economic overview
DESCRIPTION
Economic Overview. September 2009. www.wellscap.com. Jay N. Mueller, CFA Wells Capital Management Fixed Income Group. Growth: Q3 bounce followed by weak recovery Employment: job losses slowing Inflation: headline about to turn up; core stable Monetary: Fed on hold - PowerPoint PPT PresentationTRANSCRIPT
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Economic Overviewwww.wellscap.comSeptember 2009
Jay N. Mueller, CFAWells Capital Management Fixed Income Group
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2Economic Overview
Big Six Summary
Growth: Q3 bounce followed by weak recovery
Employment: job losses slowing
Inflation: headline about to turn up; core stable
Monetary: Fed on hold
Fiscal: short term uncertainty; long run train-wreck
International: USA lags global recovery
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3Economic Overview
Growth
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4Economic Overview
U.S. GDP: quarterly growth rate (annualized)
Source: Bloomberg
Rate of contraction has moderated: Q3 likely to be positive
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5Economic Overview
Personal Consumption (real growth rate annualized)
Source: Bloomberg
Following a small bounce in Q1 consumption resumed its decline in Q2
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6Economic Overview
Private Domestic Fixed Investment % change
Source: Bloomberg
Though an improvement over Q1, PDI contracted for the 8th straight quarter in Q2
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7Economic Overview
Employment
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8Economic Overview
Payrolls: monthly change (non-farm, 000)
Source: Bloomberg
The pace of job loss is slowing, but still worrisome
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9Economic Overview
Unemployment Rate
Source: Bloomberg
Closing in on 10%
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10Economic Overview
Broad Unemployment (U6)
Including discouraged workers and underemployed
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11Economic Overview
Initial Claims for Unemployment Insurance (4 wk ma)
Claims off peak but remain uncomfortably high
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12Economic Overview
Initial Claims for Unemployment Insurance (4 wk ma)
Prior peaks in claims coincide with business cycle troughs
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13Economic Overview
Initial Claims (4 wk ma) versus Unemployment Rate
The 1982 claims peak was swiftly followed by a drop in the unemployment rate.Not so for the 1991 and 2001 peaks.
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14Economic Overview
Average Work Week
Hours worked remains very low
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15Economic Overview
Mean Period of Unemployment (weeks)
Out of work for nearly half a year on average
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16Economic Overview
Inflation
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17Economic Overview
CPI YOY
Source: Bloomberg
Energy-driven deflation likely to revert to inflation later this year
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18Economic Overview
CPI YOY – long term view
Source: Bloomberg
Most significant headline deflation in sixty years
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19Economic Overview
CPI Ex-food and Energy YOY
Source: Bloomberg
Core inflation is low and fairly stable
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20Economic Overview
Crude Oil – West Texas Intermediate spot price
Source: Bloomberg
Crude has trended higher since late ‘08
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21Economic Overview
Natural Gas – near futures contract
Source: Bloomberg
Much weaker than oil
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22Economic Overview
Copper – near futures contract
Source: Bloomberg
Substantial rally so far this year
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23Economic Overview
Monetary Policy
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24Economic Overview
Federal Funds Target Rate
Source: Bloomberg
Short term rate management has reached its downside limit
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25Economic Overview
Monetary Base
Source: Bloomberg
Quantitative Easing: a massive injection of bank reserves
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26Economic Overview
M1 year over year growth rate
Source: Bloomberg
Fastest money supply growth in twenty-five years
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27Economic Overview
Consumer Credit Outstanding
Source: Bloomberg
No traction from easy policy so far – consumer credit has been shrinking since September ‘08
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28Economic Overview
Fiscal Policy
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29Economic Overview
U.S. Federal Surplus/Deficit as a % of GDP
Source: Bloomberg
With Projection for 2009
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30Economic Overview
Deficit Projections – Obama Budget
containedhttp://bloghttp://wwwlnFmZ7gp
SOURCE: CBO, White House Office of Management and Budget | The Washington Post - March 21, 2009
Federal spending is running wild with worse to come
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31Economic Overview
Public Federal Debt Outstandingwith projection for 2009
Source: Bloomberg
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32Economic Overview
U.S. Federal Debt Projection
Federal public debt outstanding likely to double or worse over the next decade
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33Economic Overview
International
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34Economic Overview
Global Data Cross Section
GDP yoy CPI yoy IP yoy Unemployment
Eurozone -4.7% -0.7% -17.0% 9.5%
Japan -6.4% -2.2% -22.9% 5.7%
UK -5.5% +1.8% -9.3% 7.8%
U.S. -3.9% -2.1% -13.1% 9.7%
Source: Bloomberg
The U.S. was first into recession but Europe and Japan have been hit harder:
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35Economic Overview
Japan Unemployment Rate
Highest on record
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36Economic Overview
Euro/US Dollar
safe haven trade is unwinding
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37Economic Overview
Gold $/ounce
gold supported by doubts about the dollar
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38Economic Overview
Thank you!
The Portfolio Manager has written this review for informational purposes only. The views expressed on the financial markets and sector valuations are based on the judgment and experience of the Portfolio Manager. This presentation is for the sole use of the intended recipient[s] and may contain privileged information. Any unauthorized review, use, disclosure or distribution is prohibited.