Old Dominion University 2013 National Economic Outlook January 30, - PowerPoint PPT Presentation

Old Dominion University 2013 National Economic Outlook January 30, 2013 Professor Vinod Agarwal Professor Mohammad Najand Professor Gary A. Wagner www.odu.edu/forecasting 1

Presentation Outline • 2012 Scorecard • Current economic conditions • Outlook for 2013 – What are the likely sources for growth? • Monetary Policy • Downside Risks • Upside risks 2

2012 Scorecard 2012 2012 Forecast Actual Real Gross Domestic Product (GDP) 2.40% 2.26% Employment 2.00% 1.38% Unemployment rate 7.9% 8.1% Consumer Price Index (CPI) 2.30% 1.74% CPI – Core 2.10% 1.89% 3 - month Treasury bill 0.50% 0.09% 10 - year Treasury bond 1.90% 1.80% 30 - year conventional mortgage 3.80% 3.66%

Potential and Actual (Real) Gross Domestic Product, 2000-2015 $16,000 $14,000 Billions of 2005 Dollars $12,000 $10,000 $8,000 Potential GDP Actual GDP 4 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

Growth in Real Gross Domestic Product (GDP), 2006:Q1 – 2012:Q4 Seasonally adjusted annualized rate *100 2012:Q4 is forecasted. 6 4 2 0 Percentage 2012 Growth Rates: -2 Q1 = 2.0% Q2 = 1.3% -4 Q3 = 3.1% Q4 = 1.2% -6 -8 -10 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012 5 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

Where has GDP growth been coming from? Last Four Quarters, seasonally adjusted annualized rate 5% Defense spending increased by 12.9% 4.1% 4% Change in inventories = 2.5% 3.1% GDP 3% Consumption 2.0% Nonresidential investment 2% Residential investment 1.3% Change in inventories 1% Government Exports 0% Imports -1% -2% 2011:Q4 2012:Q1 2012:Q2 2012:Q3 6 Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

Month-to-Month Change in US Total Nonfarm Employment January 2004 – December 2012 Average last 12 months: +141,800 Average last 6 months: +159,700 600 400 200 0 Thousands -200 Average monthly change 2004-2006: + 184,000 jobs -400 -600 Losing roughly 800,000 per month -800 -1000 1/1/2004 4/1/2004 7/1/2004 10/1/2004 1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012 Private Sector Public Sector 7 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project.

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. US Unemployment Rate, January 2005 – December 2012 Percent 10 12 14 16 18 0 2 4 6 8 1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 Unemployment Rate 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 U6 Rate 10/1/2009 1/1/2010 4/1/2010 Average from 1984-2008: 5.7% 7/1/2010 December 2012: 7.8% 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012 8

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project. Long-Term Unemployment, 1990-present Percentage of those Unemployed Of Total Unemployed, Percentage Unemployed for 27 Weeks or Longer 10 20 30 40 50 0 1/1/1990 8/1/1990 3/1/1991 10/1/1991 5/1/1992 12/1/1992 4 consecutive months of decline Currently: 39.1% Peak: 45.5% (March 2011) 7/1/1993 2/1/1994 9/1/1994 4/1/1995 11/1/1995 6/1/1996 1/1/1997 8/1/1997 3/1/1998 10/1/1998 5/1/1999 12/1/1999 7/1/2000 2/1/2001 9/1/2001 4/1/2002 11/1/2002 6/1/2003 1/1/2004 8/1/2004 3/1/2005 10/1/2005 5/1/2006 12/1/2006 7/1/2007 2/1/2008 9/1/2008 4/1/2009 11/1/2009 6/1/2010 1/1/2011 8/1/2011 3/1/2012 10/1/2012 9

The 2007-2009 Recession in Perspective % Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak 1% 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 % of Pre-Recession Peak Employment -1% -2% -3% Back to pre-recession peak around April 2015 -4% (87 months) -5% -6% -7% Months after Pre-Recession Peak Employment March 1980 July 1981 June 1990 February 2001 Current (January 2008) 10 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

The 2007-2009 Recession Including Virginia and Hampton Roads % Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak 1% 0% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 % of Pre-Recession Peak Employment -1% Pre-Recession Peak Dates: -2% US: January, 2008 Virginia: February, 2008 -3% Hampton Roads: July, 2007 -4% -5% -6% -7% Months after Pre-Recession Peak Employment US Virginia Hampton Roads 11 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

