Post on 23-Jan-2016
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The Economic Outlook
Alistair BentleyEconomist
October 2011
TWO SPEED GLOBAL GROWTHTWO SPEED GLOBAL GROWTH
30
35
40
45
50
55
60
65
70
1987 1991 1995 1999 2003 2007 2011 2015 2019 2023 2027
Share of Global Economy (%)
Forecast by TD Economics as at June 2011 Source: IMF, TD Economics
Advanced Economies
Emerging Markets
GLOBAL FINANCIAL RISK ELEVATEDGLOBAL FINANCIAL RISK ELEVATED
0
50
100
150
200
250
300
350
2005 2006 2007 2009 2010
Dow Jones Global Stock Price Index (Dec. 91 = 100)
Source: Wall Street Journal
EUROPE IN FISCAL CRISISEUROPE IN FISCAL CRISIS
0
300
600
900
1,200
1,500
1,800
2,100
Jan-10 Mar-10 Jun-10 Sep-10 Dec-10 Feb-11 May-11 Aug-11
Portugal Ireland
Spain Italy
Greece
10-Year National Bond Yields Less 10-Year German Bunds
Source: Bloomberg, TD Economics
EMERGING MARKETS COOLING BUT REMAIN STRONGEMERGING MARKETS COOLING BUT REMAIN STRONG
0
2
4
6
8
10
12
Advanced Brazil India China
2010 2011 F 2012 F
Forecast by TD Economics as at September 2011Source: IMF, National Statistics Agencies, TD Economics
Real GDP, Annual Avg. % Chg.
A U.S. RECESSION UNLIKE ANY IN RECENT MEMORYA U.S. RECESSION UNLIKE ANY IN RECENT MEMORY
0
1
2
3
4
5
6
7
8
9
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5
U.S. recessions & recoveries in real GDP
Rea
l GD
P g
row
th 4
-qua
rter
s po
st-t
roug
h (%
)
Peak-to-trough decline in real GDP (%)
Source: Bureau of Economic Analysis, TD Economics
1970
1960-61
1980
1990-91
1981-82
1974-75
1957-58
1953
2001
2008-09
A BALANCE SHEET RECESSION & RECOVERYA BALANCE SHEET RECESSION & RECOVERY
300
350
400
450
500
550
600
650
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
0
2
4
6
8
10
12
14
Net worth (lhs)
Personal saving rate (rhs)
*Disposable personal incomeSource: Federal Reserve, Bureau of Economic Analysis
Personal saving rate, % DPI* Net worth, % DPI*
LOTS OF PENT UP DEMANDLOTS OF PENT UP DEMAND
30
40
50
60
70
80
90
100
110
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
U.S. light vehicle sales per 1,000 persons 16 years of age or older
30% below
average
Source: Bureau of Economic Analysis, TD Economics
RECOVERY STILL VERY FRAGILERECOVERY STILL VERY FRAGILE
-10
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011F 2012F
Forecast by TD Economics as at August 2011Source: Bureau of Economic Analysis
Real GDP, annualized quarter/quarter % change
Recession
Forecast Y/Y % Chg.(Q4/Q4 % growth)
2011F 1.5% (1.0%)2012F 1.7% (2.2%)
Forecast
JOB GROWTH IS KEY…JOB GROWTH IS KEY…
-10
-5
0
5
10
15
1980 1985 1990 1995 2000 2005 2010
Hours Worked
Labor Productivity
Output
*Real output per hour worked, non-farm business sector. Source: Bureau of Labor Statistics
Output, hours worked, & productivity; year-over-year % change
…BUT RUNNING UP AGAINST STRUCTURAL ISSUES…BUT RUNNING UP AGAINST STRUCTURAL ISSUES
0
5
10
15
20
25
30
35
40
45
1995 1997 1999 2001 2003 2005 2007 2009 2011
Average Duration of Unemployment
Median Duration of Unemployment
Median and average duration of unemployment; weeks
Source: Bureau of Labor Statistics
ITS BEEN A TOUGH RIDE FOR SOUTH ATLANTIC JOB MARKETITS BEEN A TOUGH RIDE FOR SOUTH ATLANTIC JOB MARKET
88
90
92
94
96
98
100
102
104
07 08 09 10 11
FL
GA
SC
NC
VA
US
Non Farm Payrolls (Index, Jan 2007 = 100)
Source: Bureau of Labor Statistics
HOUSING MARKET REMAINS AMAJOR HEADWINDHOUSING MARKET REMAINS AMAJOR HEADWIND
0
500
1,000
1,500
2,000
2,500
3,000
1959 1963 1967 1972 1976 1980 1985 1989 1993 1998 2002 2006 2011
Housing Starts (000's)
Source: Commerce Department
Fundamentally Supported Housing Starts ~ 1.6 mln
PRICE EXCESSES ARE BEING UNWOUNDPRICE EXCESSES ARE BEING UNWOUND
80
90
100
110
120
130
140
150
160
1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Price to rent
Price to income
Price to rent and price to income ratio indexes (1994=100)
Source: National Association of Realtors, U.S. Census Bureau, Bureau of Labor Statistics
BUT THERE IS STILL TOO MUCH SUPPLYBUT THERE IS STILL TOO MUCH SUPPLY
90+ days delinquent
In foreclosure
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Seriously delinquent (000s of mortgages)
*Existing homes. Source: Mortgage Bankers Association, TD Economics
Inventory of homes for sale* = 3.6 millionHome sales* (May, SAAR) = 4.8 million
"Shadow inventory" = 3.5 million
