Transcript Forecasting

Forecast for the Nation, Georgia and Atlanta
Dr. Rajeev Dhawan
Director
ECONOMIC
FORECASTING
CENTER
Presented at the
Quarterly Forecast Conference
GSU Student Center
August 24th, 2005
Office: 404-651-3291
email: [email protected]
http://www.robinson.gsu.edu/efc
Source: Walt Handelsman, Long Island, NY, Newsday
The Good, the Bad, and the Ugly
US Sector or Area
Grade
Construction
A++
Tax Collections
A+
Real Dividend Growth
A+
Bank Loan Activity
A+
Corporate Revenue Growth
A
Health/Finance/Insurance Jobs
A
Weak Dollar (Earnings)
B+
Overall Job Growth
B+
Euro Zone Malaise
C
Oil Prices
C
Benefit/Health Costs
D
Manufacturing Jobs
D
Auto Over-Capacity
F
Iraq/Terrorism
F
Overall US Economy
A-
Forecast Theme
Antidote to the Naysayers:
Economic Logic and a
Dash of Common Sense!
U.S. Short-Term Forecast
2004 2005 2006 2007
Real GDP Growth
05q3: 4.4
05q4: 3.0
4.2
06q1: 3.0
3.7
06q2: 2.6
3.0
2.6
06q3: 2.2
Consumption Growth
3.9
3.6
3.0
2.7
Bus. Investment Growth
9.4
9.3
8.9
3.3
Federal Purchases
5.2
1.9
2.7
1.3
State & Local Purchases
0.4
1.7
1.9
1.7
Short-Term Forecast Comparison
Real GDP
05Q3
05Q4
06Q1
06Q2
06Q3
06Q4
EFC
4.4
3.0
3.0
2.6
2.2
2.2
Blue Chip
3.9
3.3
3.2
3.2
3.2
3.2
(Bottom 10)
2.9
2.5
2.5
2.5
2.5
2.7
(Top 10)
5.2
3.9
3.8
3.9
3.9
3.9
10.6
10.7
12.0
8.3
4.5
9.4
7.8
8.2
8.0
7.4
-0.8
-6.4
-9.5
-9.0
-14.2
2.3
-0.8
-0.7
-3.0
-2.0
Bus. Fixed Invest
EFC
Philadelphia
Res. Fixed Invest
EFC
Philadelphia
Bursting Bubbles
Dow (2000-2005) vs. Nikkei (1990-2005)
100
Dow Jones
90
80
70
60
50
Nikkei
40
30
1
2
3
4
5
6
Consumer Sentiment and Stock Market Wealth
(Index: 1966 = 100)
160
(Bil.)
16000
140
14000
120
12000
100
10000
80
8000
60
6000
40
1996
4000
1997
1998
1999
2000
Consum er Confidence (L)
2001
2002
2003
Wilshire 5000 (R)
2004
2005
GE and Wal-Mart Revenue Growth
2000q1 to 2005q2
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
5.0%
0.0%
-5.0%
-10.0%
2000q1 2000q3 2001q1 2001q3 2002q1 2002q3 2003q1 2003q3 2004q1 2004q3 2005q1
GE
Wal-Mart
Breakdown of Retail Sales
Y-O-Y
July’05
Category
2004
2003
05 Q2
% Y/Y
% Y/Y
1.
Motor Veh. (26%)
24.7
8.7
3.9
3.0
2.
Furnishings (6%)
4.4
4.7
6.0
2.8
3.
Build. Mat. (10%)
9.2
9.3
14.1
6.5
4.
Food (15%)
3.8
5.2
4.0
2.3
5.
Health (6%)
6.1
6.4
5.6
6.4
6.
Gasoline (8%)
19.5
16.9
16.3
9.5
7.
Clothing (5%)
3.8
7.3
6.1
3.3
8.
Gen. Merch. (14%)
6.9
7.0
6.9
4.7
9.
