Over the first cliff
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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?

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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!


Real gdp saar commerce department 2012

Real GDP (SAAR) Commerce Department2012


Contributions to gdp growth q3 2012

Contributions to GDP GrowthQ3 2012


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


Annual job change december 2011 december 2012 1 4

Annual Job Change December, 2011-December, 2012 (1.4%)


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


Interest rates source us treasury

Interest Rates Source: US Treasury


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


Residential permits saar census bureau december 2012 up 30 3 for the year

Residential Permits (SAAR) Census Bureau December 2012 Up 30.3% For the Year


Fhfa house price index q3 2012

FHFA House Price Index Q3 2012


Fhfa purchase only index for oregon

FHFA Purchase Only Index for Oregon


Residential permits 2004 to 2012 oregon up 48 9 to november 2012 source census

Residential Permits 2004 to 2012 Oregon (Up 48.9% to November 2012) Source: Census


Total state tax collections above previous year for 11 quarters

Total State Tax Collections Above Previous Year for 11 Quarters


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


Oregon wage and salary employment 000 saar employment department

Oregon Wage and Salary Employment ( ,000-SAAR) Employment Department


Oregon job change year to december 2012 1 3 employment department

Oregon Job Change Year to December, 2012 (1.3%) Employment Department


Portland job change year to november 2012 1 5 employment department

Portland Job Change Year to November, 2012 (1.5%) Employment Department


Oregon job growth year to november 2012 source department of employment

Oregon Job Growth Year to November, 2012Source: Department of Employment


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?


Annual change in oregon wage and salary employment

Annual Change in Oregon Wage and Salary Employment


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


Over the first cliff

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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