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The Kids Are Alright

The Kids Are Alright . Ed Kashmarek, Economist May 3, 2012. Agenda. United States Labor Market Inflation/Interest Rates Housing Market Credit Quality Lending Consumers Manufacturing International Trade Economic Outlook Budget Deficit/Debt Education Bad Good Questions.

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The Kids Are Alright

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  1. The Kids Are Alright Ed Kashmarek, Economist May 3, 2012

  2. Agenda • United States • Labor Market • Inflation/Interest Rates • Housing Market • Credit Quality • Lending • Consumers • Manufacturing • International Trade • Economic Outlook • Budget Deficit/Debt • Education • Bad • Good • Questions

  3. Labor Market Gradual Improvement 3 3

  4. Employment The economy has added nearly 2 million jobs over the past year. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  5. Industry Job Growth Professional/business services and education/health services have led the way in job growth over the past year, while budget cuts have trimmed government payrolls. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  6. Unemployment Rate The unemployment rate has seen noticeable improvement recently, but remains uncomfortably high. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  7. Housing-Related Employment A major factor behind high unemployment is the millions of jobs lost in housing-related employment. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  8. Inflation Moderating but Core Still Elevated 8 8

  9. Inflation Inflation has moderated recently, but input costs have been rising much faster than selling prices over the past two years. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  10. Core Inflation Core inflation has accelerated, but remains within the Fed’s comfort zone of 1-2%, but just barely. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

  11. Fed Funds Futures Interest rates are expected to remain very low for the foreseeable future. Source: CBOT and Wells Fargo Securities, LLC

  12. Mortgage Rates Mortgage rates are at record lows, but many still cannot take advantage. Source: Freddie Mac and Wells Fargo Securities, LLC

  13. Housing MarketEncouraging Signs 13 13

  14. Mortgage Applications and Home Sales Home sales have improved, but purchase applications remain weak despite record low mortgage rates. Source: Mortgage Bankers Association, National Association of Realtors and Wells Fargo Securities, LLC

  15. Home Prices Home prices are starting to show signs of stabilization again. Source: National Association of Realtors and Wells Fargo Securities, LLC

  16. Housing Starts While single-family housing starts remain subdued, multi-family starts have jumped. Source: U.S. Census Bureau and Wells Fargo Securities, LLC

  17. Credit QualityImproving But Challenging 17 17

  18. Total Loan Delinquency Rates Loan delinquency rates have improved, but are still near or above levels seen in prior recessions. Source: Federal Reserve Board and Wells Fargo Securities, LLC

  19. Credit Card Loan Delinquency Rates Credit card delinquency rates have improved markedly amid household deleveraging and bank charge-offs. Source: Federal Reserve Board and Wells Fargo Securities, LLC

  20. Bankruptcies Both business and personal bankruptcies declined further in the fourth quarter. Source: Administrative Office of U.S. District Courts and Wells Fargo Securities, LLC

  21. Household Debt Despite recent improvements, households remain highly indebted. Source: Administrative Office of U.S. District Courts and Wells Fargo Securities, LLC

  22. LendingSome Improvement 22 22

  23. Total Loans Outstanding Loan growth has finally turned positive for the first time since the end of the recession. Source: Federal Reserve and Wells Fargo Securities, LLC

  24. Willingness to Lend Bankers’ willingness to lend to consumers improved noticeably after the recession, but has turned down again over the last few quarters. Source: Bloomberg, Federal Reserve and Wells Fargo Securities, LLC

  25. ConsumersFeeling a Bit More Confident 25 25

  26. Consumer Confidence Consumer confidence has rebounded recently amid improvement in the labor market and better economic data. Source: The Conference Board and Wells Fargo Securities, LLC

  27. Personal Spending and Income Rising confidence has supported a rebound in personal spending recently, but this may not be sustained due to slowing income growth. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

  28. Personal Saving Rate A war chest of savings has helped to support spending, but the savings rate has declined over the last year as income growth has slowed, suggesting recent spending strength may not be sustainable. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

  29. ManufacturingRenewed Strength 29 29

  30. Manufacturing Manufacturing slowed noticeably amid fears of a global slowdown and sovereign debt concerns, but has improved a bit since last summer. Source: Institute for Supply Management and Wells Fargo Securities, LLC

  31. Production and Manufacturing Jobs Although production has rebounded, manufacturing job growth has been scarce. Source: Federal Reserve, U.S. Bureau of Labor Statistics and Wells Fargo Securities, LLC

  32. International TradeGlobal Slowdown 32 32

  33. Export and Import Growth Growth of both exports and imports has slowed substantially. Source: U.S. Census Bureau and Wells Fargo Securities, LLC

  34. Exports and Imports Share of GDP Imports as a share of GDP have doubled in the last two decades. Source: U.S. Bureau of Economic Analysis, U.S. Census Bureau and Wells Fargo Securities, LLC

  35. Imports from China Nearly one fifth of all U.S. imports now come from China. Source: U.S. Census Bureau and Wells Fargo Securities, LLC

  36. Trade Deficit with China The deficit with China continues to widen. Source: U.S. Census Bureau and Wells Fargo Securities, LLC

  37. Trade Deficit The trade deficit has widened again since the end of the recession. Source: U.S. Census Bureau and Wells Fargo Securities, LLC

  38. Economic OutlookModest Growth Continues 38 38

  39. Real GDP Forecast We believe modest consumer spending and further declines in government spending will keep economic growth subpar. Business investment should remain decent, while residential investment should improve. Source: U.S. Bureau of Economic Analysis and Wells Fargo Securities, LLC

  40. Budget Deficit and DebtBig, Big Problems 40 40

  41. Federal Budget Deficit The deficit as a share of GDP is at levels not seen since World War II. Source: Congressional Budget Office and Wells Fargo Securities, LLC

  42. Federal Budget Deficit The deficit as a share of GDP is at levels not seen since World War II. Source: Congressional Budget Office and Wells Fargo Securities, LLC

  43. Federal Debt Total debt, including debt owed to government accounts, is almost 100% of GDP. Source: Congressional Budget Office and Wells Fargo Securities, LLC

  44. Federal Debt Forecast Debt to the public (not including debt owed to government accounts) will be a much larger share of GDP if the CBO’s alternative scenario occurs. Source: Congressional Budget Office and Wells Fargo Securities, LLC

  45. Education 45 45

  46. The Bad 46 46

  47. Youth Unemployment Rate Youth unemployment is higher than overall unemployment and is the highest in decades. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  48. Labor Force Participation Rate Youth participation in the labor force is the lowest in decades. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

  49. Household Net Worth Many older workers are staying in the workforce longer after the value of their investments and houses declined, leading to fewer job opportunities for younger workers. Source: U.S. Department of Commerce and Wells Fargo Securities, LLC

  50. Population Forecast As older workers retire, more opportunities should become available for younger workers. Source: U.S. Department of Labor and Wells Fargo Securities, LLC

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