eugenio j. aleman, director and senior economist march 11 ...“the u.s. economy and its lingering...
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“The U.S. Economy and Its Lingering Fiscal Issues”Eugenio J. Aleman, Director and Senior Economist
March 11, 2013
Economics 2
Let’s Look at the Federal Government
Government outlays have come down considerably
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
60 65 70 75 80 85 90 95 00 05 10
Federal Government Outlay GrowthYear-over-Year Percent Change, 12-Month Moving Average
Federal Government Outlay Growth: Jan @ 0.5%
Economics 3
Let’s Look at the Federal Government
Strong fiscal reaction to avoid a depression
17%
18%
19%
20%
21%
22%
23%
24%
25%
26%
17%
18%
19%
20%
21%
22%
23%
24%
25%
26%
69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Total Outlays as Percent of Nominal GDP12-Month Moving Average
Total Outlays as a Percent of GDP: Dec @ 22.7%
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
Economics 4
Let’s Look at the Federal Government
Very large drop in government receipts
-20%
-10%
0%
10%
20%
30%
40%
-20%
-10%
0%
10%
20%
30%
40%
68 71 75 79 83 86 90 94 98 01 05 09
Federal Government Receipts GrowthYear-over-Year Percent Change, 12-Month Moving Average
Federal Government Receipts Growth: Jan @ 9.1%
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
Economics 5
Let’s Look at the Federal Government
Fiscal Conservatism? Where? When?
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
-$1,600
-$1,400
-$1,200
-$1,000
-$800
-$600
-$400
-$200
$0
$200
$400
67 71 75 79 83 87 91 95 99 03 07 11
Federal Budget Surplus or Deficit12-Month Moving Sum in Billions of Dollars
Surplus or Deficit: Jan @ -$1,030 Billion
Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC
Economics 6
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
U.S. Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Real GDP: Q4 @ 0.1%
Real GDP: Q4 @ 1.6%
Real GDP Growth
U.S. real GDP growth has recovered but remains weak
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 7
U.S. Nonfarm Employment
Employment turned the corner in October of 2010, but it is still
weak
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-1,000
-800
-600
-400
-200
0
200
400
600
-1,000
-800
-600
-400
-200
0
200
400
600
00 01 02 03 04 05 06 07 08 09 10 11 12 13
Nonfarm Employment ChangeChange in Employment, In Thousands
Monthly Change: Feb @ 236.0 Thousand
Economics 8
U.S. Employment By Industry
While employment growth has been broad based, the government sector has continued to struggle
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-2% -1% 0% 1% 2% 3% 4%
Information
Other Services
Construction
Financial Activities
Manufacturing
Leisure & Hospitality
Prof. & Bus. Svcs.
Educ. & Health Svcs.
Government
Trade, Trans. & Utilities
Total Nonfarm
U.S. Employment by IndustryYear-over-Year Percent Change of 3-M Moving Average
February 2013
Number of Employees
Less
More
Economics 9
U.S. Employment By Industry
As a percentage of total non-farm payrolls
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Manufacturing, 8%
Natural Resources and
Mining, 1%
Information, 2%
Other Services, 4%
Financial Activities, 5%
Lesiure and Hospitality, 10%
Professional and Business
services, 12%Education and
Health Services, 14%
Government, 15%
Trade, Transportation and Utilities,
29%
U.S. Employment Composition
Economics 10
Government Employment
It is not the Federal Government!
