Wells Fargo Economics The Road Ahead. Scott A. Anderson, Ph.D. Director/Senior Economist January 4, 2012

Transcription

1 Wells Fargo Economics The Road Ahead Scott A. Anderson, Ph.D. Director/Senior Economist January 4, 2012

2 1 Recession Risks Remain Uncomfortably High

3 Financial Stress In Europe Remains High (Italian 5-Yr Bond Spread to German Bund) 2

4 U.S. Three Month Libor Rate- U.S. Dollar 3

5 4 A Eurozone Recession Baked Into The Cake 8% Eurozone Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change Compound Annual Growth: 0.6% Year-over-Year Percent Change: 1.4% 8% 4% Forecast 4% 0% 0% -4% -4% -8% -8% -12% %

6 5 5% Eurozone Retail Sales, Ex-Motor Vehicles Year-over-Year Percent Change 5% 4% 4% 3% 3% 2% 2% 1% 1% 0% 0% -1% -1% -2% -2% -3% -3% -4% Retail Sales, 3MMA of YoY: -0.7% Retail Sales, YoY: -0.5% -5% % -5%

7 6 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% Euro-zone Industrial Orders Year-over-Year Rates 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% New Orders YoY: 1.8% New Orders 3MMA of YoY: 5.5% -35% % -30% -35%

8 7 60 Chinese Manufacturing PMI Seasonally Adjusted Chinese Manufacturing PMI:

9 8 Economic Problems Becoming Pandemic 15 OECD Industrial Production vs. Leading Index Year-over-Year Percent Change Total industry excluding construction: 2.5% Leading Indicator Index: -1.9%

10 State Data Signal Uneven Growth 9

11 10 Jobs Recovery Remains Disappointing

12 Total Nonfarm Employment Millions Total Nonfarm Employment: M

13 12 Unemployment Measures 18% 16% Unemployment Rate: 8.6% U6: 15.6% 18% 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% 4% 2% %

14 Confidence vs. Retail Sales Conference Board Consumer Confidence, Retail Sales ex. Autos Confidence Yr/Yr % Chg: 1.8% Confidence: 64.5 (Left Axis) Retail Ex-Auto Yr/Yr % Chg 3-MMA: 7.3% (Right Axis) 16.0% 12.0% % % % % % %

15 14 Income Growth Is A Problem 12% Real Disposable Income Both Series are 3-Month Moving Averages 12% 8% 8% 4% 4% 0% 0% -4% -4% -8% -8% -12% Real Disposable Income, 3-Month Annual Rate: -0.8% Real Disposable Income: -0.1% -16% % -16%

16 15 10% Personal Saving Rate Disp. Personal Income Less Spending as % of Disp. Income Personal Saving Rate: 3.5% 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% %

17 16 Bank Credit Crisis: Progress, But Is It Slowing?

18 Loan Delinquency Rates Basis Point Change, Q3 2011, SA Non-credit Card Residential Real Estate Y/Y Change Q/Q Change Total Consumer Total Real Estate Credit Card Agriculture Total Loans Commercial & Industrial Commercial Real Estate

19 40% Banks' Willingness to Make Loans Consumer Installment 40% 30% 30% 20% 20% 10% 10% 0% 0% -10% -10% -20% -20% -30% -30% -40% Willingness to Lend - Consumer: 18.8% -50% % -50% 18

20 16% Delinquency Plus Foreclosure Rate Percent of All Mortgage Loans Delinquent or in Foreclosure, NSA Delinquency Plus Foreclosure Rate (US): 12.6% 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% % 19

21 20 Housing Market Hangover Continues

22 10% Mortgage Rate Average Conventional 30-Year Commitment Rate 10% 9% 9% 8% 8% 7% 7% 6% 6% 5% 5% 4% Mortgage Rate: 3.99% %

23 71% 70% 69% 68% 67% 66% 65% 64% 63% 62% 61% Home Ownership Rate Percentage, Index Home Ownership Rate: 66.3% (Left Axis) Housing Affordability Index: (Right Axis)

24 Pending Home Sales vs. Mortgage Purchases Index 2001=100 vs. Index 1990=100; 3-M Moving Averages, SA Pending Home Sales Index: 93.3 (Left Axis) Mortgage Purchase Application Index: (Right Axis)

25 7.0 Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions Existing Home Sales: 4.0 Million

26 4,500 Inventory of Existing Homes for Sale Existing Homes for Sale at End of Month - In Thousands 4,500 4,000 4,000 3,500 3,500 3,000 3,000 2,500 2,500 2,000 2,000 1,500 Total Inventory: 2, ,500

