Economic Update and Outlook

Transcription

1 Real GDP Growth Real GDP Growth $13.6 Real Gross Domestic Product Trillions of Dollars, SAAR $13.6 Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change Economic Update and Outlook $13.4 Before Q2 Revisions: $13.4 Trillion After Q2 Revisions: $13.3 Trillion $13.4 Tim Quinlan, Economist October 4, 211 Revised GDP data reveal a weaker recovery than what was initially reported $13.2 $13. $13.2 $13. U.S. economic growth has slowed significantly over the past few quarters $12.8 $ $12.8 $ Real GDP: 1.3% - - Real GDP: Source: U.S. Dept. of Commerce and Wells Fargo Securities, LLC 2 3 1

2 ISM Composites Private Sector Employment Employment 65 ISM Manufacturing & Non-Manufacturing Composite Index 65 Private Sector Employment 3-Month Moving Average Increase, In Thousands Nonfarm Employment Change Change in Employment, In Thousands The current levels of the ISM indices suggest that the economy is still expanding, albeit at a sluggish pace Growth in private sector employment is not consistent with recession Total job growth has slowed to a virtual standstill ISM Non-Manufacturing Index SA: ISM Manufacturing Index SA: 51.6 Private Sector Employment: Monthly Change: , , Source: Institute for Supply Management and Wells Fargo Securities, LLC

3 Eurozone GDP Growth European PMIs Chinese Real GDP Eurozone Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change 65 European Manufacturing Purchasing Manager Indices 65 15% Chinese Real GDP Year-over-Year Percent Change 15% Economic growth in the Eurozone has also slowed recently European business sentiment has turned into contraction territory Economic growth in China remains solid, but questions are starting to arise 9% 9% - Compound Annual Growth: Year-over-Year Percent Change: U.K. Manufacturing: 51.1 E.Z. Manufacturing: Year-over-Year Percent Change: 9.5% % 3% Source: IHS Global Insight and Wells Fargo Securities, LLC Source: Bloomberg LP and Wells Fargo Securities, LLC Source: Bloomberg LP and Wells Fargo Securities, LLC

4 S&P 5 Real GDP Forecast U.S. Housing Market 1, 1, S&P 5 1, 1, Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDPR - CAGR: 1.3% GDPR - Yr/Yr Percent Change: Housing Starts Seasonally Adjusted Annual Rate, In Millions Recent financial market volatility clouds the outlook. What s going on? 1, 1, 8 1, 1, 8 Our forecast calls for the subpar pace of economic growth to continue for the foreseeable future Forecast Housing is unlikely to collapse further from here S&P 5: 1, Housing Starts: 571K Source: IHS Global Insight and Wells Fargo Securities, LLC

5 Housing Starts Consumer Balance Sheet Real PCE Forecast 2.4 Housing Starts Millions of Units Household Debt - Consumer & Mortgage As a Percent of Disposable Personal Income Real Personal Consumption Expenditures Bars = CAGR Line = Yr/Yr Percent Change Forecast 4. We believe housing starts have bottomed and will increase painfully slowly, returning to a normal level by Forecast Although consumer leverage remains high, it is moving in the right direction Continued de-leveraging likely will constrain growth in consumer spending over the next year or so Household Debt: 16.5% 5-6. PCE - CAGR: PCE - Yr/Yr Percent Change: Source: Federal Reserve Board, U.S. Department of Commerce and Wells Fargo Securities, LLC

6 Real Disposable Income Corporate Cash Capital Spending 1 Real Disposable Income Both Series are 3-Month Moving Averages 1 6. U.S. Nonfin. Corporate Cash Holdings Total Assets Market Value, U.S. Nonfinancial Corporations Cash Ratio: 5.7% 6. 4 Nondefense Capital Goods Orders, Ex-Aircraft Series are 3-Month Moving Averages 4 5.5% 4-Q Moving Average: 5.5% 5.5% 3 3 Recent declines in food and energy prices should help to support growth in real disposable income The financial health of the corporate sector is very strong % % % % 3. The rebound in capexled the way out of recession Real Disposable Income, 3-Month Annual Rate: % 2.5% -4 3-Month Annual Rate: Real Disposable Income: Year-over-Year Percent Change: Source: Federal Reserve Board and Wells Fargo Securities, LLC

7 State & Local Spending U.S. Forecast European Sovereign Yields Real State & Local Government Expenditure Bars = Compound Annual Rate Line = Yr/Yr % Change Wells Fargo U.S. Economic Forecast Actual Forecast Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1 Real Gross Domestic Product Personal Consumption Inflation Indicators 2 "Core" PCE Deflator Cutbacks by state and local governments will exert some headwinds on growth over the next few years - - Consumer Price Index Industrial Production Corporate Profits Before Taxes 2 Trade Weighted Dollar Index Unemployment Rate Housing Starts Quarter-End Interest Rates 5 Federal Funds Target Rate Conventional Mortgage Rate Real State and Local Government Expenditure: Year Note Forecast as of: October 14, Real State and Local Government Expenditure: -2.33% Compound Annual Growth Rate Quarter-over-Quarter 2 1-Year Government Bond Yields Percent Italy: Oct 5.7% 2 2 Greece: Oct 23. Spain: Oct 5. 2 Germany: Oct 2.1% The sovereign debt crisis in Europe has spread to some larger countries lately Year-over-Year Percentage Change 3 Federal Reserve Major Currency Index, 1973=1 - Quarter End 4 Millions of Units 5 Annual Numbers Represent Averages Source: IHS Global Insight and Wells Fargo Securities, LLC