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Federal Government,
13%
State Government,
23%
Local Government,
64%
U.S. Government Employment Composition
Economics 11
Unemployment Rate
Not as high as during the 1980s recession, but more damaging
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
2%
4%
6%
8%
10%
12%
2%
4%
6%
8%
10%
12%
60 65 70 75 80 85 90 95 00 05 10
Unemployment RateSeasonally Adjusted
Unemployment Rate: Feb @ 7.7%
Economics 12
63%
64%
65%
66%
67%
68%
63%
64%
65%
66%
67%
68%
90 92 94 96 98 00 02 04 06 08 10 12
Labor Force Participation Rate16 Years and Over, Seasonally Adjusted
Labor Force Participation Rate: Feb @ 63.5%
The Employment Situation
One of the reasons for the decline in the unemployment
rate is tied to the drop-off in the labor force participation rate
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics 13
Mean Duration of Unemployment
Duration of unemployment shows a struggling labor market
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
8
12
16
20
24
28
32
36
40
44
8
12
16
20
24
28
32
36
40
44
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Mean Duration UnemploymentAverage Weeks Unemployed
Average Duration of Unemployment: Feb @ 36.9
Economics 14
Unemployment by Education Level
College graduates have the edge even in the worst recession since
the depression
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
0%
2%
4%
6%
8%
10%
12%
14%
0%
2%
4%
6%
8%
10%
12%
14%
No High SchoolDiploma
High SchoolDiploma
Some College College Degree
Unemployment Rate by Education LevelFebruary 2013
Economics 15
Consumer Price Index
Consumer prices are slowing once again
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
-12%
-9%
-6%
-3%
0%
3%
6%
9%
-12%
-9%
-6%
-3%
0%
3%
6%
9%
92 94 96 98 00 02 04 06 08 10 12
U.S. Consumer Price IndexBoth Series are 3-Month Moving Averages
CPI 3-Month Annual Rate: Jan @ 0.3%
CPI Year-over-Year: Jan @ 1.7%
Economics 16
The U.S. Economy
The Humpty-Dumpty Economy
The U.S. Economy sat on a wall,The U.S. Economy had a great fall.
All the king's Treasury-men,And all the king's Federal Reserve-men,
Couldn't put The U.S. Economy together again.
On this side of the wall:Inflation & stagnation = stagflation
On this side of the wall:1930’s depression/
Japan-like depression
Economics 17
Helicopter Ben to the Rescue
The Helicopter Effect!
Economics 18
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
2000 2002 2004 2006 2008 2010 2012
U.S. Federal Reserve Target Rate
U.S. Target Rate: Feb @ 0.25%
Federal Reserve Target Rate
Monetary policy remains extremely expansive
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics 19
Federal Reserve Balance Sheet
A Monetary Tsunami?
Source: Federal Reserve Board and Wells Fargo Securities, LLC
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
$0.0
$0.5
$1.0
$1.5
$2.0
$2.5
$3.0
$3.5
2007 2008 2009 2010 2011 2012 2013
Federal Reserve Balance Sheet Trillions
Other: Feb @ $232.6BForeign Swaps: Feb @ $5.2BPDCF & TAFCommercial Paper & Money MarketRepos & Dis. Window: Feb @ $0.0BAgencies & MBS: Feb @ $1,095.0BTreasuries: Feb @ $1,734.5B
Economics
The Housing Market Today
Economics
Your House As Seen By:
You…
Economics
Your House As Seen By:
Your Buyer…
Economics
Your House As Seen By:
Your Lender…
Economics
Your House As Seen By:
Your Appraiser…
Economics
Your House As Seen By:
And…Your County’s Tax Assessor…
Economics 26
New Home Sales
New home sales are still low but improving
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
100
300
500
700
900
1,100
1,300
1,500
100
300
500
700
900
1,100
1,300
1,500
89 91 93 95 97 99 01 03 05 07 09 11 13
New Home SalesSeasonally Adjusted Annual Rate, In Thousands
New Home Sales: Jan @ 437,000
3-Month Moving Average: Jan @ 402,667
Economics 27
0.0
0.4
0.8
1.2
1.6
2.0
2.4
0.0
0.4
0.8
1.2
1.6
2.0
2.4
87 89 91 93 95 97 99 01 03 05 07 09 11 13
Housing Starts Seasonally Adjusted Annual Rate, In Millions
Housing Starts: Jan @ 890K
Housing Starts
As well as housing starts
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 28
2.0
3.0
4.0
5.0
6.0
7.0
2.0
3.0
4.0
5.0
6.0
7.0
86 88 90 92 94 96 98 00 02 04 06 08 10 12
Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions
Existing Home Sales: Jan @ 4.3 Million
Existing Home Sales
Existing home sales are relatively strong
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 29
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
-24%
-20%
-16%
-12%
-8%
-4%
0%
4%
8%
12%
16%
20%
24%
97 99 01 03 05 07 09 11 13
Home PricesYear-over-Year Percentage Change
Median Sale Price: Jan @ $174,100Median Sale Price, 3-M Mov Avg: Jan @ 10.9%FHFA Purchase Only Index: Dec @ 5.8%S&P Case-Shiller Composite-10: Dec @ 5.9%
Home Prices
Home prices are finally showing signs of recovery
Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities, LLC
Economics 30
Home Mortgages
Home mortgages have been declining for the past four years
Source: Federal Reserve Board and Wells Fargo Securities, LLC
-10%
-5%
0%
5%
10%
15%
20%
25%
-10%
-5%
0%
5%
10%
15%
20%
25%
1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013
Real Estate LendingBy Commerical Banks, Year-over-Year Percent Change
Real Estate Loans: Jan @ 1.3%
Economics 31
Negative Equity
O…M…G…?
