Transcript Slide 1

James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
America’s on the
Mend
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The global economy ... beyond the mist ...
Real GDP in selected regions (percent change from four quarters earlier)
13
12
China (orange)
Global (shaded region)
India (blue)
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3 Newly industrializing countries other than China and India (green)
-4
-5 US (purple)
-6 EU-11 (red)
-7 Japan (black)
-8
-9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
2
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... a Great Awakening
Real GDP per capita (2004 dollars, PPP basis)
12,000
12,000
11,500
11,500
11,000
11,000
10,500
10,500
10,000
10,000
9,500
9,500
9,000
9,000
8,500
8,500
8,000
8,000
7,500
7,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
3
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Europe matters but so do others
Destination of real US exports (billions of dollars over the most recent 12 months)
400
400
350
350
Asia
300
250
300
250
Europe
200
200
Nafta
150
150
100
100
Latin America
Middle East
50
50
Africa
0
2005
2006
2007
2008
0
2009
2010
2011
Source: US Department of Commerce. Updated through October 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
4
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
We’re back, bigger than ever, but still far from home ...
US potential and real GDP (chained 2005 dollars)
19,000
18,000
17,000
19,000
18,000
GDP level associated with 5% unemployment rate
17,000
16,000
16,000
15,000
15,000
14,000
14,000
13,000
13,000
12,000
11,000
10,000
9,000
Actual real
GDP to date
If real GDP
grows 4%
annually for a
while
12,000
11,000
10,000
9,000
8,000
8,000
7,000
7,000
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
5
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... home being unemployment around 4-6%
US unemployment rate (percent of the labor force)
12
12
11
11
Horizontal bars denote the Fed's view
about the near-term and sustainable
unemployment rate (often referred to as
the Nairu, or nonincreasing inflationary
rate of unemployment)¹
10
9
10
9
8
8
7
7
6
6
5
5
4
4
3
3
2
1
Note: The green boxes identify the first of the
sequence of Fed rate hikes in the two previous
episodes of unwinding monetary accommodation
2
1
0
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
6
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The US gradually will speed up to a trend-plus pace ... why?
US real GDP (annualized percent change)
8
8
7
7
6
6
5
4.0
3.9
4
2.9
3
2.9
2.8
1.9
2
1
3.1
2.4
3.1
4.0
5
4
3
2.2
1.6
2
1
0.4
0
-1
-1
-2
-3.3
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
2000
2002
2004
2006
2008
2010
% change
from the
previous
quarter
0
-0.5
-2
Forecasted %
change from
the previous
quarter
2012
% change
over the four
quarters of
the year
% change
from four
quarters
earlier
2014
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
7
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
1) Housing is coming back ...
Home building boost (contribution in pct. pts. to US real GDP growth over the most recent four quarters)
1.5
1.0
1.5
Actual / forecast
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
8
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... with speculative real estate values corrected ...
Household income and house prices (ratio to 1970)
13
13
12
12
11
11
10
9
8
CoreLogic house price index (ratio to 1970)
Gross nominal income per household (ratio to 1970)
7
6
5
10
9
Forecast
(assumes
nominal
income grows
5% annually in
the coming
decade's
recovery)
8
7
6
5
4
4
3
3
2
2
1
1
0
0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Sources: US Department of Commerce; CoreLogic. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
9
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... the housing glut working off ...
New housing starts (thousands at an annual rate)
2,600
2,400
2,200
2,600
Average number of units put up annually over the most recent decade
2,400
2,200
2,000
2,000
1,800
1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
600
800
Current new home building pace
600
400
400
200
200
0
1970
0
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
10
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and hiring stirring for the household-forming demographic
Employment-to-population ratios by age cohort (normalized to December 2007)
1.02
1.02
55+
1.00
1.00
0.98
0.98
0.96
0.96
35-44
45-54
25-34
0.94
0.92
0.90
0.88
2008
Blue shaded region is
the overall employmentto-population ratio
20-24
0.94
0.92
0.90
0.88
2009
2010
2011
2012
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
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James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
2) The “business” in the business cycle has a ‘green light’ ...
