Economic Risks and Their Meaning for the Southwest STEVE COCHRANE, MANAGING DIRECTOR

Transcription

1 Economic Risks and Their Meaning for the Southwest STEVE COCHRANE, MANAGING DIRECTOR

2 The Europeans Are All-in Composition of the European Central Bank s balance sheet, bil 5,000 Other assets Emergency security holdings 4,500 Lending to credit institutions Euro area credit 4,000 Securities of euro residents Refi operations Claims in foreign currency Gold 3,500 3,000 2,500 2,000 1,500 1, Sources: ECB, Moody s Analytics

3 EM Policy Makers Still Have Tools Monetary policy rate, % Russia India Brazil Indonesia Chile Thailand Source: Moody s Analytics

4 From Fiscal Stimulus to Fiscal Cliff Fiscal policy contribution to real GDP growth under current law, % Bush-Era Tax Cuts (Over $250k) Bush-Era Tax Cuts (Under $250k) Extenders Sequestration Payroll tax & Emergency UI Recovery Act Other stimulus Cash for Clunkers Tax rebate checks Total Fiscal Policy Source: Moody s Analytics

5 A Mountain of Distressed Property First mortgage loans, ths 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1, days delinquent 120 days delinquent In foreclosure Sources: Equifax, Moody s Analytics

6 But Investor Demand Is Strong % over or under valued Fairly Valued Sources: PPR, BEA, BOC, Fiserv, Moody s Analytics

7 Business Balance Sheets Are Strong Nonfinancial corporate businesses 60 Interest coverage ratio 50 Quick ratio The quick ratio is at a record high in the data back to Sources: Federal Reserve, Moody s Analytics

8 Households Rapidly Deleverage % of disposable income At the current rate of deleveraging and interest rates, debt service was back to early 80 s lows by summer Debt service (L) Financial obligations (R) Sources: Federal Reserve, BEA, Moody s Analytics

9 Banks Are Well Capitalized and More Profitable Commercial banks Core capital ratio (L) Return on assets (R ) Sources: FDIC, Moody s Analytics

10 Housing Inventories Have Peaked Vacant homes for sale, for rent and held off market, ths 11,500 10,500 9,500 8,500 7,500 6,500 5,500 Trend Vacancy Sources: Census, Moody s Analytics

11 Metro Areas Business Cycle Status Status as of July 2012 Recession At risk Recovery Expansion Source: Moody s Analytics 11

12 West Is Taking the Lead Total employment, 3-mo MA, % change yr ago Northeast Midwest -6-7 South West Sources: BLS, Moody s Analytics 12

13 And Income Growth Strengthens in West Wage and salary income growth, % change yr ago, 2012Q2 Sources: BEA, Moody s Analytics, preliminary estimate September 2012 U.S.=3.4% < to 3.7 >3.7 13

14 Joblessness Is Not Improving Anywhere Unemployment rates, % Northeast Midwest South West Sources: BLS, Moody s Analytics 14

15 Rising Industrial Production Boosts Midwest Industrial production index, index: June 2009= Northeast Midwest South West Texas Sources: Federal Reserve, BLS, Moody s Analytics 15

16 Creating Job Growth Over Past Two Years Manufacturing employment, % chg yr ago, 3-mo MA Northeast Midwest South West Texas Sources: Federal Reserve, BLS, Moody s Analytics 16

17 But Manufacturing Labor Demand May Ease Average weekly hours worked, manufacturing, 3-mo MA Northeast Midwest South West Texas Sources: BLS, Moody s Analytics. Regions are weighted averages of state figures. 17

18 Manufacturing Critical to Midwest Recovery Manufacturing employment, July % of total employment, July 2012 % of total job growth since trough Feb 2010 Northeast Midwest South West U.S. Sources: BLS, Moody s Analytics 18

19 Exports Falter in the Northeast Exports of goods and commodities, nominal value, Jul 2008= Northeast Midwest South West Sources: Census Bureau, Moody s Analytics 19

20 Northeast and Midwest Export to Europe Exports to European Union, goods and commodities, % of GMP 2008 U.S.=1.6% No data < 0.6% 0.6% to 1.9% > 2% Sources: BEA, Census Bureau, ITA, Moody s Analytics 20

21 Payroll Employment South MSAs 1-yr vs. 3-mo performance (3-mo. MA) Improving Annualized 3-mo % change -4-5 Aug Feb 2012 Expanding South Atlantic 6 Austin East South Central Fort Lauderdale Greensboro 5 Louisville Houston West South Central 4 San Antonio Memphis Fort Worth Little Rock Richmond 3 Jacksonville 2 Virginia Beach U.S. Atlanta Raleigh Miami 1 Birmingham Dallas Charlotte Tampa 2 Orlando New Orleans Oklahoma City West Palm Beach -3 Nashville Greenville Contracting -6 Note: Size reflects relative total employment % change yr ago Slipping 21

22 Payroll Employment West MSAs 1-yr vs. 3-mo performance (3-mo. MA) Improving Annualized 3-mo % change Contracting Note: Size reflects relative total employment % change yr ago Aug Feb 2012 Expanding Pacific 6 Mountain 5 Portland Boulder Salt Lake City Riverside Denver San Jose 4 Los Angeles Tacoma Seattle Oakland 3 Oxnard 2 Sacramento U.S. San Francisco Phoenix 1 Santa Ana Provo San Diego 0 Eugene Tucson Honolulu Albuquerque Boise City -2 Las Vegas Spokane -3 Colorado Springs Slipping 22

