2011 Economic Forecast Breakfast

Transcription

1 2011 Economic Forecast Breakfast Sponsored by Wells Fargo Bank, N.A and the College of Business Administration Winthrop University Mark Vitner September 21, 2011

2 Economic Outlook September 21, 2011

3 Economic Growth 10.0% 8.0% Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDPR - CAGR: 1.0% GDPR - Yr/Yr Percent Change: 1.5% 10.0% 8.0% 6.0% 6.0% We are two years into the economic recovery and there is still a considerable amount of uncertainty regarding sovereign debt issues in Europe, the federal budget deficit and the U.S. housing sector 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% Forecast 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% -8.0% -10.0% % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 3

4 Economic Growth 15% 12% Real GDP Growth Year-over-Year Percent Change, Quarterly, SA Year-over-Year Percent Change: 1.55% 15% 12% The year-over-year percent change in real GDP dipped below the two percent mark in the second quarter, which is a worrisome sign that has often preceded recessions in the past 9% 9% 6% 6% 3% 3% 2% 2% 0% 0% -3% -3% -6% % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 4

5 Output Gap $14.5 Output Gap in the U.S. Trillions of Dollars, Potential vs. Actual GDP, Inflation Adjusted $14.5 $14.0 Output Gap = $990 Billion $14.0 $13.5 $13.5 The Great Recession has produced an enormous output gap that will take years to close $13.0 $12.5 $12.0 $13.0 $12.5 $12.0 $11.5 $11.5 $11.0 Potential GDP: $14.2 Trillion Actual GDP: $13.3 Trillion $ $11.0 $10.5 Source: Congressional Budget Office, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 5

6 Industrial Production & Exports A pickup in international trade is boosting industrial production and exports; however, it s not likely to create a whole lot of jobs as growth is concentrated in capital intensive industries Industrial Production Exports 105 Industrial Production Index, 2007= $40 Capital Goods Ex. Motor Vehicles & Aircraft Billions of Dollars $40 Exports: $39.1 Billion $35 $ $30 $ $25 $ Industrial Production: $20 $ Source: U.S. Department of Commerce, Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 6

7 Regional Manufacturing Surveys Regional manufacturing surveys have turned down in recent months New York Manufacturing Philadelphia Manufacturing 50 New York Mfg. General Business Conditions Diffusion Index Philadelphia Fed General Activity Index Diffusion Index Philadelphia Fed General Activity Index: Month Moving Average: Business Condition Index: Month Moving Average: Source: Federal Reserve Banks of New York and Philadelphia, and Wells Fargo Securities, LLC Economic Outlook 7

8 Labor Market 10.0% 8.0% 6.0% 4.0% Cycle Cycle Cycle 2001 Cycle 2007-To-Date Forecast Employment Cycles Percent Change from Cycle Peak 10.0% 8.0% 6.0% 4.0% Job losses exceeded every post- World War II downturn and the modest recovery to date has been extremely disappointing 2.0% 0.0% -2.0% 2.0% 0.0% -2.0% -4.0% -4.0% -6.0% -6.0% -8.0% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 8

9 Unemployment by County September 2007 Unemployment Rate Unemployment Rate September 2007 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 9

10 Unemployment by County Large Portions of the United States Continue to Face Serious Unemployment Issues Unemployment Rate Unemployment Rate July 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 10

11 Labor Market Civilians Unemployed For 27 Weeks or More In Millions, Seasonally Adjusted Number of Long-Term Unemployed: 6.0 Million 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 11

12 Employment Costs 5% 4% Employment Cost Index Year-over-Year Percent Change Wages and Salaries: 1.6% Benefits: 3.6% Total Compensation: 2.2% 5% 4% Compensation costs remain contained, but the cost of providing healthcare retirement benefits is accelerating 3% 2% 3% 2% 1% 1% 0% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 12

13 Inflation 4.0% "Core" CPI vs. "Core" PCE Year-over-Year Percent Change 4.0% 3.5% 3.5% 3.0% 3.0% Core inflation is running slightly below the lower bound of the Fed s comfort zone 2.5% 2.0% 1.5% 2.5% 2.0% 1.5% 1.0% Core PCE: 1.6% Core CPI: 2.0% 0.5% % 0.5% Source: Federal Reserve Board, Moody s and Wells Fargo Securities, LLC Economic Outlook 13

