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Will The Real Economy Please Stand Up?

Will The Real Economy Please Stand Up?. Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC January 16, 2014 Boston, MA. Inflation? What Inflation!. Import Prices for all Commodities: No Inflation!!. Three Types of Producer Prices: No Inflation!!.

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Will The Real Economy Please Stand Up?

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  1. Will The Real Economy Please Stand Up? Presented by: Elliot F. Eisenberg, Ph.D. President: GraphsandLaughs, LLC January 16, 2014 Boston, MA

  2. Inflation? What Inflation!

  3. Import Prices for all Commodities: No Inflation!!

  4. Three Types of Producer Prices: No Inflation!!

  5. Consumer Price Index: No Inflation Anywhere!!

  6. Core PCE Price Index: No Inflation Anywhere!!

  7. Federal Reserve Behavior • Yellen & Fischer are excellent • New appointees are likely to be dovish • Tapering ends by 1/1/15 • Tapering in $10 billion increments/meeting • Tapering equal amounts of MBS & Treasuries • Remember, short-term rates @ zero till 1/1/15 • Or as long as: • unemployment is “elevated” • as long as inflation is “low”

  8. Thus Low, but Rising Interest Rates!

  9. Refinance Activity is Just 60% of Total Applications! Down 72% from peak,  Decline in Renovations Alterations and Repairs, HARP will help

  10. Monthly Refinancing (Down) and ARM Shares (Up) Refinancing activity is way down

  11. Interest Rate Movements • In the near future, nothing is happening. • Longer term, (end of 2014) remain very vigilant • 10-Year Treasuries end the year @ 3.5% to 3.6% • 30-Year Mortgage rates end at 5.0% to 5.2% • Ideally this happens slowly as economy improves • Every two months a rise of 10 BP. • But don’t bet on it because the data doesn’t cooperate • Think HELOCS, and ARMS • Refi activity will be flat in 2014 • Risks to forecast: economy gets better faster!!! • ***Like the Jeffersons, rates are “moving on up”

  12. The Economy? It’s Finally Improving!

  13. Labor Productivity Growth is Low (good)

  14. GDP Growth Drivers – Contractionary Fiscal Policy

  15. GDP Growth Drivers – Fiscal Policy Uncertainty

  16. Industrial Production Has Recovered

  17. Hiring and Separation Rates Slowly ImproveNone are Where they were, but all are getting better and openings are getting close!

  18. STEADY Labor Market Improvement: Involuntary Separation Unemployment falls to 6.5% by year end

  19. STEADY But Slow Labor Market Improvement Job growth rises to 215K/month by year end

  20. Unemployment By Duration LT 5 Weeks is Back to Normal and 5 to 14 Weeks is close

  21. Tighter Labor Market than Perceived? The number of Unemployed / Job Opening Keeps Falling!!!!!

  22. Fewer of Us are Working in State and Local Gov’t! But, These Losses are Reversing at the State & Local Level

  23. Annual Y-o-Y Percent Change in PCEIt is finally rising!

  24. Annual Y-o-Y Percent Change in GDPGDP will rise by 1% in 2014!

  25. US Light Vehicle Sales are Absolutely Fantastic!

  26. Households Deleveraging is Over!!!!

  27. Households are Repairing their Balance SheetsTrillions in Net Worth Recovered and now at a New Record Level

  28. Households are Repairing their Balance SheetsMore Income to Spend Elsewhere

  29. Consumer Confidence While Historically Low, is Up!

  30. Best of All, No Recession is in the Cards!Coincident Economic Indicators for the USA, at highest level since Great Recession!

  31. Best of All, No Recession is in the Cards!Yield Curve Inversion Test: 1-Year Treasury Yield – 10-Year Treasury Yield

  32. What About Real Estate? It’s Improving but In Fits and Starts!

  33. Commercial Real Estate is Recovering

  34. Mall Vacancy Rates are Declining, Albeit not Fast

  35. Office Vacancy Rates are S-L-O-W-L-Y Recovering?No Construction Activity and no Demand

  36. Household Formation is Up and RisingMay even get above Trend growth

  37. Residential Fixed Investment Has FINALLY Arrived!

  38. But Only Residential Investment!

  39. Household Formation is Improving

  40. Household Formation for Those 25-34 is Rising

  41. Household Formation for Other Groups is Flat

  42. Single-Family and Multifamily Starts Are UpMF Has Almost Fully Recovered. Hello Renters!!!

  43. MBA Mortgage Purchase Apps – Underestimate Reality! 1st time applications are weak, 4-week MA down 11% Y-o-Y

  44. Existing Home SalesNow 1.2% below the year ago level, very different from new home sales activity

  45. Existing Home Sales & New Home Starts Converging Once Again!

  46. Fannie, Freddie REO Inventory is Falling

  47. Delinquencies & Foreclosures Continue Falling

  48. Delinquencies & Foreclosures Trending LowerDelinquencies down 12% Y-o-Y Foreclosures down 27% Y-o-Y

  49. Foreclosures are Declining as a % of Sales

  50. Foreclosures are Declining as a % of Sales

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