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Economic Outlook

This economic outlook discusses the current state of the US economy, including moderate growth, improving job market, easing financial stress, and concerns such as rising commodity prices and the European debt crisis.

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Economic Outlook

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  1. Economic Outlook: Don’t Think Twice, It’s All RightCFT Banks’ ForumMay 25, 2011Todd P. Martin Economic Services203-218-9825Toddpmartin@yahoo.com

  2. Economic Outlook Source: WWW.investors.com/cartoons

  3. The Royal Wedding Source: toledoblade.com

  4. Economic Outlook Source: USA Today, The Columbus Dispatch

  5. US Economic Backdrop • Moderate US economic recovery continues, but momentum slowed in 1st Q 2011 due to weather, Middle-East, and oil prices • Positives: Strong corporate profits should = better job growth and investment, extremely supportive Fed, Banking System and household balance sheets improving slowly, Technology boom boasting productivity • Concerns: Rising commodity & oil prices, Housing market in depression, European debt crisis worsening, massive US deficits & Debt (political stalemate), S&L budgets drag on growth. • Forecast for moderate growth to continue (i.e., 3% GDP 2011), unemployment declines to 8% by 2012, Fed begins to tighten (fed funds 1.5%) by 2012.

  6. Real GDP up for 7 quarters, slows 1st Q Source: www.calculatedriskblog.com

  7. U.S. Economy added 244,000 jobs in April…. • Source: Briefing.com, BLS

  8. ….But recovery is still painfully slow Source: Calculatedriskblog.com

  9. Trend in Initial Jobless Claims improving…. Source: Federal Reserve Bank of St. Louis, BLS

  10. …but long-term unemployment still very high Source: Federal Reserve Bank of St. Louis, BLS

  11. Financial stress has eased dramatically Based on bank stocks, stock option prices, interest rates and other measures. Readings below zero suggest stress in the financial markets is below its long-run average. Source: Federal Reserve bank of St. Louis, The Wall Street Journal

  12. Record low rates-- Steep yield curve Source: The New York Times, Bloomberg.

  13. Strong profits should = more jobs

  14. “Official” Inflation rates still quite low • Source: FR Bank of St. Louis, BLS

  15. Why 29% think we are in a Depression? Gold$/ounce Corn/cents/bushel Sources:(1) U.S. Energy Information Administration(2) Wall Street Journal(3) Bureau of Labor Statistics(4) Census Bureau(5) USD(6) U.S. Dept. Of Labor (7) FHFA(8) Standard & Poor's/Case-Shiller(9) RealtyTrac(10) Heritage Foundation and WSJ(11) The Conference Board(12) FDIC; (13) Federal Reserve(14) U.S. Treasury, New York Times

  16. Rise in Gas prices acts like a tax hike $1.00 increase in Gas prices is the equivalent of a $125 billion tax hike Source: GasBuddy.com

  17. Consumers feeling a bit better …. Source: Briefing.com, Conference Board

  18. ….and spending more Source: FR Bank of St. Louis, Census Bureau

  19. Stock prices up 100% from 2009 lows Source: FR Bank of St. Louis, Dow Jones & Co.,TPM Economic Services

  20. Extremely accommodative monetary policy "Information received since the Federal Open Market Committee met in March indicates that the economic recovery is proceeding at a moderate pace and overall conditions in the labor market are improving gradually. Household spending and business investment in equipment and software continue to expand. However, investment in nonresidential structures is still weak, and the housing sector continues to be depressed. Commodity prices have risen significantly since last summer, and concerns about global supplies of crude oil have contributed to a further increase in oil prices since the Committee met in March. Inflation has picked up in recent months, but longer-term inflation expectations have remained stable and measures of underlying inflation are still subdued.” FOMC Press Release - 4/27/11

  21. Huge expansion of the Fed’s B/S The Fed's balance sheet has more than doubled in size since the Lehman bankruptcy. The focus of policy-makers has been on the asset side of the balance sheet, so-called "Credit Easing". Agency/MBS Treasuries Source: Federal Reserve, Stone & McCarthy Research

  22. Excess Reserves have exploded The explosion on the asset side of the balance sheet was matched by an offsetting explosion on the liability side of the balance sheet, especially an explosion in bank reserve balances held at the Fed. These reserve balances represent immediately available funds. Reserve Balances Source: Federal Reserve, Stone & McCarthy Research

