Transcript Cliffs, Tooth Fairies and The End of Year Four
24 th Bank of Agriculture and Commerce Stockton, California February 6, 2013 John W. Mitchell
Disasters Avoided-Cliff One, Euro Survived March1st and March 27 th Deadlines Year Four of Upturn-Modest or Moderate 1/2013 Employment 3.23 Million below 1/2008 but 5.51 million above 2/2010 Trough House Prices Rising Case Shiller up 5.5% to November California with Clean Budget?
Fourth Quarter Output Decline Global Economy Weak But Stabilizing?
S &P 500 up 6.1% to 2/1/13 Personal Income in December up 2.6% (SAAR) Largest Increase in Domestic Oil Production in History of Industry in 2012 Inflation Moderated Lone Ranger Back, but Twinkies GONE!
GDP Q1 2 Q2 Q3 1.3 3.1
Consumption Equip & Software Non-Res Structures Residential Federal State and Local 2.4
5.4
12.9
1.5 1.6
4.8 -2.6
.6
0 20.5
8.5 13.5
-4.2
-.2 9.5
-2.2
-1 .3
Exports Imports 4.4
3.1
5.3 1.9
2.8 -.8
15.3
-15 -.7
-5.7
-3.2
Q4 -.1
2.2
12.4
-1.1
2,00% 1,50% 1,00% 0,50% 0,00% -0,50% -1,00% -1,50%
350 300 250 200 150 100 50 0 Source: BLS
2 500 000 2 000 000 1 500 000 1 000 000 500 000 0 -500 000
0,80% 0,60% 0,40% 0,20% 0,00% -0,20% -0,40% Source:BLS
Beige Book January 16, 2013 Stable Price Pressures Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December Compensation 12 Months to December 1.9%, Wages1.7%, Benefits 2.5%
3,50% 3,00% 2,50% 2,00% 1,50% 1,00% 0,50% 0,00% 2/1/2013 7/25/2012
Seven Years of Zero Short Term Rates ?
30 Year Mortgage 3.42% Week Ending 1/25/13 10 Year 1.9% on Week Ending 1/25/13 Fed will tolerate 2.5% Inflation All Treasuries Under 5 Years Yield Less than 1% Personal Interest Income Q4 2007 $1.32 Trillion in December 2012 $1.012 Trillion Pension Obligations?
GDP Growth Fed Central Tendency for 2013 2.3-3% and 3-3.5% in 2014 ( 2012 2.2% First Est.) Consensus Moving from 2% in 2013 to 2.6% in 2014 Inflation Staying Near 2% Through 2014 Fed on Hold Until at Least Mid 2015
What happens Overseas ?
Dealing with the debt ceiling and sequesters in the next few months?
How will the actors behave ?
2 500 2 000 1 500 1 000 500 0
250 000 200 000 207 390 205 020 160 502 150 000 110 073 100 000 50 000 62 681 35 069 43 716 45 471 58 540 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
30,00% 20,00% 10,00% 0,00% -10,00% -20,00% -30,00% -40,00% -50,00% Stockton California
8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 2004 2006 2008 2010 2012 Stockton Permits-2004 2012 Affordability Price Declines Mortgage Rates Employment Household Formation Different Credit World More Renters San Joaquin County Median Sales Price in December up 15.7% to $184,320 (CAR) Building Forces
15,00% 10,00% 5,00% 0,00% -5,00% -10,00% -15,00% -20,00% Source: Rockefeller Institute
After Proposition 30 Governor Proposed Budget with a Spending Increase of 5% Expecting Gains in Personal Income Tax of 1.8% ($1.1B), Sales Tax Receipts 12.3% ($2.55B), Corporate Taxes 20.4% ($1.55B) What will Actually Appear-Getting Beyond the Cliff Impact
The First Cliff Payroll Tax Holiday Ends Bush Tax Cuts Expire for Over $450,000 Sequester Process Delayed 2 Months New Medicare Taxes Start Phase Outs and Deduction Limitations Back Estate Tax Rate Bumped AMT Fix, Doc Fix Long Term Spending Issues-Not Addressed Debt Ceiling Unresolved Short Term Problem-Long Term Problem Geithner-”And you can’t count indefinitely on the world having more confidence in our political system than is justified”
Twist Ended in December-Now Buying $45 Billion of Treasuries Per Month with Maturities from 4 Years to 30 Years Continue to Buy $40 Billion Mortgage-Backed Securities per month Total $85 Billion Per Month in New Acquisitions as well as Reinvesting Principal Payments Exceptionally low rates as long as unemployment remains above 6.5% and inflation is no more than .5 point above 2% longer run goal (12/12/12) and (1/30/2013) When does the buying program end? When the labor market improves!