Non-store (5%)
10.1
12.8
13.2
7.4
11.2
8.4
7.2
4.2
Overall
When the Party’s Over
Source: Fortune, August 22nd, 2005
Gas Spending Dings Discretionary Expenses
(Bil.$)
280
(%)
10.0
260
8.0
240
220
6.0
200
4.0
180
160
2.0
140
120
I
II
2002
III IV I
II
2003
III IV I
II
2004
III
IV I
II
2005
Spending on Gasoline (Left)
Growth in Food, Clothing & Shoe Spending (Right)
0.0
Business Investment
40 (Percent change, 2000 dollars)
High Gasoline Prices
Also Cause Investment
in Energy Efficient Equipment
30
20
10
0
-10
Structures
Com puters
2003
Softw are
2004
2005
Com m unication
Equipm ent
2006
2007
Source: GSU, Economic Forecasting Center, August 2005
Transportation
20%
Dow 30 Revenue Growth
15%
10%
5%
?
AIG, Merck, Walmart
& Exxon Mobil
0%
-5%
01q1 01q2 01q3 01q4 02q1 02q2 02q3 02q4 03q1 03q2 03q3 03q4 04q1 04q2 04q3 04q4 05q1 05q2
Data Revisions and the
Employment Report
Latest Month of Data
Month Report Published
Feb
March
April
May
June
July
Mar
Apr
May
June
July
Aug
High Pay
Jobs
Low Pay
Jobs
262
243
300
300
300
300
44
149
110
146
122
122
122
22
33
274
274
292
292
26
127
78
104
126
7
44
146
166
9
79
207
25
93
Banks are Opening Up!
(% Ch.)
(%)
50
10
40
9
8
30
7
20
6
10
5
0
-10
1999
4
3
2000
2001
2002
Home Equity (Left)
Commercial & Industrial (Left)
2003
2004
2005
Prime Rate (Right)
Is The Bond Market STILL Not Cooperating?
5
10-Year is DOWN
by 40 Basis Points!
4.5
4
3.5
3
10 Hikes Totaling 250 Basis
Points in 13 Months
29-June'04
18-Aug'05
2.5
2
1.5
1
3-month
6-month
1-year
2-year
5-year
10-year
Index of Unit Labor Cost Versus Productivity Changes
(% Ch. of 7-Qtr. Moving Average)
12
5
4
9
3
2
6
1
3
0
-1
0
-2
-3
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Labor Cost Index (Left)
Productivity Grow th (Right)
-3
Breakdown of Consumer Prices
3-Month Rate
Category
Weight
July’05
July’04
Dec’03
1.
Core
79%
1.7%
2.3%
1.0%
2.
Non Durables
29%
4.1%
8.2%
2.4%
3.
Durables
11%
-0.6%
-1.3%
-6.3%
4.
Services
60%
2.8%
3.4%
2.6%
5.
Housing
40%
2.5%
3.6%
1.7%
6.
Commodities
40%
2.6%
5.5%
-1.3%
7.
Food
15%
2.7%
4.7%
4.8%
8.
Gasoline
3%
14.0%
43.1%
-12%
9.
New Cars
5%
-1.7%
-0.4%
-1.9%
10.
Medical
6%
3.8%
4.1%
4.2%
Overall
2.7%
4.2%
0.9%
Yield Curve and Recessions
(%)
5
3
2
0
-2
-3
-5
1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005
10-Year - Funds Rate
Bold FED Forecast!
My slightly bold forecast is for two
25-basis point hikes by the FED at
its next two meetings, then
signaling the end of this tightening
cycle with a dramatic 50-basis
point hike at the December meeting
10-Year Bond Rate and Trade Deficit
10-Year Bond Regression
Source: May 2005, Forecast of the Nation
2004 2005 2006 2007
10-Year Bond Rate
CPI Inflation
Core
4.3
2.7
4.5
3.2
5.2
2.6
5.5
1.6
1.8
2.3
2.2
1.9
Testimony of Chairman Alan Greenspan
Fannie's and Freddie's purchases
of their own or each other's mortgage-backed
securities with their market-subsidized debt
do not contribute usefully to mortgage-market
liquidity, to the enhancement of