14 Mortgage Rates 300 Conventional Mortgage Rate vs. Spread Basis Points, Percent 8.0% % 225 Mortgage rates are currently near an all-time low, even though spreads have returned to their historic norm % 5.0% 125 Spread = Mortgage Rate - 10-Year Treasury Yield 4.0% 100 Mortgage Spread: 213 bps (Left Axis) Conventional 30-Year Fixed Mortg. Rate: 4.1% (Right Axis) % Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 14

15 Corporate Bond Spread Baa Corporate Spread vs. S&P 500 Index Basis Points Baa Corporate Spread: 325 (Left Axis) S&P 500: 1,173 (Right Axis) Baa spread = Average Baa Yield - 10-Year Treasury Yield 2,000 1,800 1,600 Stock prices began rising in anticipation of QE2, but have fallen significantly since the program ended in June ,400 1,200 1, Source: Federal Reserve Board, Moody s, S&P Corp. and Wells Fargo Securities, LLC Economic Outlook 15

16 Jobless Claims and Mortgage Applications The high-frequency data, such as jobless claims and mortgage applications, is a good place to measure the effectiveness of monetary policy initiatives Initial Jobless Claims Mortgage Refinancing Activity Initial Claims for Unemployment Seasonally Adjusted, In Thousands Year-over-Year Percent Change: -4.9% Initial Claims: Thousand 4-Week Moving Average: Thousand 52-Week Moving Average: Thousand ,000 10,000 Mortgage Applications for Refinancing 4-Week Moving Average, Seasonally Adjusted Weekly Figure: 3,361 Up from 3,169 on Sep-2 4-Week Average: 3,441 4-Week Average Down 29.9% from Same Period Last Year 12,000 10, ,000 8, ,000 6, ,000 4, ,000 2, Source: U.S. Department of Labor, MBA and Wells Fargo Securities, LLC Economic Outlook 16

17 Homebuilding 2.4 Housing Starts Millions of Units We believe housing starts have bottomed and will increase modestly through 2012 and return to a normal level by Forecast Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 17

18 Home Prices 24% Home Prices Year-over-Year Percentage Change 24% 18% 18% 12% 12% Various mortgage foreclosure moratoriums and stimulus programs likely supported prices earlier and are now giving way 6% 0% -6% -12% -18% -24% Median Sale Price: $174,800 Median Sales Price 3-M Mov. Avg.: -3.8% FHFA (OFHEO) Purchase Only Index: -4.3% S&P Case-Shiller Composite 10: -3.8% % 0% -6% -12% -18% -24% Source: Federal Housing Finance Agency, National Association of Realtors, S&P Corp. and Wells Fargo Securities, LLC Economic Outlook 18

19 Commercial Real Estate Prices 200 Commercial Property Prices vs. S&P 500 Index, Q = Commercial real estate prices remain weak Moody's/REAL Commercial Property Price Index: S&P 500: S&P/Case Shiller National Home Price Index: Source: Moody s, Standard & Poor's and Wells Fargo Securities, LLC Economic Outlook 19

20 South Carolina

21 South Carolina Employment 8% South Carolina Nonfarm Employment 3-Month Moving Averages 8% 6% 6% 4% 4% Employment growth is slowly bouncing back in South Carolina. Growth is primarily concentrated in professional & business services and education & healthcare 2% 0% -2% -4% -6% -8% -10% 3-Month Annual Rate: 1.2% Year-over-Year Percent Change: 1.0% Household: Year/Year Percent Change: 0.2% % 0% -2% -4% -6% -8% -10% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 21

22 South Carolina Unemployment Rate 14% 12% South Carolina Unemployment Rate Seasonally Adjusted Unemployment Rate: 11.1% 12-Month Moving Average: 10.5% 14% 12% 10% 10% The unemployment rate has bounced back up above 11 percent in recent months 8% 6% 8% 6% 4% 4% 2% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 22

23 South Carolina Unemployment Rate Composition Unemployment Rate by County South Carolina Unemployment Rate July 2011 Greater than 16.0% 14.0% to 16.0% 12.0% to 14.0% 9.0% to 12.0% Less than 9.0% Source: US Department of Labor and Wells Fargo Securities, LLC Economic Outlook 23

24 South Carolina Home Prices and Construction South Carolina s housing market continues to struggle. Prices remain under pressure and building activity is flat Home Prices Housing Permits CoreLogic Home Price Index: SC vs. US Index, 2000=100, Not Seasonally Adjusted South Carolina: United States: South Carolina Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 12,432 Single-Family, 12-Month Moving Avg.: 12,132 Multi-Family, 12-Month Moving Avg.: 1, SC Single-Family Average (1998 to 2003): 26, Source: FHFA, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 24