After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income)
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
12
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and once again is on the offensive
Business investment in capital goods and software (percent change from four quarters earlier)
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
1970
-20
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
13
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Pent-up “investment” demand will be a theme ...
Nominal consumer durable goods purchases (billions of dollars annually)
1,000
800
Consumption of durable
goods (capital
consumption with capital
consumption adjustment)
1,000
900
800
700
600
400
Investment in durable
goods (net investment =
gross expenditures on
consumer durable goods
less capital consumption)
600
500
400
300
200
200
100
0
0
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
14
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... because it drives investment ... by consumers too
Ratio of nominal consumer durable goods “investment” to nominal outlays for consumer durable goods
0.35
0.35
0.30
0.30
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
0.00
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
15
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
It’ll be driving the motor vehicle industry
Average age of selected types of motor vehicles on the road (years)
10
10
Automobiles
9
9
Trucks
Light trucks
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Bureau of Transportation. Updated through 2010.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
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James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
3) US manufacturing is back ... here’s one reason why
Selected trade weighted US dollar indexes (March 1973 = 100)
160
150
140
160
Nominal trade-weighted
dollar index versus G-10
countries( 1972-76 = 100)
150
Broad real tradeweighted dollar
index versus all
currencies
130
140
130
120
120
110
110
100
100
90
90
80
80
70
1967
70
1971
1976
1981
1986
1991
1996
2001
2006
2011
Source: Federal Reserve Board. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
17
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
4) Big discoveries breath new energy into the economy
Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel)
150 Petroleum price (WTI, $/barrel)
150
Natural gas price converted to thermal
125 equivalent price of oil in terms of price per
barrel (6 times the $/mmBTU)
125
100
100
75
75
50
50
25
25
0
1994
0
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: Oil & Gas Journal. Updated through January 6, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
18
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
5) Powerful “monetary” help ... the traditional response ...
Federal funds rate and 10-year Treasury yield (percent)
20
20
18
18
16
16
14
12
10-year Treasury yield
14
Federal Reserve Bank of New York Discount Rate / federal
funds rate (target rate after October 1982)
12
10
10
8
8
6
6
4
4
2
2
0
1919
0
1929
1939
1949
1959
1969
1979
1989
1999
2009
Source: Federal Reserve Board. Updated through January 6, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
19
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and unconventional ...
Assets held by the Federal Reserve (billions of dollars)
3,000
3,000
2,750
2,750
2,500
2,500
2,250
2,250
Loans to depositories
2,000
2,000
1,750
1,750
1,500
1,500
Mortgage backed securities
1,250
1,250
1,000
1,000
GSE debt
750
750
500
500
Treasuries
250
0
Aug 2007
250
0
Aug 2008
Aug 2009
Aug 2010
Aug 2011
Source: Federal Reserve Board. Updated through December 21, 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
20
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and the “twist” on that
The Federal Reserve’s Treasury holdings by maturity (millions of dollars)
2,200,000
Dashed lines indicate an estimate of the
expected holdings by maturity as a result of
2,000,000
the latest decision to extend the maturity of the
central bank's portfolio
1,800,000
1,600,000
Maturities of 5 years or more
2,200,000
2,000,000
1,800,000
1,600,000
1,400,000
1,400,000
1,200,000
1,200,000
1,000,000
1,000,000
800,000
800,000
600,000
600,000
400,000
400,000
200,000
Maturites of less than 5 years
0
Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012
200,000
0
Source: Federal Reserve Board. Updated through January 2, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
21
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Maine’s layoffs are a bit on the high side
Weekly applications for unemployment insurance (ratio to 2007 Q4 level of claims)
2.25
2.00
2.25
Maine
US (solid area)
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75
2007
0.75
2008
2009
2010
2011
2012
2013
Source: US Department of Labor. Updated through January 7, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
22
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Hiring lags the national pace ...
Nonfarm payroll employment (percent change from 12 months earlier)
4
4
3
Maine
US
2
3
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
23
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... with the recovery tepid so far ...