capital markets in the United States,
or to the lowering of mortgages rates
for homeowners
Before the Committee on Banking, Housing, and Urban Affairs, April 6th 2005
U.S. Housing Starts
vs. Average Mortgage Rate
(Mil. Units)
2.2
(Percent)
9.0
2.0
8.0
1.8
1.6
7.0
1.4
6.0
1.2
1.0
5.0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Total Housing Starts (L)
Mortgage Rate (R)
Single Family (L)
U.S. Short-Term Forecast
2004 2005 2006 2007
Exports
8.4
7.8
7.5
9.9
Imports
10.7
6.7
5.8
3.3
Trade Deficit
-601.3 -629.9 -645.7 -581.5
% of GDP
Budget Deficit
% of GDP
Housing Starts
Auto Sales
-5.4
-6.0
-6.0
-5.7
-406.5 -270.9 -306.9 -293.2
-3.5
-2.2
-2.3
-2.1
1.950 1.995 1.739 1.620
16.9 17.2 16.7 16.9
Prediction Vs. Reality
2nd Quarter 2005
GDP Growth
Components
Consumption (60% of GDP)
Durable (12%)
Nondurable (30%)
Services (58%)
Pvt. Invest. (16% of GDP)
Res. Const. (5% of GDP)
Inventories (0.4% of GDP)
Exports (10% of GDP)
Imports (13% of GDP)
Federal Govt. (7% of GDP)
S&L Govt. (12% of GDP)
Actual May 05 Grade
3.4%
3.0% A+++
A-
3.3%
8.3%
3.3%
2.3%
9.0%
9.8%
-6.4
12.6%
-2.0%
1.3%
2.4%
3.9%
7.1%
3.4%
3.5%
10.3%
-2.7%
54.2
7.1%
6.3%
6.3%
1.8%
AAA+
B+
AF
F++
AD
D
A-
Measured Hikes by FED
(% Ch.)
8
($/Barrel)
70
60
6
50
4
40
2
30
0
-2
20
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Real GDP
Federal Funds Rate
10
Oil Price (Right)
Source: Michael Ramirez, California, The Los Angeles Times
How China Runs the World Economy
EXPORTS:
$94.5 (16.2%)
IMPORTS:
$40.9 (7.4%)
Hong Kong
EXPORTS:
$45.6 (17%)
IMPORTS:
$14.6 (5.3%)
EXPORTS:
$72.3 (12.4%)
IMPORTS:
$88.9 (16.1%)
Japan
EXPORTS:
$25.7 (4.4%)
IMPORTS:
$57.4 (10.4%)
EXPORTS:
132.9 (22.8%)
IMPORTS:
42.5 (7.7%)
EXPORTS:
$122.3 (22.7%)
IMPORTS:
$56.3 (14%)
Source: CIA Fact book
EXPORTS:
$23.3 (4.0%)
IMPORTS:
$29.8 (5.4%)
S. Korea
Germany
EXPORTS:
$44.6 (17.8%)
IMPORTS:
$27.2 (12.7%)
EXPORTS:
$78.6 (8.8%)
IMPORTS:
$46.6 (6.5%)
The World’s Growth Imbalance
5
(%)
UNITED STATES
GERMANY
JAPAN
4
3
2
1
0
-1
2001
2002
2003
2004
2001
Real GDP
2002
2003
2004
2001
Net Export Contribution
Source: Global Insight, EFC
2002
2003
2004
Can We Blame China for High Oil Prices?
Production (P)
NET Change in
Supply
Consumption (C)
2000
2004
DP
2000
2004
DC
US
7.73
7.24
-0.49
19.70
20.52
0.82
-1.31
Canada
2.72
3.09
0.36
1.94
2.21
0.27
0.10
Mexico
3.45
3.82
0.37
1.88
1.90
0.01
0.36
Japan
NA
NA
NA
5.58
5.29
-0.29
0.29
UK
2.67
2.03
-0.64
1.70
1.76
0.05
-0.69
China
3.25
3.49
0.24
4.99
6.68
1.70
-1.46
India
0.78
0.82
0.04
2.25
2.56
0.30
-0.26
Russia
6.54
9.29
2.75
2.47
2.57
0.10
2.65
23.38
24.57
1.19
4.60
5.29
0.69
0.51
Africa
7.86
9.26
1.41
2.46
2.65
0.19
1.22
VIN*
8.13
7.29
-0.84
1.75
1.94
0.19
-1.03
Middle East
* VIN – Venezuela, Indonesia, Norway
Source: BP Statistical Review of World Energy, June 2005
(DP – DC)
International Country Analysis
Top US Trading
Partners
GDP Growth
2003
2004
2005(F)
Current
Account
(% of GDP)
Inflation
Exchange
Rate
(per US$)
ShortTerm
Rate
2004
2004
Latest
Latest
