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When Will It End?

When Will It End?. Presented by: Augustine Faucher, Director of Macroeconomics. January 12, 2009. How Bad Is It?. The Recession Is Intensifying…. Cumulative job loss, ths. …Across Most States…. Based on employment and industrial production, November 2008. At Risk. Expansion.

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When Will It End?

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  1. When Will It End? Presented by: Augustine Faucher,Director of Macroeconomics January 12, 2009

  2. How Bad Is It?

  3. The Recession Is Intensifying… Cumulative job loss, ths

  4. …Across Most States… Based on employment and industrial production, November 2008 At Risk Expansion In Recession Recovery

  5. …And Metro Areas Based on employment and industrial production, November 2008 At Risk Expansion In Recession Recovery

  6. …As Households Buckle Under The Stress Household debt in delinquency or default, $ bil, annualized Sources: Equifax, Moody’s Economy.com

  7. Northeast States—Payroll Employment Northeast States November 2008 May 2008 New Hampshire Middle Atlantic [1.67,1.06] Maryland New England South Atlantic Massachusetts Pennsylvania New York Vermont New Jersey District Of Columbia U.S. U.S. U.S. Connecticut Maine Delaware Rhode Island [-3.07,-4.52] [-2.01,-4.05]

  8. Northeast States—Payroll Employment Northeast States November 2008 Middle Atlantic New England South Atlantic New Hampshire Delaware Maryland New York Vermont New Jersey Massachusetts Connecticut Pennsylvania Maine District Of Columbia U.S. Rhode Island [-3.07,-4.52]

  9. Northeast Metro Areas—Payroll Employment Northeast Metro Areas Hartford November 2008 May 2008 [1.08,2.13] Middle Atlantic Baltimore New England Boston Harrisburg Washington South Atlantic Manchester Bridgeport Pittsburgh New York Buffalo Albany Camden Syracuse Edison Portland Bethesda Philadelphia Newark Springfield U.S. U.S. U.S. Rochester Trenton Nassau New Haven Wilmington [-2.6,-3.88] Providence [-1.82,-4.19]

  10. Northeast Metro Areas—Payroll Employment Northeast Metro Areas November 2008 Washington Middle Atlantic Bethesda New England Edison South Atlantic Rochester Newark Hartford Camden New Haven Pittsburgh Boston Albany New York Buffalo Syracuse Baltimore Philadelphia Bridgeport Trenton Springfield Wilmington Nassau Manchester U.S. Harrisburg Providence [-2.6,-3.88] Portland

  11. Connecticut Falls Into Recession Employment, % change year ago Estimated industrial production, 2002=100 (R) Source: Moody's Economy.com

  12. Rapid Weakening in Connecticut Labor Market 3 mo. MA Unemployment rate, % (L) Initial unemployment insurance claims, ths (R)

  13. How Did We Get Into This Mess?

  14. The Bursting Housing Bubble… Fiserv Case Shiller National House Price Index, 2000Q1=100 U.S. -6% CT -23%

  15. …Ignites a Mortgage Crisis… First mortgage loan defaults, ths, SAAR Sources: Equifax, Moody's Economy.com

  16. …Undermining the Financial System… Projected losses on assets originated 2004Q1-2007Q4, $ bil At risk mortgages 20,000,000 Foreclosure rate 40% Foreclosed mortgages 8,000,000 Loss rate 50% Mortgage loss $800 bil Corporate Commercial mortgages Consumer loans Residential mortgages

  17. …And Pushing It to the Precipice of Collapse Difference between 3 month Libor and Treasury bill yields Subprime financial shock LTCM Y2K S&L crisis Peso crisis Thai baht Tech bust Orange County

  18. What Is the Economic Fallout?

  19. The Worst Downturn Since the Great Depression Recessions since World War II

  20. The Credit Spigot Closes… Bond issuance, $ bil, annualized, Source: Thomson

  21. …And Banks Are In Survival Mode Net % tightening standards, Source: Federal Reserve

