BRI End-User Training - Citizens Bank...After an investment ‘strike’ – potential for boom...
Transcript of BRI End-User Training - Citizens Bank...After an investment ‘strike’ – potential for boom...
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““Happy LandingHappy Landing””
Not Your Typical SlowdownNot Your Typical Slowdown
Andrew Wilson, Deputy Chief Economist,Andrew Wilson, Deputy Chief Economist,Robert Gardner, Senior Economist, Robert Gardner, Senior Economist,
RBS GroupRBS Group
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Best 3 years in a generation Best 3 years in a generation for global growthfor global growth…………..
World GDP Growth 1975-2006 (Best 3 year average)
0
1
2
3
4
5
6
79/81 89/91 92/94 01/03 98/00 83/85 73/75 95/97 86/88 76/78 04/06
Aver
age
% g
row
th p
er y
ear
Source: IMF
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Driven by the liquidity Driven by the liquidity ………….... (hokey pokey?).... (hokey pokey?)
G7 Average interest rates
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006
G7 weighted average US
10 Year average
5 Year average
%
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Which super hero tells us Which super hero tells us the good times wonthe good times won’’t end?t end?
World GDP growth (%)
0.01.02.03.04.05.06.07.08.0
1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006Source: IMF
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The torch must be passedThe torch must be passed………….to a new generation.to a new generation
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Soft landing on two wheels?Soft landing on two wheels?
US Real GDP Growth (%)
-2-1012345678
Q1
00
Q3
00
Q1
01
Q3
01
Q1
02
Q3
02
Q1
03
Q3
03
Q1
04
Q3
04
Q1
05
Q3
05
Q1
06
Q3
06
QOQAYOY
Long-Term Trend
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YouYou’’ve shopped ve shopped …………. but not yet dropped. but not yet dropped
Household Spending/GDP (%)
66
67
68
69
70
71
Q1
95
Q1
96
Q1
97
Q1
98
Q1
99
Q1
00
Q1
01
Q1
02
Q1
03
Q1
04
Q1
05
Q1
06
Extra $3,700 spending a year per
household!
Long Run
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YouYou’’ve borrowed like thereve borrowed like there’’s no tomorrow.....s no tomorrow.....
-3
2
7
12
17
22
27
1929
1944
1959
1974
1989
2005
-5
5
15
25
35
45
55
Household Savings Rate (LHS)
Real Net Wealth US$Bn (RHS)
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But the asset boom that But the asset boom that made it possible is ending?made it possible is ending?
US House Price Growth (%)
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
20.0
2000 2001 2002 2003 2004 2005 2006
QOQA YOY
Source: OFHEO
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Transition 2: Business pulling more weightTransition 2: Business pulling more weight
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Capacity is tight = need to investCapacity is tight = need to invest
Source: Datastream
Capacity Utilisation Rate (%)
73
74
75
76
77
78
79
80
81
82
83
2000
2001
2002
2003
2004
2005
2006
Hurricanes
Long Term Average
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Profits high = incentive to investProfits high = incentive to invest
Profit Share of National Income (%)
6
7
8
9
10
11
12
13
14
15
Q1
60
Q3
62
Q1
65
Q3
67
Q1
70
Q3
72
Q1
75
Q3
77
Q1
80
Q3
82
Q1
85
Q3
87
Q1
90
Q3
92
Q1
95
Q3
97
Q1
00
Q3
02
Q1
05
Long Run Average
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Money is cheap = means to invest Money is cheap = means to invest
US Yield Curve (%)
4.25
4.50
4.75
5.00
5.25
5.50
FedFunds
12M 2Y 3Y 5Y 10Y 30Y
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After an investment After an investment ‘‘strikestrike’’–– potential for boompotential for boom
Investment Spending (YOY %)
-25
-20
-15
-10
-5
0
5
10
15
Q2
00
Q4
00
Q2
01
Q4
01
Q2
02
Q4
02
Q2
03
Q4
03
Q2
04
Q4
04
Q2
05
Q4
05
Q2
06
Non-Residential Structures
Equiptment & Software
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Transition 3: Consumers wonTransition 3: Consumers won’’t disappear t disappear
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Workers share at all time lowWorkers share at all time low
Wage & Salaries/National Income (%)
5051525354555657585960
Q1
60
Q3
64
Q1
69
Q3
73
Q1
78
Q3
82
Q1
87
Q3
91
Q1
96
Q3
00
Q1
05
Long Run Average
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Labour market very tight so Labour market very tight so incomes are risingincomes are rising
1.0
2.0
3.0
4.0
5.0
6.0
Jan-
02
Jun-
02
Nov
-02
Apr-0
3
Sep-
03
Feb-
04
Jul-0
4
Dec
-04
May
-05
Oct
-05
Mar
-06
Aug-
06
Unemployment Rate
Wage Growth YOY
%
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Less at the pump = more in the pocketLess at the pump = more in the pocket
Source: Datastream
Regular Gasoline Prices ($/Gallon)
1.00
1.50
2.00
2.50
3.00
3.50
2003 2004 2005 2006
Hurricanes
Source: Energy Information Administartion
-25%
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So what do the transitions mean So what do the transitions mean for interest rates?for interest rates?
