Wells Fargo Economics Scott Anderson, Ph.D. Vice President Senior Economist Plunging Into The New...
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Transcript of Wells Fargo Economics Scott Anderson, Ph.D. Vice President Senior Economist Plunging Into The New...
Wells Fargo EconomicsWells Fargo Economics
Scott Anderson, Ph.D.Scott Anderson, Ph.D.Vice PresidentVice PresidentSenior EconomistSenior Economist
Plunging Into The New YearPlunging Into The New Year
Durango, CODurango, CO
January 9, 2008January 9, 2008
U.S. Economy U.S. Economy
SevereSevere
Recession Recession
Worst in Post-War Worst in Post-War PeriodPeriod
Change in Total Nonfarm Payroll
(600)
(500)
(400)
(300)
(200)
(100)
-
100
200
300
11-06 5-07 11-07 5-08 11-08
000s
Source: Bureau of Labor Statistics
Estimated Level of Monthly Job Gains Needed to AbsorbLabor Force Growth
Overall Unemployment Rate
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.0
11-98 11-99 11-00 11-01 11-02 11-03 11-04 11-05 11-06 11-07 11-08
Percentage
Source: Bureau of Labor Statistics
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08
Retail Sales and Hourly Earnings GrowthY/Y%
Real ex. gasolineretail sales
Real hourlyearnings
Source: Census Bureau; Bureau of Labor Statistics; Wells Fargo Economics
15
20
25
30
35
40
45
Nov-88 Nov-93 Nov-98 Nov-03 Nov-08
Source: National Federation of Independent Business; Wells Fargo Economics
Capital Expenditure Plans PlummetPercent of Small Businesses Planning Capital Expenditures in 3-6 months
New Factory Orders
(14)(12)(10)
(8)(6)(4)(2)
-2468
101214
11-06 5-07 11-07 5-08 11-08
YOY Pct Chg
Source: Census Bureau
ISM Non-Manufacturing
30
40
50
60
70
12-05 6-06 12-06 6-07 12-07 6-08 12-08
Index
Source: Institute for Supply Management
Leading Economic Indicators
(4.0)
(2.0)
-
2.0
4.0
11-05 5-06 11-06 5-07 11-07 5-08 11-08
YOY Pct Chg
-3.7
Source: The Conference Board
U.S. Recession Comparisons
PCE (%)
NRFI (%)
UE (PP)
Jobs (%)
Jobs (#, mil)
’73-’75 -1.8% NA +4.1 -2.0% -1.6
’81-’82 -0.8% NA +3.3 -3.0% -2.7
’90-’91 -1.1% -8.2% +2.3 -1.4% -1.5
’08-’09 -3.1% -12.3% +4.4 -4.0% -5.5
Source: BEA; BLS; Wells Fargo Economics
Peak to trough changes
65
43
16
16
12 7
0 10 20 30 40 50 60 70
October 1873 -March 1879
August 1929 -March 1933
November 1973 -March 1975
July 1981 -November 1982
December 2008 - ?
U.S. Recessions
Months (Peak to Trough)
Source: NBER; Wells Fargo Economics
Forecast
$-
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
1958Q2 1968Q2 1978Q2 1988Q2 1998Q2 2008Q2
Home MortgagesBil
Source: Federal Reserve Flow of Funds; Wells Fargo Economics
0%
20%
40%
60%
80%
100%
120%
140%
160%
1958Q2 1968Q2 1978Q2 1988Q2 1998Q2 2008Q2
Debt Ratios
Percent of personal disposable income
Source: Federal Reserve Flow of Funds; Wells Fargo Economics
Total householddebt
Mortgage debt
-18.0-20
-15
-10
-5
0
5
10
15
20
10/31/2003 10/31/2004 10/31/2005 10/31/2006 10/31/2007 10/31/2008
Case-Shiller Home Price IndexY/Y%
Source: Case-Shiller
Top 20 U.S. cities
-25%
-20%
-15%
-10%
-5%
0%
Boston
Chicag
o
Denve
r
Las V
egas
Los Angel
es
Mia
mi
New Y
ork
San D
iego
San F
ranci
sco
Was
hingto
n
Composi
te
November 2008 February 2009 May 2009August 2009 November 2009 February 2010
CME Real Estate Futures Expected price growth from October 2008Percent
Source: CME; Wells Fargo Economics
$(2,515)$(2,744)
$(5,259)$(6,000)
$(5,000)
$(4,000)
$(3,000)
$(2,000)
$(1,000)
$-
Real Estate Stocks Total
Wealth Destruction
Decline from peak to Q308
Billions
Source: Federal Reserve; Wells Fargo Economics
Senior Loan Officer Survey Credit CrunchWillingness to Lend - Consumer Loans
-60
-50
-40
-30
-20
-10
0
10
20
30
40
1990Q4 1993Q4 1996Q4 1999Q4 2002Q4 2005Q4 2008Q4
Net Percentof Banks
Source: Federal Reserve Board
More Willing
Less Willing
Standards for Approval
-20
-10
0
10
20
30
40
50
60
70
80
1996Q4 1998Q4 2000Q4 2002Q4 2004Q4 2006Q4 2008Q4
Credit Card Loans Other than Credit Card Loans
Net Percentof Banks
Source: Federal Reserve Board
Easing Standards
Tightening Standards
Demand for Consumer Loans
-60
-50
-40
-30
-20
-10
0
10
20
30
40
50
1992Q4 1996Q4 2000Q4 2004Q4 2008Q4
Net Percentof Banks
Source: Federal Reserve Board
Stronger Demand
Weaker Demand
Mortgage Standards
-20-10
0102030405060708090
100
1996Q4 1998Q4 2000Q4 2002Q4 2004Q4 2006Q4 2008Q4
Net Percentof Banks
Source: Federal Reserve Board
Tightening Standards
Easing Standards
Sub-primeNon-traditionalPrime
Senior Loan Officer Survey Credit CrunchStandards for C&I Loans
-40
-20
0
20
40
60
80
100
1990Q4 1993Q4 1996Q4 1999Q4 2002Q4 2005Q4 2008Q4
to Large and Medium Firms
to Small Firms
Net Percentof Banks
Source: Federal Reserve Board
Tightening Standards
Easing Standards
Demand for C&I Loans
-80
-60
-40
-20
0
20
40
60
1990Q4 1993Q4 1996Q4 1999Q4 2002Q4 2005Q4 2008Q4
to Large and Medium Firms
to Small Firms
Net Percentof Banks
Source: Federal Reserve Board
Stronger Demand
Weaker Demand
Spreads
-80
-60
-40
-20
0
20
40
60
80
100
120
1990Q4 1993Q4 1996Q4 1999Q4 2002Q4 2005Q4 2008Q4
to Large and Medium Firms
to Small Firms
Net Percentof Banks
Source: Federal Reserve Board
Increasing Spreads
Narrowing Spreads
Credit Spreads Near Record Peaks
100
150
200
250
300
350
400
450
500
550
600
650
1/2/
2002
1/2/
2003
1/2/
2004
1/2/
2005
1/2/
2006
1/2/
2007
1/2/
2008
1/2/
2009
Moody's Baa Corporate BondsSpread over 10-year Treasury yield
Basis points
Source: Bloomberg; Federal Reserve
100
200
300
400
500
600
700
800
900
1000
1/2/2004 1/2/2005 1/2/2006 1/2/2007 1/2/2008 1/2/2009
Emerging Markets IndexSpread over theoretical U.S. zero coupon curveBasis points
Source: JPMorgan Bond Incides
0
200
400
600
800
1000
1200
1400
1600
1800
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08
High Yield IndexSpread over 10-year Treasury yield
Source: Citigroup
BasisPoints
120
140
160
180
200
220
240
260
280
300
1/2/
2002
1/2/
2003
1/2/
2004
1/2/
2005
1/2/
2006
1/2/
2007
1/2/
2008
1/2/
2009
30-Year Mortgage vs. 10-Year TreasuryBasis points
Source: Federal Reserve; Freddie Mac
Spread over 10-year Treasury yield
0
10
20
30
40
50
60
70
80
90
Dec-88 Dec-93 Dec-98 Dec-03 Dec-08
NAHB/Wells Fargo Homebuilder Confidence Index
Source: National Association of Homebuilders
Index
New Home Sales
300
400
500
600
700
800
900
1,000
1,100
1,200
1,300
1,400
11-05 5-06 11-06 5-07 11-07 5-08 11-08
000sSAAR
Source: Census Bureau
Single-family
New Home Inventories
0
2
4
6
8
10
12
Nov-05 Nov-06 Nov-07 Nov-08
Months Supply
Source: Census Bureau
Single-family
0
500
1000
1500
2000
2500
3000
Nov-63 Nov-68 Nov-73 Nov-78 Nov-83 Nov-88 Nov-93 Nov-98 Nov-03 Nov-08
Source: Commerce Dept.
Residential Building PermitsSAAR000's
Existing Home Sales
4.00
4.50
5.00
5.50
6.00
6.50
7.00
7.50
11-05 5-06 11-06 5-07 11-07 5-08 11-08
Millions SAAR
Source: National Association of Realtors
Total
Existing Home Inventory
11.2
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
Nov-05 Nov-06 Nov-07 Nov-08
MonthsSupply
Source: National Association of Realtors
Total
-40
-30
-20
-10
0
10
20
30
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
500
700
900
1,100
1,300
1,500
1,700
1,900
2,100
2,300
Source: Census Bureau; Bureau of Economic Analysis; Wells Fargo Economics
Housing Market OutlookAnnualizedQrtly % change Ths., SAAR
2006 2007 2008
H F
Residential FixedInvestment (L)
Private HousingStarts (R)
2009
Washington to the Washington to the Rescue! Rescue!
Stimulus, Stimulus, Stimulus, and Stimulus, and More StimulusMore Stimulus
Fed ActivityFed Activity
0
1
2
3
4
5
6
Dec-04 Dec-05 Dec-06 Dec-07 Dec-08
FCST
Federal Funds Target Rate
Source: Federal Reserve
$-
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
12/2
7/20
00
12/2
7/20
01
12/2
7/20
02
12/2
7/20
03
12/2
7/20
04
12/2
7/20
05
12/2
7/20
06
12/2
7/20
07
12/2
7/20
08
Fed Balance Sheet
Source: Federal Reserve
Mil, NSA
$1.3 trillion increase since August 2008
Liquidity Improved
But Still Abnormal!
Despite Fed’s Extensive Credit Facilities and Lending
0
50
100
150
200
250
300
350
400
450
1/2/
2002
1/2/
2003
1/2/
2004
1/2/
2005
1/2/
2006
1/2/
2007
1/2/
2008
1/2/
2009
Commercial Paper SpreadBasis points
Source: Bloomberg
90-day asset-backed commercial paper yield less 3-month Treasury yield
0
50
100
150
200
250
300
350
400
450
1/2/
2002
1/2/
2003
1/2/
2004
1/2/
2005
1/2/
2006
1/2/
2007
1/2/
2008
1/2/
2009
LIBOR SpreadBasis points
Source: Bloomberg
3-month LIBOR less 3-month Treasury yield
$-
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
$800,000
$900,000
Dec-00 Dec-01 Dec-02 Dec-03 Dec-04 Dec-05 Dec-06 Dec-07 Dec-08
Excess Bank Reserves
Source: Federal Reserve
Mil, NSA
$765.4 billion increase since August 2008
0%
3%
6%
9%
12%
Nov-00 Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08
Money Supply (M2)
Source: Federal Reserve
Y/Y%
$(2,000)
$(1,500)
$(1,000)
$(500)
$-
$50019
99
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: CBO
Federal Budget Surplus/DeficitBillions
H F
-35.0
-30.0
-25.0
-20.0
-15.0
-10.0
-5.0
.0
5.0
10.0
1939 1949 1959 1969 1979 1989 1999 2009 2019
Federal Budget Surplus/Deficit (% of GDP)
H F
Source: CBO; Economic Report of the President
.0
20.0
40.0
60.0
80.0
100.0
120.0
1939 1949 1959 1969 1979 1989 1999 2009 2019
Federal Debt (% of GDP)
H F
Source: CBO; Economic Report of the President
Outlook Darkens
4.8
2.7
0.81.5
0.1
4.8 4.8
-0.2
0.9
2.8
-0.5
-6.2
-4.2
-1.3
1.2 1.6
-8
-6
-4
-2
0
2
4
6
2006.1 2007.1 2008.1 2009.1
HISTORY FORECAST
Q/Q%ChangeReal GDP Annualized
Consumer Price Index
(2.0)(1.8)(1.6)(1.4)(1.2)(1.0)(0.8)(0.6)(0.4)(0.2)-0.20.40.60.81.01.21.4
11-05 5-06 11-06 5-07 11-07 5-08 11-08
MOM Pct Chg
Source: Bureau of Labor Statistics
-1.7
Inflation Expectations
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1/2/2005 1/2/2006 1/2/2007 1/2/2008 1/2/2009
Yield
10-Year Treasury less TIPS Yields
Source: Federal Reserve; Wells Fargo Economics
BOND YIELDS
2
3
4
5
6
7
8
9
10
1/2/2008 3/2/2008 5/2/2008 7/2/2008 9/2/2008 11/2/2008 1/2/2009
AAA Corporates
BAA Corporates
30 Yr Mortgage Rate
Percent
Source: Moody's Investors Service; Federal Reserve; Freddie Mac; Wells Fargo Economics
10-Year Treasury