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Economic Outlook

Economic Outlook. Presented to the Government Finance Officers Association of South Carolina October 13, 2008. Dr. Don Schunk Research Economist BB&T Center for Economic & Community Development Coastal Carolina University. Overview of Economic Conditions. The current financial crisis:

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Economic Outlook

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  1. Economic Outlook Presented to the Government Finance Officers Association of South Carolina October 13, 2008 Dr. Don SchunkResearch EconomistBB&T Center for Economic & Community DevelopmentCoastal Carolina University

  2. Overview of Economic Conditions • The current financial crisis: • How did we get here, and where are we? • Thoughts on the ‘Bailout’ • Recent and Projected U.S. Conditions • Recent and Projected S.C. Conditions

  3. U.S. New Home Sales – The Double Correction1970Q1 – 2008Q3

  4. Key Housing Indicators

  5. The Storm Surge: 2000 - 2006 • The push for ever-increasing homeownership rates • Ongoing financial innovation • Record low interest rates • NINJA loans • The spread of mortgage-backed assets and mortgage derivatives

  6. The Surge Recedes: 2006 - ? • Homeowners default • Mortgage-backed assets lose value • Balance sheets weaken • Abrupt shift in the appetite for risk • Mark-to-market accounting without a market • Credit market stops functioning • Stock markets slide

  7. Savers Borrowers The Financial Infrastructure Financial Markets

  8. The TED Spread Sept 17

  9. Where are we now? • Banks are unwilling to lend • Households and businesses are shifting out of deposits • These decisions are causing the money multiplier to move in the wrong direction – we are witnessing deposit contraction rather than deposit creation

  10. The impacts • The credit freeze is preventing individuals and businesses from borrowing to finance productive economic activities • The economy was already precarious – frozen credit markets have made a recession unavoidable

  11. The intentions of the “bailout” • Remove uncertain assets from the banking system – increase the willingness to lend to households and businesses by increasing the willingness of banks to lend to each other • Keep more funds in the form of bank deposits

  12. Recent U.S. Trends2000Q1 – 2009Q4

  13. U.S. Net Exports1970Q1 – 2009Q4

  14. U.S. Real GDP Growth2000Q1 – 2009Q4 2000 3.7% 2001 0.8% 2002 1.6% 2003 2.5% 2004 3.6% 2005 2.9% 2006 2.8% 2007 2.0% 2008 1.4% 2009 0.4% 2010 2.0%

  15. Job Growth: SC and US1991Q1 – 2008Q3

  16. Employment: Total and Selected Sectors2000Q1 – 2008Q3

  17. S.C. Employment Growth2000Q1 – 2009Q4 2000 1.6% 2001 -1.9% 2002 -1.0% 2003 0.2% 2004 1.4% 2005 1.8% 2006 2.2% 2007 2.3% 2008 0.3% 2009 -0.3% 2010 0.8%

  18. Unemployment: S.C. and U.S.1976Q1 – 2009Q4

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