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Over The (First) Cliff?. OSIA Wilsonville, Oregon January 25, 2013 John W. Mitchell. Late January, 2013. Brush with Disaster Year Four of Upturn-Modest or Moderate 12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough QE4 Underway Weakness in Europe and Japan

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over the first cliff

Over The (First) Cliff?

OSIA

Wilsonville, Oregon

January 25, 2013

John W. Mitchell

late january 2013
Late January, 2013
  • Brush with Disaster
  • Year Four of Upturn-Modest or Moderate
  • 12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough
  • QE4 Underway
  • Weakness in Europe and Japan
  • Net Worth Rising
  • Largest Increase in Domestic Oil Production in History of Industry in 2012
  • Less then Year to Next Stage of the Patient Protection and Affordable Care Act
  • Lone Ranger Returning-Twinkies GONE!
2011 12 nonfarm payroll employment change 000 sa average 153 000 per month in 2012 same as 2011
2011-12 Nonfarm Payroll Employment Change(,000 SA) Average 153,000 Per Month in 2012 same as 2011
consumer price index monthly changes 2011 12 1 7 in december core 1 9 annual average 3 2 in 2011
Consumer Price Index Monthly Changes 2011-121.7% in DecemberCore 1.9%, Annual Average 3.2% in 2011
inflation
Inflation
  • 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
  • Non-Farm Business Year over Year 1.8% Compensation and 1.7% Productivity-Unit Labor Costs .1% Q3
rates
Rates
  • Seven Years of Zero Short Term Rates ?
  • 30 Year Mortgage 3.4% on Week Ending 1/11/13
  • 10 Year 1.9% on Week Ending 1/11/13
  • Fed will tolerate 2.5% Inflation
  • All Treasuries Under 5 Years Yield Less than 1%
  • Personal Interest Income Q4 2007 $1.32 Trillion by Q3 2012 $975.3 Billion
  • Pension Obligations?
  • Earnings on Reserves?
prospects
Prospects
  • GDP Growth Fed Central Tendency 2012 1.7-1.8% and 2013 2.3-3%, 3-3.5% in 2014
  • Consensus Moving from 2% in 2013 to 2.6% in 2014
  • Drag from Recent Policy Actions ?
  • Inflation Staying Near 2% Through 2014
  • Fed on Hold Until at Least Mid 2015
known unknowns
Known Unknowns
  • What happens Overseas ?
  • Dealing with the debt ceiling and sequesters in the next few months?
  • How will the actors behave ? Taxes, Healthcare, Uncertainty
policy cauldron
Policy Cauldron
  • 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”
monetary policy
Monetary Policy
  • Different Tools
  • Twist to the End of December-Then Buy $45 Billion of Treasuries with maturities from 4 Years to 30 Years
  • Continue to Buy $40 Billion Mortgage-Backed Securities Per Month
  • Total $85 Billion Per Month
  • 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)
  • Will it make any difference?
  • How and When does one unwind it? Federal Debt Costs when rates increase?
job growth update november 2012 data year over year change 44 states up
North Dakota 1

Utah 2

Hawaii 3

Texas 4

Arizona 5

Oklahoma 6

Colorado 7

Idaho 8

Indiana 9

Montana 10

Minnesota 11

Louisiana 12

Kentucky 13

Ohio 14

California 15

South Carolina 16

Washington 17

Georgia 18

Massachusetts 19

Job Growth UpdateNovember 2012 Data-Year over Year Change-44 States Up

Oregon 21

Florida 22

Nevada 23

Arkansas 30

Michigan 33

Alabama 34

New Jersey 38

Illinois 35

South Dakota 36

New Jersey 38

Maine 43

Connecticut 44

Mississippi 45

Alaska 46

New Hampshire 47

Rhode Island 48

New Mexico 49

West Virginia 50

recent data points
Recent Data Points
  • Personal Income in Q3 Oregon up .8%, US .5%
  • Census Population Estimates for 2010-2012 up 1.8% versus the US up 1.7%
  • PSU Oregon Population Up .7% in 2012
  • Brookings Institution- Q3 Portland 4th of the top 100 Metros-Employment, Unemployment, Output, and House Prices
  • Preliminary Oregon Employment Data .8-.9% Gain in Annual Average Employment
  • Oregon Jobs Gap in October 133,000 Brookings Hamilton Project
  • December Data-Total Employment in Oregon down 25,546 in Year to December?
leftovers
Leftovers
  • Youth Un and Underemployment -Scarring
  • December U-6 14.4%, Mean Unemployment 38.1 Weeks, 39.1% of Unemployed more than 27 Weeks
  • Labor Force Participation Rate December 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
nagging questions
Nagging Questions
  • Sustainability Popular Here- Fiscal Situation is Not- The Current Path leads to sclerosis or stagnation.
  • How does it end? Simpson-Bowles, Confidence Collapse –Endgame-Mauldin, Rogoff and Reinhart- Slow Growth
  • Is December/January the best that we can do?
  • Do we still have the recipe for growth?
stella and the fairies
Stella and The Fairies
  • The Tooth Fairy
  • Free Medical Services Fairy
  • The No New Taxes Fairy
  • The Rich Will Pay Fairy
  • The Entitlement Fairy

Stella

Fairies

slide30
2013
  • Uncertainty Reduced, But Remains
  • Most likely Growth Near 2%
  • Falling Debt Burdens, Housing, Rising Income and Employment, Balance Sheets, Financial Institutions Strength, ISM, Energy Developments, Initial Claims
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