  23. Housing sector is still in depression Source: FR Bank of St. Louis, Census Bureau,NAR, Stone & McCarthy Research

  24. Home inventories still high; prices still falling Source: Stone & McCarthy Research, Zillow.com, Wall Street Journal

  25. Record level of foreclosures & delinquencies Source: www.calculatedriskblog.com

  26. Home prices need lower unemployment rate Source: www.calculatedriskblog.com

  27. Some signs of life in Commercial RE? Source: Wall Street Journal, AII, McGraw-Hill, Trepp LLC

  28. Tax Revenues barely cover entitlements Source: Heritage Foundation, Census Bureau & CBO

  29. Fiscal Policy is out of control Source: Heritage.org, White House OMB, CBO

  30. European debt crisis continues Source: Moody’s Analytics

  31. CT Economic Outlook • Connecticut Economy is slowly beginning to add back some of the 119,000 jobs lost during the recession. 31,600 net new jobs have been created since the trough – a recovery rate of 27%. All jobs lost not expected to be regained by 2015. • Unemployment rate at 9.1% in April (above the US rate of 9.0%). NEEP expects rate to fall to 8.6% in 2012 – still historically very high. • $3.4 billion state budget gap solved by record tax hikes and “union concessions” – overall spending continues to climb. General Assembly avoids making tough choices – huge unfunded liabilities among the worst in the U.S. • CT rated 47th worst tax climate for business: Large employers expanding elsewhere (UTC, Pfizer, etc.) • CT housing market still depressed – prices down, marketing times up, sales down, and permits off 88% from 1980s peak.

  32. CT has added 19,300 jobs year-over-year CT has regained 31,600 of the 119,000 jobs it lost during the recession, or 27%. US has regained 1.7 million of the 8.6 million of the jobs it lost, or 20.4% Source: BLS, FR Bank of St. Louis

  33. CT Unemployment rate higher than US rate CT = 9.1% as of April 2011 US = 9.0% as of April 2011 Source: BLS, FR Bank of St. Louis

  34. Construction lost 20,500 jobs or 30% peak to trough Up 1,300 jobs (2.7%) from Dec. 2010. Source: BLS, FR Bank of St. Louis

  35. CT Financial jobs are still trending lower CT has lost 10,800 Financial Activities jobs during the recession, a drop of 7.4%. Source: BLS, FR Bank of St. Louis

  36. Health & Ed. the strongest job sectors in CT Health & Ed. jobs have increased steadily from 1990, growing by 122100 or 63% since 2/90. Source: BLS, FR Bank of St. Louis

  37. CT Mfg. jobs cut in half; Gov. jobs +23% since 1990s CT Gov. jobs (including casinos) rose 47,600, or 23.2% from 7/91 – 5/08. Since then, 11,200 (4.6%) Gov. jobs have been lost. CT has lost 140,200 manufacturing jobs since 1/90, or 45% Source: BLS, FR Bank of St. Louis

  38. Where CT has lost jobs over the last 12 months Change in CT Non-Farm Employment April 2011 vs. April 2010 ( Not SA) Source: CT Labor Department, TPM Economic Services

  39. Where jobs were created last year Change in CT Non-Farm Employment April 2011 vs. April 2010 ( Not SA) Source: CT Labor Department, TPM Economic Services

  40. Housing permits in CT still very depressed CT Home Permits Authorized Down 88% from cycle peak in 1986. 2011-2015 is forecast Source: CT DECD, New England Economic Partnership, Economy.com, TPM Economic Services

  41. CT Home Prices still trending lower Source: FHFA, FR Bank of St. Louis

  42. CT Homes taking longer to sell in 2011…. Source: Prudential CT Realty CT RE Market Report, TPM Economic Services

  43. ….and prices are a bit softer Source: Prudential CT Realty CT RE Market Report, TPM Economic Services

  44. Home sales continued to fall in the 1st Q…. Source: Prudential CT Realty CT RE Market Report, TPM Economic Services

  45. …. And so did prices (ex Middlesex & NH) Source: Prudential CT Realty CT RE Market Report, TPM Economic Services

  46. CT Spending outpaces GSP, Inflation & Pop Sources: Wall Street Journal, Hartford Courant, CT OPM, Yankee Institute

  47. Summary • Moderate US Economic recovery still underway • GDP should average 3% in 2011 but unemployment remains high, Future growth likely to remain sub-par • Good News: Job growth slowly improving, financial stress easing, corporate profits strong, Fed accommodative, large banks profitable, productivity gains • Bad News: Rising oil prices, Middle-East unrest, European debt crisis, continued slide in home values – rise in foreclosures, massive US deficits & debt • Fed on hold (fed funds @ 0% - 0.25%) until late 2011 – 1.5% by year end 2012? How will unwinding QE2 play out? • Watch: Jobless Claims – Purchasing Managers Index – Housing Inventories & Prices – Oil Prices -- Stock Prices – Auto Sales – Consumer Confidence – 2012 Campaign Themes

  48. Economic Outlook: Don’t Think Twice, It’s All RightCFT Banks’ ForumMay 25, 2011Todd P. Martin Economic Services203-218-9825Toddpmartin@yahoo.com

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