the economic outlook - in · 4/17/2009 · the economic outlook nigel gault chief u.s. economist,...
TRANSCRIPT
The Economic OutlookThe Economic Outlook
Nigel Gault
Chief U.S. Economist, IHS Global Insight
Indianapolis
April 17, 2009
The U.S. Recession
• Deepest, longest in post-war history
• Rest of the world in deep recession, too
• All policy options blazing
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2
• All policy options blazing
• Monetary stimulus
• Fiscal stimulus
• Banking (and other) bail-outs
• Hints of improvement are appearing in the data
• “Free fall” appears to be over – what next?
The U.S. Is Not The Worst-Hit Economy
-5
0
2008 Q4 Change in Real GDP, annualized rate
Copyright © 2009 IHS Global Insight. All Rights Reserved.
3
-20
-15
-10
U.S. U.K. Germany Japan Singapore Korea
02468
10(Percent change)
The U.S. Recession
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4
-12-10-8-6-4-20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
U.S. Real GDP Industrial Production
GDP Declines in Post-War Recessions
-2
-1
0
Peak-to-Trough Percent Change in Real GDP
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5
-5
-4
-3
-2
1948 1953 1957 1960 1970 1973 1980 1981 1990 2001 2008
Dated by Year of the GDP Peak
Forecast
Are Financial Conditions Easing?Are Financial Conditions Easing?
TED Spread Off Its Peak
(3-month LIBOR less 3-month Treasury bill rate, % points)
3
4
5
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7
0
1
2
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
Corporate Bond Spreads Still Wide
(Corporate Yield Less 10-Year Treasury, percentage points)
4
5
6
7
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8
0
1
2
3
4
1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
BAA Spread AAA Spread
Mortgage Rates Have Fallen
(Percent)
6
7
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9
4
5
Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar-09
30-Year Fixed Mortgage Rate
0
1
2
3
4
5
6
Household Credit Conditions Still Very Tight
-202468
1012
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
Consumer Credit Growth*Consumer Credit Growth* Home Mortgage Credit Growth*Home Mortgage Credit Growth*
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10
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
*% change y/y; **Diffusion Index; ***Mills, SA; ****Index, 2002=100, SA
Banks Tightening Cons. Credit (%)Banks Tightening Cons. Credit (%) Banks Tightening Mortgage Credit (%)Banks Tightening Mortgage Credit (%)
0
20
40
60
80
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
-20
0
20
40
60
80
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
Credit Cards
Other LoansPrime Loans
U.S. Recession:U.S. Recession:The Latest EvidenceThe Latest Evidence
-2
-1
0
1
2
Glimmers of Hope…
0.4
0.6
0.8
1.0
1.2
1.4
1.6
Retail Sales exRetail Sales ex--Autos and Gasoline*Autos and Gasoline* Housing Starts**Housing Starts**
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Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
*M/M % change; **Millions, SA; ***Diffusion Index
ISM Manufacturing Index***ISM Manufacturing Index*** ISM Manufacturing Orders Index***ISM Manufacturing Orders Index***
20
30
40
50
60
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
30
35
40
45
50
55
Jan-07 Jul-07 Jan-08 Jul-08 Jan-09
0
200
400
600
…But Employment Is Still Falling Sharply
(Establishment employment, thousands of jobs)
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-800
-600
-400
-200
0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
…And An Inventory Overhang Has Built Up
(Inventory/shipments ratio, manufacturing and trade)
1.5
1.6
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1.2
1.3
1.4
Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09
0
2
4
6
(Real GDP, annualized rate of growth)
Q1 Probably the Worst Quarter
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15
-8
-6
-4
-2
0
2007 2008 2009 2010 2011
(Percent change unless otherwise noted)
U.S. Economic Growth by Sector
2008 2009 2010 2011
Real GDP 1.1 -3.5 1.4 3.5
Domestic Demand -0.3 -3.7 2.1 3.5
Consumption 0.2 -0.9 1.7 2.4
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Light Vehicle Sales (Millions) 13.1 9.5 11.3 13.8
Residential Investment -20.8 -24.3 9.4 28.2
Housing Starts (Millions) 0.903 0.551 0.848 1.256
Business Fixed Investment 1.6 -18.8 -0.1 13.2
Government 2.9 0.7 0.2 -1.9
Exports 6.2 -15.3 -0.1 9.2
Imports -3.5 -13.8 5.8 7.7
(Percent unless otherwise noted)
Other Key Indicators
