U.S. Regional Watch. 1Q09 Webcast Presentation. March 26 th, BBVA Economic Research Department, March

Transcription

1 U.S. Regional Watch 1Q9 Webcast Presentation March th, 9 BBVA Economic Research Department, March 9 1

2 1 Global recession A DEEP CRISIS Private sector is more indebted in developed countries Wealth destruction will be larger A MORE INTEGRATED WORLD Global financial crisis A SIZABLE HETEROGEINITY Emerging vs. developed countries US vs. Europe A FASTER POLICY REACTION Room for maneuver depending on revealed preferences Crises are not new, but this time around it is very different BBVA Economic Research Department, March 9

3 1 Global recession 9% 8% 7% % % % 3% % 1% % 19 Number of countries in recession in the same year (as a % of total countries) WW I 191 Source: BBVA ERD Great Depression WWII First oil crisis Second oil crisis 198 Financial crisis 199 S&L 9% 8% 7% % % % 3% % 1% % The global character of the current crisis is reflected in the large number of countries that have been simultaneously affected. Never since the Great Depression have so many countries been contracting at the same time. BBVA Economic Research Department, March 9 3

4 1 Global recession United States: private credit (% over GDP) Private agents indebtedness doubled over the past decades in developed countries, favored by low interest rates, lax credit standards and overall credit availability. 1 8 At present, its level is unprecedented, and thus far larger than in previous crises Recessions in shaded areas BBVA Economic Research Department, March 9

5 Short-term indicators point to a sharp deterioration of economic activity 1 US Surprise Activity Index (-8 = 1) Economic Indicators 1-month % change unless specified Last 3-months ago 1-months ago 13 Industrial Production Capital Goods Orders Unemployment Rate (%) Non-farm Payroll Auto Sales PCE Consumer Confidence (Index) Residential Construction Home Prices CPI Inflation Source: BBVA ERD Core CPI Inflation Inflation Expectations BBVA Economic Research Department, March 9

6 Consumer spending and non-residential investment are the main drivers behind the ongoing recession 7 Total Personal Consumption Expenditures (1-month % change) 1 1 ISM manufacturing & Non-defense capital goods orders excluding aircraft (1-month % change) ISM Durables Orders Source: BEA Source: BEA & ISM 3 BBVA Economic Research Department, March 9

7 The housing market could take some time before stabilizing, while net exports are likely to subtract to GDP growth 3 1 New home sales & Inventories month supply (1-month % change & months) Sales Trade balance of goods (1-month % change) Real exports Month Supply -1-1 Real imports Source: Census Bureau Source: Census Bureau -1 BBVA Economic Research Department, March 9 7

8 As in the US, the economy of the Sunbelt region is experiencing a recession BBVA State Monthly Activity Indexes (3-month moving average) BBVA State Monthly Activity Indexes (3-month moving average) 3 3 Florida New Mexico Alabama Texas Colorado - -3 Arizona Source: BBVA ERD Source: BBVA ERD BBVA Economic Research Department, March 9 8

9 Risks continue tilting to the downside with further weakness in the hightech industry and foreign sales 7 Industrial production (1-month % change) 3 Exports of goods (1-month % change) Semiconductors 1 Sunbelt High-Tech - -1 US Source: Federal Reserve Source:Wisertrade BBVA Economic Research Department, March 9 9

10 In addition, durable goods consumption is likely to remain weak over the next two years Total auto & light truck sales (Actual vs. fitted, million units) State estimates for auto & light truck sales (Thousand units) Baseline Downside Baseline Downside AL AZ Actual CO FL NM TX Fitted Sunbelt CA Total 1,9 1,99 3, 1, 89,1,111 1, 3,333 1,7 1,1, Source: BBVA ERD Source: BBVA ERD & BEA BBVA Economic Research Department, March 9 1

11 Moreover, prospects for commercial real estate continue to deteriorate Commercial real estate index & returns (1-month % change) % Commercial real estate vacancy rate Returns % 18% 1% Miami - 1% - Index 1% Houston % 7 8 Source: NAR & NCREIF Source: Cushman & Wakefield BBVA Economic Research Department, March 9 11

12 The Fed has responded aggressively, rapidly and pro-actively to boost economic recovery 1. Mitigating the impact of the financial shock on economic activity Interest rates cut to -.% Communication strategy Term Auction facility. Providing liquidity to financial institutions and reducing systemic risks Term Securities Lending Facility Swap lines with other countries Primary Dealer Credit Facility Commercial Paper Funding Facility 3. Restoring credit and stability in financial markets Asset purchases: MBS, Agencies and Treasury Money Market Investor Funding Facility Term Asset-Backed Securities Loan Facility BBVA Economic Research Department, March 9 1

13 The expansion of Fed s balance sheet has been financed by a huge increase in commercial banks reserves Fed Assets (M$) 1 Fed Liabilities (M$) 8 Treasuries 9 Reserves 8 8 Agencies + MBS 3/1/8 7 8 TAF, Repos + Other 3/11/ Commercial Paper + ML + Swaps 3 Currency in circulation 7 Other Source: Federal Reserve Source: Federal Reserve 7 BBVA Economic Research Department, March 9 13

