Between Global Rebalancing and Structural Change: American households and the new economic realities. Agenda

Similar documents
The 2014 Consumer Outlook: Unresolved Contradictions

The Equifax Economic and Credit Markets Outlook

Gus Faucher Stuart Hoffman William Adams Kurt Rankin Mekael Teshome Chief Economist Senior Economic Advisor Senior Economist Economist Economist

Households: Net Worth Advances, Debt Outstanding Declines. Chart 1

U.S. Automotive Outlook

Economic Update: Will Tailwinds Offset Headwinds in 2012? Asha Bangalore

How Strong is the US Economy?

Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation

Baseline U.S. Economic Outlook, Summary Table*

Discover New Lending Partners with Mortgage Elements' Free Database of Wholesale and Correspondent Mortgage Lenders

Liquidity Management: Beyond Quantitative Easing

U.S. Economic Update and Outlook. Laurel Graefe, REIN Director Federal Reserve Bank of Atlanta October 2, 2013

The U.S. Economic Outlook

Keith Phillips, Sr. Economist and Advisor

NATIONAL ECONOMIC OUTLOOK

Discover New Lending Opportunities at

MBA Forecast Commentary Joel Kan

Decline in Economic Activity Larger Than Advance GDP Estimate February 27, 2009

Gauging Current Conditions: The Economic Outlook and Its Impact on Workers Compensation

Gus Faucher Stuart Hoffman William Adams Kurt Rankin Chief Economist Senior Economic Advisor Senior Economist Economist

The U.S. Economy and Monetary Policy. Esther L. George President and Chief Executive Officer Federal Reserve Bank of Kansas City

SPECIAL REPORT. TD Economics CONDITIONS ARE RIPE FOR AMERICAN CONSUMERS TO LEAD ECONOMIC GROWTH

Discover New Lending Possibilities with Mortgage Elements' Free Database of Wholesale and Correspondent Mortgage Lenders

- US LEI & CEI - Yardeni Research, Inc.

Modest Economic Growth and Falling GDP Gap

Boost from Fiscal Policy to Fade in 2019

Baseline U.S. Economic Outlook, Summary Table*

Economic Outlook June Economic Policy Division

Economic Outlook June Economic Policy Division

Joseph S Tracy: A strategy for the 2011 economic recovery

CUNA Economic and Credit Union Forecast September 2018

Early Observations on Gradual Monetary Policy Normalization

Economic and Housing Outlook

THE ECONOMIC OUTLOOK RECESSION AND RECOVERY. Paul Darby Executive Director & Deuty Chief Economist Twitter hashtag: #psforum

2012 As the Fundamentals Improve Stateside, They Deteriorate Abroad

Economic and Banking Outlook. Major issues

Baseline U.S. Economic Outlook, Summary Table*

The Federal Reserve, Monetary Policy, and Economic Indicators

Q Economic Outlook

U.S. & Missouri Economic Outlook

The Stimulus Didn t Work An Overlooked Fact that Needs Mention September 18, 2009

Advanced Market Analysis for Commercial Real Estate

Staff GDP Forecast Summary

Economic Conditions and Outlook for the U.S., Kansas, and the Midwest

Economic and Housing Outlook 1. William Strauss, Senior Economist and Economic Advisor Federal Reserve Bank of Chicago. Economic and Housing Outlook

Gus Faucher Stuart Hoffman William Adams Kurt Rankin Chief Economist Senior Economic Advisor Senior Economist Economist.

Economic recovery dashboard

Will The Recovery Hold? By Doug Duncan Vice President and Chief Economist Fannie Mae June 17, 2010

Moving On Up Today s Economic Environment

ASSESSING THE RISK OF A DOUBLE-DIP RECESSION: KEY INDICATORS TO MONITOR

Fed Tightening: How Global Markets May React

It s Déjà Vu All Over (and Over) Again

Implications of Fiscal Austerity for U.S. Monetary Policy

Michigan Economic Update

Web Slides.

US Economy Update May 2014

MonitorING Turkey ING BANK A.Ş. Further fiscal support in the Medium Term Plan. Emerging Markets 4 October 2017

Economic Conditions and Outlook and Consumer Credit Conditions

Observation. January 18, credit availability, credit

Discover the Mortgage Periodic Table and Explore 300 Wholesale, Correspondent, and Warehouse Mortgage Lenders at

Interest Rate Forecast

Labor Market Update. Where we are today. December 3, 2010

U.S. Chamber of Commerce Economic Outlook

Full-Year Growth Downgraded Again

Economic and Housing Outlook

WEEKLY GUIDANCE ON ECONOMIC AND GEOPOLITICAL EVENTS December 18, 2018 Are Rising Household Debt Concerns Warranted?

