Wells Fargo Economics Navigating the Aftermath
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Transcript Wells Fargo Economics Navigating the Aftermath
Wells Fargo Economics
Navigating the Aftermath
Scott Anderson, Ph.D.
Vice President | Senior Economist
U.S. Outlook
Durango, Colorado
Friday, January 8, 2010
© 2009 Wells Fargo Bank, N.A. All rights reserved.
The Great Recession of
2008 - 2009
1
Capacity Utilization
Percent
90
85
80
75
70
65
Nov-69
Nov-74
Nov-79
Nov-84
Nov-89
Nov-94
Nov-99
Nov-04
Nov-09
Source: Federal Reserve
2
Change in Total Nonfarm Payroll
000s
Estimated Level of
Monthly Job Gains
Needed to Absorb
Labor Force Growth
300
200
100
(100)
(200)
(300)
(400)
(500)
(600)
(700)
(800)
11-07
5-08
11-08
5-09
11-09
Source: Bureau of Labor Statistics
3
Percentage
Overall Unemployment Rate
17.2
18.0
Augmented*
15.0
12.0
10.0
9.0
Headline
6.0
3.0
11-99 11-00 11-01 11-02 11-03 11-04 11-05 11-06 11-07 11-08 11-09
*Total unemployed, plus all marginally attached workers, plus total employed part time for economic reasons,
as a percent of the civilian labor force plus all marginally attached workers
Source: Bureau of Labor Statistics
4
5
Billions
Household Wealth Destruction
$6,000
$4,000
$2,000
Increase from Q109-Q309
$2,268
$3,119
$851
$$(2,000)
$(4,000)
$(6,000)
$(8,000)
$(5,039)
$(7,258)
$(10,000)
$(12,000)
Decline from peak to Q109
$(12,297)
$(14,000)
Real Estate
Stocks
Total
Source: Federal Reserve; Wells Fargo Economics
6
Consumer Confidence
Index
160
140
120
100
80
60
52.9
40
43.2
20
0
Dec-69
26.9
Dec-74
Dec-79
Dec-84
Dec-89
Dec-94
Dec-99
Dec-04
Dec-09
Source: Conference Board
7
Bank Credit Crisis:
Not Out of the Woods Yet
8
Delinquency Rates: Total Loans and Leases
Percent, NSA
8.0
7.0
6.87
United States
6.0
5.0
4.0
3.0
2.0
1.0
1999Q3
2001Q3
2003Q3
2005Q3
2007Q3
2009Q3
Source: Federal Reserve Board
9
Delinquency Rates
Percentage
Points
5
2009 Q3
4
Q/Q chg
Y/Y chg
4.3
4.0
3.8
3.2
3
2.7
1.7
2
1.2
1.0
1
0.8
0.6
0.1
0.6
0.1
0.0
0
0.7
1.2
0.9
0.0
l
en
tia
es
R
lE
ea
R
id
st
a
ci
a
er
om
To
ta
C
an
lL
oa
ns
m
Le
d
di
re
C
te
l
es
as
C
&
I
tC
ar
d
ul
tu
re
A
gr
ic
m
A
ll
C
on
su
O
th
er
er
-1
Source: Federal Reserve Board
10
Combined Delinquency and Foreclosure Rates
16.0
14.0
United States
Percent of loans delinquent (SA) or
in foreclosure (NSA) at end of quarter
14.1
All mortgage loans
12.0
10.0
8.0
6.0
4.0
1979Q3 1984Q3 1989Q3 1994Q3 1999Q3 2004Q3 2009Q3
Source: Mortgage Bankers Association
11
U.S. Fixed-rate Mortgage Foreclosures
120%
Y/Y% change in foreclosure rate (started)
100%
102.9%
Prime
80%
60%
40%
20%
Sub-prime
21.1%
0%
-20%
-40%
-60%
-80%
2001Q3 2002Q3 2003Q3 2004Q3 2005Q3 2006Q3 2007Q3 2008Q3 2009Q3
Source: Mortgage Bankers Association; Wells Fargo Economics
12
Bil
$12,000
Home Mortgages
$10,000
$8,000
$6,000
$4,000
$2,000
$1959Q3
1969Q3
1979Q3
1989Q3
1999Q3
2009Q3
Source: Federal Reserve Flow of Funds; Wells Fargo Economics
13
Debt Ratios
140%
Percent of personal disposable income
123.8%
Total household
debt
120%
100%
93.6%
80%
60%
Mortgage debt
40%
20%
0%
1959Q3
1969Q3
1979Q3
1989Q3
1999Q3
2009Q3
Source: Federal Reserve Flow of Funds; Wells Fargo Economics
14
Real Estate Debt Ratio Peaks
70%
Mortgage Debt/Household Real Estate Values
60%
50%
40%
30%
20%
10%
1959Q3
1969Q3
1979Q3
1989Q3
1999Q3
2009Q3
Source: Federal Reserve Flow of Funds; Wells Fargo Economics
15
Y/Y%
Case-Shiller Home Price Index
20
Top 20 U.S. cities
15
10
5
0
-5
-9.4
-10
-15
-20
-25
9/30/2004
9/30/2005
9/30/2006
9/30/2007
9/30/2008
9/30/2009
Source: Case-Shiller
16
CME Real Estate Futures
Percent
Expected price growth from September 2009
25%
November 2009
20%
February 2010
15%
May 2010
August 2010
10%
5%
0%
-5%
-10%
W
ci
an
Fr
n
Sa
o
as
hi
ng
to
n
C
om
po
si
te
sc
o
D
n
Sa
ew
Yo
ie
g
rk
i
N
ng
A
s
Lo
m
el
ga
Ve
s
La
M
ia
es
s
r
ve
D
en
ca
hi
C
B
os
to
go
n
-15%
Source: CME; Wells Fargo Economics
17
Loan Growth - C&I Loans
Y/Y%
Demand And Supply
Factors Limit
30%
25%
20%
15%
10%
Credit Growth!
