Only the first 11 slides were presented in the Global Gateway Seminar
Text of Are we there yet? Searching for the bottom of the recession of 2007
1. Are we there yet? Searching for the bottom of the recession of 2007 Edward (Ned) Hill Dean, Levin College of Urban Affairs Cleveland State University September 29, 2009
2. Slow down in business starts tied to the recession Drop is deeper than in the2001 recession Source: Wall Street Journal, electronic edition, September 28,2009; http://online.wsj.com/article/SB125409527512844979.html Edward (Ned) Hill 2
3. Coming events 1. Review of forecasts 2. Indicators of reaching a turning point 3. Current economic situation 4. Performance of critical industries Edward (Ned) Hill 3
4. World in recession o World Bank: Forecasts o Global growth is also expected to be negative in 2009, with an expected 2.9% contraction in global GDP o Global GDP growth is expected to rebound to 2.0% in 2010 and 3.2% by 2011 o N. America leads industrial world's recovery o Recovery starts in 2009 Q3 (July-September) o Europe - deeper recession than North America, about 1% point lower o BRIC - growth rates slow (Brazil negative) o Japan - back to economic stupor o Recovery in employment growth will lag. In the US: o 1990 recession 9 months long: employment recovered in 32 months o 2001 recession 9 months long: employment recovered in 48 months o We are in month 19 of the 2007 recession & will it will last for last 22-24 months. When will employment be fully recovered? A guess is 5 years or 60 months. Edward (Ned) Hill 4
5. Forecasts of annual percent change in GDP; improving over time Source: The Economist, electronic edition, retrieved September 7, 2009 from http://www.economist.com/markets/ Edward (Ned) Hill 5 indicators/displaystory.cfm?story_id=14365843
6. Recession over: 6 month percent change in GDP Forecast data from July 2009 on Source: HIS Global Insight and USA Today Edward (Ned) Hill 6
7. Source: Wall Street Journal Sept 25, Edward (Ned) Hill 7 2009
8. World in recession Recent forecasts of annual percent change in real GDP Forecasts United States Sources: The Conference Board; The Economist; OECD, Economic Outlook, Interim Report; Survey of Professional Forecasters, Philadelphia Federal Edward (Ned) Hill Reserve Bank; International Monetary Fund, World Economic Outlook; European Union, Economic Forecast; World Bank Global Development Finance 8 World Book, 2009
9. What is the outlook? o Where we were: Liquidity trap, credit crunch Forecasts o Collateralized debt obligations (CDOs)mortgage, consumer credit, autos, student o Commercial Paper Market o Interbank lending, and calls on bank capital o Credit Default Swaps (CDS aka: insurance) became the chips at a casino o Where we are: Macroeconomic problems affect core domestic sectors o Finance o Automobile assembly o Housing related: Construction and building materials, Furniture, Logistics o Retail--consumer spending o Education Edward (Ned) Hill 9
10. Where we will be: Public policy questions that require answers o How big a deficit? How long do you run a deficit? Forecasts o Energyregulate to a goal or create market incentives? o How do you regulate? o Financial transparency or accounting standards? o Can we monitor behaviors to rebuild credit culture & savings culture? o Banking and moral hazard: What is a bank? Financial markets are governed by a balance between greed and fear. How do we put fear of failure back in? o How do you regulate the shadow financial system and ensure transparency o Automobiles and fuel prices? Do you regulate by constraining choices or by increasing the price of oil used in motor fuel by increasing the motor fuels tax? Do you use the revenue to support general transportation infrastructure investments? o When will we increase federal taxes to address the long- term structural deficit? Edward (Ned) Hill 10
11. Just the facts Events o Liquidity trap became evident in Summer 2007; November 2007 interbank lending slows o NBERthe recession started in December 2007 (Declared in November 28, 2008) o September 2008 acceleration of bad news and September 15 look into the abyss of frozen credit markets o Sept 15 Bank of America announces intent purchase Merrill Lynch o Sept 15 Lehman files for Chapter 11 bankruptcy o Sept 16 Reserve Primary Fund breaks the buck o Sept 16 The Fed advances $85 billion to AIG o Sept 17 SEC bans short selling ban of financial sector stocks o 49 out of 50 states are in recession (Alaska benefits from oil prices and extraction taxes) o End of the housing bubble removed $3.5 trillion in household wealth from 2006 (4) to 2008(4). o Net worth of households dropped by 20% in 18 months 2007(2) to 2008(4) or $12.9 trillion o Every $1 lost consumer wealth decreases spending by 5 cents over the next two years ($322.1 billion per year) Edward (Ned) Hill 11
12. Quarterly Real GDP and 12-month percent change in Quarterly Real GDP from 1979(1) to 2008(4) General performance Real GDP in Billions of $2000 12-month percent change in Real GDP Real GDP in billions of $2000 12-month Percent Change Source: US Bureau of Economic Analysis, National Income and Quarterly data, last data point first Product Accounts, Retrieved June 27, 2009 from FRED, St Louis Edward (Ned) Hill quarter of 2009 12 Federal Reserve Bank. Released June 25,2009. Recessions are shaded.
13. Number of people employed in the economy and the Unemployment Rate, monthly 1979 to 2009 General Performance Number of Jobs Unemployment Rate Number Employed (000) Unemployment Rate Source: US Bureau of Labor Statistics, Current Population Survey, retrieved from FRED, St Louis Federal Reserve Bank, July 5, 2009. Edward (Ned) Hill 13 Recessions are shaded
14. The 4-week moving average of new unemployment insurance claims usually trends down at the end of recessionsthis is encouraging Search for the bottom 4 week average of number of claims Source: Bureau of Labor Statistics, Unemployment Insurance Weekly Claims Retrieved July 5, 2009 from FRED, St Louis Edward (Ned) Hill 14 Federal Reserve Bank .