October 2009 - Transition to Recovery
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Transition to Recovery Gary Thayer Chief Macro Strategist October 22, 2009
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We believe that the U.S. economy hit bottom this summer and an economic recovery is underway. The economy is still weak and is vulnerable to a setback if there are any unexpected shocks. But if the economy has time to heal, then economic growth is likely expand at a modest pace during the next few years. The housing market appears to be turning upward but a housing recovery is likely to be uneven. Foreclosures are likely to increase along with the unemployment rate during the next year. Fortunately, housing is very affordable and reluctant buyers appear to be taking advantage of current opportunities.
Transcript of October 2009 - Transition to Recovery
Transition to RecoveryGary Thayer
Chief Macro Strategist
October 22, 2009
22
Boom-Bust-Recovery
The economic boom earlier this decade set the stage for a deep recession.
There was even talk of depression last winter.
The worst case scenario did not happen.
Signs of stabilization surfaced this spring.
Signs of recovery are beginning now.
Low inflation created economic boom
CONSUMER PRICE INFLATION
% Change Year-to-Year
100500959085807570Source: Bureau of Labor Statistics /Haver Analytics
16
12
8
4
0
-4
16
12
8
4
0
-4
Savings rate declined as wealth grew
PERSONAL SAVINGS RATE
Percent of disposable income
100500959085807570
Source: Bureau of Economic Analysis /Haver Analytics
12.5
10.0
7.5
5.0
2.5
0.0
12.5
10.0
7.5
5.0
2.5
0.0
Housing boomed then dropped
EXISTING SINGLE-FAMILY HOME SALES
Seasonally adjusted annual rate, units
0908070605040302010099Source: National Association of Realtors /Haver Analytics
6400000
6000000
5600000
5200000
4800000
4400000
4000000
6400000
6000000
5600000
5200000
4800000
4400000
4000000
Home prices declined sharply
S&P/CASE-SHILLER HOME PRICE INDEX, Composite major 20 city
average home price in Jan-00 is indexed to equal 100
0908070605040302010099Source: S&P, Fiserv, and MacroMarkets LLC /Haver Analytics
220
200
180
160
140
120
100
220
200
180
160
140
120
100
Unemployment at 26 year high
UNEMPLOYMENT RATE Percent
LR.EMF (USECON) LR 6601-11012
UNEMPLOYMENT RATE
Percent of labor force
100500959085807570Source: Bureau of Labor Statistics /Haver Analytics
12
10
8
6
4
2
12
10
8
6
4
2
88
Good news
Home purchases are more affordable.
Cash-for-clunkers program shows consumers willing to take advantage of bargains.
Manufacturing orders are growing again.
Freight shipping may be turning up.
Job losses are diminishing.
Payment rates have dropped
HOUSING AFFORDABILITY, median priced home
Principal & interest payment as a percent of median income
0908070605040302010099Source: National Association of Realtors /Haver Analytics
26
24
22
20
18
16
14
26
24
22
20
18
16
14
Ratio: median home price to per capita income
10
Jan-1966Mar-1966May-1966Jul-1966Sep-1966Nov-1966Jan-1967Mar-1967May-1967Jul-1967Sep-1967Nov-1967Jan-1968Mar-1968May-1968Jul-1968Sep-1968Nov-1968Jan-1969Mar-1969May-1969Jul-1969Sep-1969Nov-1969Jan-1970Mar-1970May-1970Jul-1970Sep-1970Nov-1970Jan-1971Mar-1971May-1971Jul-1971Sep-1971Nov-1971Jan-1972Mar-1972May-1972Jul-1972Sep-1972Nov-1972Jan-1973Mar-1973May-1973Jul-1973Sep-1973Nov-1973Jan-1974Mar-1974May-1974Jul-1974Sep-1974Nov-1974Jan-1975Mar-1975May-1975Jul-1975Sep-1975Nov-1975Jan-1976Mar-1976May-1976Jul-1976Sep-1976Nov-1976Jan-1977Mar-1977May-1977Jul-1977Sep-1977Nov-1977Jan-1978Mar-1978May-1978Jul-1978Sep-1978Nov-1978Jan-1979Mar-1979May-1979Jul-1979Sep-1979Nov-1979Jan-1980Mar-1980May-1980Jul-1980Sep-1980Nov-1980Jan-1981Mar-1981May-1981Jul-1981Sep-1981Nov-1981Jan-1982Mar-1982May-1982Jul-1982Sep-1982Nov-1982Jan-1983Mar-1983May-1983Jul-1983Sep-1983Nov-1983Jan-1984Mar-1984May-1984Jul-1984Sep-1984Nov-1984Jan-1985Mar-1985May-1985