Transcript AFTER THE FALL: What Kind Of Recovery In California & In The Rest Of The U.S.

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AFTER THE FALL:
What Kind Of Recovery In California & In The
Rest Of The U.S. From The “Great Recession”
Of 2008-09?
A Presentation To The California Municipal
Treasurers Association Annual Conference
Sacramento, California
April 21, 2010
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CALIFORNIA LAGS THE U.S. ECONOMY, AGAIN, IN THIS ECONOMIC CYCLE
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
2.5%
0.5%
3/10
-1.5%
U.S.
-3.5%
2/10
Recession Period
-5.5%
California
-7.5%
Dec-04
Sep-05
Jun-06
Source: U.S. Dep't Of Labor
Mar-07
Dec-07
Sep-08
Jun-09
Mar-10
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WILL SOUTHERN CALIFORNIA BE FIRST "OUT?"
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
3.5%
Bay Area
1.2%
-1.1%
2/10
-3.4%
Southern
California
Recession Period
-5.7%
Central Valley
-8.0%
Dec-04
Dec-05
Source: U.S. Dep't Of Labor
Dec-06
Dec-07
Dec-08
Dec-09
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L.A.-LONG BEACH IS CLOSEST TO AN ECONOMIC RECOVERY IN SOUTHERN CALIFORNIA ...
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
6%
3%
Riverside-San Bernardino
L.A.-Long Beach
0%
Orange County
-3%
2/10
-6%
-9%
Dec-05
Sep-06
Source: U.S. Dep't Of Labor
Jun-07
Mar-08
Dec-08
Sep-09
Jun-10
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…WHILE ACTIVITY HAS CONVERGED IN THE BAY AREA'S THREE MAJOR ECONOMIES...
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
3%
1%
San Jose
-1%
San Francisco
-3%
Oakland
2/10
-5%
-7%
-9%
Dec-04
Dec-05
Source: U.S. Dep't Of Labor
Dec-06
Dec-07
Dec-08
Dec-09
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…AND IN THE CENTRAL VALLEY
Non-Farm Job Growth; Year-Ago Percent Change, 3-Mo. Moving Avg. Data
2.0%
0.5%
-1.0%
Central Valley, Ex.
Sacramento
-2.5%
2/10
Sacramento
-4.0%
-5.5%
-7.0%
Dec-06
Jun-07
Source: U.S. Dep't Of Labor
Dec-07
Jun-08
Dec-08
Jun-09
Dec-09
Jun-10
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AN IMPROVING--BUT STILL DISAPPOINTING--PERFORMANCE BY CA'S "EXPORT" INDUSTRIES
Year-Ago Percent Change In Non-Farm Payroll Employment
8%
Health Care
3%
-2%
"Export" Industries*
-7%
2/10
-12%
"Housing-Related"*
-17%
-22%
Jan-02
Jan-03
Jan-04
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
* "Housing-related" includes residential construction, specialty trade contractors, furniture, home
furnishings and building materials retail stores, real estate leasing and finance. "Export industries" include
high tech, aerospace, travel and tourism, motion pictures and sound recording.
Source: California Employment Development Department
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U.S. AND CALIFORNIA METRO HOME PRICES BACK "ABOVE WATER"
Year-Ago Percent Change; Seasonally Adjusted Data
40%
30%
20%
10%
1/10
0%
L.A.-San
Diego Average
20 U.S.-Metro
Average
-10%
-20%
-30%
San Francisco
Bay Area
-40%
Dec-06
Jun-07
Dec-07
Source: Standard & Poors, Inc.
Jun-08
Dec-08
Jun-09
Dec-09
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TOWARD SELF-SUSTAINING
ECONOMIC GROWTH
• The Saving Rate Steadying At An Historically Low Level
• Household Debt Burdens At A Nine-Year Low
• “Purchasing Power” On The Verge Of Recovery
• An Early Rebound In Investment Spending
• Export Growth Still Near A Thirty-Five-Year High
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HOUSEHOLDS DIP INTO SAVINGS TO FINANCE A SPENDING RECOVERY
Yr-Ago % Chg; 3-Mo Moving Avgs.
Percent of After-Tax Income
4%
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Personal Saving Rate
(Right Scale)
3%
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2/10
2%
5
1%
4
-1%
3
Inflation-Adjusted
Spending, Ex. Autos
(Left Scale)
-2%
2
-3%
1
-4%
Dec-07
Apr-08
Aug-08
Source: U.S. Commerce Dep't.
0
Dec-08
Apr-09
Aug-09
Dec-09
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HOUSEHOLD DEBT-PAYMENT BURDENS AT A NINE-YEAR LOW
Financial Obligations* Ratio, In Percent
19.0
18.5
Note: Bars Denote
Recession Periods
18.0
17.5
'09Q4
17.0
16.5
16.0
15.5
15.0
Mar-81
Mar-85
Mar-89
Mar-93
Mar-97
Mar-01
Mar-05
* Interest, principal & auto-lease payments, rent, home owner property taxes & insurance.
