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By: Anirban Basu Sage Policy Group, Inc. December 4, 2007

It was the Best of Times, Now What?. On Behalf of FEI. By: Anirban Basu Sage Policy Group, Inc. December 4, 2007. University of Michigan Consumer Sentiment Survey September 2001 through November 2007. Between Aug. 2005 and Sept. 2005, the

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By: Anirban Basu Sage Policy Group, Inc. December 4, 2007

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  1. It was the Best of Times, Now What? On Behalf of FEI By: AnirbanBasu Sage Policy Group, Inc. December 4, 2007

  2. University of Michigan Consumer Sentiment SurveySeptember 2001 through November 2007 Between Aug. 2005 and Sept. 2005, the consumer sentiment index dropped 12.2 points, the largest one-month decline since December 1980. Source: University of Michigan; Dismal.com

  3. Retail & Food Services SalesJanuary 2001 through October 2007 Source: Dismal.com

  4. 15-Year Fixed Mortgage Rates, January 1995 through October 2007 Source: Freddie Mac

  5. U.S. New Home SalesJanuary 1999 through September 2007 Source: Economy.com, Census Bureau

  6. U.S. New Residential Construction January 1999 through October 2007 Source: Economy.com

  7. U.S. Existing Home Sales September 2001 through September 2007 Source: Economy.com

  8. Change in Maryland Housing Units Sold January 2002 through October 2007 Source: Maryland Association of Realtors

  9. 2006 Residential Building Permits per 100 Households (2006 estimates) by select Regions Source: U.S. Census Bureau BW Corridor includes: Anne Arundel, Howard, Montgomery and Prince George’s counties

  10. Current Hot Metro Housing Markets (154)Annual Existing Single-Family Home Price Appreciation 2007Q3 vs. 2006Q3 Baltimore: 1.7% New York: -0.6% Philadelphia: 2.9% Boston: 0.6% Washington, D.C.: 1.3% Source: National Association of Realtors U.S.: -2.0% in 2007Q3

  11. Active Housing Inventory by Baltimore MSA Jurisdiction, October 2006 vs. October 2007 Source: Maryland Association of Realtors Maryland = October 2006: 40,083; October 2007: 49,136

  12. Active Housing Inventory by Suburban MD Jurisdiction, October 2006 vs. October 2007 Source: Maryland Association of Realtors Maryland = October 2006: 40,083; October 2007: 49,136

  13. Mortgage Banker’s Association Delinquency Rates, Prime Mortgage Loans, 2005Q1 – 2007Q2 Source: Economy.com

  14. Mortgage Banker’s Association Delinquency Rates, Subprime Mortgage Loans, 2005Q1 – 2007Q2 Source: Economy.com

  15. NYMEX Crude Oil Future Prices in U.S. DollarsJanuary 1995 through November 20, 2007 Source: Energy Information Administration

  16. U.S. Personal Savings Rate vs. NYMEX Crude Oil Prices, 2002 through 2006 Source: Bureau of Economic Analysis; Energy Information Administration

  17. CPIOctober 2007 CPI : +3.5% Core CPI*: +2.1% Source: Bureau of Labor Statistics *Core CPI: All items less food and energy

  18. U.S. Trade Deficit, January 2001 through September 2007 Source: Dismal.com

  19. Value of the Dollar (Broad Dollar Index) January 1999 through October 2007 Source: Federal Reserve Board Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.

  20. U.S. Federal Budget Deficit, 1995-2010* Source: Congressional Budget Office *2007-2010 data are projections

  21. Mr. Greenspan says…. • “When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign, for example in the U.S., profit margins…have begun to stabilize, which is an early sign we are in the later stages of a cycle”; • “While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008…with some slowdown”. Source: The Wall Street Journal Speech made February 26, 2007 at the VeryGC Global Business Insight Conference via satellite.

  22. Dow Jones Industrial Average January 2003 through November 23, 2007 Source: Dow Jones

  23. Gross Domestic Product1990Q1 through 2007Q3 2007Q3: 4.92% Source: Bureau of Economic Analysis

  24. Contributions to GDP Growth by Component, 2007Q3 Source: Bureau of Economic Analysis

  25. Contributions to Gross Investment Growth by Component, 2007Q3 Source: Bureau of Economic Analysis

  26. Growth in Value of Private, Nonresidential Construction Put in Place, September 1994 through September 2007 Source: U.S. Census Bureau

  27. Corporate Profits* (SAAR)2001Q1 through 2007Q3 Source: BEA *With inventory valuation and capital consumption adjustments

  28. Net Change in U.S. JobsJanuary 2000 through October 2007 10/07: 166,000 Between March 2001 and July 2002, the nation lost nearly 2.4 million jobs. Over the last 12 months (Oct. to Oct.) the U.S. added 1.676 million jobs Source: Economy.com, Bureau of Labor Statistics

  29. National Nonfarm Employmentby Industry Sector GroupsOctober 2007 v. October 2006Absolute Change +1,676k All Told Bush Scorecard Private Sector: +4,453,000 Public Sector: +1,497,000 Total: +5,950,000 Source: Economy.com, Bureau of Labor Statistics

  30. Maryland Nonfarm Employmentby Industry Sector GroupsOctober 2007 v. October 2006Absolute Change MD Total: +29.0K; +1.1% US Total: +1,676K; +1.2% Source: Bureau of Labor Statistics

  31. Baltimore MSA Nonfarm Employmentby Industry Sector Groups (NSA) October 2007 v. October 2006Absolute Change Baltimore MSA Total: +12.9K; +1.0% MD Total: +29.0K; +1.1% US Total: +1,676K; +1.2% Source: Bureau of Labor Statistics

  32. Washington, D.C. MSA Nonfarm Employmentby Industry Sector Groups (NSA)October 2007 v. October 2006Absolute Change DC MSA Total: +41.9K; +1.4% US Total: +1,676K; +1.2% Source: Bureau of Labor Statistics

  33. Office Space Under Construction in the Baltimore MSA, 2007Q3 Total square feet under construction in the Baltimore MSA: 2,608,759 Source: CB Richard Ellis

  34. Office Space Under Construction in the Washington, DC Metropolitan Area, 2007Q3 Total square feet under construction in the Washington, DC MSA: 16,102,847 Source: CB Richard Ellis

  35. Unemployment Rates, U.S. States (SA) October 2007 Source: Bureau of Labor Statistics * U.S. unemployment rate: October = 4.7%

  36. Unemployment Rates (NSA), Maryland CountiesSeptember 2007 Source: Bureau of Labor Statistics

  37. Conclusions • Chance of recession in U.S. in 2008 approaching 20-40%; • Various risks remain (oil/energy, the dollar, interest rates/subprime, and the flu); • U.S. macroeconomic imbalances are huge and widening; • The Federal Reserve Chairman will continue to face enormous pressure; and • 2010 and 2011 will be huge years . . .

  38. Thank You • You can always reach me at abasu@sagepolicy.com • You’ll be hearing a lot from us the balance of the year. • Also, if you need us in a hurry, we are at 410.522.7243 (410.522.SAGE) • Please contact us when you require economic research & policy analysis.

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