  22. The Collective Psyche Has Been Shattered… Consumer confidence, 1985 = 100 Source: Conference Board

  23. …Completely Shattered Net % of businesses responding positively to Dismal survey Source: Moody’s Economy.com

  24. Nest Eggs Crack… Household net worth, $ tri Stocks -9 Housing -4 Other +1

  25. …Forcing Consumers to Batten Down the Hatches… % change year ago Core retail sales, 3 mo. MA (R) Median sale price, existing single-family home, 6 mo. lead (L) Source: NAR

  26. ...Particularly Profligate Homeowners Personal saving rate, % Source: Moody's Economy.com

  27. A Global Recession Is Underway Real GDP growth, 2008Q3 Vietnam [6.52,9.04] Europe China [9.12,7.45] North America South America Indonesia Asia Chile Thailand Korea Greece France Japan U.S. Hong Kong Singapore [-0.64,4.94] Spain United Kingdom Italy Germany Taiwan [-0.99,-8.7]

  28. When Will It End?

  29. House Prices Hit Bottom In Fall ‘09… % change from peak Sources: Fiserv Case Shiller, Census Home sales Housing starts House price Real House price Current downturn to date Forecast Early 1990s Early 1980s

  30. ...With Big Differences Across the Country Projected peak-to-trough house price decline Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO < -30% -15 to -30% 0 to -15% No decline

  31. Housing Is Becoming More Affordable… Sources: BEA, Census, PPR, Realtors Price-rent ratio (L) Price-income ratio (R)

  32. …In An Increasing Number of Markets Based on house price to income and rent ratios Significantly over-valued Over-valued Correctly valued Under valued Source: PPR, NAR, Moody's Economy.com

  33. Inventories Are Peaking… Number of vacant homes for sale, ths Housing supply 900,000 Single 525,000 Multi 300,000 Manufactured 75,000 Housing demand 1,400,000 Households 875,000 Obsolescence 400,000 Second homes 125,000

  34. …And More Credit Is On the Way FHA share of purchase mortgage loans, %

  35. A Ray of Economic Sunshine Consumer spending, energy goods and services, $ bil (L) Oil, $ per barrel (R)

  36. Policymakers Work To Quell the Panic… • Equity Investments in Financial Institutions • Zero Effective Federal Funds Rate • Quantitative Easing – CP, GSE Debt and MBS • Lending Facilities and Credit Protection • Insurance for Money Funds, Deposits, Bank Debt • Mortgage Loan Modification Plans

  37. Policymakers Work To Quell the Panic…

  38. …With An Auto Bailout… Light vehicle sales, SAAR, mil Baseline Auto bankruptcy scenario Source: Moody’s Economy.com

  39. …A Massive Economic Recovery Package… Unemployment rate

  40. …And a Bigger Foreclosure Mitigation Plan… Number of underwater homeowners, ths Sources: Equifax, Moody's Economy.com

  41. …As More Homeowners Will Soon Be Underwater… Homeowners by % of equity, Sep 08, ths Source: Equifax, Case Shiller, Moody’s Economy.com

  42. …And Millions Will Lose Their Homes Ths Sources: Equifax, Moody’s Economy.com

  43. Connecticut, U.S. Recessions Look Similar Employment, % change year ago Source: Moody’s Economy.com forecast U.S. CT

  44. A Timeline to Recovery Financial Failures Abate Employment Bottoms Foreclosures Peak House Prices Resume Rising Housing Starts Bottom Stock Market Bottoms Fed Tightens ’08q1 ’08q2 ’08q3 ’08q4 ’09q1 ’09q2 ’10q1 ’10q2 ’09q3 ’09q4 ’10q3 ’10q4 Oil Prices Peak Home Sales Bottom Jobless Rate Peaks House Prices Bottoms Extraordinary Writedowns End $ Rises

  45. www.economy.com

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