2008 2009 2010 2011
Industrial Production (% growth) -2.2 -10.2 -0.3 4.6
Employment (% growth) -0.4 -3.6 -0.8 1.5
Unemployment Rate 5.8 9.1 10.2 9.6
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Unemployment Rate 5.8 9.1 10.2 9.6
CPI Inflation 3.8 -1.4 1.6 2.1
Oil Prices (WTI, US$/bbl) 100 45 54 61
Core PCE Price Inflation 2.2 1.3 1.1 1.4
Federal Funds Rate 1.93 0.14 0.21 1.70
10-year Government Bond Yield 3.67 2.78 2.89 3.84
Dollar (Major Currencies, 2000=1) 0.73 0.82 0.78 0.74
Fiscal Stimulus HelpsFiscal Stimulus Helps
Fiscal Stimulus: $787 Billion over Ten Years
Our assumptions
• Total – $561 billion over two calendar years
• Personal “Tax Cuts” – $143 billion
• Personal Transfers (e.g., extended UI) – $97 billion
• Corporate Tax Cuts - $88 billion
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• Corporate Tax Cuts - $88 billion
• State and Local Transfers (incl. Medicaid)– $149 billion
• Infrastructure & Other– $82 billion
• Time Path:
• 2009: $252 billion (1.8% of GDP)
• 2010: $309 billion (2.2% of GDP)
Fiscal Stimulus Impacts
(Percent real GDP growth)
0
1
2
3
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20
-5
-4
-3
-2
-1
2008 2009 2010
Baseline No Stimulus
(Loss of jobs from peak, millions)
Employment Outlook
-4
-3
-2
-1
0
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21
-10
-9
-8
-7
-6
-5
2008 2009 2010 2011
Baseline No Fiscal Stimulus
The Housing BustThe Housing Bust
Housing Affordability At A Record High
1.4
1.6
1.8A higher index means homes are more affordable.A higher index means homes are more affordable.
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23
0.6
0.8
1.0
1.2
1972 1976 1980 1984 1988 1992 1996 2000 2004 2008
Affordability Index for Existing Single-Family Homes
Source: National Association of Realtors
0.8
1.0
1.2
1.4(Percent of all home mortgage loans entering foreclosure)
Foreclosure Rates High, Though May Be Peaking
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0.0
0.2
0.4
0.6
0.8
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
National Indiana
Source: Mortgage Bankers Association
1.1
1.2
1.3(FHFA house price index divided by average labor compensation, 2000 = 1.0)
House Prices Will Probably Overshoot on theDownside
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25
0.8
0.9
1.0
1.1
1975 1980 1985 1990 1995 2000 2005 2010
1.5
2.0
2.5(Million units)
Housing Starts Near A Bottom
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0.0
0.5
1.0
1.5
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Consumers RetrenchingConsumers Retrenching
90
100
110
120
Consumer Sentiment Deep in the Recession Zone
(Reuters/Univ. of Michigan Sentiment Index)
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28
50
60
70
80
90
1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008
Household Net Worth Has Plunged
• End-Q2 2007 to end-Q4 2008:down $12.9 trillion
• End-Q4 2008 to April 9, 2009:down $0.7 trillion*
WealthEffect
ConsumptionHit ($bln)
ConsumptionHit (%)
3 $407 billion 4.0%
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down $0.7 trillion*
• Total loss: $13.6 trillion* (down21%)
• Consumption hit depends onwealth effect (change inconsumption per dollar of lostwealth)
* Apr 9 wealth figures are IHS Global Insight estimates
3cents/$
$407 billion 4.0%
5cents/$
$679 billion 6.7%
Consumption Will Fall In 2009
(Percent growth, real)
2
3
4
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30
-1
0
1
2005 2006 2007 2008 2009 2010 2011
Real Consumption Real Disposable Income
Business Investment ContractingBusiness Investment Contracting
Business Equipment Demand Falling
(Non-defense capital goods ex-aircraft, 3-mo moving average, $ billions)
60
65
70
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32
45
50
55
60
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Orders Shipments
(Percent change from a year earlier, real spending)
The Business Capital Spending Cycle:Construction Is Lagging
0
10
20
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33
-30
-20
-10
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Software & Equipment Buildings
Foreign Trade:Foreign Trade:World Trade Is Contracting SharplyWorld Trade Is Contracting Sharply
(Percent change from a year earlier, volumes)
Exports Falling Sharply
0
5
10
15
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35
-20
-15
-10
-5
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Real U.S. Exports Real U.S. Imports
(2000=1.0, inflation-adjusted)
The U.S. Dollar: How Big a Bounce?