8 Peripheral Exposure U.S. Budget Deficit U.S. Budget Gap 3 25% 2 Bank Exposure to Peripheral Europe Percent of GDP, As of March 211 Italy Spain Portugal Ireland Greece 3 25% 2 $ $ $ -$ Federal Budget Surplus or Deficit 12-Month Moving Sum in Billions of Dollars $ $ $ -$ U.S. Budget Gap CBO Alternative Fiscal Situation Projections, Percent of GDP Many European countries have significant exposure to sovereign debt in peripheral European countries 15% 15% The federal government faces some significant fiscal challenges -$ -$ -$8 -$1, -$ -$ -$8 -$1, Revenues need to rise and/or spending needs to decline to achieve budget balance % 5% -$1, -$1, Surplus or Deficit: -$1,269 Billion -$1, -$1, 1 Primary Spending: 25. Revenues: FR PT NE BE GE UK IR SZ AS SP IT SW JP US CA -$1, $1, Source: Bank for International Settlements and Wells Fargo Securities, LLC Source: U.S. Department of the Treasury and Wells Fargo Securities, LLC Source: Congressional Budget Office and Wells Fargo Securities, LLC

9 Federal Government Spending Purchases of Treasury Securities Unemployment by County September 7 That Was Then Unemployment Rate $6.T U.S. Federal Government Outlays Trillions of U.S. Dollars, Projections Begin in 21 Other: $1.T $6.T $2 Foreign Purchase of U.S. Treas. Securities Billions of Dollars Non-Official Foreign Purchases: $-63.8 B $2 $5.T Net Interest: $.7T Defense: $.8T $5.T $ Official Foreign Purchases: $79.3 B $ Only a few categories account for the bulk of federal government spending $4.T $3.T $2.T Social Security: $1.2T Healthcare: $1.5T $4.T $3.T $2.T There is little evidence to suggest that foreigners are refusing to buy U.S. Treasury securities $1 $12 $8 $ $1 $12 $8 $ $ $ $1.T $1.T -$ -$ $.T $.T -$ $8 Unemployment Rate September 7 Greater than 12.5% 6. to to 12.5% Less than to 1. Source: U.S. Department of the Treasury, Congressional Budget Office and Wells Fargo Securities, LLC Source: US Department of Labor and Wells Fargo Securities, LLC

10 Unemployment by County This Is Now Unemployment Rate Southeast Real GDP Growth Southeast Large Portions of the United States Continue to Face Serious Unemployment Issues Unemployment Rate Unemployment Rate as of August 211 Percent Change in Real GDP Southeast 9-21 Alabama, North Carolina, Georgia, Mississippi, Florida and South Carolina currently have double-digit unemployment rates South Carolina has the highest unemployment rate in the Southeast at 11.1 percent. South Carolina has not seen an unemployment rate this high since May 21. Virginia has the lowest unemployment rate in the Southeast at 6.3 percent AR 8.3% LA 7. MS 1.3% WV 8.1% VA 6.3% KY 9.5% NC TN % SC 11.1% AL GA 9.9% 1. U.S. = 9.1% FL 1.7% Highest quintile Fourth quintile Total output in the Southeast grew 2.3 percent in 21 slightly below the 2.6 percent growth experienced at the national level Georgia s economy grew only 1.4 percent in 21, making Georgia the second-slowest growing state in the Southeast last year, ahead of only Mississippi Florida s economy also grew a meager 1.4 percent A large factor accounting for the sluggish growth in Georgia and Florida is the weak recovery in real estate, which has historically been a strong growth driver for both of these states AR 2.3% LA 2. WV 4. VA 2. KY 3. NC TN % SC 2. AL GA Southeast MS % 2.3% U.S. = 2. FL 1. Highest quintile Third quintile Fourth quintile Second quintile Third quintile Unemployment Rate August 211 Lowest quintile Second quintile Lowest quintile Greater than 12.5% 6. to to 12.5% 8. to 1. Less than 6. Source: US Department of Labor and Wells Fargo Securities, LLC

11 South Carolina Employment South Carolina Unemployment Rate South Carolina Unemployment Rate Composition Unemployment Rate by County South Carolina Nonfarm Employment 3-Month Moving Averages 1 South Carolina Unemployment Rate Seasonally Adjusted Unemployment Rate: 11.1% 12-Month Moving Average: 1.5% Employment growth is bouncing back in South Carolina. Growth is primarily concentrated in professional & business services and education & healthcare The unemployment rate in South Carolina is well above the national average Month Annual Rate: 1. Year-over-Year Percent Change: 1. Household: Year/Year Percent Change: South Carolina Unemployment Rate August 211 Greater than to to 16. Less than to Source: US Department of Labor and Wells Fargo Securities, LLC