Nonfarm payroll employment (ratio to 2000 Q4 level)
1.05
1.05
1.04
1.04
1.03
1.03
1.02
1.02
1.01
Maine
1.01
1.00
1.00
0.99
0.99
0.98
US
0.98
0.97
0.97
0.96
0.96
0.95
0.95
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: US Department of Labor. Updated through 2011 Q4.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
24
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... but unemployment is edging down
Unemployment rate (percent of the labor force)
12
12
10
10
8
8
Maine
6
6
4
4
2
US (shaded)
0
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
2
0
Source: US Department of Labor. Updated through December 2011 (US) and December 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
25
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Bangor, not bad
Nonfarm payroll employment (ratio to 2000 Q4 level)
1.08
1.08
1.07
1.07
1.06
1.06
1.05
1.05
1.04
1.04
1.03
1.03
1.02
1.02
1.01
1.01
1.00
1.00
0.99
0.99
0.98
0.98
0.97
0.97
0.96
0.96
0.95
0.95
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US forecast
US
Portland
Bangor
Bangor-Lewiston
Maine forecast
Maine
Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (state and communities).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
26
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Working off the glut
New housing starts (ratio to July 1990 level)
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
1970
Average units put up over the most recent decade
Current new home building pace
1975
1980
1985
1990
1995
2000
2005
2010
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
2015
Source: US Census Department. Updated through December 2011 (US) and December 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
27
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Recovery has a history, “new normal” doesn’t
Real GDP gap, actual less potential GDP (percent of potential GDP)
5
5
0
0
-5
-5
-10
Forecast
-10
-15
-15
-20
-20
-25
-25
-30
-30
1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 2019
Sources: US Department of Commerce; JPMorgan Chase & Co.; various academic sources. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
28
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
We’re back, bigger than ever, but still far from home ...
US potential and real GDP (chained 2005 dollars)
19,000
19,000
18,000
18,000
17,000
GDP level associated with 5% unemployment rate
17,000
16,000
16,000
15,000
15,000
14,000
14,000
13,000
13,000
12,000
11,000
10,000
9,000
Actual real
GDP to date
If real GDP
grows 4%
annually for a
while
12,000
11,000
10,000
9,000
8,000
8,000
7,000
7,000
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
29
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
America’s on the
Mend
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
A Decade of Cyclical Recovery In Store
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
31
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The global economy ... beyond the mist ...
Real GDP in selected regions (percent change from four quarters earlier)
13
12
China (orange)
Global (shaded region)
India (blue)
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3 Newly industrializing countries other than China and India (green)
-4
-5 US (purple)
-6 EU-11 (red)
-7 Japan (black)
-8
-9
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
13
12
11
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
32
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... a Great Awakening
Real GDP per capita (2004 dollars, PPP basis)
12,000
12,000
11,500
11,500
11,000
11,000
10,500
10,500
10,000
10,000
9,500
9,500
9,000
9,000
8,500
8,500
8,000
8,000
7,500
7,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
33
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Europe matters but so do others
Destination of real US exports (billions of dollars over the most recent 12 months)
400
400
350
350
Asia
300
250
300
250
Europe
200
200
Nafta
150
150
100
100
Latin America
Middle East
50
50
Africa
0
2005
2006
2007
2008
0
2009
2010
2011
Source: US Department of Commerce. Updated through October 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
34
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
We’re back, bigger than ever, but still far from home ...
