Christopher Thornberg Founding Principal, Beacon Economics

Transcription

1 Christopher Thornberg Founding Principal, Beacon Economics

2 US P/E Ratio US Economy Overvalued by $20 Trillion 1947Q1 1949Q3 1952Q1 1954Q3 1957Q1 1959Q3 1962Q1 1964Q3 1967Q1 1969Q3 1972Q1 1974Q3 1977Q1 1979Q3 1982Q1 1984Q3 1987Q1 1989Q3 1992Q1 1994Q3 1997Q1 1999Q3 2002Q1 2004Q3 2007Q1 2009Q3 95 to to to 11 Total Assets Real Estate Financial Assets Liabilities Mortgages Other Consumer Credit Source: Federal Reserve Board, Bureau of Economic Analysis

3 1.1 Residential Completion / Change Adult (25 to 74) Population Ratio 71% 70% Share of GDP to Q4 07 0% -1% % -2% % -3% % -4% % -5% % -6% % -7% I 1988-IV 1990-III 1992-II 1994-I 1995-IV 1997-III 1999-II 2001-I 2002-IV 2004-III 2006-II 2008-I Consumer Spending Trade Deficit Source: Bureau of Economic Analysis, Federal Reserve Board

4 Gross Private Debt as % US GDP 1951Q4 1956Q3 1961Q2 1966Q1 1970Q4 1975Q3 1980Q2 1985Q1 1989Q4 1994Q3 1999Q2 2004Q1 2008Q4 Debt by Source % of GDP Increase 1951Q4 1996Q1 2009Q1 96 to 09 Financial 2.7% 56.6% 121.2% $12,697,508 Mortgage 14.9% 44.3% 74.7% $7,109,661 Corporate 22.6% 39.2% 50.7% $4,134,662 Non-Corporate 7.2% 15.9% 28.8% $2,824,295 Other Consumer 7.3% 15.7% 18.3% $1,372,518 Foreign 4.2% 7.6% 12.5% $1,167,257 Source: Bureau of Economic Analysis, Federal Reserve Board

5 1-2 Punch of Credit Crisis and Consumer Retrenchment GDP Growth 140, , ,000 Non-Farm Payrolls % SAAR , , , , Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q , ,000 Jan-02 Nov-02 Sep-03 Jul-04 May-05 Mar-06 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Source: Bureau of Economic Analysis

6 15,500 State Non-Farm Payrolls Peak to Trough Job Losses California -9.0% 15,000 14,500 14,000 13,500 13,000 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Inland Empire -13.6% Sonoma -12.3% Sacramento -12.3% Orange County -11.9% East Bay -10.6% San Luis Obispo -9.9% Ventura MSA -9.1% Los Angeles -9.1% San Jose -8.7% Bakersfield -8.3% Santa Barbara -8.0% San Diego -7.8% San Francisco -7.5% Source: California Employment Development Department

7 Real GDP by Region US California Texas Nominal Growth (rank) Biggest 100 Biggest 40 CA Bakersfield NV Las Vegas NV Las Vegas TX Houston LA Baton Rouge FL Orlando IA Des Moines AZ Phoenix NC Durham CA Sacramento TX Houston OR Portland FL Orlando CA Riverside AK Anchorage FL Tampa AZ Phoenix TX Austin CA Sacramento TX San Antonio OR Portland CA San Diego FL North Port DC Washington FL Jacksonville FL Miami FL Cape Coral VA Virginia Beach SC Charleston NC Charlotte CA Riverside TX Dallas HI Honolulu CA Los Angeles CA Oxnard WA Seattle ID Boise City TN Nashville CA Stockton CT Hartford

8 Don t Confuse the Trends and the Bends Housing Greater price increase / decrease Subprime central Exports Goods / tourism / licenses Business Spending The IT industry Source: Bureau Economic Analysis

9 9.3% 9.1% 8.9% 8.7% 8.5% 8.3% 8.1% 7.9% 7.7% 7.5% State Local Gov as % State GDP California Texas Balance US % 16.0% 15.5% 15.0% 14.5% 14.0% 13.5% 13.0% State Local Employment Share Total Payrolls California Texas Balance US

10 09-10 Past Avg Diff GDP Growth Personal consumption Durable goods Nondurable goods Services Domestic investment Fixed investment Structures Equipment software Residential Change in inventories Net exports Exports Imports Government Federal State and local Real GDP Post Trough T-5 T-4 T-3 T-2 T-1 T T+1 T+2 T+3 T+4 T+5 T+6 T+7 T II 1981-III 1975-I Source: Bureau of Economic Analysis 10

