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Growth “… Will Guide You Home” … “and Fix You”

Growth “… Will Guide You Home” … “and Fix You”. 1. Everyone is growing again. Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co. 2. The 2011-12 US outlook … gradually speeding up.

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Growth “… Will Guide You Home” … “and Fix You”

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  1. Growth “… Will Guide You Home” … “and Fix You” 1

  2. Everyone is growing again Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co. 2

  3. The 2011-12 US outlook … gradually speeding up US real GDP (annualized percent change) Source: US Department of Commerce 3

  4. A big mistake corrected … Nominal gross income per household and house prices (ratio to 1970 Q1 level) Sources: Loan Performance Corporation; US Department of Commerce 4

  5. … and that’s why house prices are stabilizing Selected surveys of house prices (ratio of price indexes to the 2000 Q1 level) Sources: Loan Performance Corporation; FHFA’; NAR; Standard & Poor’s; Radar Logic 5

  6. “Under water” losses … Mortgage losses by vintage* ($ billions) Cumulative amount of loans under water* ($ billions) Sources: MBA; CoreLogic; JPMorgan Chase & Co. * Assuming that all loans taken out at the time were 100% loan-to-value 6

  7. … mostly “recognized” Mortgage losses by vintage* ($ billions) Cumulative amount of loans under water* ($ billions) Sources: MBA; CoreLogic; JPMorgan Chase & Co. 7

  8. Builders are still hibernating, owing to the glut … Cumulative houses built and new households formed since 1970 (thousands) Source: US Department of Commerce 8

  9. … but current activity is in a work-off range … Stock of housing (thousands) Housing starts and household formation (millions at an annual rate) Source: US Department of Commerce 9

  10. … so builders will help us out eventually Home building and growth (contribution of res construction to % ch in real GDP over 4 qtrs, pct pts) Sources: NBER recession bars; US Department of Commerce 10

  11. Business is positioning for the future again … Business investment for capital goods and software (percent change from a year earlier) Sources: US Department of Commerce; Federal Reserve Board 11

  12. … because it has restored profitability After-tax GDP profits (percent of nominal Gross Domestic Income) Sources: NBER recession bars; US Department of Commerce 12

  13. Consumers are back in the game too … Real consumer spending and income (percent change from 12 months earlier) Source: US Department of Commerce 13

  14. … with hiring starting … Private sector employment (thousands per month) Source: US Department of Labor 14

  15. ... households saving more again ... Personal saving rate (percent of disposable personal income) Sources: NBER recession bars; US Department of Commerce 15

  16. … and the equity market recovering Equity P-E Wilshire 5000 index Sources: Federal Reserve Board; Dow Jones; US Department of Commerce 16

  17. Low inflation gives the Fed a lot of latitude Selected core consumer price indexes (percent change from 12 months earlier) Sources: NBER recession bars; US Department of Commerce; US Department of Labor 17

  18. A vision of the future … US potential and real GDP (chained 2005 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC Real GDP associated with 5% unemployment 18

  19. … but there’s lots of work to do … US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board 19

  20. … the damage is greater than we measure … Official and hidden unemployment (thousands) Source: US Department of Labor 20

  21. The employment status of folks … Status of people in the job market (thousands) Source: US Department of Labor Dot.com dropouts Recession 2008 dropouts Frictional unemployment (4%) Long-term unemployment Short-term unemployment Underemployment (part-timers, beyond the norm, for economic reasons) Full-time, part-time by choice, and "normal" part-time for economic reasons 21

  22. … and what it takes Status of people in the job market (thousands) Source: US Department of Labor Dot.com dropouts Recession 2008 dropouts Frictional unemployment (4%) Long-term unemployment Short-term unemployment Underemployment (part-timers, beyond the norm, for economic reasons) Full-time, part-time by choice, and "normal" part-time for economic reasons 22

  23. Ditto for the rest of the world … Actual real GDP in selected regions (chained 2005 dollars) Sources: US Department of Commerce; various international agencies Estimated level of potential global real GDP (US dollars) 23

  24. Conclusion: things to cheer and fear To cheerTo fear Recession shines light on state finances State fiscal sector challenged Private sector in good shape Builders restrained by work-off of housing glut Double-digit cap X spending growth Europe’s sovereign / banking issues Record business profitability Understanding relative prices versus inflation (the Consumers spending again winter commodity pressures) Equities 15% from record Household balance sheets better Private employment growing 1% Global economy booming Risk assets pricing a recovery Layoffs back to normal in half our states Auto industry on the rebound 24

  25. Appendix 1. The Empire State … 25

  26. The pulse of New York … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 26

  27. Unemployment has crested … Unemployment in New York versus the nation (percent of the labor force) Source: US Department of Labor 27

  28. … employment is rising again … Employment in New York versus the nation (ratio to 2000 Q4) Source: US Department of Labor 28

  29. … and tracking national trends, like it usually does Employment in New York versus the nation (ratio to 2000 Q4) Source: US Department of Labor 29

  30. But real estate is a little pricey … Ratio of New York’s house prices to the US average (1995 Q1 = 1.0) Source: FHFA 30

  31. ... and we’re still working off a glut too New York home building activity (thousands of units at an annualized rate) Source: US Department of Commerce 31

  32. Appendix 2. State of the states … 32

  33. Financial red flags ... State and local debt obligations per capita (dollars) Source: Bureau of the Census 33

  34. Headwinds remain stiff in the Sunshine State, but .... Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 34

  35. A new breeze from the Great Lakes … Illinois … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 35

  36. … Indiana … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 36

  37. … Kentucky … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 37

  38. … Michigan … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 38

  39. … Minnesota … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 39

  40. … Ohio … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 40

  41. … Wisconsin … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 41

  42. … and from other “auto” states … North Carolina … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 42

  43. … and South Carolina Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 43

  44. Good news from the Farm Belt too … Arkansas … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 44

  45. … Iowa … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 45

  46. … Kansas … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 46

  47. … Mississippi Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 47

  48. … Missouri … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 48

  49. … North Dakota Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 49

  50. The Energy Belt too … Oklahoma … Applications for unemployment insurance (ratio to 2007 Q4 level of claims for respective item) Source: US Department of Labor 50

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