US potential and real GDP (chained 2005 dollars)
19,000
18,000
17,000
19,000
18,000
GDP level associated with 5% unemployment rate
17,000
16,000
16,000
15,000
15,000
14,000
14,000
13,000
13,000
12,000
If real GDP
grows 4%
annually for a
while
11,000
10,000
12,000
11,000
10,000
9,000
9,000
8,000
8,000
7,000
7,000
93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
35
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... home is unemployment around 4-6%
US unemployment rate (percent of the labor force)
12
12
11
11
Horizontal bars denote the Fed's view
about the near-term and sustainable
unemployment rate (often referred to as
the Nairu, or nonincreasing inflationary
rate of unemployment)¹
10
9
10
9
8
8
7
7
6
6
5
5
4
4
3
3
2
1
Note: The green boxes identify the first of the
sequence of Fed rate hikes in the two previous
episodes of unwinding monetary accommodation
2
1
0
0
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
36
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and where the invisible unemployment vanishes
The working population (percentage of the population)
0.66
0.66
0.64
All employed
0.64
0.62
All employed full time (excludes those
working part time "for economic reasons")
0.62
0.60
0.60
0.58
0.58
0.56
0.56
0.54
0.54
0.52
0.52
0.50
0.50
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
37
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
P.S. You could say that hidden unemployment is ...
Those actively in the job market or looking and the dropouts (percentage of the population)
0.68
0.66
0.68
Labor force before dropouts
Labor force
0.66
0.64
0.64
0.62
0.62
0.60
0.60
0.58
0.58
0.56
0.56
0.54
0.54
All employed
0.52
0.52
All employed full time (excludes those working part time "for economic
0.50
0.50
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
38
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... as much as the official figures
Those actively in the job market or looking and the dropouts (percentage of the population)
0.68
0.66
0.64
0.68
Labor force before dropouts
Labor force
If unemployment were 4 1/2%
0.66
0.64
0.62
0.62
0.60
0.60
0.58
0.58
0.56
0.56
0.54
0.54
All employed
0.52
0.52
All employed full time (excludes those working part time "for economic
0.50
0.50
1948 1953 1958 1963 1968 1973 1978 1983 1988 1993 1998 2003 2008
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
39
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and jobs for the household-forming demographic
Employment-to-population ratios by age cohort (normalized to December 2007)
1.02
1.02
55+
1.00
1.00
0.98
0.98
0.96
0.96
35-44
45-54
25-34
0.94
0.92
0.90
0.88
2008
Blue shaded region is
the overall employmentto-population ratio
20-24
0.94
0.92
0.90
0.88
2009
2010
2011
2012
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
40
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Key Drivers
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
41
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The US gradually will speed up to a trend-plus pace ... why?
US real GDP (annualized percent change)
8
8
7
7
6
6
5
4.0
3.9
4
2.9
3
2.9
2.8
1.9
2
1
3.1
2.4
2.2
3.1
4.0
5
4
3
1.9
2
1
0.4
0
-1
-1
-2
-3.3
-3
-3
-4
-4
-5
-5
-6
-6
-7
-7
2000
2002
2004
2006
2008
2010
% change
from the
previous
quarter
0
-0.5
-2
Forecasted %
change from
the previous
quarter
2012
% change
over the four
quarters of
the year
% change
from four
quarters
earlier
2014
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
42
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
1) Housing is coming back ...
Home building boost (contribution in pct. pts. to US real GDP growth over the most recent four quarters)
1.5
1.0
1.5
Actual / forecast
1.0
0.5
0.5
0.0
0.0
-0.5
-0.5
-1.0
-1.0
-1.5
-1.5
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
43
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... with speculative real estate values corrected ...
Household income and house prices (ratio to 1970)
13
13
12
12
11
11
10
9
8
CoreLogic house price index (ratio to 1970)
10
Gross nominal income per household (ratio to 1970)
9
8
7
7
6
6
5
5
4
Forecast (assumes
nominal income
grows 5% annually
in the coming
decade's recovery)
3
2
4
3
2
1
1
0
0
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Sources: US Department of Commerce; CoreLogic. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
44
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
[P.S. Don’t worry about household leverage]
Debt service (percent of income)
Household debt (ratio to disposable personal income)
25
1.4
Household debt (right)
1.3
1.2
20
1.1
1.0
15
0.9
Financial obligations (left)
0.8
0.7
10
0.6
Debt service (left)
0.5
0.4
0.3
5
0.2
0.1
0
1960
0.0
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Federal Reserve Board. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
45
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... the housing glut working off ...