1. Canada
2.0
2.9
2.8
2.9
1.8
1.21
2.57
2. Japan
1.4
2.6
1.4
3.4
0.0
112.1
0.02
3. Mexico
1.6
4.4
3.6
-1.2
4.7
10.60
9.63
4. UK
2.2
3.1
2.2
-2.0
1.3
1.77
4.56
5. Netherlands
-0.9
1.4
0.5
2.9
1.4
1.22
2.13
6. Germany
0.0
1.6
1.1
4.4
1.6
1.22
2.13
7. China
9.5
9.5
9.1
2.4
3.9
8.10
2.00
8. France
0.9
2.1
1.7
-0.6
2.3
1.22
2.13
9. Ireland
3.7
4.7
4.7
-1.6
2.3
1.22
2.13
10. Belgium
1.3
2.7
1.5
4.5
1.9
1.22
2.13
Euro Area
0.5
2.0
1.5
0.8
2.2
1.22
2.13
Source: IMF & Blue Chip International
UK Retail Sales and Short-Term Rates
(Y/Y %)
10
(%)
6.5
6.0
8
5.5
6
5.0
4
4.5
2
4.0
0
3.5
-2
3.0
FEB JUL DEC MAY OCT MAR AUG JAN JUN NOV APR SEP FEB JUL
00
01
02
03
04
05
Retail Sales
3-Month T-Bill (Right)
US Oil Rig Count and Oil Prices
($/Bbl)
1500
70.0
1400
60.0
1300
50.0
1200
40.0
1100
30.0
1000
20.0
900
800
10.0
700
0.0
JAN'02 APR
JUL
OCT JAN'03 APR
JUL
Total US
OCT JAN'04 APR
Oil Price (Right)
JUL
OCT JAN'05 APR
JUL
Anonymous Vent
The end is near when a share of
Delta stock costs less than a
Happy Meal.
Source: The Atlanta Journal-Constitution, August 11th, 2005
Delta / Air Transportation
1. Fuel Prices Still Very High
– Underestimated Current Fuel Costs
– Fuel in Q2 was $1.60/gallon, 50% higher than a year ago
2. Crunch Time
– Posted $1.5 Billion in Losses 1st half 2005
– Delta needs CASH fast
– Sold regional subsidiary ASA to SkyWest for $425 million
– Renegotiated Finance Staves off Bankruptcy? New
Mastercard/VISA deal costs $750 million
3. Competition Getting Breaks
– United Dumped $6.6 Billion in Pension Costs
– US Air and America West Merger
Can AirTran Fill Delta’s Shoes?
Owned Leased
Total
AGE
Delta’s Current
Fleet
500
345
845
15+
AirTran’s Current
Fleet
10
77
87
2.5
Hartsfield-Jackson Expansion
Doldrums
Airport Development Program Projected Spending - $6 Billion
Includes Seven Major Projects
Firing of Architects HAS DELAYED $1 B New Intl Terminal
Project
Cost
Project
Start Date
Opening
Date
Fifth Runway
$1.25 Billion
In Progress
May 2006
New Car Rental Facility
$500 Million
2006
2008
$1 Billion
???
????
South Passenger Complex
$1.8 Billion
???
2010-2012
Complex Upgrades
$400 Million
In Progress
By 2009
Other Facilities Upgrades
$1.2 Billion
In Progress
By 2011
International Terminal
Source: Inside Hartsfield-Jackson (2005 press kit)
Local Economy Suffers
a Sectoral Growth
Pause
Georgia Nonfarm Employment
(Thous.)
3940
3920
3900
Between June 2003 and
Aug 2004, Georgia
Gained 70,000 jobs
3880
3860
3840
3820
HOWEVER, Georgia Gained Only 38,000 Jobs
in the Last 11 Months
MAR
2003
JUL
NOV
MAR
2004
JUL
NOV
MAR
2005
JUL
Healthcare Blip
•
•
Healthcare
Usually a
Leading Growth
Sector
Georgia Healthcare Jobs
(Thous.)
342
340
338
1st Half 2005
created Only
14,000 Jobs,
Last Year
Added 40,000
Jobs in 1st Half
1st Half 2005 was Flat
Compared to 2004
336
334
FEB
2004
APR
JUN
AUG
OCT
DEC
FEB
2005
APR
JUN
Information and Technology
Mergers:
-
Qwest and MCI
Sprint and Nextel
AT&T and Cingular
Georgia Technology Jobs
(Thous.)