25 York County Employment Picture York County s labor market has made substantial improvement since the recession ended. Total payrolls are close to overtaking their pre-recession peak Employment Growth Employment Level From Peak 15% 12% York County Employment 3-Month Moving Averages 3-Month Annual Rate: 6.2% Year-over-Year Percent Change: 2.3% 15% 12% 101% 100% York Employment: Percent of Previous Peak Percent, As of December % 100% 9% 9% 99% 99% 6% 6% 98% 98% 3% 3% 97% 97% 0% 0% 96% 96% -3% -3% 95% 95% -6% -6% 94% 94% -9% % 93% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 25

26 York County, SC Unemployment Rate 18% 16% York County Unemployment Rate Percent, Seasonally Adjusted Unemployment Rate: 13.1% 12-Month Moving Average: 14.6% 18% 16% 14% 14% The unemployment rate has fallen since the start of the year, but remains very high at 13.1 percent 12% 10% 8% 6% 12% 10% 8% 6% 4% 4% 2% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 26

27 York County, SC Home Prices York County Home Prices Index, 2000=100, Not Seasonally Adjusted York County, SC: United States: * Back to 2006 Levels 140 Home prices in York have held up well and are only back down to 2006 levels Source: CoreLogic and Wells Fargo Securities, LLC Economic Outlook 27

28 York County, SC Building Permits 20,000 York County, SC Housing Permits Seasonally Adjusted Annual Rate Single-Family: 7,911 20,000 17,000 17,000 14,000 14,000 Home construction remains weak 11,000 11,000 8,000 8,000 5, ,000 Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 28

29 Lancaster County, SC Employment Picture Lancaster s labor market has improved since the recession ended, but payrolls remain well below even levels seen in the 1990s Employment Growth Employment Level From Peak 20% 15% Lancaster County Employment 3-Month Moving Averages 3-Month Annual Rate: -1.7% Year-over-Year Percent Change: 8.6% 20% 15% 104% 100% Lancaster Employment: Percent of Previous Peak Percent, As of December % 100% 10% 10% 96% 96% 5% 5% 92% 92% 0% 0% 88% 88% -5% -5% 84% 84% -10% -10% 80% 80% -15% -15% 76% 76% -20% % 72% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 29

30 Lancaster County, SC Unemployment Rate 20% 18% Lancaster County Unemployment Rate Percent, Seasonally Adjusted Unemployment Rate: 15.4% 12-Month Moving Average: 15.1% 20% 18% 16% 16% 14% 14% The unemployment rate in Lancaster is well above the state average 12% 10% 8% 12% 10% 8% 6% 6% 4% 4% 2% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 30

31 Lancaster County, SC Home Prices 200 Lancaster County Home Prices Index, 2000=100, Not Seasonally Adjusted Lancaster County, SC: United States: Lancaster did not have much of a home price bubble, and so price declines have not been nearly as bad as those in many other overbuilt areas in the Carolinas * Back to 2005 Levels Source: CoreLogic and Wells Fargo Securities, LLC Economic Outlook 31

32 Lancaster County, SC Building Permits 3,000 Lancaster County, SC Housing Permits Seasonally Adjusted Annual Rate Single-Family: 788 3,000 2,500 2,500 Even though home price declines in Lancaster have been modest, new construction activity is still struggling to gain traction 2,000 1,500 1,000 2,000 1,500 1, Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 32

33 Chester County, SC Employment Picture Chester s labor market continues to struggle. There has been almost no job growth since the recession ended Employment Growth Employment Level From Peak 20% 15% Chester County Employment 3-Month Moving Averages 3-Month Annual Rate: -3.0% Year-over-Year Percent Change: -2.7% 20% 15% 105% 100% 95% Chester Employment: Percent of Previous Peak Percent, As of December % 100% 95% 10% 10% 90% 90% 5% 5% 85% 85% 0% 0% 80% 75% 80% 75% -5% -5% 70% 70% -10% -10% 65% 65% -15% -15% 60% 55% 60% 55% -20% % 50% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 33

34 Chester County, SC Unemployment Rate 22% 20% Chester County Unemployment Rate Percent, Seasonally Adjusted Unemployment Rate: 17.1% 12-Month Moving Average: 17.1% 22% 20% 18% 18% 16% 16% The unemployment rate in Chester County is extremely high, at 17.1 percent 14% 12% 10% 14% 12% 10% 8% 8% 6% 6% 4% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 34