1.0
1.1
1.2
1.3
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36
0.6
0.7
0.8
0.9
1.0
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009
Major Currency Index Other Important Trading Partners Index
Inflation and Interest RatesInflation and Interest Rates
(Percent change from a year earlier)
Headline CPI Will Decline; Core Inflation Will Ease
2
4
6
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38
-4
-2
0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
All-Urban CPI Core Consumption Price Index
(Percent)
Fed to Stay Close to Zero
4
5
6
7
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39
0
1
2
3
4
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Federal Funds 10-Year Treasury Yield
Federal Budget OutlookFederal Budget Outlook
-500
0
500
-5
0
5(Billions of dollars, fiscal years) (Percent of GDP)
A Record U.S. Federal Budget Deficit in Fiscal 2009
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41
-2,000
-1,500
-1,000
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
-20
-15
-10
Unified Budget Deficit (Left scale) Deficit as % of GDP (Right scale)
Taxes Will Have To Rise Eventually
(Effective federal personal income tax rate, percent)
22
24
26
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14
16
18
20
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
Key IndustriesKey Industries –– Autos and SteelAutos and Steel
16
18
20(Millions, annual rate)
Light Vehicle Sales
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44
8
10
12
14
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
8
10
12
14
60
70
80
90(Millions of units) (Percent)
U.S. Vehicle Production
Copyright © 2009 IHS Global Insight. All Rights Reserved.
45
0
2
4
6
8
2001 2005 2009
20
30
40
50
60
Total Production (left scale) Big Three share of production (right scale)
80
100
120
140(Index, 2002=100)
Iron & Steel Production Has Plunged
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46
0
20
40
60
80
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Industrial Production, Iron And Steel Products
IndianaIndiana
Employment Dives
3
2
1
0
-1
3
2
1
0
-1ange
year
ago
pe
rcen
tch
an
g
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48
09080706
-1
-2
-3
-4
-5
-1
-2
-3
-4
-5
perc
en
tch
ag
eye
ar
ag
o
Indiana M idwest US
Indiana Employment:Deepening Recession
1
0
-1
-2
1
0
-1
-2ange
year
ago
pe
rcen
tch
an
g
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49
10090807
-2
-3
-4
-5
-2
-3
-4
-5
perc
en
tch
ag
eye
ar
ag
o
December Outlook April Outlook
Unemployment Surges
11
10
9
8
7
11
10
9
8
7cen
t perc
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50
090807060504030201
7
6
5
4
3
7
6
5
4
3
perccen
t
Indiana US
Wage Gains Evaporate(nominal total wages and salaries)
6
4
2
6
4
2
ange
year
ago
pe
rcen
tch
an
g
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51
10090807
0
-2
-4
0
-2
-4
perc
en
tch
ag
eye
ar
ag
o
Indiana US
Diminishing Personal Income
8
6
4
8
6
4
ange
year
ag
op
erce
nt
cha
ng
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52
10090807
2
0
-2
2
0
-2
pe
rcen
tch
ag
eye
ar
ag
o
Indiana US
Cars and Houses
400
350
300
250
200
40
35
30
25
20ousa
nds th
ou
san
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53
1009080706
200
150
100
50
20
15
10
5
thon
ds
Indiana New Car Registrations - LIndiana Housing Starts - R
Bottom Line
• Free-fall ending
• Severe inventory correction extends through mid-2009
• Federal stimulus supports growth
• Consumption and housing bottoming out
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54
• Consumption and housing bottoming out
• Business equipment spending revives before businessconstruction
• Imports revive before exports
• Rapid recovery unlikely – but the U.S. will outperform Europeand Japan