WAFD October 21, 2008

Transcription

1 Presented to Western Association of Fastener Distributors A. GARY ANDERSON CENTER FOR ECONOMIC RESEARCH CHAPMAN UNIVERSITY Federal Reserve Monetary Policy Objectives Economic Growth Low Unemployment Rate/High Level Of Employment Price Stability Real GDP Annual % Change ' '1 '2 '3 ' '5 '6 1

2 Consumer Price Index Yr/Yr % Change ALL ITEMS 1 2. LESS FOOD & ENERGY 2: 3:2 3: :2 : 5:2 5: 6:2 6: 2.7 Federal Funds Rate Percent BP :2 : 5:2 5: 6:2 6: Private U.S. Housing Starts Millions 2.27 JAN AUG. 8.8 ' '1 '2 '3 ' '5 '6 '7 '8 2

3 Real Private Construction Spending Yr/Yr % Change 3 2 RESIDENTIAL NONRESIDENTIAL ' '1 '2 '3 ' '5 '6 '7 '8 ' Change in Real Expenditures for Exports and Private Construction Billions of $ Private Construction Exports '6-7 '7-8f '8-'9f Real Personal Consumption Expenditures Qtr/Qtr % Change :3 8:1 83:3 87:1 9:3 9:1 97:3 1:1 :3 8:1 3

4 Negative Effects on Consumer Spending Home Equity Cashed Out Oil Price Hikes Drop in Housing Prices Weak Job Growth / Higher Unemployment Rate U.S. Unemployment Rate Percent Sept. '2 Sept. '3 Sept. ' Sept. '5 Sept. '6 Sept. '7 Sept. '8 Negative Effects on Consumer Spending Home Equity Cashed Out Oil Price Hikes Drop in Housing Prices Weak Job Growth / Higher Unemployment Rate Household Debt Services

5 Household Debt Services Ratio % :2 88:2 93:2 98:2 3:2 8:2 DSR is the ratio of debt payments (mortgage & consumer debt) to disposable income Real GDP Qtr/Qtr % Change :1 7:2 7:3 7: 8:1 8:2 8:3 8: 9:1 9:2 9:3 9: Percentage Change in Payroll Employment August 27 August 28 WA MT OR ID WY NV CA UT CO AZ NM -.1% or below.% to.9% 1.% to 1.9% 2.% to 2.9% TX 5

6 Unemployment Rates August 28 WA MT OR ID WY CA NV UT CO AZ NM 6.% or higher 5.% to 5.9%.% to.9% 3.% to 3.9% TX The Fed and The Treasury Are Pulling Out All the Stops Fiscal policy moved quickly with $16 billion stimulus package. Played White Knight with a $3 billion loan to J.P. Morgan to acquire Bear Stearns. Supplied $ billion in liquidity to financial firms in need of capital to shore up their shaky asset positions. The Fed and The Treasury Are Pulling Out All the Stops Treasury Department took Fannie & Freddie into conservatorship, pledging $2 billion in additional capital. Bailed out AIG with $85 billion loan (LIBOR + 8.5%) for 2 years and government takes 79.9% stake in the company. Reduced the federal funds rate from 5.25 percent last September to 1.5 percent. 6

7 The Fed and The Treasury Are Pulling Out All the Stops $7 billion to buy mortgages and other assets known as Troubled Asset Relief Program, or TARP. The Fed started buying top-tier Commercial Paper. A. GARY ANDERSON CENTER FOR ECONOMIC RESEARCH CHAPMAN UNIVERSITY Home Prices Index San Diego Orange County Phoenix Las Vegas Salt Lake City Albuquerque :2 98:2 :2 2:2 :2 6:2 8:2 Source: OFHEO 7

8 Change in Civilian Employment & Housing Supply Employment Permits Employment / Permits Long-term Ratio K 1212K NV CA 256K 279K 9.9 AZ 59K CO K 329K.9 TX 336K 359K NY K 185K IL OH 35K 16K..2 58K 1. GA 696K 197K.7 125K.9 FL 121K 17K Factors Affecting Housing Prices 28-9 Outlook Impact Job Creation Unemployment Rate Housing Affordability Unsold Housing Inventory Negative to weak growth Remains high Improving but * Housing affordability is computed based on home prices, mortgage rates, and median family income. Percent of Median Family Income Needed for Mortgage Payment on Median-Priced Home Percent AVERAGE: '86 '88 '9 '92 '9 '96 '98 ' '2 ' '6 '8 8

9 Factors Affecting Housing Prices 28-9 Outlook Impact Job Creation Unemployment Rate Housing Affordability Unsold Housing Inventory Negative to weak growth Remains high Improving but Remains high * Housing affordability is computed based on home prices, mortgage rates, and median family income. Unsold Single-Family Housing Units Thousands of Units, 3,2 36 2, 2 1,6 8 '87 '9 '93 '96 17 '99 '2 '5 '8 Interest Only Loans 26 Nevada California Arizona Dis of Columbia Washington Virginia Hawaii Florida National Percent Source: First American Loan Performance

10 Option ARMs Loans 26 California Nevada Florida Hawaii Arizona Washington National Dis. Of Columbia Virginia Percent Source: First American Loan Performance Factors Affecting Housing Prices 28-9 Outlook Impact Job Creation Unemployment Rate Housing Affordability Unsold Housing Inventory Negative to weak growth Remains high Improving but Remains high * Housing affordability is computed based on home prices, mortgage rates, and median family income. Housing Prices Resale Single Units Yr/Yr % Change :1 6:1 7:1 8:1 9:1 1

11 Senator McCain Domestic Economic Policy JOB CREATION HEALTH CARE SOCIAL SECURITY ENERGY BUDGET CONTROL Extend tax cuts Double exemptions for dependents Lower corporate tax rate Lower healthcare costs Give families $5, tax credit for coverage Tort reform Supplementing the system with personal account Expand drilling Nuclear power / clean coal Stronger economy Closing tax loopholes Spending restraint Senator Obama Domestic Economic Policy JOB CREATION HEALTH CARE SOCIAL SECURITY ENERGY BUDGET CONTROL Additional stimulus package of $ to $5 billion Infrastructure reinvestment bank $6 billion over 1 years $65 billion to cover uninsured Increasing cap on payroll taxes Expand drilling Spend $15 billion to develop alternative energy sources Stronger economy Higher marginal taxes, capital gains and dividend taxes 11