Source: FHFA and Wells Fargo Securities, LLC
18.5
18.6
18.6
19.9
20.0
20.3
22.1
22.3
22.9
23.8
25.4
28.3
32.0
35.6
38.6
42.1
56.9
22.0
0% 10% 20% 30% 40% 50% 60% 70%
Utah
Washington
Oregon
New Jersey
Virginia
New Hampshire
Rhode Island
Idaho
Maryland
Ohio
Illinois
California
Michigan
Georgia
Arizona
Florida
Nevada
US
Negative Equity Mortgages - By StatePercent of Mortgages Outstanding
As of Q3 2012
Economics 32
ISM Manufacturing Index
Manufacturing has weakened but it is back to expansion
territory
Source: Institute for Supply Management and Wells Fargo Securities, LLC
30
35
40
45
50
55
60
65
30
35
40
45
50
55
60
65
87 89 91 93 95 97 99 01 03 05 07 09 11 13
ISM Manufacturing Composite IndexDiffusion Index
ISM Manufacturing Index: Feb @ 54.2
12-Month Moving Average: Feb @ 51.8
Economics 33
0
20
40
60
80
100
120
0
20
40
60
80
100
120
40 45 50 55 60 65 70 75 80 85 90 95 00 05 10
Manufacturing Output and EmploymentEmployment in Millions; Output 2007= 100
Manufacturing Employment: Jan @ 12.0 M (Left Axis)
Manufacturing Output: Jan @ 95.4 (Right Axis)
U.S. Manufacturing
The Manufacturing Myth!
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 34
ISM Non-Manufacturing Index
But the service economy continues to move along
Source: Institute for Supply Management and Wells Fargo Securities, LLC
35
40
45
50
55
60
65
35
40
45
50
55
60
65
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
ISM Non-Manufacturing Composite Index
ISM Non-Manufacturing Index SA: Feb @ 56.0
Economics 35
-$12
$0
$12
$24
$36
$48
$60
-$12
$0
$12
$24
$36
$48
$60
2007 2008 2009 2010 2011 2012
Revolving & Nonrevolving DebtMonth-over-Month Change, 3-M Mov. Avg., Billions of Dollars
Revolving: Jan @ -$0.7 BillionNonrevolving: Jan @ $16.5 Billion
Consumer Credit
Credit card lending is non-existent
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics 36
Household Debt
Households are deleveraging fast…but not fast enough!
