bank of agriculture and commerce stockton, california february 6, 2013 john w. mitchell 24 th
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Cliffs, Tooth Fairies and The End of Year
FourBank of Agriculture and Commerce
Stockton, CaliforniaFebruary 6, 2013
John W. Mitchell
24th
Cliffs, Tooth Fairies and The End of Year
FourBank of Agriculture and Commerce
Modesto, CaliforniaFebruary 7, 2013
John W. Mitchell
Disasters Avoided-Cliff One, Euro Survived March1st and March 27th Deadlines Year Four of Upturn-Modest or Moderate 1/2013 Employment 3.23 Million below 1/2008 but 5.51 million
above 2/2010 Trough House Prices Rising Case Shiller up 5.5% to November California with Clean Budget? Fourth Quarter Output Decline Global Economy Weak But Stabilizing? S &P 500 up 6.1% to 2/1/13 Personal Income up 2.6% in December and 1% in November (SAAR) Largest Increase in Domestic Oil Production in History of Industry in
2012 Inflation Moderated Lone Ranger Back and Twinkies GONE!
February 2013
Q1 Q2 Q3 Q4
GDP 2 1.3 3.1 -.1
Consumption 2.4 1.5 1.6 2.2
Equip & Software
5.4 4.8 -2.6 12.4
Non-Res Structures
12.9 .6 0 -1.1
Residential 20.5 8.5 13.5 15.3
Federal -4.2 -.2 9.5 -15
State and Local -2.2 -1 .3 -.7
Exports 4.4 5.3 1.9 -5.7
Imports 3.1 2.8 -.8 -3.2
Real GDP (SAAR) Commerce Department2012 (SAAR,%)
-1.50%
-1.00%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
Contributions to GDP GrowthQ3( Blue) and Q4(Red) 2012
Janu
ary
Mar
chMay Ju
ly
Sept
embe
r
Novem
ber
Janu
ary
Mar
chMay Ju
ly
Sept
embe
r
Novem
ber
Janu
ary
0
50
100
150
200
250
300
350
Source: BLS
2011-13 Nonfarm Payroll Employment Change(,000 SA) Average 181,000 Per Month in
2012
Mining
& Log
ging
Constru
ction
Man
ufac
turin
g
Trad
e
Tran
s, W
are
& Util
Info
rmat
ion
Finan
ce
Prof
essio
nal S
ervic
es
Ed &
Hea
lth
Leisu
re &
Hospita
lity
Other
Ser
vices
Fede
ral
Stat
eLo
cal
tota
l
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
Annual Job Change January, 2012-January, 2013 (1.6%)
Janu
ary
Mar
chMay Ju
ly
Sept
embe
r
Novem
ber
Janu
ary
Mar
chMay Ju
ly
Sept
embe
r
Novem
ber
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%
Source:BLS
Consumer Price Index Monthly Changes 2011-121.7% in December
Core 1.9%, Annual Average 3.2% in 2011
Beige Book January 16, 2013 Stable Price Pressures
Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December
Compensation 12 Months to December 1.9%, Wages1.7%, Benefits 2.5%
Inflation
1 m
onth
3 m
onth
s
6 m
onth
s
1 ye
ar
2 ye
ars
3 ye
ars
5 ye
ars
7 ye
ars
10 y
ears
20 y
ears
30 y
ears
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
2/1/20137/25/2012
Interest Rates Source: US Treasury
Seven Years of Zero Short Term Rates ? 30 Year Mortgage 3.42% Week Ending
1/25/13 10 Year 1.9% on Week Ending 1/25/13 Fed will tolerate 2.5% Inflation All Treasuries Under 5 Years Yield Less than
1% Personal Interest Income Q4 2007 $1.32
Trillion in December 2012 $1.012 Trillion Pension Obligations?
Rates
GDP Growth Fed Central Tendency for 2013 2.3-3% and 3-3.5% in 2014 ( 2012 2.2% First Est.)
Consensus Moving from 2% in 2013 to 2.6% in 2014
Inflation Staying Near 2% Through 2014
Fed on Hold Until at Least Mid 2015
Prospects
What happens Overseas ? Dealing with the debt ceiling and
sequesters in the next few months? How will the actors behave ?