11 20,000 19,000 Vacant Units (Thousands) 8 7 SI Adjusted Gross Savings Rate 18,000 17,000 16,000 15,000 14,000 % of Total Adjusted Income Wealth Trough 13,000 12,000 Q1-01 Q2-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q Wealth Peak Jan-92 Sep-93 May-95 Jan-97 Sep-98 May-00 Jan-02 Sep-03 May-05 Jan-07 Sep-08 May-10 Source: U.S. Census Bureau, Bureau of Economic Analysis 11

12 Employment Ratio The Spending Gap As % Potential GDP 2011 Q1 Consumers -0.1% Percent Jan-75 Feb-78 Mar-81 Apr-84 May-87 Jun-90 Jul-93 Aug-96 Sep-99 Oct-02 Nov-05 Nov-08 Structures -0.6% Equipment Software -1.6% Residential -2.1% Exports 1.0% Imports 3.6% National Defense 0.8% Federal Government 0.4% State and Local -0.1% Source: Bureau of Economic Analysis 12

13 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0% US Trade Deficit as % GDP 8% 7% 6% 5% 4% 3% 2% 1% 0% -1% Net Business Investment as % GDP to Q I 1993-III 1995-I 1996-III 1998-I 1999-III 2001-I 2002-III 2004-I 2005-III 2007-I 2008-III 2010-I 1960-I 1964-I 1968-I 1972-I 1976-I 1980-I 1984-I 1988-I 1992-I 1996-I 2000-I 2004-I 2008-I

14 Trillions ($) Jan-06 World Equity Market Capitalization Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan Risk Spreads to May Jan-99 Feb-00 Mar-01 Apr-02 May-03 Jun-04 Jul-05 Aug-06 Sep-07 Oct-08 Nov-09 Nov-10 BAA-AAA Ted Spread Source: World Federation of Exchanges, Federal Reserve Board, British Bankers Association; Converted by Moody s Analytics

15 New Issuance High Yield Debt 6.0% 5.0% 4.0% 3.0% 2.0% Cap Rate Spreads $5 Million + deals % 0.0% 2003Q1 2003Q4 2004Q3 2005Q2 2006Q1 2006Q4 2007Q3 2008Q2 2009Q1 2009Q4 2010Q3 Office Retail

16 Production to April Manufacturing Orders to April , , Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 Production (Index) Utilization (%) Millions ($) 240, , , , , ,000 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Durable Goods Non Durable Goods Source: Federal Reserve Board, U.S. Census Bureau 16

17 Change from Q1 10 Q1 11 Abs % Canada % Mexico % China % Japan % United Kingdom % Germany % Korea, South % Netherlands % Brazil % Hong Kong % Belgium % France % Singapore % Taiwan % Australia % Jan-81 U.S. Real Exchange Rate Indexes to May Jun-83 Nov-85 Apr-88 Sep-90 Feb-93 Major Jul-95 Nov-97 Apr-00 OITP Sep-02 Feb-05 Jul-07 Nov-09 Source: Federal Reserve Board 17

18 Exports by State Description ($ Millions) Growth (%) 12 Billions ($) Total All Industries 120, , Computer And Electronic Products 35,186 43, Electrical Equipment, Appliances, And Component 3,412 3, Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Prepackaged Software California Virgina New York Carolinas Source: WiserTrade

19 10 Y-o-Y Personal Income Growth to April (Nominal) Change in Total Payrolls 8 6 Disposable Percent Total Jan-06 Jun-06 Nov-06 Apr-07 Sep-07 Feb-08 Jul-08 Dec-08 May-09 Oct-09 Mar-10 Aug-10 Jan Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Source: Bureau of Economic Analysis, Bureau of Labor Statistics 19

20 Industry May-11 May-10 Total Nonfarm Information Prof Sci Tech Accommodation Health Care Admin Support Education Wholesale Trade Arts Entertainment Logistics Durable Manu State Gov Retail Trade Construction Non-Durable Manu Natural Resources Finance Real Estate Management Other Services Local Gov Federal Gov

21 3.5 Bank Charge Offs (%) 500 Financial Profits to Q Q1 1987Q2 1989Q3 1991Q4 1994Q1 1996Q2 1998Q3 2000Q4 2003Q1 2005Q2 2007Q3 2009Q4-100 Q1-03 Q4-03 Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Source: Federal Reserve Board, Bureau of Economic Analysis

22 C&I Loans Real Estate Loans (All) Consumer and Other Loans /4/2006 1/4/2007 1/4/2008 1/4/2009 1/4/2010 1/4/ /4/2006 1/4/2007 1/4/2008 1/4/2009 1/4/2010 1/4/ /4/2006 1/4/2007 1/4/2008 1/4/2009 1/4/2010 1/4/2011 Source: Federal Deposit Insurance Corporation

