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The U.S. Economy: “The Recovery is Underway, But
It Will be Slow”
Eugenio J. Aleman, Director and Senior Economist
August 14, 2012
Real GDP Growth
Real GDP
Bars = Compound Annual Rate
Line = Yr/Yr % Change
10%
U.S. real GDP growth recovered
somewhat, but remains weak
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
Real GDP: Q2 @ 1.5%
-8%
Real GDP: Q2 @ 2.2%
-10%
-10%
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
2
U.S. Nonfarm Employment
Nonfarm Employment Change
Change in Employment, In Thousands
Employment turned the corner
in October of 2010, but it is still
weak
600
600
400
400
200
200
0
0
-200
-200
-400
-400
-600
-600
-800
-800
Monthly Change: Jul @ 163.0 Thousand
-1,000
-1,000
00
01
02
03
04
05
06
07
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
3
08
09
10
11
12
U.S. Employment By Industry
U.S. Employment by Industry
Year-over-Year Percent Change of 3-M Moving Average
Total Nonfarm
Trade, Trans. & Utilities
Government
Educ. & Health Svcs.
While employment growth has
been fairly broad based, the
government sector has
continued to struggle
Prof. & Bus. Svcs.
More
Leisure & Hospitality
Manufacturing
Number of
Employees
Financial Activities
Construction
Less
Other Services
Information
-3%
July 2012
-2%
-1%
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
4
0%
1%
2%
3%
4%
Unemployment Rate
Unemployment Rate
Seasonally Adjusted
Not as high as during the 1980s
recession, but more damaging
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
Unemployment Rate: Jul @ 8.3%
2%
2%
60
65
70
75
80
85
90
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
5
95
00
05
10
The Employment Situation
Labor Force Participation Rate
16 Years and Over, Seasonally Adjusted
The reason for the decline in the
unemployment rate is tied to the
drop-off in the labor force
participation rate, not the
creation of jobs
68%
68%
67%
67%
66%
66%
65%
65%
64%
64%
Labor Force Participation Rate: Jul @ 63.7%
63%
63%
90
92
94
96
98
00
02
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
6
04
06
08
10
12
Mean Duration of Unemployment
Mean Duration Unemployment
Average Weeks Unemployed
44
44
Average Duration of Unemployment: Jul @ 38.8
Duration of unemployment
shows a struggling labor market
40
40
36
36
32
32
28
28
24
24
20
20
16
16
12
12
8
8
80
82
84
86
88
90
92
94
96
98
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
7
00
02
04
06
08
10
12
Unemployment by Education Level
Unemployment Rate by Education Level
July 2012
14%
College graduates have the edge
even in the worst recession since
the depression
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
No High School
Diploma
High School
Diploma
Some College
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
8
College Degree
Consumer Price Index
U.S. Consumer Price Index
Both Series are 3-Month Moving Averages
Consumer prices are increasing
once again
9%
9%
6%
6%
3%
3%
0%
0%
-3%
-3%
-6%
-6%
-9%
-9%
CPI 3-Month Annual Rate: Jun @ 0.8%
CPI Year-over-Year: Jun @ 1.9%
-12%
-12%
92
94
96
98
00
02
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
9
04
06
08
10
12
Producer Price Index
Finished Goods Producer Price Index
Year-over-Year Percent Change
10%
As well as producer prices
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
Finished Goods PPI: Jun @ 0.7%
"Core" Finished Goods PPI: Jun @ 2.6%
-8%
-8%
00
02
04
06
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
10
08
10
12
The U.S. Economy
On this side of the wall:
Inflation & stagnation =
stagflation
On this side of the wall:
1930’s depression/
Japan-like depression
The Humpty-Dumpty Economy
The U.S. Economy sat on a wall,
The U.S. Economy had a great fall.
All the king's Treasury-men,
And all the king's Federal Reserve-men,
Couldn't put The U.S. Economy together again.
Economics
11
Helicopter Ben to the Rescue
The Helicopter Effect!