5%
0%
-5%
-10%
-15%
-17.0%
-20%
10/21/1979 10/21/1984 10/21/1989 10/21/1994 10/21/1999 10/21/2004 10/21/2009
Source: Federal Reserve; Wells Fargo Economics
Y/Y%
Loan Growth - Consumer Loans
Y/Y%
Loan Growth - Commercial Real Estate
40%
20%
35%
30%
15%
Credit Card
25%
20%
15%
10%
Non-Credit Card
10%
5%
5%
2.0%
0%
-5%
0%
Source: Federal Reserve; Wells Fargo Economics
09
/2
1/
20
08
10
10
/2
1/
20
07
10
/2
1/
20
06
10
/2
1/
20
05
10
/2
1/
20
04
10
/2
1/
20
03
10
/2
1/
20
02
20
1/
/2
10/21/2009
10
10/21/2008
10
10/21/2007
/2
1/
20
01
-3.4%
-5%
10/21/2006
-4.4%
-10%
Source: Federal Reserve; Wells Fargo Economics
18
U.S. Growth
Resumes in Q3
19
Business Inventory/Sales Ratio
1.55
15 mo
+0.05
1.50
6 mo
+0.20
1.45
1.40
1.35
1.30
1.25
1.20
Oct-93
Oct-95
Oct-97
Oct-99
Oct-01
Oct-03
Oct-05
Oct-07
Oct-09
Source: Census Bureau
20
Leading Economic Indicators
MOM
Pct Chg
1.4
1.2
1.0
0.8
0.6
0.4
0.2
(0.2)
(0.4)
(0.6)
(0.8)
(1.0)
(1.2)
11-06
0.9
5-07
11-07
5-08
11-08
5-09
11-09
Source: The Conference Board
21
Initial Jobless Claims
000s
750
Initial Jobless
Claims
650
550
450
4 Week Moving
Average
350
250
2/24/2006
12/1/2006
9/7/2007
6/13/2008
3/20/2009
12/25/2009
Source: Department of Labor
22
Retail Sales and Hourly Earnings Growth
Y/Y%
8%
Real hourly
earnings
6%
4%
2%
0%
-2%
-4%
Real ex. gasoline
retail sales
-6%
-8%
-10%
-12%
Nov-02
Nov-03
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Source: Census Bureau; Bureau of Labor Statistics; Wells Fargo Economics
23
24
Housing Market
Hits Bottom
25
SAAR
000's
Residential Building Permits
3000
2500
2000
1500
1000
500
0
Nov-64 Nov-69 Nov-74 Nov-79 Nov-84 Nov-89 Nov-94 Nov-99 Nov-04 Nov-09
Source: Commerce Dept.
26
M/M%
10
5
Pending Home Sales
6 Mo. Moving Average
0
-5
-10
-15
-20
Nov-04
Nov-05
Nov-06
Nov-07
Nov-08
Nov-09
Source: National Association of Realtors; Wells Fargo Economics
27
Home Price/Rent Ratio
1.9
1.8
Ratio of U.S. Case-Shiller 10-city index
to owner's equivalent rent index,
both indexed to January 1987
1.7
1.6
1.5
1.4
1.3
Long-run average
1.2
1.1
1.0
0.9
0.8
Sep-89
Sep-91
Sep-93
Sep-95
Sep-97
Sep-99
Sep-01
Sep-03
Sep-05
Sep-07
Sep-09
Source: Case Shiller Index; Bureau of Labor Statistics; Wells Fargo Economics
28
The Fed Soothes the
Financial Crisis – Focus
Shifts to Exit Strategy
29
Mil, NSA
$2,500,000
Fed Balance Sheet
$1.31 trillion increase since September 10, 2008
$2,000,000
$1,500,000
$1,000,000
$500,000
$-
Source: Federal Reserve
30
Commercial Paper Spread
Basis points
Liquidity Almost Back to Normal!