150
145
140
Layoffs:
–
–
–
–
–
MCI -600
Earthlink -180
AT&T -350
Cingular: -10%
AT&T/SBC -13,000
135
FLAT
130
125
120
115
I II
2001
III IV
I II
2002
III IV
I II
2003
III IV
I II
2004
III
IV
I II
2005
Construction Activity
Jobs Added
Permit Growth
2005Q2
Last 12 Mos.
Grade
800
B
20
0.3%
3.2%
Atlanta Housing Permits
B-
(4th-quarter moving average)
(Thous.)
18.5
18.0
17.5
17.0
1st half 2005 0.3% growth
over the 1st half of 2004
16.5
16.0
15.5
15.0
2003
2004
Source: US Census Bureau
2005
Commercial Construction is Drying Up
Georgia Construction Jobs
(Thous.)
202
6,000 Jobs From
2003q2-2004q2
but FLAT Since
200
198
196
194
192
I
2002
II
III
IV
I
2003
II
III
IV
I
2004
II
III
IV
I
2005
II
Georgia’s Report Card: BMost
Recent
Quarter
(2005Q2)
Last 12
Months
Grade
Self & Small Business
(Household Survey)
19,000
58,000
A+
Hospitality Jobs
3,400
5,700
A
Finance Jobs
30
3,000
B+
Healthcare Jobs
600
5,400
B-
Business Service Jobs
-1,900
11,000
C
Total Non-Farm Jobs
7,000
20,000
C
Technology Jobs
-300
-1,900
D
Manufacturing Jobs
-500
-7,500
F
Indicator
Jobs Added
Georgia’s Recent and Potential Job Layoffs
RECENT
- Winn Dixie
3,000 workers in 50 unsold stores
- Earthlink
180 workers
Future Layoff (Uncertain When & Where They Will Occur)
- HP - 14,500 jobs (Atlanta currently has 1,600 workers)
- Kodak - 10,000 jobs
- Kimberly-Clark - 6,000 jobs over 3 years
- Coca-Cola Enterprises - 6,000 jobs
Georgia Tax Collections
Georgia Total Tax Revenue
4 quarter moving average
($ Millions)
3700
3600
3500
3400
3300
Looks Great,
Right?
3200
3100
2001
2002
2003
Source: Georgia Department of Revenue
2004
2005
But We Have Concerns…
Georgia SalesTax Revenue
($ Millions)
600
550
500
450
400
350
300
JAN
2004
Why Is Sales Tax Flat??
APR
JUL
OCT
JAN
2005
APR
JUL
Blame Flat Sales Tax Revenues on Oil?
Georgia SalesTax Revenue & Oil Prices
($)
60
(% Ch. Yr. Ago; Sm oothed)
20
15
As Oil $$ Go Up, Sales
Tax Revenues Go Down
55
50
10
45
5
40
0
35
-5
-10
JAN APR
2003
30
JUL
OCT
JAN APR
2004
JUL
Sales Tax Revenue (L)
OCT
JAN APR
2005
Oil Price (R)
JUL
25
Georgia and US Export Growth
4-Qtr Moving Average
(%)
8
Georgia Export Growth is Still
Stronger than the US
6
4
2
0
-2
-4
-6
1998
1999
2000
2001
Georgia
•
2002
2003
2004
US
Georgia ended 2004 up by 20.6% and started
2005 up by 20.2%
Source: World Institute for Strategic Economic Research (Wisertrade.org)
2005
Georgia 2005 Q1 Export Performance
Top Export Destination Bought GA Equipment
–
–
–
Singapore +$110 more than before
UK +$70M more than before
Italy +$70M more than before
Main Products:
–
Transport Equipment increased 50% over 2004 Q1
– $400 million more sold
– Includes Turbojets and Airplane Parts
(Savannah Manufacturer Gulfstream)
Source: www.Wisertrade.org
CAFTA Details
1. The Dominican Republic and the countries of
Central America are Georgia’s 9th largest export
market
2. Georgia exported $640 million in 2004
3. Georgia exported $290 million in Non-Apparel
Textiles
4. After the first year, Georgia companies expect to
increase their sales to this region by $262 million
and add 1,500 jobs
Source: US Chamber of Commerce, Economic Impact of DR-CAFT on Georgia, 2004 ed.
