0.125%

2.75%

6 Months

20152014

Federal Funds Rate Outlook

1.25%

2016Source: Federal Reserve Federal Open Market Committee

Periods of Federal Reserve Tightening

0%

1%

2%

3%

4%

5%

6%

7%

-1 1 3 5 7 9 11 13 15 17 19 21 23 25

Fed

Fund

s Ta

rget

Rat

e

Months Since Tightening Began

19942004

2000

Long Term Forecast

Source: Federal Reserve

$0

$1

$2

$3

$4

2008 2009 2010 2011 2012 2013 2014

Federal Reserve Balance Sheet Growth

Source: Federal Reserve

$Trillion

MBS & Agency Debt U.S. Treasury 

Securities

LiquidityPrograms

$1.8 Trillion

$2.5 Trillion

Yield Spreads Shrink when the Fed Tightens

0%

2%

4%

6%

8%

10%

1990 1994 1998 2002 2006 2010 2014

Tightening Begins

Source: Federal Reserve

10-Year Bonds

3-Month Bills

Economic Uncertainties

• Interest Rates

• Consumer and Business Confidence

• Housing Recovery

• Income and Wealth Inequality

• Government Finances

• International Turmoil

U.S. Traditional Advantages

• Strong global competitor

• Robust entrepreneurial culture

• Flexible capital and labor markets

• Technological leader

• Highly diverse mix of industries

Patent Applications

0

200,000

400,000

600,00019

6319

6619

6919

7219

7519

7819

8119

8419

8719

9019

9319

9619

9920

0220

0520

0820

11

Source: United States Patent and Trademark Office