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The Economic Outlook. Mark Zandi Chief Economist. An Improved Economy. Demand. Output. Labor hours. % chg year ago Sources: BEA, BLS. ...Across Industries. % of industries adding to payrolls over 3 month period Source: BLS. Recession (none). Flat. Expanding.
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The Economic Outlook Mark ZandiChief Economist
An Improved Economy... Demand Output Labor hours % chg year ago Sources: BEA, BLS
...Across Industries... % of industries adding to payrolls over 3 month period Source: BLS
Recession (none) Flat Expanding ...and Across the Country Based on employment and IP data as of July 2004
But Incomes Have Not Kept Up... Real Median Household Income 2000$, Source: BEA, Economy.com
...Nor Has Wealth Real Average Household Net Worth 2000$, Sources: FRB, Economy.com
Fading Policy Stimulus Contribution to GDP growth % chg year ago Source: Economy.com
Higher Energy Prices are a Growing Weight... West Texas Intermediate % Change Year Ago
...But They Should Not Derail the Expansion Thousands of BTUs per 1996$ of GDP Source: Energy Department Total Energy Petroleum
Fundamental Reason For Optimism Productivity Growth Nonfarm Business Average Annual Growth Sources: BLS, Economy.com
Productivity Gains Have Lifted Profits... After-Tax corporate profit margin Source: BEA
...Which Will Induce More Hiring Sources: BEA, BLS Profits growth 1 year lead (L) Employment growth (R)
Strong Global Economy Real GDP Growth through 2004Q2 Recovery Expansion New Zealand China Russia India Japan Argentina Brazil Hong Kong Israel Mexico Chile Belgium Canada Denmark Indonesia Norway France Finland Korea Germany U.S. U.K. Spain Australia Euro Area Italy % chg year ago Netherlands Recession Struggling annualized % change Taiwan
Sanguine Near-Term Economic Outlook % change year ago Real GDP Employment
Regional Recoveries Year when new employment peak is projected 2004 2005 2006 2007 and after
Tax Revenue Growth Back on Track State Tax Revenue Growth Sources: Census, Economy.com
Tax Revenue Growth Back on Track Avg Annual Growth FY '04–'06, U.S. = 4.5% Source: Economy.com
Withering Global Competition China (R) Total excluding OPEC (L) Trade deficit $ bil, 12 mo moving sum Source: Census
Long-Term Rates are Set to Rise... Growth in Federal Debt Sources: Treasury, Economy.com
...Particularly if Foreign Investors Become Skittish Share of Treasury Debt Owned by Foreigners Sources: FRB, Economy.com
Higher Rates Pose a Threat to the Housing Market New York Boston Vallejo Lansing Nassau Bergen-Passaic Santa Rosa Sacramento Newark San Francisco Stockton Middlesex Oakland Modesto Las Vegas Trenton San Jose Ventura Monmouth Santa Barbara Los Angeles Riverside Washington DC Orange County Phoenix San Diego Tampa Sarasota West Palm Beach Ft. Lauderdale Naples Miami Highly Overpriced > 2 SD from historic average Overpriced > 1 SD from historic average Based on the aggregate CSW house price index Source: Economy.com
Weighty Household Financial Obligations Financial obligation ratio Source: Federal Reserve Homeowners (R) Renters (L)
Darkening Federal Fiscal Outlook 10-Year Cumulative Budget Deficit, FY '05-14 Source: Congressional Budget Office
Outlook Summary • The economy is much improved. Demand and output are expanding and profits have never been stronger. • The recovery has been disappointing. The job market continues to lag as do real incomes and net worth. • Growth has slowed recently due to fading policy stimulus and higher energy prices. • The expansion will remain in tact as strong productivity and profit gains induce business to invest and hire. • The global economy is stronger and combined with a softer dollar should support U.S. growth. • The expansion will struggle with fierce global competition and higher interest rates. Higher rates will be particularly hard on the vehicle and housing markets. • High household leverage and ballooning federal budget and current account deficits are longer-term threats.