Source: Federal Reserve Board and Wells Fargo Securities, LLC
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
40%
50%
60%
70%
80%
90%
100%
110%
120%
130%
60 65 70 75 80 85 90 95 00 05 10
Household Debt - Consumer & MortgageAs a Percent of Disposable Personal Income
Household Debt: Q4 @ 100.4%
Economics 37
Household Debt
Households are ready to borrow again
Source: The Conference Board and Wells Fargo Securities, LLC
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
10.0%
10.5%
11.0%
11.5%
12.0%
12.5%
13.0%
13.5%
14.0%
14.5%
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12
Household Debt Service RatioDebt Payments as a Percent of Disposable Personal Income
DSR: Q3 @ 10.6%
Economics 38
20
40
60
80
100
120
140
160
20
40
60
80
100
120
140
160
87 89 91 93 95 97 99 01 03 05 07 09 11 13
Consumer Confidence IndexConference Board
Confidence Yr/Yr % Chg: Feb @ -2.8%Confidence: Feb @ 69.612-Month Moving Average: Feb @ 66.6
Consumer Confidence
Consumer confidence is still very weak for a strong recovery
Source: The Conference Board and Wells Fargo Securities, LLC
Economics 39
0%
3%
6%
9%
12%
15%
0%
3%
6%
9%
12%
15%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Personal Saving Rate Disp. Personal Income Less Spending as a % of Disp. Income
Personal Saving Rate: Jan @ 2.4%Personal Saving Rate, 12-Month M.A.: Jan @ 3.8%
Personal Saving Rate
The best news is that the saving rate has improved
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 40
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012
Conventional Mortgage Rate vs. 10-Year Treasury YieldPercent
Conventional 30-Year Fixed Mortg. Rate: Feb @ 3.53%
10-Year Yield: Feb @ 2.02%
Mortgage and Treasury Rates
Mortgage interest are starting to edge up from a very low base
Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC
Economics 41
Wells Fargo International Economic Forecast(Year-over-Year Percent Change)
GDP CPI
2012 2013 2014 2012 2013 2014
Global (PPP weights) 2.7% 2.8% 3.7% 4.2% 3.9% 4.3%Global (Market Exchange Rates) 1.5% 1.6% 2.4% n/a n/a n/a
Advanced Economies1 1.2% 1.2% 2.3% 2.1% 1.3% 1.8%United States 2.2% 2.0% 2.3% 2.1% 1.6% 2.1%Eurozone -0.5% -0.1% 1.8% 2.5% 1.3% 1.7%United Kingdom 0.2% 1.1% 2.0% 2.8% 2.5% 2.1%Japan 1.9% 0.4% 2.5% 0.0% -0.2% 0.1%Korea 2.1% 2.8% 4.3% 2.2% 2.6% 3.1%Canada 1.8% 1.5% 2.6% 1.5% 1.1% 2.0%
Developing Economies1 4.4% 4.7% 5.4% 6.7% 7.0% 7.2%China 7.7% 8.1% 8.4% 2.7% 3.0% 3.5%India 5.0% 5.7% 6.5% 9.7% 9.0% 9.3%Mexico 4.1% 3.3% 3.4% 4.1% 4.1% 4.8%Brazil 0.8% 2.2% 4.2% 5.4% 6.3% 6.1%Russia 3.4% 3.1% 3.7% 5.1% 6.0% 5.5%
Forecast as of: February 6, 20131Aggregated Using PPP Weights
Global Forecast
Growth will remain positive but weak
Source: Wells Fargo Securities, LLC
Economics
Wells Fargo Securities, LLC Economics Group
42
John Silvia … ....................... … john.silvia@wellsfargo.com
Global Head of Research and Economics
Diane Schumaker-Krieg ………………… ……….diane.schumaker@wellsfargo.com
Global Head of Research & Economics
Chief Economist
Mark Vitner, Senior Economist……………....………. . .mark.vitner@wellsfargo.com
Jay Bryson, Global Economist …………………....……….jay.bryson@wellsfargo.com
Eugenio Aleman, Senior Economist …………….eugenio.j.aleman@wellsfargo.com
Sam Bullard, Senior Economist ………………………….sam.bullard@wellsfargo.com
Anika Khan, Senior Economist .… . anika.khan@wellsfargo.com
Senior EconomistsSarah Watt, Economic Analyst …………………………… .sarah.watt@wellsfargo.com
Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.com
Zachary Griffiths, Economic Analyst zachary.griffiths@wellsfargo.com
Sara Silverman, Economic Analyst sara.silverman@wellsfargo.com
Economists
Azhar Iqbal, Econometrician………………………………azhar.iqbal@wellsfargo.com
Tim Quinlan, Economist …………………………………..tim.quinlan@wellsfargo.com
Michael A. Brown, Economist ………………… michael.a.brown@wellsfargo.com
Economic Analysts
Administrative Assistants
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