27 18 16 Existing Home Supply In Months, Seasonally Adjusted Condo Months' Supply: 7.1 Single Family Months' Supply:

28 24% Home Prices Year-over-Year Percentage Change 24% 18% 18% 12% 12% 6% 6% 0% 0% -6% -6% -12% -18% -24% Median Sale Price: $164,100 Median Sales Price 3-M Mov. Avg.: -4.7% FHFA (OFHEO) Purchase Only Index: -3.9% S&P Case-Shiller Composite 10: -3.0% % -18% -24%

29 28 Percent 5% CME Real Estate Futures Expected price growth from June 2011 November 2011 February 2012 May 2012 August % -5% -10% Boston Chicago Denver Las Vegas Source: CME; Wells Fargo Economics Los Angeles Miami New York San Diego San Francisco Washington Composite

30 29 Making The Case For Continued Moderate Economic Growth

31 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% Leading Economic Index Annualized Change In the LEI Over Six Months Annualized Rate: 5.7% Recession Threshold = -3.5% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% %

32 16% Profits as a Percentage of GDP Operating Profits divided by Product of Non-fin Corp Business 16% 14% 14% 12% 12% 10% 10% 8% 8% 6% 6% 4% Profits as a Percentage of GDP: 15.0% %

33 32 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% Real NonRes Business Fixed Investment Bars = CAGR Line = Yr/Yr % Change 25% 20% 15% 10% 5% 0% -5% -10% -15% -20% -25% -30% -35% Fixed Investment: 15.7% Fixed Investment: 9.1% -40% % -35% -40%

34 33 25% Real Exports & Imports of Goods Year-over-Year Percent Change, 3-Month Moving Average 25% 20% 20% 15% 15% 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% Exports: 7.4% Imports: 2.5% -25% % -25%

35 34 65 ISM Surveys of Business Activity Diffusion Indices, 3-Month Moving Averages ISM Manufacturing Index: 51.7 ISM Nonmanufacturing Index:

36 35 The Fed Launches Operation Twist

37 36 Mil, NSA $3,500,000 $3,000,000 $2,500,000 Fed Balance Sheet $1.94 trillion increase since September 10, 2008 $2,000,000 $1,500,000 $1,000,000 $500,000 $- 10/5/03 10/5/04 10/5/05 10/5/06 10/5/07 10/5/08 10/5/09 10/5/10 10/5/11 Source: Federal Reserve

38 37 Yield Real Interest Rate 10-Year TIPS Yields /30/2007 9/30/2008 9/30/2009 9/30/2010 9/30/2011 Source: Federal Reserve; Wells Fargo Economics

39 38 Deficit Reduction vs. More Stimulus Spending

40 10% Real State & Local Government Expenditure Bars = Compound Annual Rate Line = Yr/Yr % Change 10% 8% 8% 6% 6% 4% 4% 2% 2% 0% 0% -2% -2% -4% -6% Real State and Local Government Expenditure: -1.60% Real State and Local Government Expenditure: -2.59% % -6%

41 40 Billions $400 $200 $- $(200) $(400) $(600) $(800) $(1,000) $(1,200) $(1,400) Federal Budget Surplus/Deficit Forecast based on President's Budget $(1,600) Source: CBO

42 26% 24% Federal Spending vs. Revenue As a Percent of GDP Average Average 2008 through Q % 24% 22% 22% 20% 20% 18% 18% 16% 16% 14% 14% 12% 12% 10% Revenue Spending 10%

43 Federal Debt (% of GDP) Debt to the Public Alternative scenario More spending Medicare payment rates rise Non-entitlement spending/gdp falls less than baseline Less Revenue Bush tax cuts extended AMT reach little changed H F Alternative 50 Baseline Source: CBO; Economic Report of the President

44 Q/Q% Change Real GDP Annualized GDP Growth HISTORY FORECAST

45 44 Questions?

46 a Wells Fargo Securities, LLC Economics Group 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 Mark Vitner, Senior Economist Jay Bryson, Global Economist Scott Anderson, Senior Economist Eugenio Aleman, Senior Economist Sam Bullard, Senior Economist Economists Anika Khan, Economist Azhar Iqbal, Econometrician Ed Kashmarek, Economist Tim Quinlan, Economist Michael Brown, Economist Executive Assistants Carol Nightengale (Minneapolis), Executive Assistant 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 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 Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.com Peg Gavin (Charlotte), Executive Assistant peg.gavin@wellsfargo.com