New housing starts (thousands at an annual rate)
2,600
2,400
2,200
2,600
Average number of units put up annually over the most recent decade
2,400
2,200
2,000
2,000
1,800
1,800
1,600
1,600
1,400
1,400
1,200
1,200
1,000
1,000
800
600
800
Current new home building pace
600
400
400
200
200
0
1970
0
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
46
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and hiring stirring for the household-forming demographic
Employment-to-population ratios by age cohort (normalized to December 2007)
1.02
1.02
55+
1.00
1.00
0.98
0.98
0.96
0.96
35-44
45-54
25-34
0.94
0.92
0.90
0.88
2008
Blue shaded region is
the overall employmentto-population ratio
20-24
0.94
0.92
0.90
0.88
2009
2010
2011
2012
Source: US Department of Labor. Updated through December 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
47
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
2) The “business” in the business cycle has a ‘green light’ ...
After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income)
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
48
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and is in expansion mode
Business investment in capital goods and software (percent change from four quarters earlier)
20
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
1970
-20
1975
1980
1985
1990
1995
2000
2005
2010
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
49
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and has reason to do more
Business investment in capital goods and software (percent or nominal GDP)
15
12
15
Total business investment
9
12
9
Equipment
6
6
3
3
Business structures
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007
0
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
50
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Pent-up “investment” demand will be a theme ...
Nominal consumer durable goods purchases (billions of dollars annually)
1,000
800
Consumption of durable
goods (capital
consumption with capital
consumption adjustment)
1,000
900
800
700
600
400
Investment in durable
goods (net investment =
gross expenditures on
consumer durable goods
less capital consumption)
600
500
400
300
200
200
100
0
0
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
51
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... because it drives investment ... by consumers too
Ratio of nominal consumer durable goods “investment” to nominal outlays for consumer durable goods
0.35
0.35
0.30
0.30
0.25
0.25
0.20
0.20
0.15
0.15
0.10
0.10
0.05
0.05
0.00
0.00
1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
52
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
It’ll be driving the motor vehicle industry
Average age of selected types of motor vehicles on the road (years)
10
10
Automobiles
9
9
Trucks
Light trucks
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1970
1975
1980
1985
1990
1995
2000
2005
2010
Source: Bureau of Transportation. Updated through 2010.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
53
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
#3. US manufacturing is back ... here’s one reason why
Selected trade weighted US dollar indexes (March 1973 = 100)
160
150
140
160
Nominal trade-weighted
dollar index versus G-10
countries( 1972-76 = 100)
150
Broad real tradeweighted dollar
index versus all
currencies
130
140
130
120
120
110
110
100
100
90
90
80
80
70
1967
70
1971
1976
1981
1986
1991
1996
2001
2006
2011
Source: Federal Reserve Board. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
54
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
4) Big finds breathing new energy into the economy
Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel)
150 Petroleum price (WTI, $/barrel)
150
Natural gas price converted to thermal
125 equivalent price of oil in terms of price per
barrel (6 times the $/mmBTU)
125
100
100
75
75
50
50
25
25
0
1994
0
1996
1998
2000
2002
2004
2006
2008
2010
2012
Source: Oil & Gas Journal. Updated through January 6, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
55
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
#5. Powerful “monetary” help ... the traditional response ...
Federal funds rate and 10-year Treasury yield (percent)
20
20
18
18
16
16
14
12
10-year Treasury yield
14
Federal Reserve Bank of New York Discount Rate / federal
funds rate (target rate after October 1982)
12
10
10
8
8
6
6
4
4
2
2
0
1919
0
1929
1939
1949
1959
1969
1979
1989
1999
2009
Source: Federal Reserve Board. Updated through January 6, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
56
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and unconventional ...