How does the unwinding take place? “Balanced approach” 1/30/13
North Dakota 1 Utah 2 Arizona 3 Texas 4 Colorado 5 Oklahoma 6 Idaho 7 Montana 8 Indiana 9 Hawaii 10 Washington 11 Minnesota 12 Ohio 13 Georgia 14 South Carolina 15 North Carolina 16 California 17 Massachusetts 18 Nevada 19 Kentucky 20 Missouri 21 New York 22 Tennessee 23 Oregon 24 New Jersey 25 Florida 28 Virginia 32 Pennsylvania 34 Alabama 38 Alaska 39 Connecticut 44 Mississippi 45 Wyoming 46 Connecticut 47 Maine 48 New Mexico 49 West Virginia 50
California Oregon Washington Source: USDA 2009 $8,462,343 $494,534 $1,065,891 2010 $10,949,761 $510,793 $1,903,302 2011 $16,304,937 $1,029,169 $2,985,398
14 600 000 14 400 000 14 200 000 14 000 000 13 800 000 13 600 000 13 400 000 Source: EDD
Total Govt.
Othe Ser.
Leisure&Hos.
Ed&Health Prof. Services Finance Informati… TP,W,Util Trade Constru… NR&MNG Manufac… -50 000 0 50 000 100 000 150 000 200 000 250 000 300 000
Chico Fresno Los Angeles Modesto Napa Oakland Redding Sacramento San Diego San Francisco San Jose Stockton Job Change 400 4,600 69,500 1,000 -200 21,500 1,800 10,800 20,300 33,200 27,600 5,500 3.1
1.3
1.6
3.4
3.1
2.9
Percentage .6
1.6
1.8
.7
-.3
2.2
Total Govt.
Othe Ser.
Leisure&Hos.
Ed&Health Prof. Services Finance TP,W,Util Information Construction -2 000 Manufacturing -1 000 0 NR&MNG 1 000 Trade 2 000 3 000 4 000 5 000 6 000
Source: EDD 220 000 210 000 200 000 190 000 180 000 170 000 2004 2005 2006 2007 2008 2009 2010 2011 2012
Youth Un and Underemployment –Scarring January U-6 14.4%, Mean Duration 35.3 Weeks Labor Force Participation Rate January 63.6%-The last Time it was there was December 1981. Recession Start 66% Real Family Median Net Worth Down 38.8% 2007 2010 Survey of Consumer Finances California Jobs Gap 1,791,000 In October Brookings CoreLogic Underwater in CA 28.3% in Q3 City Finances
How Does the Fiscal Situation End?
Simpson-Bowles, Confidence Collapse as in John Mauldin’s– Reinhart’s Growth
Endgame
, Rogoff and
This Time is Differen
t- Slow Do we still have the recipe for growth? (Lots of Gloom, but Remember the Late 1970s!)
Stella The Tooth Fairy Free Medical Services Fairy The No New Taxes Fairy The Rich Will Pay Fairy The Entitlement Fairy Fairies
Uncertainty Reduced, But Remains Most likely GDP Growth 2-2.5% California Employment 1.5-2% Falling Debt Burdens, Housing, Rising Income and Employment, Balance Sheets, Financial Institutions Strength, ISM both Manufacturing and Non-Manufacturing, Energy Developments, Initial Claims, Global Glimmers