Economics
12
Federal Reserve Target Rate
U.S. Federal Reserve Target Rate
7.00%
7.00%
US Federal Reserve: Aug @ 0.25%
Monetary policy remains
extremely expansive
6.00%
6.00%
5.00%
5.00%
4.00%
4.00%
3.00%
3.00%
2.00%
2.00%
1.00%
1.00%
0.00%
2000
0.00%
2002
2004
2006
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
13
2008
2010
2012
Federal Reserve Balance Sheet
Federal Reserve Balance Sheet
Trillions
$3.5
$3.5
Other: Aug @ $208.4B
Foreign Swaps: Aug @ $31.0B
$3.0
PDCF & TAF
$3.0
Commercial Paper & Money Market
Repos & Dis. Window: Aug @ $0.2B
$2.5
A Monetary Tsunami?
Agencies & MBS: Aug @ $944.5B
$2.5
Treasuries: Aug @ $1,649.4B
$2.0
$2.0
$1.5
$1.5
$1.0
$1.0
$0.5
$0.5
$0.0
2007
$0.0
2008
2009
2010
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
14
2011
2012
The Housing Market
Economics
15
Your House As Seen By:
You…
Economics
16
Your House As Seen By:
Your Buyer…
Economics
17
Your House As Seen By:
Your Lender…
Economics
18
Your House As Seen By:
Your Appraiser…
Economics
19
Your House As Seen By:
And…
Your County’s Tax Assessor…
Economics
20
New Home Sales
New Home Sales
Seasonally Adjusted Annual Rate, In Thousands
1,500
New home sales are very
depressed
1,500
1,300
1,300
1,100
1,100
900
900
700
700
500
500
300
300
New Home Sales: Jun @ 350,000
3-Month Moving Average: Jun @ 363,333
100
100
89
91
93
95
97
99
01
03
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
21
05
07
09
11
Housing Starts
Housing Starts
Seasonally Adjusted Annual Rate, In Millions
As well as housing starts
2.4
2.4
2.0
2.0
1.6
1.6
1.2
1.2
0.8
0.8
0.4
0.4
Housing Starts: Jun @ 760K
0.0
0.0
87
89
91
93
95
97
99
01
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
22
03
05
07
09
11
Existing Home Sales
Existing Single-Family Home Resales
Seasonally Adjusted Annual Rate - In Millions
Existing home sales are
strengthening
7.0
7.0
6.0
6.0
5.0
5.0
4.0
4.0
3.0
3.0
Existing Home Sales: Jun @ 3.9 Million
2.0
2.0
86
88
90
92
94
96
98
00
02
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
23
04
06
08
10
12
Home Prices
Home Prices
Year-over-Year Percentage Change
Home prices have remained
weak, but there are signs of
improvement
24%
24%
20%
20%
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
-8%
-8%
-12%
-12%
Median Sale Price: Jun @ $190,100
-16%
-16%
Median Sale Price, 3-M Mov Avg: Jun @ 7.3%
FHFA Purchase Only Index: May @ 3.7%
-20%
-20%
S&P Case-Shiller Composite-10: May @ -1.0%
-24%
-24%
97
99
01
03
05
07
09
Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities, LLC
Economics
24
11
Home Mortgages
Home Mortgages
Year-over-Year Percent Change
Home mortgages have been
declining for the past three years
18%
18%
16%
16%
14%
14%
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
Year-over-Year Percent Change: Q1 @ -2.5%
-4%
-4%
80
82
84
86
88
90
92
94
96
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
25
98
00
02
04
06
08
10
12
Negative Equity
Negative Equity Mortgages - By State
Percent of Mortgages Outstanding
Oregon
18.7%
Washington
19.1%
Utah
20.9%
Colorado
21.0%
New Hampshire
21.1%
Illinois
O…M…G…?