Tourism
1. Hotel Occupancy and Employment Up
– Hotel Occupancy Up by 5% in May 2005
– Added 7,000 jobs in calendar year 2004
2. Georgia Aquarium $200 million+
– Opening November 2005
3. GWCC Reservations Coming Back
– 55% in 2005 (booked)
– 45% in 2006 (booked)
4. But Ultra-Large Conventions Look Elsewhere
– Las Vegas, Orlando, Chicago have more space and
more hotel rooms
Sources: GWCC and PKF Consulting
Georgia August 2005 Forecast
Jobs, Income & Housing
Change from May Forecast,
Down 30,000 Jobs
2005
2006
2007
Total Jobs Added (000’s) *
45.8
79.8
74.3
High Paying Jobs (000’s) **
3.2
5.4
10.3
% Total
7%
7%
14%
May 05 Report
6.4
8.4
12.6
6.3%
5.9%
6.0%
-6.5%
-4.8%
-2.6%
Personal Income Growth
Housing Permits (Atlanta)
*Calendar Year Calculations (January to December)
** High Paying Jobs are in Manufacturing, Information, Air Transport, Management of Companies,
Accounting, Scientific, Computers, Finance & Insurance
Employment Gains: History and Forecast
Manufacturing vs. Construction
(Thous.)
20
10
0
-10
-20
-30
-40
1995
1997
Manufacturing
1999
2001
Construction
2003
2005
2007
Employment Gains: History and Forecast
High Tech vs. Healthcare
(Thous.)
20
10
0
-10
-20
-30
-40
1995
1997
High Tech
1999
Healthcare
2001
2003
2005
2007
Employment Gains: History and Forecast
Government vs. Trade
(Thous.)
25
20
15
10
5
0
-5
-10
-15
1995
1997
Government
1999
Trade
2001
2003
2005
2007
Employment Gains: History and Forecast
Hospitality vs. Admin & Support
(Thous.)
25
20
15
10
5
0
-5
-10
-15
1995
1997
Hospitality
1999
2001
Admin & Support
2003
2005
2007
Atlanta Forecast
Jobs Added (000’s)
Total Jobs*
High Paying **
% Total
Low Paying
% Total
2005
2006
2007
29.7
45.7
44.1
1.9
6.0
9.0
7%
13%
20%
12.2
19.0
19.0
41%
42%
42%
*Calendar Year Calculations (January to December)
** High Paying Jobs are in Manufacturing, Information, Air Transport, Management of Companies,
Accounting, Scientific, Computers, Finance & Insurance
Housing Starts Will Slip Everywhere…
Residential Building Percent Change
Atlanta vs. US
(%)
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
1998
1999
2000
2001
Atlanta Permits
2002
2003
2004
US Housing Starts
2005
2006
2007
Revenue Tax Collection Projection
(Percent Change, Based on Monthly Collection Reports)
Income
FY 05
FY 06 Forecast
9.8%*
Grows in the 6.0% Range; Closer to Personal
Income Growth
7.2%
Moderates to the 5.0% Range as
Home Building Returns to Normalcy
0.0%
$60+/bbl Cuts into Discretionary Consumer
Spending
(50% of total)
Sales
(36% of total)
Motor
(5% of total)
Corporate
44.0%
(4% of total)
TOTAL TAX
8.0%
No More Positive Surprises?
6.0%+
*Excludes the $202 Mil. from HB-43 in May04
MSA Forecast – Best and Worst
Employment Growth Rates
Metro Area
2005
2006
Savannah
1.5
2.2
Albany
1.2
1.1
Brunswick
Columbus
Macon
Dalton
0.9
0.1
0.1
-0.5
1.5
1.1
0.9
0.9
How Vulnerable is the
US Economy to
Oil, Housing, Politics
and Consumers?
Oil Price
($/bbl)
75
70
EXPERIMENT #1: OIL HITS $75
65
60
55
50
45
40
III
2005
IV
I
2006
Baseline
II
III
Oil Shock
IV
I
2007
II
III
IV
Auto Sales
Housing Starts
(Mil.)
18.5
(Mil.)