35 Issues to Watch Credit Availability & Finreg Deleveraging Trade Wars & Currency Devaluations European Debt Crisis Asian Real Estate Bubble? Fiscal & Monetary Policy Geopolitical Tensions Energy/Commodity Price Swings Economic Outlook 35

36 Our Forecast Wells Fargo U.S. Economic Forecast Actual Forecast Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Real Gross Domestic Product Personal Consumption Inflation Indicators 2 "Core" PCE Deflator Consumer Price Index Industrial Production Corporate Profits Before Taxes Trade Weighted Dollar Index Unemployment Rate Housing Starts Quarter-End Interest Rates 5 Federal Funds Target Rate Conventional Mortgage Rate Year Note Forecast as of: September 16, Compound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage Change 3 Federal Reserve Major Currency Index, 1973=100 - Quarter End 4 Millions of Units 5 Annual Numbers Represent Averages Economic Outlook 36

37 Appendix

38 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 Date Title Authors September-09 The Direction of Treasury Rates: A Japanese Story? Anderson, Bryson & Seydl September-08 Long-Term Unemployment: Costs & Consequences Silvia & Watt September-07 Housing Data Wrap-Up: September 2011 Vitner, Khan & Seydl September-07 Brazil: GDP and Central Bank Autonomy Aleman September-06 Strength of Currency Weighs on Swiss GDP Growth Bryson September-02 Is Another Recession Brewing in Germany? Bryson & Kruse September-01 Housing and Arizona, Rebuilding a Marketplace Aleman & Kruse August-30 The Evolution of Economic Relationships: The PMI and Growth Silvia, Iqbal & Watt August-26 Tacking in Treacherous Water: No Full Sail for QE3 Silvia August-26 Barzilian Economy: Growing Pains Aleman August-24 Will the Renminbi Eventually Rival the Dollar? Bryson August-23 State Coincident Indicators Highlight A Disturbing Trend Vitner & Brown August-23 Are We Headed for Another Global Recession? Bryson, Quinlan & Kruse August-22 Philadelphia Fed Index: Can It Predict a Recession? Silvia, Khan, Iqbal & Watt August-22 Gold Bubble Fears Overblown Anderson & Kashmarek August-22 Mexican Economy Grows Despite Slowdown in Q2 Aleman August-22 The Kids Are Alright Silvia, Quinlan & Seydl August-19 Even Slower Growth with Significant Downside Risk Silvia August-15 Why Is France in the Crosshairs? Bryson & Kruse August-11 Commercial Real Estate Chartbook: Quarter 2 Vitner, Khan & Seydl August-11 Employment: Beyond the Sound Bites Reading the Signals III Silvia & Watt August-07 S&P Downgrade of Treasury /Fed Credit: Fiscal Imbalances Silvia & Vitner August-05 What are the Risks of Recession? Vitner August-02 Economic Implications of the Debt Ceiling Compromise Silvia, Vitner, Bullard & Brown August-02 Real GDP Per Capita Stalled Out In the First Half of 2011 Vitner & Seydl August-01 Employment: Beyond the Sound Bites Reading the Signals II Silvia & Watt July-29 Housing Chartbook: July 2011 Vitner, Khan & Seydl July-27 With Greece "Stabilized," Will the Fire Spread? Bryson & Kruse July-25 Is the Greek Debt Problem "Solved?" Bryson & Kruse July-21 Employment: Beyond the Sound Bites Reading the Signals I Silvia & Watt July-21 Moody's Blues: Implications for a U.S. Downgrade Bryson, Quinlan & Seydl July-15 Employment Issues Linger in New Jersey Vitner, Khan & Watt July-15 Global Chartbook: July 2011 June-30 Maryland: Economic Diversity Breeds Uneven Growth Silvia, Brown & Kruse June-30 The Brazilian Exchange Rate Conundrum Aleman June-29 Housing Data Wrap-Up: June 2011 Vitner, Khan & Seydl June-24 Texas Budget: Biennium Aleman & Kruse June-24 Regional Chart Book: Quarter 2 Vitner, Brown & Seydl June-22 Credit Quality Monitor Anderson & Kashmarek June-22 FOMC: Steady as She Goes Bullard June-21 An Economic Framework for Financial Services Silvia, Brown & Watt June-01 U.K. Trip Notes: Will the Expansion Continue? Bryson Economic Outlook 38

39 Wells Fargo Securities, LLC Economics Group a Senior Economists Global Head of Research and Economics: Diane Schumaker-Krieg Chief Economist: John Silvia 301 S. College Street MAC D Charlotte, NC 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.j.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, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. 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 39