23 Payroll Employment Northeast MSAs 1-yr vs. 3-mo performance (3-mo. MA) Improving Annualized 3-mo % change Middle Atlantic New England South Atlantic Harrisburg Camden Bethesda Boston Newark Hartford Edison Buffalo Philadelphia Washington Nassau Aug Feb 2012 Expanding New York Rochester Baltimore Trenton Pittsburgh -1 0 Syracuse 1 2 Providence -1 Portland -2 Bridgeport Springfield Manchester Wilmington Albany U.S. New Haven Contracting Note: Size reflects relative total employment -5 % change yr ago Slipping 23

24 Payroll Employment Midwest MSAs 1-yr vs. 3-mo performance (3-mo. MA) Aug Feb 2012 Improving Annualized 3-mo % change Contracting -6 Note: Size reflects relative total employment Expanding Fort Wayne West North Central 9 East North Central 8 7 Ann Arbor Omaha 6 Fargo Lansing 5 Grand Rapids Chicago Toledo 4 Indianapolis Sioux Falls 3 Columbus Cleveland 2 U.S. Peoria Wichita 1 Cincinnati Detroit Gary 0 Milwaukee St. Louis Kansas City Dayton -2 Des Moines -3-4 Akron Madison -5 Minneapolis Slipping % change yr ago 24

25 Hiring Rates Diverge, Falling in the Northeast Job hires rate, quarterly, % of nonfarm employment 5.0 Northeast Midwest South West Sources: BLS Job Openings and Labor Turnover Survey, Moody s Analytics 25

26 But Openings are Increasing in the Northeast Job openings rate, % of nonfarm employment 4.0 Northeast Midwest South West Sources: BLS Job Openings and Labor Turnover Survey, Moody s Analytics 26

27 U.S. Housing Market Has Reached Bottom Case-Shiller House Price Index, % change 2012Q1 to trough Sources: Fiserv, FHFA, Moody s Analytics, August 2012 forecast U.S. = 0 Trough already reached -0.1 to to to

28 Distress Sales Focused in Three Regions Count of distress sales as % of total sales, Jul 2011 to Jul 2012 U.S.=32.5% 0% to 15.9% 16% to 22.9% 23% to 29.9% 30% to 62% Source: CoreLogic repeat-purchase sales, yearly total, Jul 2011 to Jul

29 Pipeline Was Clogged at Start of Year... Months supply of distressed homes by state, February DE NJ IL CT FL GA NY Sources: CoreLogic, Moody s Analytics PA CA NV MA Judicial Non-judicial AZ U.S. = 10.7 TX 29

30 ...But Made Good Progress in Four Months Months supply of distressed homes by state, June Judicial 35 Non-judicial 30 ME 25 DE NJ FL IL U.S. = CT MD 15 NY NV CA GA PA MA AZ 10 TX 5 0 Sources: CoreLogic, Moody s Analytics 30

31 Price Growth Will Lag In South, Northeast Case-Shiller Index, average annual growth, %, 2012Q1-2017Q1 Sources: Fiserv, Moody s Analytics U.S. = 3.7% 5% to 11.5% 3.5% to 4.9% 2.5% to 3.4% -1% to 2.4% 31

32 Fiscal Cliff Direct Cuts Would Hurt the South Projected change, federal defense and non-defense expenditures Sources: Census Bureau, Moody s Analytics 2013 % of gross product 0.15 to to to 0.81 U.S.=

33 But Indirect Impacts Hit Far and Wide Total employment, % change from baseline forecast, 2014 Sources: Census Bureau, Moody s Analytics -1.4 to to to -2.6 U.S.= 2% 33

34 Employment Outlook for 2013 Total employment, 2013Q4, % change yr ago U.S.=1.7% < 1.4% 1.4% to 2.0% > 2.0% Source: Moody s Analytics 34

35 South: Region Will Acclerate Employment, % change yr ago Austin San Antonio Dallas Ft. Worth Houston Atlanta Charlotte Orlando Birmingham U.S. Virginia Beach Tampa Ft. Lauderdale Miami 4.3% 2012Q4 2013Q4 Source: Moody s Analytics

36 Northeast: Job Growth Will Underperform Employment, % change yr ago New York U.S. Pittsburgh Philadelphia Cambridge Newark Baltimore Boston Edison NJ Washington Long Island Providence 2013Q4 2014Q4 Source: Moody s Analytics

37 Midwest: Region Will Accelerate Again Employment, % change yr ago Minneapolis U.S. Warren Kansas City Columbus Indianapolis Milwaukee Cincinnatti St. Louis Cleveland Chicago Lake County Detroit 2013Q4 2014Q4 Source: Moody s Analytics

38 West: Region Remains a Leader Employment, % change yr ago Denver Phoenix Seattle Las Vegas Riverside San Francisco San Jose Santa Ana U.S. San Diego Portland Oakland Sacramento Los Angeles 2013Q4 2014Q4 Source: Moody s Analytics

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