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The Stagnation Two-Step: Pessimism and Spending

The Stagnation Two-Step: Pessimism and Spending. Richard Curtin Research Professor and Director Surveys of Consumers University of Michigan. Chart 1: Consumer Sentiment Falls Back Toward Recession Lows. Near All-time recession lows. 2011:1 = 73.1 2011:2 = 71.9 2011:3 = 59.6 2011:4 = 62.6p.

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The Stagnation Two-Step: Pessimism and Spending

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  1. The Stagnation Two-Step:Pessimism and Spending Richard CurtinResearch Professor andDirector Surveys of ConsumersUniversity of Michigan

  2. Chart 1: Consumer Sentiment Falls Back Toward Recession Lows Near All-time recession lows 2011:1 = 73.1 2011:2 = 71.9 2011:3 = 59.6 2011:4 = 62.6p 2011 All time Records: Peak = 112.0 (Jan 2000); Trough = 51.7 (May 1980) Last cyclical low = 55.3 (November 2008); Recent low = 55.7 (August 2011)

  3. Chart 2 : Sentiment Signals Stagnating GDP Growth During Year Ahead Largest Post 1954 1958 1974 1975 1980 1982 1991 2009 WWII Declines: -0.7% -1.0% -0.5% -0.2% -0.2% -1.9% -0.2% -3.5%

  4. Chart 3: Current Financial Situation of Consumers Remains Dismal Record Lows 2011

  5. Chart 4: Income Changes Have Remained Negative for Longer Than Ever Before Recorded 2011

  6. Chart 5: Diminished Personal Financial Prospects Expected During Year Ahead 2011

  7. Chart 6: Income Prospects Remain Grim: Majority Expect No Gains in Nominal Incomes Record Lows 2011

  8. Chart 7: Real Home Prices Expected to Decline Over Foreseeable Future(Three month moving averages)

  9. Chart 8: Adequacy of Retirement Savings Remains Low(Change in Probability of a Comfortable Retirement Given Current Assets Among Those Under Age 65.) %Higher - %Lower + 100

  10. Chart 9: Declines in Household Debt Main Reason for Increase in Saving Rate 2011:2 = -0.6% First time absolute contraction of debt

  11. Chart 10: Mortgage Debt Declines Partially Offset by Increases in Consumer Debt Mortgage Debt 2011:2 = -2.4% Consumer Debt 2011:2 = 3.4%

  12. Chart 11: Mortgage Debt Still Excessive (Debt as a Percentage of Personal Disposable Income) Total Mortgage Charge offs: 2011:2 = 1.68% Peak: 2009:4 = 2.82% Avg. 1991-2007 = 0.15% Mortgage Delinquencies: 2011:2 = 10.53% Peak: 2010:1 = 11.22% Avg. 1991-2007 = 2.24% Mortgage Consumer

  13. Chart 12: Personal Saving Rates Recessions: 10-12% Savings Stock & Home Appreciation Long Term Average = 7% Extraordinary Wartime Savings Acted to Reverse Depression Losses Saving 1940 1941 1942 1943 1944 1945 1946 Rate: 5.7% 12.2% 24.1% 25.6% 26.1% 20.4% 9.6%

  14. Chart 13: One-Year Outlook for National Economy Remains Quite Negative Record Lows 2011

  15. Chart 14: Five-Year Outlook for National Economy Remains Grim Record Lows Decade Long Decline 2011

  16. Chart 15: Government Economic Policies: Lost Confidence in Obama’s Policies 2011

  17. Chart 16: Loss of Confidence in the Federal Reserve

  18. Chart 17: Large Impact of Loss of Confidence in Economic Policies on Consumer Expectations(October – November 2011)

  19. Chart 18: Year-to-Year Growth in Total Non-Farm Employment Nearly Reaches Prior Peak Slower Population and Faster Productivity Growth October 2011: +80,000 Jobs October 2011 = 1.2% y/y growth

  20. Chart 19: Consumers Focus on Job Losses,Obama Focuses on Job Gains(Total nonfarm employment in millions) 8.7 million jobs lost from Dec 2007 to Dec 2009 (average monthly loss = 350k) Jobs regained since start 2010: 2.2m or about 100k per month

  21. Chart 20: Consumer Reports of News about Jobs And Changes in Total Nonfarm Employment(Three month moving averages)

  22. Chart 21: National Unemployment Rate Oct 2011: All workers Oct 2011 All Workers = 9.0% Married Workers = 5.8% All Married Decade Averages: 1950s = 4.5% 1960s = 4.8% 1970s = 6.2% 1980s = 7.3% 1990s = 5.8% 2000s = 5.5%

  23. Chart 22: Consumers Expect No Improvement in Unemployment Rate During Year Ahead

  24. Chart 23: Unemployment Decomposition: Ratio of Employed to Labor Force Participation Rates Peak = 67.3 Participation Rate October 64.2 Peak = 64.7 Employment Ratio October 58.4 Unemployment rate = 1 – (58.4/64.2) = 9.0%

  25. Chart 24: Employment Population Ratios:Men and Women Age 25 - 34 Nearly 3 years at all time lows Men October = 80.0% Women October = 67.0% Under age 25 (October) Men = 47.3% Women = 45.6% Both at near record lows

  26. Chart 25: Employment Population Ratios:Men and Women Over Age 55 Employment Ratios (10-year pt. change) Men Women 65 – 69: 34.4 (+4.7) 25.8 (+5.9) 70 – 74: 24.8 (+6.0) 13.4 (+2.2) 75 +: 10.0 (+2.3) 5.4 (+1.7) Men October = 43.3% Women October = 32.9%

  27. Chart 26: Unemployment Not Growth in Real Personal Consumption Defined Great Depression Surge in Consumption During Depression Negative Consumption in five of eleven years Note: Unemployment in 1929 = 3.2%

  28. Chart 27: Modest Growth in Personal Consumption Expenditures Expected in 2012 Declines in PCE: 1974 1980 2008 2009 -0.8% -0.3% -0.6% -1.9%

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