Transcript The State of the Consumer Kathleen Stephansen

The State of the Consumer
Kathleen Stephansen
Director of Global Economics
212-538-3260
[email protected]
May 2003
I, Kathleen Stephansen, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was,I
is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
A Global Overview
Global consumer spending is set to remain steady
Labor Markets Not Yet Stable
Tax cuts are likely to be an important buffer in the US
2
G3 real consumption growth
yoy %
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
Mar-90
G3+
US
Euro area
Japan
Mar-92
Mar-94
Mar-96
Mar-98
Sources: Datastream International Limited, CSFB estimates
3
Mar-00
Mar-02
Mar-04
Unemployment Rates Rising In The OECD
%
US
Euro area
Japan (rhs)
12.0
11.0
6.0
5.5
10.0
5.0
9.0
4.5
8.0
4.0
7.0
3.5
6.0
3.0
5.0
2.5
4.0
2.0
3.0
1.5
'90
'91
'92
'93
'94
'95
'96
'97
'98
Sources: Datastream International Limited, CSFB estimates
4
'99
'00
'01
'02
'03
Further Rise In Unemployment Expectations
60.0
35
EU-12 unemploy. exp next 12m
UK unemp exp next 12m
US fewer jobs next 6m (rhs)
50.0
40.0
30
30.0
25
20.0
20
10.0
15
0.0
-10.0
Jan-89
10
Jan-91
Jan-93
Jan-95
Jan-97
Sources: Datastream International Limited, CSFB estimates
5
Jan-99
Jan-01
Jan-03
Weak Labor Markets Have Contributed To The Decline In
Consumer Confidence
5.0
140.0
0.0
120.0
-5.0
-10.0
100.0
-15.0
80.0
-20.0
US - Conference board
Japan
Euro area - Eu Comm survey (rhs)
60.0
40.0
Jan-88
-25.0
-30.0
-35.0
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Sources: Datastream International Limited, CSFB estimates
6
Jan-00
Jan-02
G4 Savings Rates
%
16.0
14.0
12.0
10.0
8.0
6.0
4.0
US
UK
Germany
Japan
2.0
0.0
Mar-96
Mar-97
Mar-98
Mar-99
Mar-00
Sources: Datastream International Limited, CSFB estimates
7
Mar-01
Mar-02
Mar-03
Slowing Disposable Income
(Real Disposable Income)
yoy%
8.0
6.0
4.0
2.0
0.0
-2.0
-4.0
Mar-92
US
UK
Japan
euro area
Mar-94
Mar-96
Mar-98
Sources: Datastream International Limited, CSFB estimates
8
Mar-00
Mar-02
Rising House Prices: A Buffer To Household Wealth
yoy %
35.0
30.0
25.0
US
Japan
Euro area
UK
20.0
15.0
10.0
5.0
0.0
-5.0
-10.0
-15.0
'88
'90
'92
'94
'96
'98
Sources: Datastream International Limited, CSFB estimates
9
'00
'02
A Closer Look At The US
What the 2001 Consumer Survey tells us
Household wealth shaken
Refi Wave
Equity Extraction From Housing
Consumption Holds On
10
Household Survey 1998-2001
(thousands of 2001 dollars)
Net Worth Growth
(percent change by income group)
Income Growth
(percent change by income group)
30.0%
Median % change
80%
Mean % change
25.0%
Median
70%
Mean
60%
20.0%
50%
15.0%
40%
10.0%
30%
20%
5.0%
10%
0.0%
All Families
Less than 20
20-39.9
40-59.9
60-79.9
80-89.9
90-100
0%
All Families
Sources: FRB, CSFB
11
Less than 20
20-39.9
40-59.9
60-79.9
80-89.9
90-100
US Household Wealth Shaken
($ billion, annual changes)
3000
800
Real Estate
(LHS)
2000
600
1000
400
0
200
Consumer Spending (RHS)
-1000
0
Corporate Equities
(LHS)
-2000
-200
-3000
-400
1990
1991
1992
1993
1994
1995
1996
1997
Sources: BEA, Flow of Funds, CSFB estimates
12
1998
1999
2000
2001
2002
Refi Applications Boom
(Index of Number of mortgage refinancing applications (SA, 3/16/1990=100))
10000
11.5
9000
30-Year Fixed Fannie Mae Interest
Rate (%, right)
8000
7000
10.5
9.5
Mortgage Refi Index (left)
6000
5000
8.5
4000
7.5
3000
2000
6.5
1000
0
5.5
'90
'91
'92
Sources: MBA, CSFB
'93
'94
'95
'96
'97
'98
13
'99
'00
'01
'02
'03
Strength in Housing: US Home Sales..