23 Gross Loans and Leases California to Q1-11 California Total Charge-Offs to Q Comm RE (Billions $) C & I (Billions $) Millions ($) Q1-03 Q4-03 Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Q1-04 Q4-04 Q3-05 Q2-06 Q1-07 Q4-07 Q3-08 Q2-09 Q1-10 Q4-10 C&I Loans Commercial Real Estate C & I Loans Secured by Nonfarm Nonres RE Source: Federal Deposit Insurance Corporation

24 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% May-02 Y-o-Y Increase in Real Consumer Spending Mar-03 Jan-04 Nov-04 Sep-05 Jul-06 May-07 Mar-08 Jan-09 Nov-09 Sep-10 $2,650 $2,600 $2,550 $2,500 $2,450 $2,400 $2,350 $2,300 $2,250 $2,200 $2,150 Consumer Credit to March Jan-06 Aug-06 Mar-07 Oct-07 May-08 Dec-08 Jul-09 Feb-10 Sep-10

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26 State Taxable Sales Q1-01 Q4-01 Q3-02 Q2-03 Q1-04 Q4-04 Q3-05 Q2-06 Q1-07 Q4-07 Q3-08 Q2-09 Q1-10 Q4-10

27 Residential Permits Case-Shiller 20 City Composite to March -32% -4% Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 1-Unit Authorized Building Permits, (SAAR, Ths.) Multi-Family Permits, (Ths., SAAR) Jan-00 Dec-00 Nov-01 Oct-02 Sep-03 Aug-04 Jul-05 Jun-06 May-07 Apr-08 Mar-09 Feb-10 Jan-11 Source: U.S. Census Bureau, S&P 500 s Case-Shiller 27

28 600 State Median Prices to April 500 Thousands ($) Jan-01 Aug-01 Mar-02 Oct-02 May-03 Dec-03 Jul-04 Feb-05 Sep-05 Apr-06 Nov-06 Jun-07 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Source: DataQuick, S&P 500 s Case-Shiller

29 38.0% 36.0% 34.0% 32.0% 30.0% 28.0% 26.0% 24.0% 22.0% 20.0% Affordability (100% Mortgage) to September Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan % 120% 110% 100% 90% 80% 70% 60% 50% 40% National Home Equity 1955Q1 1960Q2 1965Q3 1970Q4 1976Q1 1981Q2 1986Q3 1991Q4 1997Q1 2002Q2 2007Q3 Equity % GDP Percent Equity 90% 80% 70% 60% 50% 40% 30% 29

30 3,000,000 MBA Data State Housing 2,500, ,000, ,500,000 1,000, , Q1-00 Q1-01 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q1-11 Q1-02 Q1-03 Q1-04 Q1-05 Q1-06 Q1-07 Q1-08 Q1-09 Q1-10 Q Days Delinquent Stock Foreclosure Inventory Stock Defauls Foreclosures 30

31 Total 60+ Days Delinquent (%) Total Foreclosure Inventory (%) State Q1-09 Q1-10 Q1-11 State Q1-09 Q1-10 Q1-11 Florida Florida Nevada Nevada New Jersey New Jersey Illinois Illinois Maine Maine New York New York Ohio Ohio Indiana Indiana Arizona Arizona Hawaii Hawaii Rhode Island Rhode Island Connecticut Connecticut Delaware Delaware South Carolina South Carolina California California Louisiana Louisiana Kentucky Kentucky Michigan Michigan Wisconsin Wisconsin New Mexico New Mexico

32 Residential Completion / Change Adult (25 to 74) Population Ratio Roughly.7 New Homes Per New Adult Dec Dec Dec Dec Dec Dec Dec Total 3,300 Dec Dec Dec Dec Total -1, Remainder 1,443

33 Census 2000 Census 2010 Census 2000 Census 2010 Nevada New Jersey Florida Virginia Michigan Washington Georgia Alabama Rhode Island Arkansas Arizona Connecticut South Carolina Iowa Ohio Nebraska Wisconsin Louisiana Tennessee Kansas Indiana Kentucky Delaware Maryland Minnesota New York Illinois Utah Mississippi Texas Massachusetts Oregon Colorado South Dakota New Hampshire Oklahoma North Carolina Pennsylvania Maine Alaska Missouri West Virginia California North Dakota Idaho Hawaii Vermont Wyoming Montana New Mexico