Jul-1985Sep-1985Nov-1985Jan-1986Mar-1986May-1986Jul-1986Sep-1986Nov-1986Jan-1987Mar-1987May-1987Jul-1987Sep-1987Nov-1987Jan-1988Mar-1988May-1988Jul-1988Sep-1988Nov-1988Jan-1989Mar-1989May-1989Jul-1989Sep-1989Nov-1989Jan-1990Mar-1990May-1990Jul-1990Sep-1990Nov-1990Jan-1991Mar-1991May-1991Jul-1991Sep-1991Nov-1991Jan-1992Mar-1992May-1992Jul-1992Sep-1992Nov-1992Jan-1993Mar-1993May-1993Jul-1993Sep-1993Nov-1993Jan-1994Mar-1994May-1994Jul-1994Sep-1994Nov-1994Jan-1995Mar-1995May-1995Jul-1995Sep-1995Nov-1995Jan-1996Mar-1996May-1996Jul-1996Sep-1996Nov-1996Jan-1997Mar-1997May-1997Jul-1997Sep-1997Nov-1997Jan-1998Mar-1998May-1998Jul-1998Sep-1998Nov-1998Jan-1999Mar-1999May-1999Jul-1999Sep-1999Nov-1999Jan-2000Mar-2000May-2000Jul-2000Sep-2000Nov-2000Jan-2001Mar-2001May-2001Jul-2001Sep-2001Nov-2001Jan-2002Mar-2002May-2002Jul-2002Sep-2002Nov-2002Jan-2003Mar-2003May-2003Jul-2003Sep-2003Nov-2003Jan-2004Mar-2004May-2004Jul-2004Sep-2004Nov-2004Jan-2005Mar-2005May-2005Jul-2005Sep-2005Nov-2005Jan-2006Mar-2006May-2006Jul-2006Sep-2006Nov-2006Jan-2007Mar-2007May-2007Jul-2007Sep-2007Nov-2007Jan-2008Mar-2008May-2008Jul-2008Sep-2008Nov-2008Jan-2009Mar-2009May-2009Jul-20095.0
6.0
7.0
8.0
9.0
HOUSING IS AFFORDABLE AGAIN
Home price/ per capita income
Source: Haver Analytics, Wells Fargo Advisors
Vehicle sales spike temporarily
TOTAL LIGHT WEIGHT VEHICLE SALES
Seasonally adjusted annual rate, millions of vehicles
10090807060504030201009998Source: Bureau of Economic Analysis/Haver Analytics
22.5
20.0
17.5
15.0
12.5
10.0
7.5
22.5
20.0
17.5
15.0
12.5
10.0
7.5
Orders increase broadly
INSTITUTE FOR SUPPLY MANAGEMENT MANUFACTURING INDEX
NEW ORDERS INDEX , 50+ = Expansion
0908070605040302010099Source: Institute for Supply Management /Haver Analytics
80
70
60
50
40
30
20
80
70
60
50
40
30
20
Freight transport may be turning up
TRANSPORTATION SERVICES INDEX: FREIGHT
Freight activity in 2000 indexed to equal 100
1005009590Source: Bureau of Transportation Statistics /Haver Analytics
120
110
100
90
80
70
60
120
110
100
90
80
70
60
Fewer job cuts
MONTHLY CHANGE IN NONFARM PAYROLLS
Thousands of workers
1005009590Source: Bureau of Labor Statistics /Haver Analytics
750
500
250
0
-250
-500
-750
750
500
250
0
-250
-500
-750
1515
Sentiment is still depressed
History suggests business sentiment turns before consumer sentiment.
We need to see business sentiment rise relative to consumer sentiment.
This has not happened yet.
In a recovery business confidence tends to rise relative to consumer confidence
16
1986 - Jan 1988 - Jan 1990 - Jan 1992 - Jan 1994 - Jan 1996 - Jan 1998 - Jan 2000 - Jan 2002 - Jan 2004 - Jan 2006 - Jan 2008 - Jan-4
-3
-2
-1
0
1
2
3
Business v. consumer confidence
bus conf cons conf
Source: Haver Analytics, Wells Fargo Advisors
Fed lending has jumped sharply
17
FED LENDING,
$ Billions, seasonally adjusted annual rate
090807060504030201009998
Source: Federal Reserve Board /Haver Analytics
1200
800
400
0
-400
-800
1200
800
400
0
-400
-800
Non-Fed lending has dropped even more
TOTAL NON-FED LENDING$ Billions, seasonally adjusted annual rate
FED LENDING$ Billions, seasonally adjusted annual rate
090807060504030201009998
Source: Haver Analytics
6000
4000
2000
0
-2000
6000
4000
2000
0
-2000
1919
Conclusions
The recession appears to have ended in June.
Deep recessions are usually followed by strong recoveries.
This recovery is more likely to be modest.
Greatest risk is from an unexpected event.
2020
© 2009 Wells Fargo Advisors, LLC. All rights reserved. 0509-1794 [74566-v1] 5/09
Wells Fargo Advisors is the trade name under which Wells Fargo & Company provides brokerage services through two registered broker-dealers:Wells Fargo Advisors, LLC, Member SIPC, and Wells Fargo Advisors Financial Network, LLC, Member SIPC. Each broker-dealer is a separate non-bank affiliateof Wells Fargo & Company.
Past performance is not an indication of future results.