Key Trends in the US Economy, the Industrial and the Rail Sectors. Sam Kyei Chief Economist SAK ECONOMICS. December 5, 2018

The U.S. Economic Outlook

Outlook for the US and Japan

November 2014 Solid October Jobs Report Boosts Workers Incomes real Baseline U.S. Economic Outlook, Summary Table*

Baseline U.S. Economic Outlook, Summary Table*

Old Dominion University 2013 National Economic Outlook

Will the Real Private Nonfarm Payrolls Please Stand Up?

Key Takeaways. What it may mean for investors WEEKLY GUIDANCE ON ECONOMIC AND GEOPOLITICAL EVENTS. Luis Alvarado Investment Strategy Analyst

9/6/2017. Agenda. Warm-Up: Polling Question. Faster, Smarter, Stronger: Getting Over Your Data Fears & Getting a Grip on Hiring Trends

Economic Outlook. Christopher J. Neely Assistant Vice President, Federal Reserve Bank of St. Louis. NLB,LLC The Lodge, Des Peres, MO.

The U.S. Economy After the Great Recession: America s Deleveraging and Recovery Experience

NEW ENGLAND ECONOMIC OUTLOOK. NCSL Atlantic States Fiscal Leaders Meeting Feb. 24, 2017

Growing for nearly a decade. 114 months and counting, through December Will become longest Post-War expansion if it lasts through July

Economic Overview. Academic Advisory Council May 6, Spencer Krane Senior Vice President Federal Reserve Bank of Chicago

The Labor Force Participation Puzzle

The Fed and The U.S. Economic Outlook

Outlook for the Auto Industry. Federal Reserve Bank of Chicago Annual Automotive Outlook Symposium June 4, 2004

The Outlook for the U.S. Economy National Association of Credit Union Supervisory and Auditing Committees Annual Conference and Expo Louisville, KY

ECONOMIC AND FINANCIAL HIGHLIGHTS

Outlook for the United States*

North American Economic Outlook: Climbing Out of Recession

Consolidated Investment Report

2017 MORTGAGE MARKET OUTLOOK: EXECUTIVE ECONOMIC REPORT JANUARY 2017

Key takeaways. What it may mean for investors WEEKLY GUIDANCE ON ECONOMIC AND GEOPOLITICAL EVENTS. Peter Donisanu Investment Strategy Analyst

U.S. & District Economic Outlook

Dollar Volume of Single-Family Home Sales* / Nominal GDP percent 18

GLOBAL ECONOMIC ENVIRONMENT AND OUTLOOK

Economic Growth Expected to Slow and Housing to Stabilize in 2019

U.S. and Oklahoma Economic Update. Megan Williams Associate Economist and Manager, Oklahoma City Branch. The U.S. Economy and Monetary Policy

Gus Faucher Stuart Hoffman William Adams Kurt Rankin Mekael Teshome Chief Economist Senior Economic Advisor Senior Economist Economist Economist

The Hong Kong Economy in Contraction Mode

Banking Trends & Supervisory Update

Economic Update Adrienne C. Slack March 2017

MBA Economic and Mortgage Finance Outlook

Transcription:

Between Global Rebalancing and Structural Change: American households and the new economic realities Federal Reserve BANK of Chicago December 3, 1 Adolfo L. Laurenti Deputy Chief Economist Agenda 1. Introduction: the need for global rebalancing. The labor market: jobs, wages and salaries 3. The households balance sheet. Housing 5. The banking sector 6. Conclusion: the economic outlook Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 1

U.S. and China before the Great Correction The U.S. GDP growth between.5% and 3% between and 7 Consumption accounted for 7% of GDP China GDP growth between 15% and % between and 8 Consumption accounted for 35% of GDP China: a development strategy based on (cheap) exports U.S.: a consumption-driven economy based on credit The fundamental global imbalance: excess saving in Asia, excess consumption in the U.S. Economic fundamentals will not change overnight, but global rebalancing requires a greater domestic demand in China, and deleveraging in the U.S. 3 Adolfo L. Laurenti, December 1 The dynamics of global rebalancing Deleveraging in the United States It requires a higher saving rate Possibly it stems from paying off our debts, not defaulting on our mortgages! Pi Private deleveraging cannot tbe offset tby government re-leveraging Increasing final demand in China The current strategy is focused on public investment Building a social safety net might help to increase consumption and reduce saving International uncertainty Dollar is the world s safe haven There is no alternative to the greenback as a world reserve currency Other Asian countries believe in strategic importance of deep pockets of dollar reserves Demographics drive global maturity mismatches between risk-free and low risk assets, and more risky investments Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1