34 California Building Permits Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 SF MF MF SF Los Angeles San Diego Riverside Orange County Santa Clara Contra Costa Alameda San Bernardino Sacramento San Francisco Placer Sonoma Santa Barbara Ventura

35 Home Price / Per Capita Income Hawaii California Oregon New York Washington New Jersey Massachusetts Rhode Island Montana Maryland Vermont Colorado Connecticut Delaware Utah Idaho Maine Median Prices San Jose-Sunnyvale-Santa Clara San Francisco-Oakland-Fremont Anaheim-Santa Ana-Irvine San Diego-Carlsbad-San Marcos Los Angeles-Long Beach-Santa Ana Austin-Round Rock Riverside-San Bernardino-Ontario Sacramento--Arden-Arcade--Roseville Houston-Baytown-Sugar Land San Antonio Dallas-Fort Worth-Arlington Corpus Christi El Paso Beaumont-Port Arthur Amarillo Abilene 112.8

36 70 ISM Surveys to May Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Manufacturing Services Source: U.S. Census Bureau, Institute for Supply Management 36

37 2010-IV 2011-I Avg. Gross domestic product Personal consumption Durable goods Nondurable goods Services Gross investment Structures Equipment software Residential Change inventories Net Exports Exports Imports Government National defense Nondefense State and local ,500 13,400 13,300 13,200 13,100 13,000 12,900 12,800 12,700 Real GDP Back to Peak Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q

38 450 Nonres Construction Put in Place to April By Sector: A Weather Thing? 400 Q4 Q1 Ch Ch Total Non Res % Infrastrcture % Health % Manufacturing % Lodging % Other % Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 Education % -770 Office % -678 Commercial %

39 % 27.0% 29.0% 31.0% 33.0% 35.0% 37.0% 39.0% 41.0% 43.0% 4.0% 4.5% 5.0% 5.5% 6.0% 6.5% 7.0% 7.5% 8.0% 8.5% 9.0% 1998Q1 1999Q2 2000Q3 2001Q4 2003Q1 2004Q2 2005Q3 2006Q4 2008Q1 2009Q2 2010Q3 Apartment Hotel 5.0% 7.0% 9.0% 11.0% 13.0% 15.0% 17.0% 19.0% 21.0% 1998Q1 1999Q1 2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 Office Retail Warehouse

40 Vehicle Sales 235, ,000 Retail Sales x Auto, Food, Gasoline to April , , , , ,000 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 ($ Mil., SA) Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 40

41 10% Energy Spending as Share Total 9% 8% 7% 6% 5% 4% 3% Real Price West Texas Crude Oil ($Current) Source: Bureau of Economic Analysis 41

42 Price: West Texas Crude to June 6 Gas and Oil Prices through 08 Price Spike $120 $110 $4.50 $4.00 Gasoline $160 $140 $100 $3.50 $120 $90 $80 $3.00 $2.50 Crude $100 $80 $70 $2.00 $60 $60 $1.50 $40 1-Sep-10 1-Oct-10 1-Nov-10 1-Dec-10 1-Jan-11 1-Feb-11 1-Mar-11 1-Apr-11 1-May-11 1-Jun-11 5Mar08 5Apr08 5May08 5Jun08 5Jul08 5Aug08 5Sep08 5Oct08 5Nov08 42

43 130 Indonesia Production Dec 26, 2004 Tsunami 96 Japan Industrial Production Kobe Earthquake Jan Jan 1994 Mar 1994 May 1994 Jul 1994 Sep 1994 Nov 1994 Jan 1995 Mar 1995 May 1995 Jul 1995 Sep 1995 Nov

44 25 20 Public Spending as % of GDP Growth in State and Local Government Receipts to Q (%) 10 Percent (%) Q1-05 Q3-05 Q1-06 Q3-06 Q1-07 Q3-07 Q1-08 Q3-08 Q1-09 Q3-09 Q1-10 Q3-10 Q1-11 Federal State and local -10 Q1-03 Q4-03 Q3-04 Q2-05 Q1-06 Q4-06 Q3-07 Q2-08 Q1-09 Q4-09 Q3-10 Source: Bureau of Economic Analysis 44

45 Cash eases pressure on California budget, lawmakers California is experiencing a surge in tax collections that is taking some of the pressure off the state's broken budget -- and off of lawmakers to fix it Democratic Gov. Jerry Brown this week announced a surprise $6.6-billion surge in collections. Revenues Up In Some States But Don't Pop Champagne Corks Yet Frank James - May 18, 2011 So the spate of good budget news is definitely worth noting. This week word came that tax revenues were significantly higher than expected in several large states California, Michigan and New Jersey. New York earlier forecast it would take in $2 billion more I IV Current receipts Current tax receipts Y-o-Y 2011 Grow -I th Personal current taxes % Income taxes % Other % Taxes on production % Sales taxes % Property taxes % Other % Taxes on corporate income Current transfer receipts % Federal grants-in-aid % 45

