Economic Risks and Their Meaning for the Southwest STEVE COCHRANE, MANAGING DIRECTOR
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 1,000 500 0 07 08 09 10 11 12 Sources: ECB, Moody s Analytics
EM Policy Makers Still Have Tools Monetary policy rate, % 14 12 10 8 6 4 2 0 Russia India Brazil Indonesia Chile Thailand 11 12 Source: Moody s Analytics
From Fiscal Stimulus to Fiscal Cliff Fiscal policy contribution to real GDP growth under current law, % 3 2 1 0-1 -2-3 -4 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 08 09 10 11 12 13 Source: Moody s Analytics
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 1,000 500 0 90 days delinquent 120 days delinquent In foreclosure 06 07 08 09 10 11 12 Sources: Equifax, Moody s Analytics
But Investor Demand Is Strong % over or under valued 50 40 30 20 10 0 Fairly Valued -10-20 90 92 94 96 98 00 02 04 06 08 10 Sources: PPR, BEA, BOC, Fiserv, Moody s Analytics
Business Balance Sheets Are Strong Nonfinancial corporate businesses 60 Interest coverage ratio 50 Quick ratio 40 30 20 10 0 The quick ratio is at a record high in the data back to 1950. 80 85 90 95 00 05 10 Sources: Federal Reserve, Moody s Analytics
Households Rapidly Deleverage % of disposable income 14.0 13.5 13.0 12.5 12.0 11.5 11.0 10.5 10.0 At the current rate of deleveraging and interest rates, debt service was back to early 80 s lows by summer 2012. Debt service (L) Financial obligations (R) 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 19.0 18.5 18.0 17.5 17.0 16.5 16.0 15.5 Sources: Federal Reserve, BEA, Moody s Analytics
Banks Are Well Capitalized and More Profitable Commercial banks 9.25 1.6 8.75 8.25 7.75 7.25 6.75 6.25 Core capital ratio (L) Return on assets (R ) 90 92 94 96 98 00 02 04 06 08 10 12 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Sources: FDIC, Moody s Analytics
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 90 92 94 96 98 00 02 04 06 08 10 12 Sources: Census, Moody s Analytics
Metro Areas Business Cycle Status Status as of July 2012 Recession At risk Recovery Expansion Source: Moody s Analytics 11
West Is Taking the Lead Total employment, 3-mo MA, % change yr ago 2 1 0-1 -2-3 -4-5 Northeast Midwest -6-7 South West 08 09 10 11 12 Sources: BLS, Moody s Analytics 12
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% <2.4 2.4 to 3.7 >3.7 13
Joblessness Is Not Improving Anywhere Unemployment rates, % 12 11 10 9 8 7 6 5 4 Northeast Midwest South West 08 09 10 11 12 Sources: BLS, Moody s Analytics 14
Rising Industrial Production Boosts Midwest Industrial production index, index: June 2009=100 125 120 Northeast Midwest South West Texas 115 110 105 100 95 09 10 11 12 Sources: Federal Reserve, BLS, Moody s Analytics 15
Creating Job Growth Over Past Two Years Manufacturing employment, % chg yr ago, 3-mo MA 5 0-5 -10-15 -20 Northeast Midwest South West Texas 09 10 11 12 Sources: Federal Reserve, BLS, Moody s Analytics 16
But Manufacturing Labor Demand May Ease Average weekly hours worked, manufacturing, 3-mo MA 44.5 43.5 Northeast Midwest South West Texas 42.5 41.5 40.5 39.5 38.5 08 09 10 11 12 Sources: BLS, Moody s Analytics. Regions are weighted averages of state figures. 17
Manufacturing Critical to Midwest Recovery Manufacturing employment, July 2012 40 35 30 25 20 15 10 5 0 % 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
Exports Falter in the Northeast Exports of goods and commodities, nominal value, Jul 2008=100 130 Northeast Midwest South West 120 110 100 90 80 70 60 08 09 10 11 12 Sources: Census Bureau, Moody s Analytics 19
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
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 0-1 -1 0 1 Charlotte Tampa 2 Orlando 3 4-2 New Orleans Oklahoma City West Palm Beach -3 Nashville Greenville Contracting -6 Note: Size reflects relative total employment % change yr ago Slipping 21
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 -4-5 -6-7 % 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 -2-1 -1 0 Honolulu 1 2 3 4 5 Albuquerque Boise City -2 Las Vegas Spokane -3 Colorado Springs Slipping 22
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 5 4 3 2 1 0-3 -4 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
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 -1-1 0 1 2 3 4 5 6 St. Louis Kansas City Dayton -2 Des Moines -3-4 Akron Madison -5 Minneapolis Slipping % change yr ago 24
Hiring Rates Diverge, Falling in the Northeast Job hires rate, quarterly, % of nonfarm employment 5.0 Northeast Midwest South West 4.5 4.0 3.5 3.0 2.5 01 02 03 04 05 06 07 08 09 10 11 12 Sources: BLS Job Openings and Labor Turnover Survey, Moody s Analytics 25
But Openings are Increasing in the Northeast Job openings rate, % of nonfarm employment 4.0 Northeast Midwest South West 3.5 3.0 2.5 2.0 1.5 01 02 03 04 05 06 07 08 09 10 11 12 Sources: BLS Job Openings and Labor Turnover Survey, Moody s Analytics 26
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 -1.5-1.6 to -2.5-2.6 to -11.5 27
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 2012 28
Pipeline Was Clogged at Start of Year... Months supply of distressed homes by state, February 2012. 40 35 30 25 20 15 10 5 0 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
...But Made Good Progress in Four Months Months supply of distressed homes by state, June 2012. 40 Judicial 35 Non-judicial 30 ME 25 DE NJ FL IL U.S. = 8.6 20 CT MD 15 NY NV CA GA PA MA AZ 10 TX 5 0 Sources: CoreLogic, Moody s Analytics 30
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
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 0.28 0.28 to 0.43 0.43 to 0.81 U.S.= 0.31 32
But Indirect Impacts Hit Far and Wide Total employment, % change from baseline forecast, 2014 Sources: Census Bureau, Moody s Analytics -1.4 to -1.9-1.9 to -2.1-2.1 to -2.6 U.S.= 2% 33
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
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 0 1 2 3 4 35
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 0 1 2 3 4 36
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 0 1 2 3 37
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 0 1 2 3 4 38
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