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The Economy’s Chicken-and-Egg Dilemma RYAN SWEET, SENIOR ECONOMIST
Connecticut Business & Industry Association, September 7, 2012
2
07 0. 08 0.3 09 0.
3 10 0. 11 0.4 12
-7
-6
-5
-4
-3
-2
-1
0
1
2
3GDP GDI GDP per capita
A Sobering View of the RecoveryReal, % change since 2007Q4
Sources: BEA, Moody’s Analytics
3
07 2 08 2 09 2 10 2 11 2 12 213
F 214
F 215
F 212.5
13.0
13.5
14.0
14.5
15.0
15.5
Economy Is Improving, but Output Gap Is Wide
Sources: BEA, CBO, Moody’s Analytics
Potential
Real GDP, $ tril, SAAR
Actual/forecast
4
T-0
T+1
T+2
T+3
T+4
T+5
T+6
T+7
T+8
T+9
T+10
T+11
T+12
T+13
T+14
T+15
T+16
T+17
T+18
T+19
T+20
T+21
T+22
T+23
T+24
T+25
T+26
T+27
T+28
T+29
T+30
T+31
T+32
T+33
T+34
T+35
T+36
T+37
95
100
105
110
1151953 1957 1960 1969 1973
1981 1990 2001 2007
Not Quite as ‘Jobless’ as in 2001
Sources: BLS, NBER, Moody’s Analytics
Total employment, index, T=first month of recovery
5
TT+3
T+6T+9
40
60
80
100
120
140
160
180
200Current 2001 1991
Different This Time AroundPolitical uncertainty, indexed to first mo of recovery, T=100
Sources: University of Stanford, Moody’s Analytics
6
03 379673830338639389753931139647399830
10
20
30
40
50
60
70Weak salesPricing powerLabor costs/availabilityObtaining financingBorrowing costsRegulatory and legal
Lack of Sales ProblematicLargest problem facing businesses, net %, 3-mo MA
Source: Moody’s Analytics
7
Economy’s Cliffhanger1
0909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909090909101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101010101111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111111112121212121212121212121212121212121212121212121212121212121212121212151212121212121212121212121212121212121212121212121212121212121212121212121212121212121212121212121212121212120
5
10
15
20
Germany
Portugal
Italy
Spain
Sources: Bloomberg, Moody’s Analytics
10-yr sovereign yields
Not a Pretty Picture
9
Within 15 days
16 days to 90 days
91 days to 1 yr
>1 yr to 5 yrs
>5 yrs to
10 yrs
>10 yrs
Mortgage-backed securities
Federal agency
Treasury
Only a Matter of Time Until Fed Launches QE3Maturity distribution of securities on Fed’s balance sheet
Sources: Federal Reserve, Moody’s Analytics
$ bil, week ending Aug 30
10
Fiscal Decisions
Whoever wins November's elections will have big decisions to make by early 2013.
» Option 1: Over the cliff
» Option 2: Punt on policy
» Option 3: Debt-ceiling holdup
» Option 4: Fiscal nirvana
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07 0. 08 0.3 09 0.
3 10 0. 11 0.4 12
-8
-6
-4
-2
0
2
4
6
8
10Real GDP ex governmentPrivate employmentReal government spending/investment
Government Drag Is Already SignificantAnnualized % change, 4-qtr MA
Sources: BLS, BEA, Moody’s Analytics
12
Passing the Baton 2
1313
09
9999999999910
10
10
10
10
10
10
10
10
10
10
10
11
11
11
11
11
11
11
11
11
11
11
11
12
12
12
12
12
12
12
30
35
40
45
50
55
60
65
70
-80
-60
-40
-20
0
20
40
60
ISM manufacturing, new orders (L)
New orders for nondefense capital goods ex aircraft, annualized % change over 3 mos (R)
Troubling Brewing for Business Investment
Sources: ISM, Census Bureau, Moody’s Analytics
1414
08 2 2 09 2 2 10 2 2 11 2 2 12 235
40
45
50
55
60
65
-60
-40
-20
0
20
40
Real exports, annualized % chg over 3 mos (R)
*ISM non-man exports SA by Moody’s Analytics
June Exports Seem Too Good to Be True
Sources: Census Bureau, ISM, Moody’s Analytics
Avg of ISM* export indexes (L)
1515
07 7 7 08 8 8 09 9 9 10 10 10 11 11 11 12 12-25
-20
-15
-10
-5
0
5
10Building materials
Furniture and home furnishings
Some More Encouraging News on Housing…Retail sales, % change from first mo of U.S. recession
Sources: Census Bureau, Moody’s Analytics
1616
05 06 07 08 09 10 11 12 13 14 15-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
Housing wealth effectResidential investmentTotal
…As It Switches From Weight to DriverContribution to real GDP growth, ppt
Source: Moody’s Analytics
17
Reasons for Optimism and Concern3
1818
09 9 9 9 10 10 10 10 11 11 11 11 12 12 12-4
-2
0
2
4
6
8
-15
-10
-5
0
5
10
15
20
25
Food CPI (L)
Higher Food Prices Are ComingAnnualized % change over 3 mos
Sources: BLS, Moody’s Analytics
1919
40
60
80
100
120
140
160
2008 2009 20102011 2012
Consumers Have Had Worse Pump PainsRetail gasoline prices, first week of each yr=100
Sources: EIA, Moody’s Analytics
2020
Significant Pent-Up Demand
Sources: BEA, Moody’s Analytics
Real spending, $ tril
55555555555566666666666677777777777788888888888899999999999910101010101010101010101011111111111111111111111112121212
8,600.0
8,800.0
9,000.0
9,200.0
9,400.0
9,600.0
9,800.0
10,000.0
10,200.0
10,400.0ActualPrerecession trend: 2.5% annually2% growth
21
Regional Outlook4
22
Europe’s Recession Is Hurting NortheastExports to Europe as a % of total exports, 2011
Sources: Census Bureau, Moody’s Analytics
>15% to 20%
> 30%
5% to 15%
>20% to 30%
23
Defense Contractors Vulnerable to AusterityDefense procurement contracts % of metro GDP, 2010
Sources: BEA, Census Bureau, Moody’s Analytics
<1
1 to <3
3 to 6
>6
U.S.=2.2
24
Manufacturing Will Take a Backseat Manufacturing GSP as a % of total GSP, %, 2011
Sources: BEA, Moody’s Analytics
>10% to 15%
> 20%
0% to 10%
>15% to 20%
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