46 Outstanding Debt to Current Revenue Ratio to Q4 State & Local Major Revenue Sources to Q3 400% % 300% % % % % 1980Q1 1982Q2 1984Q3 1986Q4 1989Q1 1991Q2 1993Q3 1995Q4 1998Q1 2000Q2 2002Q3 2004Q4 2007Q1 2009Q I 2000-IV 2001-III 2002-II 2003-I 2003-IV 2004-III 2005-II 2006-I 2006-IV 2007-III 2008-II 2009-I 2009-IV 2010-III State and Local Federal Own Taxes Fed Grants 46

47 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% Not quite out of the woods. 0.0% -1.0% -2.0% 2009Q1 2009Q3 2010Q1 2010Q3 2011Q1 2011Q3 2012Q1 2012Q3 2013Q1 2013Q3

48 Consumption as % of Income Consumer Spending STILL unsustainably high 22.0% 21.0% 20.0% 19.0% Personal and SI Taxes as % Total PI w/ Forecast % % % Q1-90 Q3-91 Q1-93 Q3-94 Q1-96 Q3-97 Q1-99 Q3-00 Q1-02 Q3-03 Q1-05 Q3-06 Q1-08 Q3-09 Q :1 2003:1 2004:1 2005:1 2006:1 2007:1 2008:1 2009:1 2010:1 2011:1 2012:1 2013:1 2014:1 2015:1 Source: Bureau of Economic Analysis, Forecasts by Beacon Economics 48

49 Fiscal Deficit 29.0% 27.0% 25.0% 23.0% 21.0% 19.0% 17.0% 15.0% 1992-I 1993-II 1994-III 1995-IV 1997-I 1998-II 1999-III 2000-IV 2002-I 2003-II 2004-III 2005-IV 2007-I 2008-II 2009-III 2010-IV GDP $Billion Greece Ireland Portugal Spain 1,375.0 US Federal Borrowing -1,504.1 Total receipts Total expenditures Net lending 49

50 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% -6.0% -8.0% 3 Month Inflation (SAAR) to April 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% M2 Growth (Y-o-Y to April) -10.0% Jan-04 Sep-04 May-05 Jan-06 Sep-06 Total May-07 Jan-08 Core Sep-08 May-09 Jan-10 Sep % Jan-88 Nov-89 Sep-91 Jul-93 May-95 Mar-97 Jan-99 Nov-00 Sep-02 Jul-04 May-06 Mar-08 Jan-10 50

51 Billions ($) Monetary Base (Net = Base - Excess Reserves) 2,500 2,300 2,100 1,900 1,700 1,500 1,300 1, Jan-01 Jan-02 Jan-03 Jan-04 Gross Jan-05 Jan-06 Jan-07 Net Jan-08 Jan-09 Jan-10 Jan Implied Monetary Velocity 1992Q1 1993Q2 1994Q3 1995Q4 1997Q1 1998Q2 1999Q3 2000Q4 2002Q1 2003Q2 2004Q3 2005Q4 2007Q1 2008Q2 2009Q3 2010Q4 51

52 Industry May-11 Change From Dec-07 Total Nonfarm 131,043-6,940 Manufacturing 11,694-2,046 Construction 5,529-1,958 Retail Trade 14,528-1,053 Admin and Waste 7, Wholesale Trade 5, Finance and Insurance 5, Information 2, Leisure/Hospitality 13, Transport/Utilities 4, Government 22, Real Estate 1, Prof/Sci/Tech 7, Other Services 5, Educational Services 3, Health Care 16,730 1,153 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 JOLTs Data to April Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Hires Openings Separations Source: Bureau of Labor Statistics

53 The Recovery is Underway and Things will be good for the next two years Rising exports, business investment and normal consumer spending growth to drive show Problems in housing / construction will stay in place Local, National Public finances also a drag There are future worries Consumer s have more retrenching to go The Federal Deficit is Scary QE2 could be driving another financial bubble Have to unwind QE1 and QE2 before inflation kicks in Will we have the political will to deal with these issues before they lead to another crisis?

54 No, the state is not imploding The current problems are cyclical, not structural The state is poised to feel strong gains from the current growth It s a big hole to dig out of recovery will take time Housing market in recovery, but lagging other areas due to higher vacancies, slower price recovery Does this mean we don t need reform? Pension reform, regulatory issues and the tax structure do matter Housing may be just as important

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