(Thousands of Units, SAAR)
1200
7000
1100
6000
New Home Sales, Left
1000
900
5000
Mar '03
800
4000
700
600
3000
Existing Home Sales, right
500
2000
400
300
1992-Jan
1000
1994-Jan
Sources: Census, NAR, CSFB
1996-Jan
1998-Jan
14
2000-Jan
2002-Jan
…And Housing Starts
(SAAR, Thousands of Units)
2000
Mar '03
1800
Housing Starts
1600
1400
1200
1000
Building Permits
800
Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03
Sources: Census, CSFB
15
The 2002 Home Mortgage Results: Sources
 $200 billion accumulated home equity “cash-outs”
 $350 billion in mortgage net debt increase
(from $600bn in mortgage originations)
 $130 billion in net increase of home equity loans
 $680 billion in total equity extraction
Source: Estimates Provided by the Federal Reserve Board
16
The 2002 Home Mortgage Results: Uses
Consumption of big ticket items/ home improvement
Repayment of higher-cost consumer debt
17
Consumer Spending Growth
(year/year % change)
30%
25%
Spending on Durable
Goods
20%
15%
10%
5%
0%
-5%
Real PCE
Q1 '03
-10%
-15%
1960-Q1 1964-Q3 1969-Q1 1973-Q3 1978-Q1 1982-Q3 1987-Q1 1991-Q3 1996-Q1 2000-Q3
Source: BEA, CSFB
18
US Auto Sales Softening
(but incentives help)
22
21
20
19
Apr '03
18
17
16
15
14
Jan-98
Sources: BEA, CSFB
Jan-99
Jan-00
Jan-01
19
Jan-02
Jan-03
Household: Debt Restructuring Is Taking Place
18
12.0
16
14
Consumer Credit,
yr/yr%
(Left)
12
10
8
10.0
8.0
6.0
6
4
4.0
2
0
2.0
-2
Savings Rate
(Right)
-4
0.0
Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03
Sources: FRB, BEA, CSFB
20
Homeowners’ Equity as a % of Household Real Estate
75
70
65
60
55
50
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02
Source: FRB, CSFB
21
Mortgage Debt Servicing Costs Relatively Stable
(Household Debt Service Ratio)
9.0
15.00
Debt Service Payments (RHS)
8.5
14.00
8.0
13.50
7.5
13.00
7.0
6.5
14.50
12.50
Consumer Debt Service
Payment (LHS)
12.00
11.50
6.0
11.00
5.5
Mortgage Debt Service Payment (LHS)
10.50
5.0
10.00
1980- 1981- 1983- 1985- 1987- 1988- 1990- 1992- 1994- 1995- 1997- 1999- 2001- 2002Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Q4
Sources: FRB, CSFB
22
…Even though Mortgage Debt Ratio Rose Sharply
(Household Debt)
13.00
800
12.50
12.00
700
Mortgage Debt As a % of Total Assets
11.50
600
Consumer Debt
500
11.00
10.50
10.00
400
Motgage Debt
300
9.50
200
9.00
100
8.50
8.00
0
1990 1991 1992 1993
Sources: Flow of funds, CSFB
1994 1995 1996 1997 1998
23
1999 2000 2001 2002
The Consumer Needs Additional Buffer
Low Interest Rates
Tax Cuts
24
US: 2002 Tax Cuts Helped Income Growth
(Yr/Yr % change)
8.0%
Real Disposable Personal Income
7.0%
6.0%
5.0%
4.0%
3.0%
2.0%
1.0%
Real Wage & Salary Growth
0.0%
-1.0%
-2.0%
1992-Q1 1993-Q1 1994-Q1 1995-Q1 1996-Q1 1997-Q1 1998-Q1 1999-Q1 2000-Q1 2001-Q1 2002-Q1 2002-Q5
Sources: BEA, CSFB
25
2003 Tax Cuts
(Impact on budget by quarters, $ billion)
Q3:03
5.5
3.0
15.0
1.0
1.0
3.0
0.0
28.5
Q4:03
9.0
6.0
1.0
2.0
1.0
0.0
0.0
19.0
Q1:04
14.5
10.0
0.0
2.0
0.0
5.0
0.0
31.5
FY03
5.5
3.0
15.0
1.0
1.0
3.0
4.0
32.5
FY04
36.0
27.0
5.0
8.0
1.0
9.0
0.0
86.0
Dividends
4.0
0.0
16.0
4.0
25.0
Total (2)
32.5
19.0
47.5
36.5
111.0
Baseline Budget Deficit
49.0
114.0
134.0
281.0
316.0
Budget including the measures
81.5
133.0
181.5
317.5
427.0
Tax Rate Cuts
Marriage Penalty Relief
Child Credit
Expansion of 10% Bracket
Increase Expensing Limits
AMT-held harmless
Unemployment
Total (1)
Note: We assume the final settlements to 2003 income tax returns will be accomplished in Q1:2004. People who are getting a refund may file
earlier than the April 15th deadline. Alternate assumptions would change the numbers on a quarterly but not annual basis.
