Transitioning From the Great Recession to Recovery to Expansion

Transcription

1 Transitioning From the Great Recession to Recovery to Expansion AUGUSTINE FAUCHER, DIRECTOR OF MACROECONOMICS FROM MOODY S ECONOMY.COM

2 The Great Recession Is Over Recessions since World War II Peak Trough Duration in Months Peak-to-Trough % Change Jobless Rate Recession Peak to Trough Expansion Trough to Peak Real GDP Industrial Production Nonfarm Employment Low High Change Dec-07 Aug % -19.2% -6.1% 4.4% 10.5% 6.1% Mar-01 Nov % -6.3% -2.0% 3.8% 6.3% 2.5% Jul-90 Mar % -4.3% -1.5% 5.0% 7.8% 2.8% Jul-81 Nov % -9.5% -3.1% 7.2% 10.8% 3.6% Jan-80 Jul % -6.2% -1.3% 5.6% 7.8% 2.2% Nov-73 Mar % -14.8% -2.7% 4.6% 9.0% 4.4% Dec-69 Nov % -5.8% -1.4% 3.4% 6.1% 2.7% Apr-60 Feb % -6.2% -2.3% 4.8% 7.1% 2.3% Aug-57 Apr % -12.7% -4.4% 3.7% 7.5% 3.8% Jul-53 May % -9.0% -3.3% 2.5% 6.1% 3.6% Nov-48 Oct % -8.6% -5.1% 3.4% 7.9% 4.5% Average % -8.3% -2.7% 4.4% 7.6% 3.2% Sources: NBER, BEA, FRB, BLS, Moody s Economy.com FROM MOODY S ECONOMY.COM 2

3 As Some Regions Recover As of Dec-09 Expansion At risk Recovery In recession Moderating recession FROM MOODY S ECONOMY.COM 3

4 But California and Florida Lag As of Dec-09 Expansion At risk Recovery In recession Moderating recession FROM MOODY S ECONOMY.COM 4

5 Policymakers Stabilize the Banking System Difference between 3-mo Libor and Treasury bill yields Bear Stearns hedge funds liquidate Bank funding problems TARP fails to pass Congress Bear Stearns collapse Lehman failure Fannie/Freddie takeover No TARP asset purchases Bank stress tests Sources: Federal Reserve Board, Moody s Economy.com FROM MOODY S ECONOMY.COM 5

6 And Fiscal Stimulus Provides a Vital Boost Contribution to real GDP growth, % (1) (2) Source: Moody s Economy.com FROM MOODY S ECONOMY.COM 6

7 A Powerful Inventory Swing Change in inventories, $ bil Source: Census FROM MOODY S ECONOMY.COM 7

8 Layoffs Abate, but Hiring Is Dormant Initial UI claims, ths (R) Continuing UI claims, mil (L) Sources: BLS, Moody s Economy.com FROM MOODY S ECONOMY.COM 8

9 Threatening to Undermine Compensation 1985Q1-2009Q4 Compensation growth y = -0.48x R2 = Q4 Unemployment rate=10% Natural rate=5.3% Compensation growth=1.8% Difference between actual and natural unemployment rate Source: BLS FROM MOODY S ECONOMY.COM 9

10 The Foreclosure Crisis Continues to Mount First mortgage loans, ths 4,500 4,000 3, days and over delinquent In foreclosure 3,000 2,500 2,000 1,500 1, Sources: Equifax, Moody s Economy.com FROM MOODY S ECONOMY.COM 10

11 As Millions of Homeowners Fall Under Water Number of underwater homeowners, ths 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, Sources: Equifax, Moody s Economy.com FROM MOODY S ECONOMY.COM 11

12 Prompting Strategic Defaults 90 days and over delinquency rate, % of #, by CLTV, 30%-35% DTI > < Sources: Equifax, Moody s Economy.com FROM MOODY S ECONOMY.COM 12

13 Resulting in More Foreclosure Sales First mortgage loans, ths 4,000 3,500 Defaults Lost homes 3,000 2,500 2,000 1,500 1, Sources: Equifax, Moody s Economy.com FROM MOODY S ECONOMY.COM 13

14 And Lower House Prices Case-Shiller Home Price Index, 2000Q1= % Sources: Fiserv, Moody s Economy.com FROM MOODY S ECONOMY.COM 14

15 Commercial Real Estate Boom and Bust Repeat-sales indices, 2000Q4= Commercial RE prices House prices Sources: Moody s Investors Service, REAL, Fiserv FROM MOODY S ECONOMY.COM 15

16 State and Local Government Revenues Collapse State and local tax revenue, % change yr ago Source: BEA FROM MOODY S ECONOMY.COM 16

17 The Federal Reserve Will Remain Aggressive Funds rate target Moody's Economy.com Taylor rule Sources: Federal Reserve, Moody s Economy.com FROM MOODY S ECONOMY.COM 17

18 And Fiscal Policymakers Are Not Finished» Recently passed: $45 billion in more aid to unemployed workers, extension and expansion of homebuyer tax credit, extended higher conforming loans limits, and NOL.» High odds of passage: $50 billion in aid for workers losing jobs in 2010.» Better than even odds of passage: $50 billion in more SBA lending, job tax credit, weatherization program.» Even odds of passage: $50 billion in another round of help to financially stressed state and local government for FMAP.» Less than even odds of passage: expansion of loan modification plan including incentives for principal writedown. FROM MOODY S ECONOMY.COM 18

19 Global Recovery Well Under Way In recession At risk Below trend Expanding FROM MOODY S ECONOMY.COM 19

20 Massive Global Monetary Stimulus Average central bank target rate, % Source: Moody s Economy.com FROM MOODY S ECONOMY.COM 20

21 And Unprecedented Fiscal Stimulus Fiscal stimulus as a % of 2008 GDP China Russia Japan S. Arabia U.S. S. Korea Australia Germany Italy Canada Euro zone U.K. Indonesia France Turkey Brazil Argentina Mexico India Source: Moody s Economy.com FROM MOODY S ECONOMY.COM 21

22 China Aiding the Recovery Exports to China, 3-mo MA, $ bil ASEAN EU U.S. Japan S. Korea Brazil Source: Census FROM MOODY S ECONOMY.COM 22

23 A Global Fiscal Crisis Is Brewing Government debt-to-gdp ratio, 2010, % Japan Iceland Greece Italy Belgium Portugal Ireland France United Kingdom Israel Hungary India Germany Austria Malta Spain Netherlands U.S. Source: Moody s Economy.com FROM MOODY S ECONOMY.COM 23

24 Economic Timeline Banking system stabilizes Stock market trough Economic downturn ends Employment bottoms Housing starts bottom Foreclosures started peak House prices resume rising Fed raises rates Securities markets up and running Inflation bottoms out Fiscal pressures intensify 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 Home sales bottom Retailing revives Source: Moody s Economy.com House prices bottom Inventory Jobless rate liquidation abates peaks Extraordinary bank failures end Self-sustaining expansion begins FROM MOODY S ECONOMY.COM 24

25 FROM MOODY S ECONOMY.COM 25

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