Sources: Federal Reserve Board
Mar-09
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HOUSEHOLD "PURCHASING POWER" FINALLY HITS BOTTOM
Percent Changes In Three-Month Moving Average Data
10%
6%
Year-Ago %
Change
Avg. Annual % Chg,
1975-2009=2.3% P.A.
2%
2/10
-2%
Annualized % Change
From 3 Months Ago
-6%
-10%
-14%
Dec-06
Jun-07
Dec-07
* Inflation as measured by the PCE deflator.
Sources: U.S. Commerce Department
Jun-08
Dec-08
Jun-09
Dec-09
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POISED FOR ANOTHER “MINI-BURST” OF
ECONOMIC GROWTH?
* Pent-Up Consumer Demand
* Deferred Equipment Spending
--Liquid Assets High, Manufacturing Capacity Falling
* Pent-Up Housing Demand From Depressed Household
Formations, Labor Mobility
* Extraordinarily “Lean” Payrolls
* Ample “Liquidity,” “Thawing” Credit Markets
* Historically High Operating Leverage
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OPERATING LEVERAGE SOARS
Non-Fin'l Corps. Revenue Per Dollar Of Labor & Capital Costs
150%
'09Q4
140%
Avg., 19602008=118%
130%
120%
110%
100%
90%
Mar-64
Mar-70
Mar-76
Mar-82
Mar-88
Mar-94
Mar-00
* Normalized revenue growth based on rolling, 5-year average annual gains.
Source: U.S. Department Of Commerce
Mar-06
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ECONOMIC OUTLOOK: THE U.S. AND CALIFORNIA ECONOMIES COMPARED
Year-To-Year Percent Change, Unless Otherwise Specified
Avg. Ann.
% Chg, '04 '07
Avg. '08 '09
2010F
2011F
2012F
"Real" Personal Income
U.S.
California
3.3
3.1
-1.2
-1.7
2.3
1.3
3.4
3.7
2.0
4.5
Payroll Employment
U.S.
California
1.4
1.3
-2.5
-3.7
-0.2
-0.7
2.5
2.3
1.8
3.0
Unemployment Rate (%)
U.S.
California
5.1
5.5
7.6
9.3
9.7
11.8
9.3
10.4
8.6
9.7
Housing Starts/Permits
U.S. (Starts, MM)
California (Permits, Thousands)
1.8
175
0.7
51
0.6
82
0.7
140
0.8
167
Taxable Retail Sales (% Chg.)
Non-Residential Constr. (% Chg.)
5.1
2.4
-7.0
-31.0
1.2
-4.4
5.2
19.1
6.9
26.3
Population (% Chg.)
Net Immigration (Thousands)
1.2
117
1.1
83
1.0
66
1.0
85
1.0
118
OTHER KEY CALIFORNIA DATA
Source: The UCLA Anderson Forecast, March 2010; WCM Forecast.
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THE SHAPE OF THINGS TO COME?
The Treasury Yield Curve, Selected Periods; Yields In Percent
5.0
4/13/10
4.5
4.0
10/1/09
3.5
3.0
2.5
12/31/08
2.0
1.5
Fed Funds Target Rate
(12/16/08)=0-0.25%)
1.0
0.5
0.0
-0.5
0
5
10
Source: Bloomberg Financial News, Inc.
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Years To Maturity
25
30
35
40
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"CORE," OR UNDERLYING INFLATION TAKES A DIVE
Year-Ago Percent Change
12%
3.5%
"Core" CPI (Excluding Food
& Energy)
(Right Scale)
9%
3.0%
6%
2.5%
3%
2.0%
0%
1.5%
-3%
2/10
1.0%
-6%
0.5%
-9%
CPI
(Left Scale)
-12%
-15%
Dec-07
0.0%
-0.5%
Apr-08
Aug-08
Source: Bureau Of Labor Statistics
Dec-08
Apr-09
Aug-09
Dec-09
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WILL BROADENING "DEFLATION" HELP SHAPE MONETARY POLICY?
Percent Of PCE Components Declining; Three-Month Moving Average
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Jan. '10=36%
35
32
29
26
23
20
17
14
Dec-99
Average, 2/7712/08=21.6%
Jun-01
Dec-02
Jun-04
Dec-05
Sources: U.S. Commerce Department; Federal Reserve Bank Of Dallas
Jun-07
Dec-08
Jun-10
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RISKS TO A DELAYED, GRADUAL RISE
IN U.S. INTEREST RATES
• Market Appetite For Dollar-Denominated Assets
Dries Up
--A Loss Of Confidence In U.S. Economic Policies
• Unexpectedly Strong Economic Growth, And A Less
Sanguine Inflation Outlook
• Heightened Financial-Market Uncertainties,
Volatility Amid A “Sea Change” In Monetary Policy
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THEMES SHAPING LONGER-TERM
ECONOMIC PERFORMANCE
• Asset-Price Volatility In A Low-Inflation, Low Interest-Rate
Economy
--”Financialization” Of Commodities
• Trade Protectionism In A Slower Growing Global Economy
--Diminishing “Tail Winds” From “Globalization?”
• An Aging Population’s Impact On Potential Growth, Spending
& Investment
• Toward A Higher-Taxed, “Managed” Capitalist, U.S. Economy?
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