Known Unknowns
Jan-
05
Jul-0
51-
Jan
Jul-0
6
Jan-
07
Jul-0
7
Jan-
08
Jul-0
8
Jan-
09 July
Janu
ary
July
Janu
ary
July
Janu
ary
July
0
500
1,000
1,500
2,000
2,500
Residential Permits (SAAR) Census Bureau December 2012 Up 30.3% For the Year
Residential Permits 2004 to 2012 California Up 28.7% in 2012
Source: Census
2004 2005 2006 2007 2008 2009 2010 2011 20120
50,000
100,000
150,000
200,000
250,000
207,390 205,020
160,502
110,073
62,681
35,069 43,716 45,47158,540
2006
/1 3
2007
/1 3
2008
/1 3
2009
/1 3
2010
/1 3
2011
/1 3
2012
/1 3
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
20.00%
30.00%
ModestoCalifornia
FHFA Purchase Only Index CAModesto All Transactions
The Centerpiece
Modesto Permits-2004-2012
Building Forces
2004
2006
2008
2010
2012
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000 Affordability
Price Declines Mortgage Rates Employment Household Formation Different Credit World More Renters Stanislaus County
Median Sales Price in December up 19.2% to $161,610 (CAR)
2007
/4 2 4 2 4 2 4 2 4 2
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
Source: Rockefeller Institute
Total State Tax Collections Above Previous Year for 11 Quarters
After Proposition 30 Governor Proposed Budget with a Spending
Increase of 5% Expecting Gains in Personal Income Tax of
1.8% ($1.1B), Sales Tax Receipts 12.3% ($2.55B), Corporate Taxes 20.4% ($1.55B)
What will Actually Appear-Getting Beyond the Cliff Impact
California Budget
The First Cliff Payroll Tax Holiday Ends Bush Tax Cuts Expire for Over $450,000 Sequester Process Delayed 2 Months New Medicare Taxes Start Phase Outs and Deduction Limitations Back Estate Tax Rate Bumped AMT Fix, Doc Fix
Long Term Spending Issues-Not Addressed Debt Ceiling Unresolved Short Term Problem-Long Term Problem Geithner-”And you can’t count indefinitely on the world having
more confidence in our political system than is justified”
Policy Cauldron
Twist Ended in December-Now Buying $45 Billion Per Month of Treasuries with maturities from 4 Years to 30 Years
Continuing to Buy $40 Billion Mortgage-Backed Securities Per Month
Total $85 Billion Per Month in New Acquisitions as well as Reinvesting Principal Payments
Exceptionally low rates as long as unemployment remains above 6.5% and inflation is no more than .5 point above 2% longer run goal (12/12/12) and (1/30/2013)
When does the buying program end? When the labor market improves!
How does the unwinding take place? “Balanced approach” 1/30/13
Monetary Policy
North Dakota 1 Utah 2 Arizona 3 Texas 4 Colorado 5 Oklahoma 6 Idaho 7 Montana 8 Indiana 9 Hawaii 10 Washington 11 Minnesota 12 Ohio 13 Georgia 14 South Carolina 15 North Carolina 16 California 17 Massachusetts 18 Nevada 19
Job Growth Update December 2012 Data-Year over Year Change-45 States Up, 1 Unchanged
Kentucky 20 Missouri 21 New York 22 Tennessee 23 Oregon 24 New Jersey 25 Florida 28 Virginia 32 Pennsylvania 34 Alabama 38 Alaska 39 Connecticut 44 Mississippi 45 Wyoming 46 Connecticut 47 Maine 48 New Mexico 49 West Virginia 50
13,500,00013,600,00013,700,00013,800,00013,900,00014,000,00014,100,00014,200,00014,300,00014,400,00014,500,000
Source: EDD
California Wage and Salary Employment 2/10 to 12/12
2009 2010 2011
California $8,462,343 $10,949,761 $16,304,937
Oregon $494,534 $510,793 $1,029,169
Washington $1,065,891 $1,903,302 $2,985,398
Source: USDA
Net Farm Income ($,000)
California Job Change Year to December, 2012 (1.7%) Source: EDD
Manufactur-ing
NR&MNG
Construc-tion
TradeInformation
TP,W,UtilFinance
Prof. Services
Ed&Health
Leisure&Hosp.
Othe Ser.Govt.Total
-50,000 0 50,000 100,000 150,000 200,000 250,000 300,000
NR&MNG
Trade
TP,W,Util
Prof. Services
Leisure&Hos.
Govt.
Job Change Percentage
Chico 400 .6
Fresno 4,600 1.6
Los Angeles 69,500 1.8
Modesto 1,000 .7
Napa -200 -.3
Oakland 21,500 2.2
Redding 1,800 3.1
Sacramento 10,800 1.3
San Diego 20,300 1.6
San Francisco 33,200 3.4
San Jose 27,600 3.1
Stockton 5,500 2.9
California Area Employment December 2012
Modesto Job Change Year to December, 2012 (.7%) Source: EDD
Manufactur-ing
NR,Mine&Con
TradeInformation
TP,W,UtilFinance
Prof. Services
Ed&Health
Leisure&Hosp.
Othe Ser.Govt.Total
-200 0 200 400 600 800 1,000 1,200
Trade
TP,W,Util
Prof. Services
Leisure&Hos.
Govt.
2004 2005 2006 2007 2008 2009 2010 2011 2012135,000
140,000
145,000
150,000
155,000
160,000
165,000
Source: EDD
Modesto Annual Average Wage and Salary EmploymentFlat in 2012
Youth Un and Underemployment –Scarring January U-6 14.4%, Mean Duration 35.3
Weeks Labor Force Participation Rate January 63.6%-
The last Time it was there was December 1981. Recession Start 66%
Real Family Median Net Worth Down 38.8% 2007-2010 Survey of Consumer Finances
California Jobs Gap 1,791,000 In October Brookings
CoreLogic Underwater in CA 28.3% in Q3
Leftovers
How Does the Fiscal Situation End? Simpson-Bowles, Confidence Collapse as in
John Mauldin’s–Endgame, Rogoff and Reinhart’s This Time is Different- Slow Growth
Do we still have the recipe for growth? (Lots of Gloom, but Remember the Late 1970s!)
Nagging Questions
Stella and The Fairies
Stella Fairies
The Tooth Fairy Free Medical Services
Fairy The No New Taxes
Fairy The Rich Will Pay Fairy The Entitlement Fairy
Uncertainty Reduced, But Remains Most likely Growth 2-2.5% California Job Growth 1.5-2% Falling Debt Burdens, Housing, Rising
Income and Employment, Balance Sheets, Financial Institutions Strength, ISM both Manufacturing and Non-Manufacturing, Energy Developments, Initial Claims, Global Glimmers
2013
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