Sources: Dept. of Treasury, CSFB
26
Real Disposable Income Under The Bush Plan
(billions $, annual rate)
7800
7600
w/ stimulus Plan
7400
7200
7000
6800
Level of real disposable income 1.0%
higher than baseline by mid-year 2004
Baseline
6600
6400
q101
q201
q301
Sources: BEA, CSFB estimates
q401
q102
q202
q302
q402
q103
27
q203
q303
q403
q104
q204
US Forecast Table
2003E
2002
q102
q202
q302
q402
q103
q203
Q4/Q4
q303
q403
01
02
Ann. Avg
03E
04E
01
02
03E
04E
Real GDP
5.0
1.3
4.0
1.4
1.6
2.3
3.7
3.7
0.1
2.9
2.8
3.5
0.3
2.4
2.4
3.5
Consumer Spending
3.1
1.8
4.2
1.7
1.4
3.2
3.5
3.7
2.8
2.7
2.9
3.6
2.5
3.1
2.6
3.7
Residential Investment
14.3
2.6
1.0
9.4
12.0
4.2
2.9
1.9
1.1
6.8
5.3
1.1
0.3
3.9
6.3
1.7
Business Investment
-5.8
-2.4
-0.8
2.3
-4.2
-0.9
3.5
3.8
-9.2
-1.7
0.5
5.2
-5.2
-5.7
-0.4
4.3
-2.7
3.3
6.7
6.2
-4.4
2.5
6.2
6.1
-8.7
3.4
2.6
6.9
-6.4
-1.7
2.6
6.4
-14.2
-17.6
-21.3
-9.9
-3.5
-3.2
-3.8
-1.9
-9.7 -15.8
-3.1
1.9
-1.7 -16.4
-8.1
0.2
5.6
1.4
2.9
4.6
0.9
4.4
2.1
2.1
5.2
3.6
2.3
2.7
3.7
4.4
2.7
2.6
Federal Government
7.4
7.5
4.3
11.0
2.6
10.5
5.6
5.6
7.6
7.6
6.1
5.4
4.8
7.5
6.7
5.8
State & Local
Equipment & Software
Non-Res Structures
Total Government
4.6
-1.7
2.2
1.2
-0.1
0.8
0.0
0.0
4.0
1.6
0.2
1.1
3.1
2.8
0.5
0.6
Domestic Demand
3.0
1.3
3.3
2.6
1.2
3.3
3.4
3.5
1.6
2.6
2.8
3.7
1.6
2.4
2.5
3.6
Net Exports (contr. to GDP)
-0.8
-1.4
0.0
-1.9
1.0
-0.1
-0.1
-0.7
-0.1
-1.0
0.0
-0.6
-0.2
-0.8
-0.3
-0.6
Real Exports
3.5
14.2
4.7
-5.8
-3.2
2.3
7.8
8.8 -11.3
4.1
3.9
9.1
-5.4
-1.6
1.4
8.5
Real Imports
8.5
22.2
3.3
7.4
-7.9
2.0
5.9
10.7
-7.9
10.3
2.7
9.7
-2.9
3.7
2.7
9.2
Inventories (contr. to GDP)
2.6
1.3
0.6
0.3
-0.5
-0.9
0.4
0.9
-1.5
1.2
0.0
0.2
-1.4
0.7
0.0
0.3
Nominal GDP
6.5
2.5
5.1
3.2
4.2
3.4
5.1
5.8
2.0
4.3
4.6
5.4
2.6
3.6
4.1
5.4
CPI (Y/Y%)
1.2
1.3
1.6
2.2
2.9
2.2
1.9
2.0
1.8
2.2
2.0
1.9
2.8
1.6
2.2
1.8
Core CPI (Y/Y%)
2.5
2.4
2.3
2.1
1.8
1.5
1.4
1.4
2.7
2.1
1.4
1.8
2.7
2.3
1.5
1.7
Corp. Profits w/CCadj and IVA (Y/Y%)
12.9
8.8
12.2
-1.9
4.4
6.8
12.9
14.8
8.2
-1.9
14.8
9.0
-7.2
7.6
9.7
8.5
Industrial Production (y/y%)
-3.8
-1.3
0.8
1.4
1.2
-0.2
0.2
2.2
-5.7
1.4
2.2
4.7
-3.5
-0.8
0.8
4.5
Unemployment Rate (qtr. avg.)