As of Q4 2011
21.7%
Rhode Island
22.8%
Virginia
23.0%
Ohio
23.9%
Maryland
24.3%
Idaho
25.0%
California
29.9%
Georgia
33.0%
Michigan
34.7%
Florida
44.2%
Arizona
48.3%
Nevada
61.1%
US
22.8%
0%
10%
20%
Source: FHFA and Wells Fargo Securities, LLC
Economics
26
30%
40%
50%
60%
70%
ISM Manufacturing Index
ISM Manufacturing Composite Index
Diffusion Index
Manufacturing has expanded for
almost two years
65
65
60
60
55
55
50
50
45
45
40
40
35
35
ISM Manufacturing Index: Jul @ 49.8
12-Month Moving Average: Jul @ 52.5
30
30
87
89
91
93
95
97
99
01
03
Source: Institute for Supply Management and Wells Fargo Securities, LLC
Economics
27
05
07
09
11
U.S. Manufacturing
Manufacturing Output and Employment
Employment in Millions; Output 2007= 100
120
120
Manufacturing Employment: May @ 12.0 M (Left Axis)
Manufacturing Output: May @ 94.3 (Right Axis)
100
A Myth…Obliterated!
100
80
80
60
60
40
40
20
20
0
0
40
45
50
55
60
65
70
75
80
85
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
28
90
95
00
05
10
ISM Non-Manufacturing Index
ISM Non-Manufacturing
Composite Index
65
The service sector is also in
expansion mode
65
60
60
55
55
50
50
45
45
40
40
ISM Non-Manufacturing Index SA: Jul @ 52.6
35
35
98
99
00
01
02
03
04
05
06
07
Source: Institute for Supply Management and Wells Fargo Securities, LLC
Economics
29
08
09
10
11
12
Consumer Credit
Revolving & Nonrevolving Debt
Month-over-Month Change, 3-M Mov. Avg., Billions of Dollars
$18
$18
Revolving: Jun @ -$0.4 Billion
$15
$15
Nonrevolving: Jun @ $10.9 Billion
$12
Credit card lending is nonexistent
$12
$9
$9
$6
$6
$3
$3
$0
$0
-$3
-$3
-$6
-$6
-$9
-$9
-$12
2007
-$12
2008
2009
2010
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
30
2011
2012
Household Debt
Household Debt - Consumer & Mortgage
As a Percent of Disposable Personal Income
Households are deleveraging
fast…but not fast enough!
130%
130%
120%
120%
110%
110%
100%
100%
90%
90%
80%
80%
70%
70%
60%
60%
50%
50%
Household Debt: Q1 @ 103.9%
40%
40%
60
65
70
75
80
85
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Economics
31
90
95
00
05
10
Consumer Confidence
Consumer Confidence Index
Conference Board
Consumer confidence is still
very weak for a strong recovery
160
160
140
140
120
120
100
100
80
80
60
60
Confidence Yr/Yr % Chg: Jul @ 11.3%
Confidence: Jul @ 65.9
12-Month Moving Average: Jul @ 59.7
40
40
20
20
87
89
91
93
95
97
99
01
Source: The Conference Board and Wells Fargo Securities, LLC
Economics
32
03
05
07
09
11
Personal Saving Rate
Personal Saving Rate
Disp. Personal Income Less Spending as a % of Disp. Income
The best news is that the saving
rate continues to increase
15%
15%
12%
12%
9%
9%
6%
6%
3%
3%
Personal Saving Rate: Jun @ 4.4%
Personal Saving Rate, 12-Month M.A.: Jun @ 3.7%
0%
0%
60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
33
Mortgage and Treasury Rates
Conventional Mortgage Rate vs. 10-Year Treasury Yield
Percent
Mortgage interest rates have
plummeted again…but who is
buying?