450
400
90-day asset-backed commercial paper yield
less 3-month Treasury yield
350
300
250
200
150
100
50
0
Source: Bloomberg
Basis points
450
LIBOR Spread
3-month LIBOR less 3-month Treasury yield
400
350
300
250
200
150
100
50
0
Source: Bloomberg
31
Mil, NSA
$1,200,000
Excess Bank Reserves
$1.08 trillion increase since August 2008
$1,000,000
$800,000
$600,000
$400,000
$200,000
$Nov-01 Nov-02 Nov-03 Nov-04 Nov-05 Nov-06 Nov-07 Nov-08 Nov-09
Source: Federal Reserve
32
Fed Funds Increases Historically Lag
Unemployment Peak
Peak
Unemployment
Rate
First Fed Funds
Rate Increase
Months Lag
May-75
9.0%
Apr-76
11
Dec-82
10.8%
May-83
5
Jun-92
7.8%
Feb-94
20
Jul-03
6.2%
Jun-04
11
Avg. Lag
11.8
33
Inflation
YOY
Pct Chg
PPI
10.0
8.0
6.0
4.0
2.0
CPI
(2.0)
(4.0)
(6.0)
(8.0)
11/30/1999
11/30/2001
11/30/2003
11/30/2005
11/30/2007
11/30/2009
Source: Bureau of Labor Statistics
34
Fiscal Stimulus
a Major Factor
35
Economic Stimulus Bill
Billions
$250
Direct Outlays
$200
$150
$100
$50
$$(50)
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Source: CBO; Wells Fargo Economics
36
Billions
Federal Budget Surplus/Deficit
Worries Grow Over
Government
Deficits and Debt
$400
H
$200
F
$$(200)
$(400)
$(600)
$(800)
$(1,000)
Federal Debt (% of GDP)
$(1,200)
120.0
$(1,400)
World War II
$(1,600)
Debt to the Public
H
F
100.0
Source: CBO
80.0
Federal Budget Surplus/Deficit (% of GDP)
60.0
10.0
H
5.0
F
40.0
.0
20.0
-5.0
-10.0
.0
1939
-15.0
1949
1959
1969
1979
1989
1999
2009
2019
Source: CBO; Economic Report of the President
-20.0
-25.0
-30.0
World War II
-35.0
1939
1949
1959
1969
1979
1989
1999
2009
2019
Source: CBO; Economic Report of the President
37
Large Downside
Risks Remain
38
Small Business Current Conditions
Revenues weaken further in Q4
Financial situation worsens
Cash-flow remains poor
Capital spending still weak, cutting
slows
Employment conditions worsen in Q4
Credit becomes more difficult to obtain
Percent
Small Business Confidence
70
Future Expectations
60
50
40
30
20
10
0
-10
Present Situation
-20
-30
Q403
Q404
Q405
Source: Wells Fargo Small Business Index
Q406
Q407
Q408
Q409
Cashflow
Percent
70
% Reporting good cashflow over past 12 months
65
60
55
50
45
40
35
30
Q403
Q404
Q405
Source: Wells Fargo Small Business Index
Q406
Q407
Q408
Q409
Capital Expenditure Plans Weak
45
Percent of Small Businesses Planning Capital Expenditures in 3-6 months
40
35
30
25
20
18.0
15
Sep-89
Sep-94
Sep-99
Sep-04
Sep-09
Source: National Federation of Independent Business; Wells Fargo Economics
42
Employment
Percent
35
% reporting over past 12 months
30
Decrease
d
25
20
15
10
Increase
d
5
0
Q403
Q404
Q405
Source: Wells Fargo Small Business Index
Q406
Q407
Q408
Q409
Credit Conditions
Percent
50
45
Next 12
months
% Reporting its difficult to obtain credit
40
35
30
25
20
Past 12
months
15
10
5
0
Q403
Q404
Q405
Source: Wells Fargo Small Business Index
Q406
Q407
Q408
Q409
45
Q/Q%
Change
Real GDP
Annualized
Growth Resumes
6
HISTORY
4
3.2
FORECAST
3.6
2.2
2.1
2
4.3
2.8
3.4
2.6
2.6
1.5
1.2
0
-0.7
-0.7
-2
-2.7
-4
-6
-5.4
-6.4
-8
2007.1
2008.1
2009.1
2010.1
46
Growth in Year Following
End of Recessions
Average
Increase*
Outlook
2010
Real GDP
5.8%
2.8%
Industrial Production
9.6%
6.4%
Housing Starts
20.3%
36.2%
Corporate Profits
30.4%
18.1%
S&P 500
14.1%
5.2%
* Past nine recessions
47