Economic Outlook. May 17, 2011

Transcription

1 Economic Outlook May 17, 2011

2 Economic Growth The economy ended 2010 on a strong note, but has run into a wall with higher gasoline prices and further weakness in housing more recently Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 2

3 Output Gap The Great Recession has produced an enormous output gap that will take years to close Source: Congressional Budget Office, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 3

4 Difficult Choices State and local fiscal conditions will limit expenditures and gains in GDP Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 4

5 Industrial Production & Exports A pick up in international trade is boosting industrial production and exports, though it s not likely to create a whole lot of jobs as growth is concentrated in capital intensive industries Industrial Production Exports Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 5

6 Labor Market Job losses exceeded every post- World War II downturn and the modest recovery to date has been extremely disappointing Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 6

7 Unemployment by County Large Portions of the United States Continue to Face Serious Unemployment Issues Unemployment Rate Unemployment Rate March 2011 Greater than 12.5% 10.0% to 12.5% 8.0% to 10.0% 6.0% to 8.0% Less than 6.0% Source: US Department of Labor and Wells Fargo Securities, LLC Economic Outlook 7

8 Labor Market Not only is unemployment remaining exceptionally high, but a large number of people have remained unemployed for a long period of time Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 8

9 Income Proxy Incomes are making up the steep losses incurred during recession, but there is a great deal of lost ground to make up Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 9

10 Corporate Profits Increased corporate profits have stood out recently, but easy gains from cost cutting are largely behind us and year-to-year comps will get tougher Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 10

11 Corporate Profits Corporate profits have returned to their previous peak, but the S&P 500 has yet to do the same Source: U.S. Department of Commerce, S&P and Wells Fargo Securities, LLC Economic Outlook 11

12 Revenues Revenue expectations for small businesses rise in line with increases in the equity market and decreases in jobless claims Source: U.S. Department of Labor, IHS Global Insight, Gallup, Wells Fargo & Co. and Wells Fargo Securities, LLC Economic Outlook 12

13 Employment Costs Compensation costs remain contained, but the cost of providing health-care retirement benefits is accelerating Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 13

14 Inflation Core inflation is running slightly below the lower bound of the Fed s comfort zone Source: Federal Reserve Board, U.S. department of Labor and Wells Fargo Securities, LLC Economic Outlook 14

15 Inflation Higher gasoline prices are pulling up inflation expectations, but so far the financial markets are less concerned TIPS Inflation Expectations Consumer Inflation Expectations Source: Federal Reserve Board, University of Michigan and Wells Fargo Securities, LLC Economic Outlook 15

16 Mortgage Rates Mortgage rates are currently near an all-time low, even though spreads have returned to their historic norm Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 16

17 Corporate Bond Spread Stock prices began rising in anticipation of QE2, but credit spreads have so far benefitted much less Source: Federal Reserve Board, Moody s, S&P Corp. and Wells Fargo Securities, LLC Economic Outlook 17

18 Homebuilding We believe housing starts have bottomed and will increase modestly through 2012 and return to a normal level by 2015 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 18

19 Home Prices Various mortgage foreclosure moratoriums and stimulus programs likely supported prices earlier and are now giving way Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLC Economic Outlook 19

20 Commercial Real Estate Prices Commercial real estate prices remain weak Source: Moody s, Standard & Poor's and Wells Fargo Securities, LLC Economic Outlook 20

21 Oregon

22 Oregon Oregon s labor market is showing substantial improvement, with job gains occurring in a broad assortment of industries, including professional & business services and leisure & hospitality Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 22

23 Oregon The unemployment rate remains high in Oregon, but is currently at its lowest level in two years despite a rapidly expanding labor force Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 23

24 Oregon Home Prices and Construction Improving labor market conditions are finally helping the housing market work through foreclosure inventories; however, distress sales are still weighing on home prices Home Prices Housing Permits Source: FHFA, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 24

25 Oregon Personal Income and Delinquency Rates Personal income growth is picking up, and the improving performance of higher-paying industries such as high tech and clean energy will support further acceleration this year. Delinquency rates have peaked and are now falling Personal Income Growth Delinquency Rates Source: U.S. Department of Commerce, Moody's Analytics, Mortgage Bankers Association and Wells Fargo Securities, LLC Economic Outlook 25

26 Portland, OR Employment Growth & Unemployment Rate Portland s labor market is gaining traction. Gains are being driven by professional & business services. The unemployment rate remains below the national average Employment Unemployment Rate Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 26

27 Portland, OR Population Growth Job losses and government service cuts led to a decline in population growth last year Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 27

28 Portland, OR Home Prices & Construction Distress sales continue to put downward pressure on home prices, though construction activity is expected to pick up during the second half of the year Home Prices Housing Permits Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 28

29 Portland, OR Commercial Real Estate Portland s apartment market is remarkably strong and supply is expected to remain low Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 29

30 Portland, OR Commercial Real Estate Rent growth in the office market has finally stabilized Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 30

31 Portland, OR Commercial Real Estate Vacancy rates are falling in Portland s apartment and office markets, but the retail market in Portland remains weak Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 31

32 Issues to Watch Credit Availability & Finreg Deleveraging Trade Wars & Currency Devaluations Earthquake & Tsunami in Japan Asian Real Estate Bubble? European Debt Crisis Geopolitical Tensions Energy/Commodity Bubbles? Economic Outlook 32

33 Our Forecast Economic Outlook 33

34 Appendix

35 Wells Fargo Economics Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary Recent Special Commentary To view any of our past research please visit: economics To join any of our research distribution lists please visit: economics Economic Outlook 35

36 Wells Fargo Securities, LLC Economics Group a Global Head of Research and Economics: Diane Schumaker-Krieg Chief Economist: John Silvia 301 S. College Street MAC D Charlotte, NC Senior Economists John Silvia, Chief Economist john.silvia@wellsfargo.com Mark Vitner, Senior Economist mark.vitner@wellsfargo.com Jay Bryson, Global Economist jay.bryson@wellsfargo.com Scott Anderson, Senior Economist scott.a.anderson@wellsfargo.com Eugenio Aleman, Senior Economist eugenio.aleman@wellsfargo.com Sam Bullard, Senior Economist sam.bullard@wellsfargo.com Economists Anika Khan, Economist anika.khan@wellsfargo.com Azhar Iqbal, Econometrician azhar.iqbal@wellsfargo.com Ed Kashmarek, Economist ed.kashmarek@wellsfargo.com Tim Quinlan, Economist tim.quinlan@wellsfargo.com Michael Brown, Economist michael.a.brown@wellsfargo.com Economic Analysts Tyler Kruse, Economic Analyst tyler.kruse@wellsfargo.com Joe Seydl, Economic Analyst joseph.seydl@wellsfargo.com Sarah Watt, Economic Analyst sarah.watt@wellsfargo.com Executive Assistants Peg Gavin (Charlotte), Executive Assistant peg.gavin@wellsfargo.com Carol Nightengale (Minneapolis), Executive Assistant carol.nightengale@wellsfargo.com Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A, Wells Fargo Advisors, LLC, and Wells Fargo Securities International Limited. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company 2011 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Economic Outlook 36