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Over The (First) Cliff?. OSIA Wilsonville, Oregon January 25, 2013 John W. Mitchell. Late January, 2013. Brush with Disaster Year Four of Upturn-Modest or Moderate 12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough QE4 Underway Weakness in Europe and Japan - PowerPoint PPT Presentation
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Over The (First) Cliff?OSIA
Wilsonville, OregonJanuary 25, 2013
John W. Mitchell
Brush with Disaster Year Four of Upturn-Modest or Moderate 12/2012 Employment 4 Million below 1/2008 but 4.78
million above 2/2010 Trough QE4 Underway Weakness in Europe and Japan Net Worth Rising Largest Increase in Domestic Oil Production in History
of Industry in 2012 Less then Year to Next Stage of the Patient Protection
and Affordable Care Act Lone Ranger Returning-Twinkies GONE!
Late January, 2013
Q1 Q2 Q3
GDP 2% 1.3% 3.1%
Consumption 2.4 1.5 1.6
Equip & Software 5.4 4.8 -2.6
Non-Res Structures 12.9 .6 0
Residential 20.5 8.5 13.5
Federal -4.2 -.2 9.5
State and Local -2.2 -1 .3
Exports 4.4 5.3 1.9
Imports 3.1 2.8 -.8
Real GDP (SAAR) Commerce Department2012
Consum
ption
Goods
Servi
ces
Invest
ment
Struct
ures
Equip
ment& So
ft
Reside
ntial
Inven
tory C
hang
e -.23
%Ex
ports
Impo
rts
Fede
ral
Defense
Non-Defe
nse
State
and L
ocal
-0.40%0.00%0.40%0.80%1.20%
Source: BEA
Contributions to GDP GrowthQ3 2012
Janua
ryMarc
hMay Jul
y
Septe
mber
Novem
ber
Janua
ry Marc
hMay Jul
y
Septe
mber
Novem
ber
050
100150200250300
Source: BLS
2011-12 Nonfarm Payroll Employment Change(,000 SA) Average 153,000 Per Month in
2012 same as 2011
Mining &
Logg
ing
Constr
uction
Manufa
cturin
gTra
de
Trans,
Ware
& Util
Inform
ation
Finan
ce
Profes
siona
l Servi
ces
Ed & Hea
lth
Leisur
e &Hosp
itality
Other S
ervice
s
Federa
l Sta
teLoc
altot
al
-500,000
0
500,000
1,000,000
1,500,000
2,000,000
Annual Job Change December, 2011-December, 2012 (1.4%)
Janua
ryMarc
hMay Jul
y
Septe
mber
Novem
ber
Janua
ryMarc
hMay Jul
y
Septe
mber
Novem
ber
-0.40%
-0.20%
0.00%
0.20%
0.40%
0.60%
0.80%Source:BLS
Consumer Price Index Monthly Changes 2011-121.7% in December
Core 1.9%, Annual Average 3.2% in 2011
Beige Book January 16, 2013 Stable Price Pressures
Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December
Non-Farm Business Year over Year 1.8% Compensation and 1.7% Productivity-Unit Labor Costs .1% Q3
Inflation
1 mon
th
3 mon
ths
6 mon
ths1 y
ear
2 yea
rs
3 yea
rs
5 yea
rs
7 yea
rs
10 ye
ars
20 ye
ars
30 ye
ars0.00%0.50%1.00%1.50%2.00%2.50%3.00%3.50%
1/18/20137/25/2012
Interest Rates Source: US Treasury
Seven Years of Zero Short Term Rates ? 30 Year Mortgage 3.4% on Week Ending
1/11/13 10 Year 1.9% on Week Ending 1/11/13 Fed will tolerate 2.5% Inflation All Treasuries Under 5 Years Yield Less than 1% Personal Interest Income Q4 2007 $1.32
Trillion by Q3 2012 $975.3 Billion Pension Obligations? Earnings on Reserves?
Rates
GDP Growth Fed Central Tendency 2012 1.7-1.8% and 2013 2.3-3%, 3-3.5% in 2014
Consensus Moving from 2% in 2013 to 2.6% in 2014
Drag from Recent Policy Actions ? Inflation Staying Near 2% Through 2014 Fed on Hold Until at Least Mid 2015
Prospects
What happens Overseas ? Dealing with the debt ceiling and
sequesters in the next few months? How will the actors behave ? Taxes,
Healthcare, Uncertainty
Known Unknowns
Jan-05
Jul-051-J
anJul
-06Jan
-07Jul
-07Jan
-08Jul
-08Jan
-09 July
Janua
ry July
Janua
ry July
Janua
ry July
0
500
1,000
1,500
2,000
2,500
Residential Permits (SAAR) Census Bureau December 2012 Up 30.3% For the Year
Bend
Corvall
is
Euge
ne
Medfor
d
Portla
ndSa
lem
-50.00%
-40.00%
-30.00%
-20.00%
-10.00%
0.00%
10.00%
I Year5 Years
FHFA House Price Index Q3 2012
2006
/1 4 3 220
09/1 4 3 2
2012
/1
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
12 Month Change
FHFA Purchase Only Index for Oregon
Residential Permits 2004 to 2012 Oregon (Up 48.9% to November 2012)
Source: Census
2004 2005 2006 2007 2008 2009 2010 2011 2012/110
5,000
10,000
15,000
20,000
25,000
30,000
35,000
27,309
31,024
26,623
21,101
11,676
7,039 6,868 7,93110,361
2007
/4 2 4 2 4 2 4 2 4 2
-20.00%
-15.00%
-10.00%
-5.00%
0.00%
5.00%
10.00%
15.00%Source: Rockefeller Institute
Total State Tax Collections Above Previous Year for 11 Quarters
The First Cliff Payroll Tax Holiday Ends Bush Tax Cuts Expire for Over $450,000 Sequester Process Delayed 2 Months New Medicare Taxes Start Phase Outs and Deduction Limitations Back Estate Tax Rate Bumped AMT Fix, Doc Fix
Long Term Spending Issues-Not Addressed Debt Ceiling Unresolved Short Term Problem-Long Term Problem Geithner-”And you can’t count indefinitely on the world having
more confidence in our political system than is justified”
Policy Cauldron
Different Tools Twist to the End of December-Then Buy $45 Billion of
Treasuries with maturities from 4 Years to 30 Years Continue to Buy $40 Billion Mortgage-Backed Securities
Per Month Total $85 Billion Per Month Exceptionally low rates as long as unemployment
remains above 6.5% and inflation is no more than .5 point above 2% longer run goal (12/12/12)
Will it make any difference? How and When does one unwind it? Federal Debt Costs
when rates increase?
