Post on 23-Dec-2015
Presented by
Slide 1© 2004 Economy.com
The Economic Outlook
Mark ZandiChief Economist
Slide 2© 2004 Economy.com
-4
-2
0
2
4
6
'00 '01 '02 '03 '04
Demand
Output
Laborhours
% chg year agoSources: BEA, BLS
An Improved Economy...
Slide 3© 2004 Economy.com
20
30
40
50
60
70
80
90
93 94 95 96 97 98 99 00 01 02 03 04
% of industries adding to payrollsover 3 month periodSource: BLS
...Across Industries...
Slide 4© 2004 Economy.com
...and Across the CountryBased on employment and IP data as of July 2004
Recession (none)
Flat
Expanding
Slide 5© 2004 Economy.com
41,500
42,500
43,500
44,500
'99 '00 '01 '02 '03 '04
But Incomes Have Not Kept Up...
Real Median Household Income2000$, Source: BEA, Economy.com
Slide 6© 2004 Economy.com
325
350
375
400
425
'99 '00 '01 '02 '03 '04
...Nor Has Wealth
Real Average Household Net Worth2000$,Sources: FRB, Economy.com
Slide 7© 2004 Economy.com
-0.5
0.0
0.5
1.0
1.5
2.0
'01 '02 '03 '04 '05
Spending
Tax policy
Monetary policy
Contribution to GDP growth% chg year agoSource: Economy.com
Fading Policy Stimulus
Slide 8© 2004 Economy.com
-100
-50
0
50
100
150
200
45 50 55 60 65 70 75 80 85 90 95 00
West Texas Intermediate% Change Year Ago
Higher Energy Prices are a Growing Weight...
Slide 9© 2004 Economy.com
...Particularly on the Northeast and Midwest...
Positive
Sm all N egative
Avg N egative
Large Negative
Slide 10© 2004 Economy.com
5
10
15
20
'73 '78 '83 '88 '93 '98 '03
...But They Should Not Derail the Expansion
Thousands of BTUs per 1996$ of GDPSource: Energy Department
Petroleum
Total Energy
Slide 11© 2004 Economy.com
Fundamental Reason For Optimism
0
1
2
3
4
5
'53-'73 '73-'93 '93-'04 '99-'04 '03-'04
Productivity GrowthNonfarm BusinessAverage Annual GrowthSources: BLS, Economy.com
Slide 12© 2004 Economy.com
3
4
5
6
7
8
9
55 60 65 70 75 80 85 90 95 00
After-Tax corporate profit marginSource: BEA
Productivity Gains Have Lifted Profits...
Slide 13© 2004 Economy.com
-30
-20
-10
0
10
20
30
40
70 75 80 85 90 95 00
-2
0
2
4
6
Profits growth 1 year lead (L)
Employment growth (R)
Sources: BEA, BLS
...Which Will Induce More Hiring
Slide 14© 2004 Economy.com
-6
-2
2
6
10
-4 0 4 8 12
% chg year ago
annualized % change
Argentina
CanadaBelgium
Australia
Brazil
U.S.
China
France
Germany
India
Japan
Korea
Mexico
U.K.
Denmark
Netherlands
Chile
Real GDP Growth through 2004Q2
Expansion
Recession
Recovery
Struggling
Euro Area
FinlandIndonesia
Israel
Italy
New Zealand
Norway
Russia
Spain
Taiwan
Hong Kong
Strong Global Economy
Slide 15© 2004 Economy.com
Sanguine Near-Term Economic Outlook
-2
0
2
4
6
'00 '01 '02 '03 '04 '05 '06
Real GDP
Employment
% change year ago
Slide 16© 2004 Economy.com
Regional Recoveries
Year when new employment peak is projected
2006
20042005
2007 and after
Slide 17© 2004 Economy.com
-6
-4
-2
0
2
4
6
8
10
'98 '99 '00 '01 '02 '03 '04E '05E '06E
State Tax Revenue GrowthSources: Census, Economy.com
Tax Revenue Growth Back on Track
Slide 18© 2004 Economy.com
Source: Economy.com
Less than 3%3.0% to 4.5%O ver 4.5%
Tax Revenue Growth Back on TrackAvg Annual Growth FY '04–'06, U.S. = 4.5%
Slide 19© 2004 Economy.com
-550
-500
-450
-400
-350
-300
00 01 02 03 '04
-140
-130
-120
-110
-100
-90
-80
-70
China (R)
Withering Global Competition
Total excludingOPEC (L)
Trade deficit$ bil, 12 mo moving sumSource: Census
Slide 20© 2004 Economy.com
-10
-5
0
5
10
15
'90 '92 '94 '96 '98 '00 '02 '04
Growth in Federal DebtSources: Treasury, Economy.com
Long-Term Rates are Set to Rise...
Slide 21© 2004 Economy.com
10
20
30
40
50
'90 '92 '94 '96 '98 '00 '02 '04
Share of Treasury DebtOwned by ForeignersSources: FRB, Economy.com
...Particularly if Foreign Investors Become Skittish
Slide 22© 2004 Economy.com
Boston
San Francisco
San Jose
Orange CountySan Diego
Las Vegas
MiamiFt. Lauderdale
Sarasota
Washington DC
Monmouth
Bergen-PassaicNassau
Newark
Highly Overpriced > 2 SD from historic average
Overpriced> 1 SD from historic average
Higher Rates Pose a Threat to the Housing Market
Tampa
Middlesex
Naples
Sacramento
Source: Economy.com
West Palm Beach
Lansing
Riverside
New York
Oakland
Los Angeles
Modesto
Santa Rosa
Santa Barbara
Vallejo
Phoenix
Stockton
TrentonVentura
Based on the aggregate CSW house price index
Slide 23© 2004 Economy.com
Weighty Household Financial Obligations
22
23
24
25
26
27
28
29
30
31
32
33
'80 '85 '90 '95 '00
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5Financial obligation ratioSource: Federal Reserve
Homeowners (R)
Renters (L)
Slide 24© 2004 Economy.com
Darkening Federal Fiscal Outlook
0
1
2
3
4
5
Current Law Permanent Tax Cuts AMT Adjustment
Trillions $
Share of GDP
10-Year Cumulative Budget Deficit, FY '05-14Source: Congressional Budget Office
Slide 25© 2004 Economy.com
Outlook Summary
• The economy is much improved. Demand and output are expanding and profits have never been stronger.
• The recovery has been disappointing. The job market continues to lag as do real incomes and net worth.
• Growth has slowed recently due to fading policy stimulus and higher energy prices.
• The expansion will remain in tact as strong productivity and profit gains induce business to invest and hire.
• The global economy is stronger and combined with a softer dollar should support U.S. growth.
• The expansion will struggle with fierce global competition and higher interest rates. Higher rates will be particularly hard on the vehicle and housing markets.
• High household leverage and ballooning federal budget and current account deficits are longer-term threats.