Percentage of ‘Great Recession’ Job Losses Recovered, by State As of December 2012 250% 200% 150% All recession job losses recovered 100% VA = 75% 50% 0% ND TX LA OK NY AK UT MD VA SD MA MN PA CO KY VT IN NE HI WA TN SC IA NC GA MT ID OH CA KS AZ IL NJ OR DE AR WV WY MI FL CT NV MO NH AL MS WI RI NM ME 12 Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project CPI and CPI-Core, January 2002 – December 2012 -4% -2% 0% 2% 4% 6% 12-Month Percentage change 1/1/2002 5/1/2002 9/1/2002 1/1/2003 5/1/2003 9/1/2003 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 CPI 9/1/2006 1/1/2007 5/1/2007 CPI-Core 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 13

National Outlook for 2013 2013 Forecast Real Gross Domestic Product (GDP) 2.10% Employment 1.15% Unemployment rate 7.6% Consumer Price Index (CPI) 1.73% CPI – Core 1.51% 3 - month Treasury bill 0.20% 10 - year Treasury bond 1.95% 30 - year conventional mortgage 3.80% 14

What are the likely sources for growth? • Gross Domestic Product (GDP) is comprised of 4 components: 1. Consumption 2. Investment 3. Net exports 4. Government 15

Consumption (or “Personal Consumption Expenditures”) • Almost 71% of GDP • Primarily driven by income, employment, wealth • We expect consumption will continue to “limp along” in 2013 16

Source: Bureau of Economic Analysis. Real Disposable Income Per Person, 2000 – present 2005 Dollars $28,000 $29,000 $30,000 $31,000 $32,000 $33,000 $34,000 $35,000 1/1/2000 5/1/2000 9/1/2000 1/1/2001 5/1/2001 9/1/2001 1/1/2002 5/1/2002 9/1/2002 1/1/2003 5/1/2003 9/1/2003 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 9/1/2006 1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 recession 1/1/2009 End of 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 17

New Delinquent Balances by Loan Type, 2003:Q1 – 2012:Q3 Billions of Dollars Billions of Dollars 450.00 450 MORTGAGE HOME EQUITY AUTO CREDIT CARD STUDENT LOAN OTHER 400.00 400 350.00 350 300.00 300 250.00 250 200.00 200 150.00 150 100.00 100 50.00 50 0.00 0 03:Q3 04:Q2 05:Q1 05:Q4 06:Q3 07:Q2 08:Q1 08:Q4 09:Q3 10:Q2 11:Q1 11:Q4 12:Q3 18 Source: FRBNY Consumer Credit Panel/Equifax Note: 30 or more days delinquent Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.

Nominal Home Price Growth in 2011 and 2012 Monthly Percentage Change in Selected Indices, Jan. 2011 – Oct. 2012 1.25 0.75 0.25 Percent -0.25 9 consecutive months of positive growth -0.75 -1.25 1/1/2011 2/1/2011 3/1/2011 4/1/2011 5/1/2011 6/1/2011 7/1/2011 8/1/2011 9/1/2011 10/1/2011 11/1/2011 12/1/2011 1/1/2012 2/1/2012 3/1/2012 4/1/2012 5/1/2012 6/1/2012 7/1/2012 8/1/2012 9/1/2012 10/1/2012 Case-Schiller 20 Case-Schiller 10 FHFA Purchase Only 19 Source: Standard and Poor’s, FHFA, and Old Dominion University Forecasting Project.

Year-Over-Year Nominal Home Prices, 2011:Q3 - 2012:Q3 % Change in FHFA All Transactions Index (Seasonally Adjusted) Less than 0% 0 – 2.5% 2.5 – 5% 5 – 10% 10% and higher 20 Source: FHFA and Old Dominion University Economic Forecasting Project

Number of Consumers with New Foreclosures and Bankruptcies 2003:Q1 – 2012:Q3 Thousands Thousands 1,200 1,200 Foreclosures Bankruptcies Foreclosures Bankruptcies 900 900 Peaked: 2009:Q2 at 566,000 Peaked: 2010:Q2 at 621,000 Currently: 241,000 Currently: 354,000 600 600 300 300 0 0 21 Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.

Total Household Debt Balance, 2003:Q1 – 2012:Q3 15 Mortgage HE Revolving Auto Loan Credit Card Student Loan Other 2012Q3 Total: $11.31 Trillion 12 (3%) (8%) (6%) Trillion of Dollars 9 (7%) (5%) (71%) 6 3 0 22 Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.