Assets held by the Federal Reserve (billions of dollars)
3,000
3,000
2,750
2,750
2,500
2,500
2,250
2,250
Loans to depositories
2,000
2,000
1,750
1,750
1,500
1,500
Mortgage backed securities
1,250
1,250
1,000
1,000
GSE debt
750
750
500
500
Treasuries
250
0
Aug 2007
250
0
Aug 2008
Aug 2009
Aug 2010
Aug 2011
Source: Federal Reserve Board. Updated through December 21, 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
57
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... and a “twist” on that
The Federal Reserve’s Treasury holdings by maturity (millions of dollars)
2,200,000
Dashed lines indicate an estimate of the
expected holdings by maturity as a result of
2,000,000
the latest decision to extend the maturity of the
central bank's portfolio
1,800,000
1,600,000
Maturities of 5 years or more
2,200,000
2,000,000
1,800,000
1,600,000
1,400,000
1,400,000
1,200,000
1,200,000
1,000,000
1,000,000
800,000
800,000
600,000
600,000
400,000
400,000
200,000
Maturites of less than 5 years
0
Jan 2009 Jul 2009 Jan 2010 Jul 2010 Jan 2011 Jul 2011 Jan 2012 Jul 2012
200,000
0
Source: Federal Reserve Board. Updated through January 2, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
58
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Maine
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
59
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Maine’s layoffs are a bit on the high side
Weekly applications for unemployment insurance (ratio to 2007 Q4 level of claims)
2.25
2.00
2.25
Maine
US (solid area)
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75
2007
0.75
2008
2009
2010
2011
2012
2013
Source: US Department of Labor. Updated through January 7, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
60
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Hiring lags the national pace ...
Nonfarm payroll employment (percent change from 12 months earlier)
4
4
3
Maine
US
2
3
2
1
1
0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13
Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
61
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... with the recovery tepid so far ...
Nonfarm payroll employment (ratio to 2000 Q4 level)
1.05
1.05
1.04
1.04
1.03
1.03
1.02
1.02
1.01
Maine
1.01
1.00
1.00
0.99
0.99
0.98
US
0.98
0.97
0.97
0.96
0.96
0.95
0.95
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Source: US Department of Labor. Updated through 2011 Q4.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
62
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
... but unemployment is edging down
Unemployment rate (percent of the labor force)
12
12
10
10
8
8
Maine
6
6
4
4
2
US (shaded)
0
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
2
0
Source: US Department of Labor. Updated through December 2011 (US) and December 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
63
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Bangor, not bad
Nonfarm payroll employment (ratio to 2000 Q4 level)
1.08
1.08
1.07
1.07
1.06
1.06
1.05
1.05
1.04
1.04
1.03
1.03
1.02
1.02
1.01
1.01
1.00
1.00
0.99
0.99
0.98
0.98
0.97
0.97
0.96
0.96
0.95
0.95
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
US forecast
US
Portland
Bangor
Bangor-Lewiston
Maine forecast
Maine
Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (state and communities).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
64
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Working off the glut
New housing starts (ratio to July 1990 level)
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
1970
Average units put up over the most recent decade
Current new home building pace
1975
1980
1985
1990
1995
2000
2005
2010
15
14
13
12
11
10
9
8
7
6
5
4
3
2
1
0
2015
Source: US Census Department. Updated through December 2011 (US) and December 2011 (Maine).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
65
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Europe ... Several Degrees of Separation
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
66
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Europe’s fiscal problems are cyclical (temporary), like ours
Central government fiscal balance (percent of GDP)
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
Germany
-6
-4
-6
-8
France
-8
-10
-10
-12
-12
-14
Greece
-16
-14
-16
1989
1992
1995
1998
2001
2004
2007
2010
Sources: Congressional Budget Office; Eurostat
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
67
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Deficits come with the recession territory
Central government fiscal balance (percent of GDP)
4
4
2
2
US
0
0
-2
-2
-4
-4
EU 27
-6
-6
-8
-8
-10
-10
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Sources: Congressional Budget Office; Eurostat
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
68
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
… in the US, for example …
Actual and cyclically-adjusted fiscal balance (percent of GDP)
4
4
2
2
Cyclically adjusted
0
0
-2
-2
-4
-4
EU 27
-6
-6
-8
-8
-10
-10
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Sources: Congressional Budget Office; Eurostat