12 South Carolina Home Prices and Construction Columbia, S.C. MSA Employment Growth & Unemployment Rate Columbia, S.C. MSA Home Prices & Construction South Carolina s housing market continues to struggle, but prices are showing tentative signs of a bottom Employment growth has picked up recently in Columbia, but the unemployment rate remains high, at 9.6 percent Home prices in Columbia continue to struggle, though prices are still down only modestly from their peak relative to national home prices. Construction activity is still struggling. Home Prices Housing Permits Employment Unemployment Rate Home Prices Housing Permits 18 1 CoreLogic Home Price Index: SC vs. US Index, =1, Not Seasonally Adjusted United States: 139. South Carolina: South Carolina Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 15,168 Single-Family, 12-Month Moving Avg.: 12,416 Multi-Family, 12-Month Moving Avg.: 1,713 SC Single-Family Average (1998 to 3): 26, Columbia Nonfarm Private Employment 3-Month Moving Averages 1 Columbia MSA Unemployment Rate Seasonally Adjusted Unemployment Rate: Month Moving Average: CoreLogic Home Price Index: Columbia, SC Index, =1, Not Seasonally Adjusted Columbia, SC: United States: Columbia MSA Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family, 12-Month Mov. Avg.: 2,343 Multi-Family, 12-Month Mov. Avg.: 55 Single-Family: 2, Month Annual Rate: 2.9% -1 Year-over-Year Percent Change: 2.1% Household: Yr/Yr Percent Change: -.3% Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC

13 Spartanburg, S.C. MSA Employment Growth & Unemployment Rate Spartanburg, S.C. MSA Home Prices & Construction Greenville, S.C. MSA Employment Growth & Unemployment Rate After a fairly decent period for employment, the Spartanburg job market is sputtering again. Home prices in Spartanburg continue to struggle, though prices are still down only modestly from their peak relative to national home prices. Construction activity is still languishing. Greenville s labor market continues to improve, driven primarily by gains in professional and business services. The unemployment remains slightly higher than the national average. Employment Unemployment Rate Home Prices Housing Permits Employment Unemployment Rate Spartanburg MSA Nonfarm Employment Spartanburg MSA Unemployment Rate CoreLogic Home Price Index: Spartanburg, SC Spartanburg MSA Housing Permits Greenville Nonfarm Private Employment Greenville MSA Unemployment Rate 3-Month Moving Averages Seasonally Adjusted Index, =1, Not Seasonally Adjusted Thousands of Permits, Seasonally Adjusted Annual Rate 3-Month Moving Averages Seasonally Adjusted 15% 15% % 9% 1 1 Unemployment Rate: 11. Spartanburg, SC: 18.6 Single-Family: 684 Unemployment Rate: Month Moving Average: United States: Single-Family, 12-Month Mov. Avg.: 492 Multi-Family, 12-Month Mov. Avg.: Month Moving Average: 8.9% 5% -5% 5% -5% % - -9% 3% -3% -3% - -9% - 3-Month Annual Rate: -5. Year-over-Year Percent Change: Household: Yr/Yr Percent Change: Month Annual Rate: 2.9% Year-over-Year Percent Change: 1. Household: Yr/Yr Percent Change: -1-15% -15%.. -15% -15% Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC

14 Greenville, S.C. MSA Home Prices & Construction Summary of Near-Term Outlook Wells Fargo Securities, LLC Group a Home prices in Greenville have held up reasonably well. New home construction activity, however, remains quite weak. CoreLogic Home Price Index: Greenville, SC Index, =1, Not Seasonally Adjusted Greenville, SC: United States: 139. Home Prices Housing Permits Greenville MSA Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 1,752 Single-Family, 12-Month Mov. Avg.: 1,582 Multi-Family, 12-Month Mov. Avg.: Insert slide calloutsummary Growth Interest Rates U.S. economic growth is weak at The Federal Reserve recently present, but we expect the said that it will keep rates at very recovery to continue. However, low levels at least through midcontinued de-leveraging may 213. constrain growth in consumer Central banks in most advanced spending somewhat. economies appear to be on hold Growth remains positive in most for the foreseeable future. Rate foreign countries as well. The hikes in the developing world global expansion should remain have probably come to an end, intact, but there are some at least for now. significant downside risks. Financial Markets Commodity prices have retreated with the slowdown in global growth. Assuming that the global expansion remains intact, commodity prices should gradually trend higher again. Global Head of Research and : Diane Schumaker-Krieg Chief Economist: John Silvia 31 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.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 Joe Seydl, Economic Analyst joseph.seydl@wellsfargo.com Sarah Watt, Economic Analyst sarah.watt@wellsfargo.com Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.com Executive Assistants Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC We project that the dollar will be broadly stable versus most major currencies through the end of 211. Assuming that the global expansion remains intact, the greenback likely will trend lower versus thecurrencies of most developing countries. Peg Gavin (Charlotte), Executive Assistant peg.gavin@wellsfargo.com Carol Nightengale (Minneapolis), Executive Assistant carol.nightengale@wellsfargo.com Wells Fargo Securities 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 211 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE