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When Will It End?
Presented by:
Augustine Faucher,Director of Macroeconomics
Presented by:
Augustine Faucher,Director of Macroeconomics
January 12, 2009
2
How Bad Is It?How Bad Is It?
3
The Recession Is Intensifying…
Cumulative job loss, ths
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
J '08 F M A M J J A S O N D
4
Expansion
Recovery
At Risk
In Recession
…Across Most States…
Based on employment and industrial production, November 2008
5
Expansion
Recovery
At Risk
In Recession
Based on employment and industrial production, November 2008
…And Metro Areas
6
Household debt in delinquency or default, $ bil, annualized
0
100
200
300
400
500
600
700
800
900
'00 '01 '02 '03 '04 '05 '06 '07 '08
Default90-120 Days60-90 Days30-60 Days30 Days
Sources: Equifax, Moody’s Economy.com
…As Households Buckle Under The Stress
Improving Expanding
SlippingContracting
An
nu
alized
3-m
o.
% c
han
ge
NOTE: Size reflects relative total employment
Chart 7:One-year vs. 3-month performance (3-mo. MA)
% change year ago
- 3.0
- 2.5
- 2.0
- 1.5
- 1.0
- 0.5
0.0
0.5
1.0
- 1.0 - 0.5 0.0 0.5 1.0 1.5
November 2008
[-3.07,-4.52]
Middle Atlantic
New England
South Atlantic
May 2008
Northeast States
Northeast States—Payroll Employment
New York
Pennsylvania
New Jersey
Massachusetts
Connecticut
New Hampshire
Maine
Rhode Island
Vermont
Maryland
District Of Columbia
Delaware
U.S.U.S.U.S.
[1.67,1.06]
[-2.01,-4.05]
Improving Expanding
SlippingContracting
An
nu
alized
3-m
o.
% c
han
ge
NOTE: Size reflects relative total employment
Chart 8:One-year vs. 3-month performance (3-mo. MA)
% change year ago
- 3.0
- 2.5
- 2.0
- 1.5
- 1.0
- 0.5
0.0
0.5
1.0
- 1.0 - 0.5 0.0 0.5 1.0 1.5
Middle Atlantic
New England
South Atlantic
Northeast States
November 2008
Northeast States—Payroll Employment
New York
Pennsylvania
New JerseyMassachusetts
Connecticut
New Hampshire
Maine
Rhode Island
Vermont
Maryland
District Of Columbia
Delaware
U.S.
[-3.07,-4.52]
Improving Expanding
SlippingContracting
An
nu
alized
3-m
o.
% c
han
ge
NOTE: Size reflects relative total employment
Chart 9:One-year vs. 3-month performance (3-mo. MA)
% change year ago
November 2008
- 3.5
- 3.0
- 2.5
- 2.0
- 1.5
- 1.0
- 0.5
0.0
0.5
1.0
1.5
- 1.0 - 0.5 0.0 0.5 1.0 1.5
Middle Atlantic
New England
South Atlantic
May 2008
Northeast Metro Areas
Northeast Metro Areas—Payroll Employment
New York
Philadelphia
Nassau
Pittsburgh
Edison
Newark
BuffaloCamden
Rochester
Albany
Harrisburg
Syracuse
Trenton
Boston
Providence
Hartford
Bridgeport
New Haven
Springfield
Portland
ManchesterWashington
Baltimore
Bethesda
Wilmington
U.S.U.S.U.S.
[1.08,2.13]
[-1.82,-4.19]
[-2.6,-3.88]
Improving Expanding
SlippingContracting
An
nu
alized
3-m
o.
% c
han
ge
NOTE: Size reflects relative total employment
Chart 10:One-year vs. 3-month performance (3-mo. MA)
% change year ago
- 3.5
- 3.0
- 2.5
- 2.0
- 1.5
- 1.0
- 0.5
0.0
0.5
1.0
1.5
- 1.0 - 0.5 0.0 0.5 1.0 1.5
Middle Atlantic
New England
South Atlantic
Northeast Metro Areas
November 2008
Northeast Metro Areas—Payroll Employment
New York
Philadelphia
Nassau
Pittsburgh
Edison
Newark
Buffalo
Camden
Rochester
Albany
Harrisburg
Syracuse
Trenton
Boston
Providence
Hartford
Bridgeport
New Haven
Springfield
Portland
Manchester
Washington
Baltimore
Bethesda
Wilmington
U.S.
[-2.6,-3.88]
11
-1.0
-0.5
0.0
0.5
1.0
1.5
07 08104
106
108
110
112
114
116
118
Estimated industrial production, 2002=100 (R)Source: Moody's Economy.com
Connecticut Falls Into Recession
Employment, % change year ago
12
4.0
4.5
5.0
5.5
6.0
6.5
07 0817
18
19
20
21
22
23
24
25
26
Unemployment rate, % (L)
Rapid Weakening in Connecticut Labor Market
Initial unemployment insurance claims, ths (R)
3 mo. MA
13
How Did We Get Into This Mess?How Did We Get Into This Mess?
14
100
120
140
160
180
200
00 01 02 03 04 05 06 07 08
The Bursting Housing Bubble…
Fiserv Case Shiller National House Price Index, 2000Q1=100
-23%
-6%
U.S.
CT
15
500
1,000
1,500
2,000
2,500
3,000
00 01 02 03 04 05 06 07 08
Sources: Equifax, Moody's Economy.com
First mortgage loan defaults, ths, SAAR
…Ignites a Mortgage Crisis…
16
Projected losses on assets originated 2004Q1-2007Q4, $ bil
0
100
200
300
400
500
600
700
800
Banks Other financial Government
At risk mortgages20,000,000Foreclosure rate 40%
Foreclosed mortgages 8,000,000Loss rate 50%
Mortgage loss $800 bil
Residential mortgages
Consumer loans
Commercial mortgages
Corporate
…Undermining the Financial System…
17
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08
Difference between 3 month Libor and Treasury bill yields
…And Pushing It to the Precipice of Collapse
S&L crisis
Subprimefinancialshock
Peso crisis
LTCMTechbustOrange
County
Thai baht
Y2K
18
What Is the Economic Fallout?What Is the Economic Fallout?
19
The Worst Downturn Since the Great Depression
Recessions since World War II
Recession Expansion Real NonfarmPeak Trough Peak to Trough Trough to Peak GDP Employment Low High Change
December 2007 September 2009 21 -- -2.8% -3.7% 4.4% 9.0% 4.6%March 2001 November 2001 8 120 -0.4% -1.2% 3.9% 6.3% 2.4%July 1990 March 1991 8 92 -1.5% -1.3% 5.2% 7.8% 2.6%July 1981 November 1982 16 12 -2.8% -3.2% 7.2% 10.8% 3.6%January 1980 July 1980 6 58 -2.2% -1.2% 5.6% 7.8% 2.2%November 1973 March 1975 16 36 -3.4% -1.8% 4.6% 9.0% 4.4%December 1969 November 1970 11 106 -0.2% -1.2% 3.4% 6.1% 2.7%April 1960 February 1961 10 24 -0.5% -2.3% 4.8% 7.1% 2.3%August 1957 April 1958 8 39 -3.2% -4.0% 3.7% 7.4% 3.7%July 1953 May 1954 10 45 -1.9% -3.0% 2.5% 6.1% 3.6%November 1948 October 1949 11 37 -1.6% -5.0% 3.4% 7.9% 4.5%
Average 10 57 -1.8% -2.4% 4.4% 7.6% 3.2%
Sources: NBER, BEA, FRB, BLS, Moody's Economy.com
Jobless Rate
Peak-to-Trough% ChangeDuration in Months
20
Bond issuance, $ bil, annualized, Source: Thomson
0
500
1,000
1,500
2,000
2,500
3,000
'00 '01 '02 '03 '04 '05 '06 '07 '08h1 '08q3 '08q4
HG CorpHY CorpCDOABSCMBSRMBS
The Credit Spigot Closes…
21
Net % tightening standards, Source: Federal Reserve
-30
0
30
60
90
90 92 94 96 98 00 02 04 06 08
Commerical & I ndustrial
Commercial MortgageCredit Card
…And Banks Are In Survival Mode
22
30
40
50
60
70
80
90
100
110
120
130
140
150
69 72 75 78 81 84 87 90 93 96 99 02 05 08
The Collective Psyche Has Been Shattered…
Consumer confidence, 1985 = 100
Source: Conference Board
23
Net % of businesses responding positively to Dismal survey
-40
-30
-20
-10
0
10
20
30
40
50
03 04 05 06 07 08 09
Source: Moody’s Economy.com
…Completely Shattered
24
Nest Eggs Crack…
Household net worth, $ tri
50
52
54
56
58
60
62
64
'06 '07 '08
Stocks -9Housing -4Other +1
25
-15
-10
-5
0
5
10
15
20
05 06 07 08 090
1
2
3
4
5
6
7
8
9
Median sale price, existingsingle-family home, 6 mo. lead (L)Source: NAR
Core retail sales, 3 mo. MA (R)
…Forcing Consumers to Batten Down the Hatches…
% change year ago
26
-15
-10
-5
0
5
10
15
90 92 94 96 98 00 02 '04 '06 '08
Homeowners who borrowedagainst their homesHomeowners who did notborrow against their homesRenters
Personal saving rate, %
Source: Moody's Economy.com
...Particularly Profligate Homeowners
Recovery Expansion
StrugglingRecession
An
nu
alized
% c
han
ge
NOTE: Size reflects relative GDP
% change year ago
- 2.5
- 1.5
- 0.5
0.5
1.5
2.5
3.5
4.5
5.5
6.5
7.5
- 3.0 - 2.0 - 1.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0
Europe
North America
South AmericaAsia
France
Greece
Germany
Italy
SpainUnited Kingdom
U.S.
Chile
China[9.12,7.45]
Hong Kong
Indonesia
Japan
Korea
Singapore[-0.64,4.94]
Taiwan[-0.99,-8.7]
Thailand
Vietnam[6.52,9.04]
A Global Recession Is Underway
Real GDP growth, 2008Q3
28
When Will It End?When Will It End?
29
House Prices Hit Bottom In Fall ‘09…
% change from peak Sources: Fiserv Case Shiller, Census
-70
-60
-50
-40
-30
-20
-10
0
Early 1990s
House price Home sales Housing starts
Current downturn to date
Early 1980s
Real House price
Forecast
30
...With Big Differences Across the Country
Projected peak-to-trough house price decline
Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO
0 to -15%No decline
-15 to -30% < -30%
31
12
14
16
18
20
22
24
26
86 88 90 92 94 96 98 00 02 04 06 081.8
2.0
2.2
2.4
Housing Is Becoming More Affordable…
Sources: BEA, Census, PPR, Realtors
Price-income ratio (R)
Price-rentratio (L)
32
…In An Increasing Number of Markets
Based on house price to income and rent ratios
Over-valued
Correctly valued
Under valued
Source: PPR, NAR, Moody's Economy.com
Significantly over-valued
33
Number of vacant homes for sale, ths
1,000
1,250
1,500
1,750
2,000
2,250
00 01 02 03 04 05 06 07 08
Inventories Are Peaking…
Housing supply 900,000Single 525,000Multi 300,000Manufactured 75,000
Housing demand 1,400,000Households 875,000Obsolescence 400,000Second homes 125,000
34
0
5
10
15
20
25
30
35
'00 '01 '02 '03 '04 '05 '06 '07 '08h1 '08q3 '08q4
FHA share of purchase mortgage loans, %
…And More Credit Is On the Way
35
200
300
400
500
600
700
800
00 01 02 03 04 05 06 07 080
20
40
60
80
100
120
140
A Ray of Economic Sunshine
Oil, $ per barrel (R)