1.95
1.90
18.0
1.85
1.80
17.5
1.75
17.0
1.70
1.65
16.5
1.60
16.0
III
2005
IV
I
2006
Baseline
II
III
IV
I
2007
II
III
IV
1.55
III
2005
IV
I
2006
Baseline
Oil Shock
II
III
IV
I
2007
II
III
IV
II
III
IV
Oil Shock
Quarterly Job Additions
GDP Growth
(000's)
700
(%)
4.5
600
4.0
500
3.5
400
3.0
300
2.5
200
100
III
2005
IV
I
2006
Baseline
II
III
Oil Shock
IV
I
2007
II
III
IV
2.0
III
2005
IV
I
2006
Baseline
II
III
Oil Shock
IV
I
2007
Gary Shilling
A. Gary Shilling & Co.
EIGHT FACTORS THAT
CAUSE DEFLATION
July 11th, 2005
1. End of Cold War Released Resources
2. Central Banks are Too Aggressive in Fighting the Inflation War
3. Corporate Cost-Cutting and Restructuring
4. Productivity from Technology
5. Rise of Wal-Marts
6. Deregulation and Privatization Wave
7. Globalization has an Ugly Side: Excess Surplus
8. The U.S. consumer Becomes a Saver!
Source: Barron’s, June 20th, 2005
Consumer Sentiment
Index
100
95
90
85
80
75
EXPERIMENT #2: CONSUMER MALAISE
III
2005
IV
I
2006
Baseline
II
III
Simulation
IV
I
2007
II
III
IV
Consumption
Housing Starts
(%)
4.5
(Mil.)
1.95
4.0
1.90
3.5
1.85
3.0
1.80
2.5
1.75
2.0
1.70
1.5
1.65
1.0
1.60
0.5
III
2005
IV
I
2006
Baseline
II
III
IV
I
2007
II
III
IV
1.55
Simulation
III
2005
IV
I
2006
Baseline
II
III
IV
I
2007
II
III
IV
II
III
IV
Simulation
Auto Sales
GDP Growth
(Mil.)
18.5
(%)
4.5
4.0
18.0
3.5
17.5
3.0
17.0
2.5
16.5
16.0
2.0
III
2005
IV
I
2006
Baseline
II
III
Simulation
IV
I
2007
II
III
IV
1.5
III
2005
IV
I
2006
Baseline
II
III
Simulation
IV
I
2007
Marty Cohen
Cohen & Steers
THE CASE FOR REAL ESTATE?
August, 2005
Q: Real-Estate Investment Trusts are like the Energizer Bunny.
Can They Keep Going and Going and Going?
The replacement costs of real estate have risen dramatically - raw
materials, lumber, copper, steel, cost of labor, or the cost of land,
particularly in major cities. That keeps supply in check, because it
costs too much to build a building today.
Q: Is this the new reality?
If the economy continues to grow and there is more job creation
…to continue for the foreseeable future with respect to office
buildings, multifamily buildings and hotels. Many hotels are being
converted to condominiums now… in major cities, construction is
pretty much prohibitive, …..and creates a great pricing umbrella for
the owners of property.
Source: Barron’s, August 15th, 2005
What if There IS a Real Estate Bubble?
The run-up in home prices has proved good
therapy for people who lost their shirts on tech
stocks. In their own eyes, they’ve redeemed their
pride as investors. But instead of learning the
lesson that the fundamentals always win, they’re
buying into a new era of ridiculous arguments.
Looking forward, property taxes will be a major
negative for real estate.
Source: Fortune, August 8th, 2005
Housing Starts
(Mil.)
2.00
EXPERIMENT #3: HOUSING STARTS
DROP BY 20%
1.80
1.60
1.40
1.20
III
2005
IV
I
2006
Baseline
II
III
Simulation
IV
I
2007
II
III
IV
Sensitivity Analysis
Experiment
Impact on 2006 Growth
GDP
Investment
Non-farm
Employment
1. Oil Rises to $75 by 2006q1
-0.4%
-0.1%
-500K
2. Consumer Malaise
-0.5%
-1.1%
-600K
3. Housing Starts Abruptly
-1.0%
-1.7%
-700K
-1.3%
-1.9%
-1.2 Mil.
Drop by 20%
4. #1 plus #2 plus #3
Tiny Bubbles
Celebrity Reality TV Shows
The Simple Life 4, Being Bobby Brown, Hogan Knows Best… the list goes on.
When Courtney Love reportedly turns down a reality
show, you know the market has reached saturation!
Source: Fortune, August 8th, 2005
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