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
69
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
… and in Europe
Actual and cyclically-adjusted fiscal balance, euro area 16 (percent of GDP)
6
4
4
2
Cyclically adjusted
2
0
0
-2
-2
-4
-4
Actual EU
-6
-6
-8
-8
-10
-10
1980
1983
1986
1989
1992
1995
1998
2001
2004
2007
2010
Sources: Congressional Budget Office; Eurostat
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
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James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The bank funding channel, nothing like 2008
Interest rates in the funding markets (percent per annum)
6
6
3-month dollar-based Libor
5
5
3-month overnight indexed swap rate (OIS)
4
4
3
3
2
2
1
1
0
2007
0
2008
2009
2010
2011
Source: Federal Reserve Board. Updated through January 6, 2012.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
71
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The credit channel, nothing like 2008/09
Borrowing rates for noninvestment grade debt less 10-year Treasury yield (basis points)
2,000
2,000
1,800
1,800
1,600
Ibbotson Associates
J.P. Morgan Securities LLC high
yield index
1,400
1,200
1,600
1,400
CDX.HY
1,000
1,200
1,000
800
800
600
600
400
400
200
200
0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
0
Sources: Federal Reserve Board; J.P. Morgan LLC; Updated through December 30, 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
72
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The stock market channel, a dichotomy
Selected equity indexes (ratio to October 9, 2007 peak)
1.05
1.05
0.95
0.95
Wilshire 5000 sets
a low at 6,858.4 on
March 9, 2009
0.85
0.75
0.85
Wilshire 5000
0.75
World ex. US
0.65
0.65
0.55
0.55
Wilshire 5000 sets a record at
15,806.7 on October 9, 2007
0.45
0.45
0.35
2007
0.35
2008
2009
2010
2011
2012
Source: Dow Jones. Updated through November 4, 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
73
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
International trade linkages ... diversification is good
Real US exports (billions of dollars over the most recent 12 months)
400
400
350
350
Asia
300
250
300
250
Europe
200
200
Nafta
150
150
100
100
Latin America
Middle East
50
50
Africa
0
2005
2006
2007
2008
0
2009
2010
2011
Source: US Department of Commerce. Updated through October 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
74
Real GDP per capita (chained 2005 dollars)
1.00
0.80
China's per capita real
42,000
1.20
India's per capita real
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
China bashing is so “dark ages”
35,000
28,000
0.60
21,000
0.40
14,000
0.20
7,000
0.00
0
1877 1887 1897 1907 1917 1927 1937 1947 1957 1967 1977 1987 1997 2007
Source: US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
75
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Confusion About Macro-policy Tools
 Monetary policy
 Fiscal Policy
 Regulatory Policy
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
76
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Nothing treasonous (inflationary) about the Fed’s response
Monetary base (billions of dollars)
M2 (billions of dollars)
2,800
28,000
2,600
26,000
2,400
24,000
2,200
22,000
2,000
20,000
1,800
18,000
Monetary base (left scale)
1,600
1,400
16,000
14,000
M2 (right scale)
1,200
12,000
1,000
10,000
800
8,000
600
6,000
400
4,000
200
2,000
0
1970
0
1975
1980
1985
1990
1995
2000
2005
2010
Source: Federal Reserve Board. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
77
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
With inflation settling below the Fed’s 2% goal
PCE inflation (percent change from 12 months earlier)
12
12
10
10
8
Chain PCE
price index
The FOMC's
forecast for PCE
chain price
inflation and longrun goal¹
8
6
6
4
4
2
2
Core chain PCE price index
0
0
-2
-2
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Source: US Department of Commerce. Updated through November 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
78
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The structural deficit is the issue, not the cyclical deficit
Cyclical and structural federal budget projections (percent of GDP)
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
-11
-12
-13
-14
-15
Actual federal deficit (% of potential GDP)
Cyclically-adjusted federal deficit, net of fiscal
initiatives (% of potential GDP)
4
3
2
1
0
-1
-2
-3
-4
-5
-6
-7
-8
-9
-10
-11
-12
-13
-14
-15
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Sources: Congressional Budget Office. Updated through August 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
79
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
We need a rethink (reform), not usual suspects (more taxes)
Long-term projections (percent of GDP)
40
Revenues (historical average of 18.1%)
40
35
35
30
30
25
Debt service
20
25
20
15
Other
15
10
Coverage of uninsured
10
5
0
Medicare and Medicaid
Social Security
5
0
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Source: Congressional Budget Office. Updated through August 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