14 The government is taking four major actions to restore confidence in financial markets: 1 Avoid foreclosures Assisting households to pay their mortgages Stress testing Testing the response of financial instructions to an adverse economic and financial situation 3 Capital injections Strengthening capital ratios of troubled institutions Public-private investment funds to eliminate legacy assets Purchasing toxic assets and loans along with the private sector BBVA Economic Research Department, March 9 1

15 In addition, the government proposed a $787bn stimulus package, including tax cuts and investments equivalent to.% of GDP (8); 7% will be depleted by the end of Fiscal stimulus package ($bn) Fiscal multipliers (bp) BBVA Median* Taxes States Infr. enrgy & science Source: OMB & BBVA ERD Social Assistance Health and Education Other Total. Investment Tax Cuts Source: BBVA ERD * Bryant (1998), Romer (8), Blanchard and Perotti (), Elmendorf & Reisfschneider (), Coronado (), Johnson (), Broda & Parker (), Moodys (8 & 9), Ramey (8) BBVA Economic Research Department, March 9 1

16 The fiscal stimulus package will help to save/create jobs, while boosting economic growth Estimated job creation from the stimulus package (Thousands) Taxes. Estimated fiscal stimulus package contribution to GDP growth (pp) State Relief. Social Assistance 1. Education Health Direct Indirect 1. Infrastructure. Energy Source: BBVA ERD / Treasury Source: BBVA ERD 9 1 BBVA Economic Research Department, March 9 1

17 State Fiscal Balance (FY 9 % of General Fund) Arizona Alabama Florida Colorado New Mexico Source: Center on Budget and Policy Priorities Texas The Sunbelt could receive around $bn, approximately 1.% of GDP States will also benefit from federal programs The impact on employment could be around 7 thousand saved/new jobs Estimated Impact of the American Recovery and Reinvestment Act of 9 AL AZ CO FL NM TX Sunbelt Key provisions, $bn % share of US total % of State GDP Includes: Temporary Increase in State FMAP, State Fiscal Stabilization Fund, Education Unemployment Insurance, Child Care Child Support, Training and Employment Services, Food Stamp (or Supp. Nutrition Assist.) Program, Emergency Shelter Grant Program, Child Tax Credit Source: BBVA ERD with data from CLASP, CBPP, GAO, NELP & Tax Policy Center BBVA Economic Research Department, March 9 17

18 State rankings according to GDP response to: (1 largest, lowest) AL AZ CO FL NM TX Higher US GDP 1 3 Lower interest rates 3 1 Lower oil prices 3 1 Weaker exchange rate 1 3 Higher public spending 1 3 In a strong US recovery Arizona and Alabama are likely to benefit the most Monetary policy seems less effective in Colorado and Florida Elevated public spending would normally help more Florida and New Mexico BBVA Economic Research Department, March 9 18

19 3 Analysis: GDP & State Monthly Activity Indexes The SMAI can be effectively used for forecasting purposes Alabama GDP (YoY Change %) Arizona GDP (YoY Change %) Colorado GDP (YoY Change %) Fitted Actual Fitted Actual Fitted Actual Florida GDP (YoY Change %) Fitted Actual New Mexico GDP (YoY Change %) Fitted Actual Texas GDP (YoY Change %) Fitted Actual * Fitted series were calculated using our monthly activity indexes BBVA Economic Research Department, March 9 19

20 3 Analysis: Mortgage System Pressures in the mortgage industry remain elevated. Experiences abroad provide some clues for the future 3, Mortgage-Backed Securities Issuance ($ Billion) 1, Mortgage Bonds Issuance (Euro Billion) 3, Non Agency Agency 1, Germany Denmark France, 8 Spain Sweden Ireland, 1, 1, Source: European Mortgage Bond Council Source: Sifma 3 7 BBVA Economic Research Department, March 9

21 3 Analysis: Health Care From the Massachusetts model to a Minnesota approach Quality and coverage in the US by states Expenditure and coverage in the US by states Coverage (percent) UT AZ MN HI MI IA KSND WI VT NH MO NEOHPA SD VA AL IL IN KY TN WA SC MD NJ WY IDGA COAR OR NC WV MS NV CA LA MT FL OK NM ME CT MA DE NY AK DC Quality (score) TX NM MT CO CAAKID OR AZ NC WV OK FL NV WI MN ND IA MI NE UTSDNH RI MA CTME NJ VTHI WY DE WA KS VA SC MD ILINAL NY KY TN DC PA MO OH 7. TX. MS GA AR 7. 3,,,, 7, 8, Expenditure (pc, US$) LA Coverage (percent) BBVA Economic Research Department, March 9 1

22 U.S. Regional Watch 1Q9 Webcast Presentation March th, 9 BBVA Economic Research Department, March 9