Inflation (%)
0.0
1.0
2.0
3.0
4.0
5.0
Sep-
01
Feb-
02
Jul-0
2
Dec
-02
May
-03
Oct
-03
Mar
-04
Aug-
04
Jan-
05
Jun-
05
Nov
-05
Apr-0
6
Sep-
06
Fed's Inflation "Comfort Zone"Core CPI
CPI
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This far and no further?This far and no further?
Fed Funds Rate (%)
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
1990
1991
1992
1994
1995
1996
1997
1999
2000
2001
2002
2004
2005
%
Neutral Range
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Conclusion: Not your typical slowdown
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What can you buy for one US worker?What can you buy for one US worker?
40
34
20
9
8
1.3
1
0 5 10 15 20 25 30 35 40 45
India
China
Turkey
Mexico
Poland
United Kingdom
United States
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Workers to match 1 AmericanWorkers to match 1 American’’s output?s output?
8
7
6
9
6
2
1
0 5 10 15 20 25 30 35 40 45
India
China
Turkey
Mexico
Poland
United Kingdom
United States
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The real competitiveness gap The real competitiveness gap ainain’’tt as scaryas scary
5
5
3
1
1
1
1
0 5 10 15 20 25 30 35 40 45
India
China
Turkey
Mexico
Poland
United Kingdom
United States
Output per unit of Labour cost
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You work harder than all You work harder than all your main competitorsyour main competitors
-2 -2 -3 -5 -5
-19 -21 -22-25 -25
-30 -32 -34
-44 -44-48
-54-60
-50
-40
-30
-20
-10
0
Japa
nSpa
inCan
ada
Austra
liaNew
Zealan
dIre
land
United
Kingdo
mBelg
iumIta
ly
Sweden
Denmark
Switzerl
and
Austria
German
yFran
ceNeth
erlan
dsNorw
ay
Dolly Parton Days workedless than US average
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Wealthier, harder workingWealthier, harder working…………..and happy!..and happy!
RICHER
HAPPIER
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The declared goal of your The declared goal of your IndependenceIndependence…………..
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of happiness”
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Access our reports onlineAccess our reports online
Citizensbank.comwww.citizensbank.com/cs/economic_reports.aspx
Rbs.comwww.rbs.com/economics
Contact [email protected]
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A word from our lawyersA word from our lawyers
This material has been prepared for general information purposes only. Nothing in this material should be construed as providing specific legal, tax or investment advice. This material is distributed on the express understanding that, whilst the information in it is believed to be accurate and reliable, it has not been independently verified by us. We make no representation or warranty (express or implied) of any kind, nor do we accept any responsibility or liability of any kind, with respect to the accuracy or completeness of the information contained in this material. This material has been produced solely for the recipient’s use and should not be reproduced or disclosed to any other person without our consent. Any views, opinions, forecasts, valuations or estimates contained in this material are solely those of Royal Bank of Scotland plc (“RBS”) as at the date of our publication of this material and are subject to change without notice. Each recipient of this material should make his own independent valuation of the relevance and adequacy of the information contained in this material and make such other investigations as he deems necessary, including obtaining independent financial advice, before they take any action based in the information contained in this material. Past performance is not necessarily indicative of future results. RBS accepts no obligation to provide advice or recommendations of any sort and accepts no fiduciary duties to the recipient in relation to any information contained in this material. We do not undertake to update this material. This material is issued by RBS which is authorised and regulated by the Financial Services A u t h o r i t y i n a c c o r d a n c e w i t h t h e r e g u l a t o r y r e g i m e a p p l y i n g t o t h e U K .