Personal Consumption: contributions to GDP growth, -1 Percent 8 6 - - -6-8 6 8 1 PCE Other GDP components 5 Adolfo L. Laurenti, December 1 A disappointing recovery By historical standards, growth has been a disappointment in this recovery A lackluster recovery is not a surprise, following a financial crisis H 9 1H 1: temporary factors contributed to macroeconomic performance, but no self-generating momentum was created The adjustment is structural, not cyclical A sobering realization: many jobs will not come back in their original form and sector A number of [FOMC] participants reported that business contacts again indicated that uncertainty about future taxes, regulations, and health-care costs made them reluctant to expand their workforces. [FOMC Minutes, August 1, 1] 6 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 3

A disappointing recovery: lagging payroll jobs creation 1 1 98 GDP at peak quarter = 1 7 1 1 199 1981 96 9 Job market did not fully recover until 1Q 5 (16 quarters) 9 1 3 5 6 7 8 9 1 11 Quarters since beginning of the recession 7 Adolfo L. Laurenti, December 1 Symptoms of structural imbalance in the labor force The Beveridge Curve Mismatch of skills: the Beveridge curve Length of unemployment Length of unemployment benefits Benefit and income replacement ratio Wage flexibility Labor force mobility Survey of job separation Job openings 5,5 5 5,,5, 3,5 3, 5,5, 1 6 8 9 1 5, 7,5 1, 1,5 15, 17,5 No. unemployed 8 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1

Jobs and income losses IN PAYROLLS, JAN 8 OCT 1 CHANGE I 5% % -5% -1% -15% -% LEISURE RETAIL TRANSPORTATION NON-DURABLE DURABLE GOODS CONSTRUCTION EDUCATION, HEALTH UTILITIES INFORMATION SERV. FINANCIAL SERVICES, PROFESSIONAL & BUSINESS SERVISES, MINING, WHOLESALE TRADE -5% $1 $15 $ $5 $3 $35 HOURLY EARNINGS 9 Adolfo L. Laurenti, December 1 Hourly earnings Avg Hourly Earnings: Private Service-Producing % Change - Year to Year SA, $/hr Avg Hourly Earnings: Manufacturing % Change - Year to Year SA, $/hr 5 5 3 3 1 1 3 5 6 Sources: Bureau of Labor Statistics /Haver Analytics 7 8 9 1 1 1 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 5

A Tale of Two Christmases 7 Survey of Consumer Finance Income growth weak or negative for the middle class Income (both level and growth) higher with college degree High-income families are recovering faster, and doing better thanks to larger increases in their salaries and bonuses Low- and middle-income families suffers persisting headwinds: higher unemployment small or no salary increases uncertainty about unemployment benefits underwater mortgages reduced access to credit 11 Adolfo L. Laurenti, December 1 Households balance sheet Households & Nonprofit Organizations: Net Worth NSA, Bil.$ 7 7 6 6 5 5 3 3 1 9 95 Source: Federal Reserve Board /Haver Analytics 5 1 1 1 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 6

Households assets Households & Nonprofit Organizations: Total Assets NSA, Bil.$ Households & Nonprofit Org: Assets: Total Owner-occupied Real Estate NSA,Bil.$ 85 85 75 75 675 675 16 16 6 6 1 1 55 55 8 8 5 1 3 5 6 7 8 9 5 1 9 95 5 1 Source: Federal Reserve Board /Haver Analytics Source: Federal Reserve Board /Haver Analytics Peak-to-trough: - 1%, or $16.8 trillion Real estate: -$6 trillion and still flat 13 Adolfo L. Laurenti, December 1 The dynamics of rebalancing: debt accumulation & deleveraging Households & Nonprofit Organizations: Total Liabilities NSA, Bil.$ Households & Nonprofit Organizations: Liabilities: Home Mortgages NSA, Bil.$ 15 15 STAGE III 15 15 1 1 STAGE II 75 5 STAGE I STAGE IV 75 5 5 5 75 8 85 9 95 5 Sources: Federal Reserve Board /Haver Analytics 1 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 7

Saving rates: a trend reversal Personal Saving Rate SA, % 8 8 6 6 9 95 5 1 Source: Bureau of Economic Analysis /Haver Analytics 15 Adolfo L. Laurenti, December 1 Revolving credit continues to contract 1% yoy % chg, EOP, SA Bil $ 5% % -5% -1% -15% 7 8 9 1 16 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 8