DELINQUENCIES RATES ARE FALLINGDELINQUENCIES RATES ARE FALLING
0
1
2
3
4
5
6
1980 1985 1990 1995 2000 2005 2010
30 days past due
60 days past due
90 days past due
Mortgage delinquencies, percent of total loans
Source: Mortgage Banker's Association, Moody's Economy.com
MORE DELINQUENT MORTGAGES ARE BECOMING CURRENTMORE DELINQUENT MORTGAGES ARE BECOMING CURRENT
0
10
20
30
40
50
60
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Transitioning into Current
Transitioning into 90+ Delinquent
Percent of Mortgages Delinquent 30-60 Days
Source: Quarterly Report on Household Debt and Credit, FRBNY
MORTGAGE MODIFICATIONS OFTEN RE-DEFAULTMORTGAGE MODIFICATIONS OFTEN RE-DEFAULT
0
10
20
30
40
50
60
70
<=2 DQ 3-6 DQ 7-12 DQ >12 DQ
Principal Mod
Interest Rate Mod
Capitalization Mod
12-month re-default performance* (%) by delinquency status at modification
Source: Amherst Securities Group LP, CoreLogic. *data for 20-40% pay relief
FORECLOSURE COMPLETIONS RUNNING BEHIND STARTS FORECLOSURE COMPLETIONS RUNNING BEHIND STARTS
0
20
40
60
80
100
120
140
160
2005 2006 2007 2008 2009 2010 2011
Foreclosure starts
Foreclosure completions
Monthly foreclosure actions (thousands)*
*Non-agency loans. Source: Bloomberg, RealtyTrak, TD Economics
SO, FORECLOSURES REMAIN ELEVATEDSO, FORECLOSURES REMAIN ELEVATED
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
30 days 60 days 90+ days Foreclosure
Jan-08 Jan-09 Jan-10 Jan-11 Jul-11
Millions of mortgages
Source: Lender Processing Services
RENTAL MARKET ABSORBING HOUSING DEMANDRENTAL MARKET ABSORBING HOUSING DEMAND
0
40
80
120
1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009
60
62
64
66
68
70Homeownership Rate, %
Source: Census Bureau
Renters
Homeowners
Households, Mlns
SOUTH CAROLINA HOME PRICESSOUTH CAROLINA HOME PRICES
100
120
140
160
180
200
220
240
1990Q1 1993Q1 1996Q1 1999Q1 2002Q1 2005Q1 2008Q1 2011Q1
US
SC
FHFA Home Prices (Index 1990Q1 = 100)
Source: FHFA
U.S. POLITICAL DIVISION INJECTS MORE UNCERTAINTY INTO OUTLOOKU.S. POLITICAL DIVISION INJECTS MORE UNCERTAINTY INTO OUTLOOK
-3.0
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2009 2010 2011F 2012F 2013F
If $1.5T deal is not reached
Full expiration of Bush tax cuts
Partial expiration of Bush tax cuts
Fiscal stimulus/drag
Fiscal stimulus, percentage point impact on real GDP growth
Estimates by TD Economics
BIG CUTS AT STATE & LOCAL LEVELBIG CUTS AT STATE & LOCAL LEVEL
10
11
12
13
14
15
16
1956 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011
State & local government spending; percent of real GDP
Source: Bureau of Economic Analysis, TD Economics
MAJOR LONG-RUN FISCAL CHALLENGESMAJOR LONG-RUN FISCAL CHALLENGES
-12
-10
-8
-6
-4
-2
0
2
4
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Congressional Budget Office/Haver Analytics
U.S. Federal Surlpus/Deficit (-) as a % of GDP
Forecast
THE FED’S DUAL MANDATE: LOW INFLATION VS FULL EMPLOYMENTTHE FED’S DUAL MANDATE: LOW INFLATION VS FULL EMPLOYMENT
-4
-2
0
2
4
6
8
10
12
2000 2002 2004 2006 2008 2010
Unemployment Rate
Headline CPI (Y/Y)
Core CPI (Y/Y)
%
Source: Bureau of Labor Statistics
SIZE AND MAKE UP OF FED’S BALANCE SHEETSIZE AND MAKE UP OF FED’S BALANCE SHEET
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2007 2008 2009 2010 2011
Liquidity Programs & OtherTreasury securitiesAgency securitiesMortgage backed securitiesTotal
Federal Reserve Securities Held Outright, $U.S. (billions)
Source: Federal Reserve Board
FEDERAL RESERVE ON HOLD UNTIL MID-2013, LONG-TERM YIELDS TO REMAIN LOWFEDERAL RESERVE ON HOLD UNTIL MID-2013, LONG-TERM YIELDS TO REMAIN LOW
0
2
4
6
8
10
12
14
16
18
1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
3-mth T-Bill 30-Year Bond
U.S. Bond Yields, %
Forecast
Forecast by TD Economics as at August 2011Source: Federal Reserve, TD Economics
FINAL THOUGHTSFINAL THOUGHTS
U.S. economy likely to struggle to break through to capacity absorbing growth.
Headwinds to economic growth include: housing, credit, structural unemployment, and government restraint.
As the headwinds ebb and flow, it will create volatility in economic performance.
The financial implications are continued low interest rates for the foreseeable future, and a relatively weak U.S. dollar.
TD Economics
www.td.com/economics
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