80
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Securitized Finance Under Siege
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
81
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The financial crisis and the rise of securitized finance
Long-term projections (percent of GDP)
Life Insurance Companies
100
90
Pension Funds
80
70
Brokers and Dealers, Finance,
Mortgage, and Other Insurance
Companies, and Funding
Corporations
60
Money Market Mutual Funds
50
40
Mutual Funds, Closed-End
Funds, Exchange-Traded Funds,
and REITs
30
20
Government-Sponsored
Enterprises, Federally Related
Mortgage Pools, and Issuers of
Asset-Backed Securities
10
0
50 53 56 59 62 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10
Banks, Savings Institutions, and
Credit Unions
Source: Congressional Budget Office. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
82
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Regulatory policy needs to get countercyclical
Tier 1 regulatory capital of domestic banks (percent of risk weighted assets)
0.14
0.14
0.12
0.12
0.10
0.10
0.08
0.08
0.06
0.06
0.04
0.04
0.02
0.02
0.00
0.00
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
Source: Congressional Budget Office. Updated through August 2011.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
83
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Globalization and Social Stress
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
84
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
First, get the facts straight
Real labor pay (1982 – 84 dollars per hour)
Real median income (2005 dollars)
25
70,000
Real median family income (right
scale)
60,000
20
50,000
15
Real median household income
(right scale)
30,000
10
5
40,000
Real hourly compensation (left scale)
Real hourly wages (left scale)
20,000
10,000
0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: US Depts. of Labor and Commerce. Updated through Nov. 2011 (comp. and wages) and 2010 (med. Inc.).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
85
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
First, get the facts straight
Nonfarm business labor productivity growth (percent change from four quarters earlier)
12
12
Actual labor productivity growth
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
-4
-4
Cycle average (average growth from business cycle peak
to business cycle peak)
-6
-6
-8
-8
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
Sources: US Depts. of Labor and Commerce. Updated through Nov. 2011 (comp. and wages) and 2010 (med. inc.).
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
86
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Pay versus productivity decouples
Labor productivity and real hourly compensation, nonfarm business sector (1985 = 1.0)
1.8
1.8
1.6
1.6
1.4
1.4
1.2
Labor productivity
1.2
1.0
1.0
0.8
0.8
0.6
Real private sector hourly compensation
0.6
0.4
0.4
0.2
0.2
0.0
0.0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Sources: US Department of Labor; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
87
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Those on the front lines see it first
After-tax business profits, GDP basis (percent of nominal GDP)
11
11
10
10
9
9
8
8
7
7
6
6
5
5
4
4
3
3
2
2
1
1
0
0
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
88
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Conclusion:
Bet an the Old Normal ... Recovery
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
89
James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
Recovery has a history, “new normal” doesn’t
Real GDP gap, actual less potential GDP (percent of potential GDP)
5
5
0
0
-5
-5
-10
Forecast
-10
-15
-15
-20
-20
-25
-25
-30
-30
1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 2019
Sources: US Department of Commerce; JPMorgan Chase & Co.; various academic sources. Updated through 2011 Q3.
Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012
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James Glassman, JPMorgan Chase & Co. ([email protected]; o 212-834-5093; o 212–270–0778; m 609-510-3723)
The material contained herein is intended as a general market commentary. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This
information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above
summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness. To the extent indices have been used in this presentation, please note
that it is not possible to invest directly in an index. Projections or forecasts are shown for illustrative purposes only. Past performance is not a guarantee of future results. Not all investment ideas referenced are
suitable for all investors. These recommendations may not be suitable for all investors. Speak with your J.P. Morgan representative concerning your personal situation. This material is not intended as an offer or
solicitation for the purchase or sale of any financial instrument. © JP Morgan Chase & Co. All rights reserved.
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