5.6
5.8
5.8
5.9
5.8
6.1
6.1
6.0
4.9
5.8
6.0
5.8
-3.9
-4.7
-4.6
-4.6
1.3
-1.5
-4.2
-5.1
Current Account (% GDP)
Federal Budget Balance (% GDP)
Fed Funds Rate
30yr Mortgage Rate
Source: CSFB
1.75
6.95
1.75
6.48
1.75
5.67
1.25
5.75
1.25
5.50
1.25
5.50
1.25
5.50
28
1.25
5.50
Global Forecast
Global
Real GDP (y/y)
IP (y/y)
Inflation (y/y)
US
Real GDP (q/q ann)
IP (y/y)
Inflation (y/y)
Policy rate
Real GDP (q/q ann)
IP (y/y)
Inflation (y/y)
Policy rate
Real GDP (q/q ann)
IP (y/y)
Inflation (y/y)
Policy rate
Real GDP (q/q ann)
IP (y/y)
Inflation (y/y)
Policy rate
Real GDP (q/q ann)
IP (y/y)
Inflation (y/y)
Japan
Euro-12
UK
NJ Asia
Lat. America Real GDP
IP (y/y)
Inflation (y/y)
Q1E
1.7
-0.3
…
2002E
2003E
Q4 to Q4
Annual Avg.
Q2E Q3E Q4E Q1E Q2E Q3E Q4E 01E 02E 03E 04E 01 02E 03E 04E
2.6 3.2 3.4 3.2 2.4 2.5 2.8
1.1 3.4 2.8 3.8 1.9 2.8 2.7 3.7
3.0 4.3 5.6 5.6 3.4 3.7 5.0 -2.1 5.6 5.0 6.2 0.2 3.1 4.4 6.1
…
…
…
…
…
…
…
...
…
…
… 3.1 2.8 3.0 2.6
5.0 1.3 4.0 1.4 1.6 2.3 3.7 3.7
0.1 2.9 2.8 3.5
-3.8 -1.3 0.8 1.4 1.2 -0.2 0.2 2.2 -5.7 1.4 2.2 4.7
1.2 1.3 1.6 2.2 2.9 2.2 1.9 2.0
1.8 2.2 2.0 1.9
1.8 1.8 1.8 1.3 1.3 1.3 1.3 1.3
...
…
…
…
0.4 5.5 3.1 2.2 -1.8 1.0 -0.3 -1.6 -2.4 2.8 -0.7 1.9
-9.9 -3.8 3.1 5.9 7.4 5.8 4.3 2.3 -14.2 5.7 2.3 0.4
-1.4 -0.7 -0.7 -0.7 -0.2 -1.3 -1.3 -0.9 -1.0 -0.5 -0.9 -0.8
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
...
…
…
…
2.0 1.5 1.3 0.3 0.9 0.6 1.6 1.4
0.5 1.3 1.1 2.6
-2.7 -1.0 -0.3 1.1 1.4 0.1 -0.3 0.6 -3.0 1.1 0.6 5.4
2.5 2.1 2.1 2.3 2.3 2.0 1.8 1.7
2.1 2.3 1.7 1.0
3.3 3.3 3.3 2.8 2.5 2.3 2.3 2.0
...
…
…
…
0.5 2.4 4.3 1.5 1.2 2.4 2.9 2.7
1.6 2.2 2.3 3.2
-5.6 -4.0 -2.8 -1.3 0.1 0.2 0.3 1.6 -5.0 -1.3 1.6 2.2
2.4 1.9 2.0 2.5 3.0 3.3 3.0 2.8
2.0 2.5 2.8 2.5
4.0 4.0 4.0 4.0 3.8 3.8 3.8 4.0
...
…
…
…
…
…
…
…
…
…
…
…
…
…
…
…
8.8 13.6 12.9 14.8 14.9 10.4 10.4 11.5
6.2 14.8 11.5 12.9
...
...
…
…
…
…
…
…
…
…
…
…
0.3 2.4
-3.5 -0.8
2.8 1.6
...
…
0.4 0.3
-6.8 -1.4
-0.7 -0.9
...
…
1.4 0.9
0.6 -0.7
2.3 2.3
...
…
2.0 1.8
-2.1 -3.5
2.1 2.2
...
…
5.2 6.7
6.1 12.5
2.1 0.9
2.4
0.8
2.2
…
0.7
4.9
-0.9
…
1.0
0.5
2.0
…
2.3
0.6
3.0
…
5.6
11.8
1.4
3.5
4.5
1.8
…
1.0
-0.2
-0.8
…
2.3
3.5
1.3
…
3.0
2.1
2.5
…
6.4
13.2
1.8
...
-3.8
...
0.4 -0.4
-0.8 0.7
5.4 10.0
1.4
4.3
11.1
3.0
4.7
8.3
...
0.6
...
…
1.6
…
…
4.2
…
…
4.4
…
…
3.0
…
29
…
4.0
…
…
5.7
…
...
-4.3
...
…
4.2
…
…
5.7
…
…
3.7
…
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