Monetary Policy
North Dakota 1 Utah 2 Hawaii 3 Texas 4 Arizona 5 Oklahoma 6 Colorado 7 Idaho 8 Indiana 9 Montana 10 Minnesota 11 Louisiana 12 Kentucky 13 Ohio 14 California 15 South Carolina 16 Washington 17 Georgia 18 Massachusetts 19
Job Growth Update November 2012 Data-Year over Year Change-44 States Up
Oregon 21 Florida 22 Nevada 23 Arkansas 30 Michigan 33 Alabama 34 New Jersey 38 Illinois 35 South Dakota 36 New Jersey 38 Maine 43 Connecticut 44 Mississippi 45 Alaska 46 New Hampshire 47 Rhode Island 48 New Mexico 49 West Virginia 50
Aug-07
Novem
ber
Feb
May
August
Novem
ber
Febru
ary MayAug
ust
Novem
ber
Febru
ary MayAug
ust
Novem
ber
Febru
ary MayAug
ust
Novem
ber
Febru
ary MayAug
ust
Novem
ber1,500
1,550
1,600
1,650
1,700
1,750
1,800
Oregon Wage and Salary Employment ( ,000-SAAR) Employment Department
Oregon Job Change Year to December, 2012 (1.3%) Employment Department
ManufacturingMine&Log
ConstructionTrade
InformationTP,W,Util
FinanceProf. Services
Ed&Health
Leisure&Hosp.
Other ServicesGovt.Total
-5,000 0 5,000 10,000 15,000 20,000 25,000
Mine&Log
Trade
TP,W,Util
Prof. Services
Leisure&Hos.
Govt.
Portland Job Change Year to November, 2012 (1.5%) Employment Department
ManufacturingMine&Log
ConstructionTrade
InformationTP,W,Util
FinanceProf. Services
Ed&HealthLeisure&Hosp.Other Services
Govt.Total
-5,000 0 5,000 10,000 15,000 20,000
Mine&Log
Trade
TP,W,Util
Prof. Services
Leisure&Hos.
Govt.
Oregon Job Growth Year to November, 2012
Source: Department of EmploymentMetro Job Change PercentageBend 360 .6Corvallis 130 .3Eugene/Springfield 2,900 2.1Medford 1,140 1.5Portland 15,300 1.5Salem 700 .5Coos 90 .4Douglas 580 1.7Lincoln -80 -.5Umatilla -40 -.1Union 60 .6Wasco 180 .9
Personal Income in Q3 Oregon up .8%, US .5% Census Population Estimates for 2010-2012 up 1.8%
versus the US up 1.7% PSU Oregon Population Up .7% in 2012 Brookings Institution- Q3 Portland 4th of the top 100
Metros-Employment, Unemployment, Output, and House Prices
Preliminary Oregon Employment Data .8-.9% Gain in Annual Average Employment
Oregon Jobs Gap in October 133,000 Brookings Hamilton Project
December Data-Total Employment in Oregon down 25,546 in Year to December?
Recent Data Points
2005 2006 2007 2008 2009 2010 2011 2012/P
-120,000-100,000-80,000-60,000-40,000-20,000
020,00040,00060,000
Source: Employment Department
Annual Change in Oregon Wage and Salary Employment
Youth Un and Underemployment -Scarring December U-6 14.4%, Mean Unemployment
38.1 Weeks, 39.1% of Unemployed more than 27 Weeks
Labor Force Participation Rate December 63.6%-The last Time it was there was December 1981. Recession Start 66%
Real Family Median Net Worth Down 38.8% 2007-2010 Survey of Consumer Finances
Leftovers
Sustainability Popular Here- Fiscal Situation is Not- The Current Path leads to sclerosis or stagnation.
How does it end? Simpson-Bowles, Confidence Collapse –Endgame-Mauldin, Rogoff and Reinhart- Slow Growth
Is December/January the best that we can do?
Do we still have the recipe for growth?
Nagging Questions
Stella and The Fairies
Stella Fairies
The Tooth Fairy Free Medical Services
Fairy The No New Taxes
Fairy The Rich Will Pay Fairy The Entitlement Fairy
Uncertainty Reduced, But Remains Most likely Growth Near 2% Falling Debt Burdens, Housing, Rising
Income and Employment, Balance Sheets, Financial Institutions Strength, ISM, Energy Developments, Initial Claims
2013