Consumer spending, energy goods and services, $ bil (L)
36
Policymakers Work To Quell the Panic…
Equity Investments in Financial Institutions
Zero Effective Federal Funds Rate
Quantitative Easing – CP, GSE Debt and MBS
Lending Facilities and Credit Protection
Insurance for Money Funds, Deposits, Bank Debt
Mortgage Loan Modification Plans
37
Policymakers Work To Quell the Panic…
Federal Reserve Pledged Provided
Term auction credit 900 448Other loans Unlimited 207
Primary credit Unlimited 90Secondary credit Unlimited 0Seasonal credit Unlimited 0Primary Dealer Credit Facility Unlimited 47Asset-Backed Commercial Paper Money Market Mutual Fund Unlimited 27AIG 85 42
Rescue of Bear Stearns (Maiden Lane)** 27 27AIG-RMBS purchase program (Maiden Lane II)** 23 20AIG-CDO purchase program (Maiden Lane III)** 30 20Term Securities Lending Facility 200 26Commercial Paper Funding Facility** 1,800 319TALF 200 0Money Market Investor Funding Facility 600 0Currency swap lines with emerging markets* 120 4Purchase of GSE debt and MBS 600 0Guarantee of Citigroup debt 306 0
Treasury
TARP 700 330Fed supplementary financing account 479 479Back stop of Fannie Mae and Freddie Mac 200 0
Federal Deposit Insurance Corporation
Guarantee of U.S. banks' debt 1,400 0Transaction deposit accounts 500 0
Federal Housing Administration
Refinancing of mortgages 300 0Congress
Economic Stimulus Act of 2008 170 170Total 8,640 2,050
Sources: Fed, Treasury, FDIC, FHA, Moody's Economy.com*Note: the Fed has unlimited swap lines with several central banks**Net portfolio holdings
38
6
8
10
12
14
16
18
06 07 08 09 10 11 12 13 14 15
Light vehicle sales, SAAR, mil
…With An Auto Bailout…
Source: Moody’s Economy.com
Baseline
Auto bankruptcy scenario
39
5
6
7
8
9
10
11
12
08Q3 08Q4 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4
Economic stimulus
No economic stimulus
Unemployment rate
…A Massive Economic Recovery Package…
40
Number of underwater homeowners, ths
0
2,000
4,000
6,000
8,000
10,000
12,000
06 07 08
Sources: Equifax, Moody's Economy.com
…And a Bigger Foreclosure Mitigation Plan…
41
Homeowners by % of equity, Sep 08, ths
621 1,157 1,9653,449
6,434
11,892
18,649
29,883
0
5,000
10,000
15,000
20,000
25,000
30,000
-50 -40 -30 -20 -10 0 10 20
…As More Homeowners Will Soon Be Underwater…
Source: Equifax, Case Shiller,Moody’s Economy.com
42
Ths
0
500
1,000
1,500
2,000
2,500
3,000
3,500
01 02 03 04 05 06 07 08 09 10 11
Loan DefaultsLost Homes
…And Millions Will Lose Their Homes
Sources: Equifax, Moody’s Economy.com
43
-4
-3
-2
-1
0
1
2
3
07 08 09 10 11
Employment, % change year ago
Connecticut, U.S. Recessions Look Similar
Source: Moody’s Economy.com forecast U.S.
CT
44
A Timeline to Recovery
’08q1 ’08q2 ’08q3 ’08q4 ’09q1 ’09q2 ’09q3 ’09q4 ’10q1 ’10q2 ’10q3 ’10q4
Stock MarketBottoms
Oil PricesPeak
Home SalesBottom
Housing StartsBottom
EmploymentBottoms
House PricesBottoms
ForeclosuresPeak
Jobless RatePeaks
House PricesResume Rising
Financial FailuresAbate
Extraordinary WritedownsEnd
Fed Tightens
$ Rises
45
www.economy.com www.economy.com
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