Household debt: 7 Survey of Consumer Finances Leverage ratio [sum of the debt to sum of the assets] is 15% -- but as low as 8% for top income percentile, and as high as 5% for the middle class 77% of families carry debt of one sort or another 9% mortgage 7% installment loans 6% credit card Incidence of credit card and installment loans higher for middle class 17 Adolfo L. Laurenti, December 1 Households balance sheet and consumer finances: 7 snapshot 7 Survey of Consumer Finance 68.6% of families owns a primary residence [since 7, homeownership fell to 66.7%] 5.6% of families own retirement accounts 51.1% of families own stock holdings, directly or indirectly Stocks represent 57% of financial assets for top income percentile, 39% of bottom income percentile Home represents 19% of financial assets for top income percentile, 7% for bottom income percentile 18 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 9

Home prices: the quest for stabilization FHFA House Price Index: Purchase Only, United States % Change - Year to Year SA, Jan-91=1 1 1 5 5-5 -5-1 1 3 5 6 7 8 Source: Federal Housing Finance Administration /Haver Analytics 9 1-1 19 Adolfo L. Laurenti, December 1 Home sales: no momentum from tax credits Total Homes Sales (new + existing) (thous) 9 9 8 8 7 7 6 6 5 5 1 Source: Haver Analytics 3 5 6 7 8 9 1 Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 1

Mortgage delinquencies and foreclosures Mortgage Foreclosure Inventory: United States EOP, NSA, % All Loans: Total Past Due, U.S. SA, % 1 1 1 1 8 8 6 6 1 3 5 6 7 8 9 1 Sources: Mortgage Bankers Association /Haver Analytics 1 Adolfo L. Laurenti, December 1 The banking sector: healing, slowly One major hurdle to resume hiring by small and medium-size businesses: banks unwillingness to extend credit Over-concentration ti of non-performing loans (mostly commercial real estate) t still on balance sheets Unprecedented liquidity stress on banks balance sheets is abating Banks are still being pulled in opposite directions: Rebuilding capital, increasing reserves, loss provisions and charge-offs Increasing lending and not just to prime borrowers Lack of trust in the European banking stress test Persistent uncertainty about the new regulatory framework Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 11

The Outlook: The 1 Scorecard 9 1 11 Real GDP -.6.7.6 Personal Consumption -1. 1 17 1.7. Industrial Production -9.3 5.. Unemployment Rate (year average) 9.3 9.6 9.5 Housing Starts (million unit).55.59.69 Auto Sales (cars + light trucks) 1.8 11.9 13. Consumer Price Index -.3 3 16 1.6 16 1.6 Fed Funds (year-end).5.. 1-year T-Note yield (year-end) 3.85.5 3.1 Source: Haver Analytics/ 3 Adolfo L. Laurenti, December 1 Summary The good news: financial markets and the economy are stabilizing; we do not anticipate a double dip The bad news: it will not be a quick transition. It will take time to restore normal operating conditions for the economy and, more crucially, to create jobs In 1 and 11 we ll see some growth, but sub-par by historical standard; short-term, transitory factors will prevail on long-term, sustainable drivers 11 and beyond: the economy will reaccelerate, but new risks will emerge: interest rates normalization (i.e. hikes by the Fed), tax increases (expiration of the Bush tax cuts), persistently elevated unemployment ( natural rate at 6.5%?) The 9 fiscal stimulus does look like a missed opportunity; the 1 mini-stimulus is only marginally better and expected to be ineffective Adolfo L. Laurenti, December 1 th Annual Economic Outlook Symposium December 3, 1 1

Investment Management Global Markets Insurance Services Consulting Visit us on the Web at mesirowfinancial.com refers to Holdings, Inc. and its divisions, subsidiaries and affiliates. The name and logo are registered service marks of Holdings, Inc., 1, Holdings, Inc. All rights reserved. Some information contained herein has been obtained from sources believed to be reliable, but is not necessarily complete and its accuracy cannot be guaranteed. Any opinions expressed are subject to change without notice. Any performance information shown represents historical market information only and does not infer or represent any past performance of any affiliate. It should not be assumed that any historical market performance information discussed herein will equal such future performance. It should be assumed that client returns will be reduced by commissions or any other such fees and other expenses that may be incurred in the management of the account. Fees Performance information provided also contemplates reinvestment of dividends. Advisory Fees are described in Investment Management Inc. s Part II of the Form ADV. does not provide legal or tax advice. Advisory services offered through Investment Management, Inc. an SEC-registered investment advisor, Securities offered by, Inc. member NYSE and SIPC. 5 th Annual Economic Outlook Symposium December 3, 1 13