7.0%
7.0%
6.0%
6.0%
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
Conventional 30-Year Fixed Mortg. Rate: Jun @ 3.66%
10-Year Yield: Jun @ 1.64%
1.0%
2004
1.0%
2005
2006
2007
2008
2009
2010
Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLC
Economics
34
2011
2012
Global Forecast
Wells Fargo International Economic Forecast
(Year-over-Year Percent C hange)
GDP
2011
Global (PPP weights)
Global (Market Exchange Rates)
Growth will remain positive but
weak
2013
2011
2012
2013
3.9%
2.8%
2.9%
1.7%
3.2%
1.9%
4.4%
n/a
4.1%
n/a
4.0%
n/a
Advanced Economies 1
United States
Eurozone
United Kingdom
Japan
Korea
Canada
1.6%
1.8%
1.5%
0.8%
-0.7%
3.6%
2.4%
1.4%
2.1%
-0.3%
-0.4%
2.7%
2.5%
2.0%
1.5%
1.5%
1.0%
1.4%
1.3%
3.1%
2.2%
2.5%
3.1%
2.7%
4.5%
-0.3%
4.0%
2.9%
1.9%
1.9%
2.3%
2.4%
0.1%
2.3%
1.6%
1.7%
2.0%
1.7%
1.8%
0.2%
3.3%
1.8%
Developing Economies 1
China
India
Mexico
Brazil
Russia
6.2%
9.3%
6.5%
4.0%
2.7%
4.3%
4.7%
7.8%
6.1%
4.4%
1.1%
3.6%
5.2%
8.2%
6.7%
4.3%
2.9%
3.2%
6.5%
5.4%
8.9%
3.4%
6.6%
8.5%
6.8%
2.8%
9.3%
4.3%
5.2%
5.3%
6.8%
2.9%
8.3%
4.3%
4.9%
6.7%
Forecast as of: August 08, 2012
1
Aggregated Using PPP Weights
Source: Wells Fargo Securities, LLC
Economics
2012
CPI
35
The Texas Economy
Texas – Employment Growth & Unemployment Rate
Employment growth in Texas continues to outpace the nation, as strong growth in the service
sectors outweighs the drag by the government sector.
Employment by Industry
Employment
Texas Employment Growth by Industry
Texas Nonfarm Employment
Year-over-Year Percent Change of 3-Month Moving Average
3-Month Moving Averages
6%
6%
4%
4%
2%
2%
Total Nonfarm
Trade, Trans. & Utilities
Government
Educ. & Health Svcs.
More
0%
Prof. & Bus. Svcs.
0%
Leisure and Hospitality
-2%
-2%
-4%
-4%
Number of
Employees
Manufacturing
Financial Activities
Less
Construction
3-Month Annual Rate: Jun @ 1.6%
-6%
-6%
Year-over-Year Percent Change: Jun @ 2.1%
Other Services
Household: Year/Year Percent Change: Jun @ 2.6%
Information
-8%
June 2012
-8%
90
92
94
96
98
00
02
04
06
08
10
12
-6%
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
37
-3%
0%
3%
6%
Texas – Personal Income Situation
Personal income growth continues to show strength. In addition, Texas has seen consistent
growth in wages and salaries.
Personal Income
Composition of Income Growth
Texas Personal Income
Bars = Compound Annual Rate
Texas: Wages & Salaries vs. Transfer Payments
In Billions, Seasonally Adjusted Annual Rate
Line = Yr/Yr % Change
20%
20%
$800
$800
15%
15%
$700
$700
10%
10%
$600
$600
5%
5%
$500
$500
0%
0%
$400
$400
-5%
-5%
$300
$300
-10%
$200
$200
-15%
$100
-20%
$0
-10%
-15%
Texas Personal Income: Q1 @ 3.0%
-20%
Wages and Salaries: Q1 @ $550.4 Billion
96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
$0
00
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
$100
Transfer Payments: Q1 @ $161.4 Billion
Texas Personal Income: Q1 @ 3.8%
38
01
02
03
04
05
06
07
08
09
10
11
12
Texas – Home Prices and Construction
Home prices in Texas have remained relatively stable. Construction activity is being led by a
surge in the multifamily sector.
Home Prices
Housing Permits
Texas Housing Permits
CoreLogic Home Price Index: TX vs. US
Index, 2000=100, Not Seasonally Adjusted
Thousands of Permits, Seasonally Adjusted Annual Rate
200
250
200
250
Single-Family: Jun @ 82,968
Single-Family, 12-Month Moving Avg.: Jun @ 70,096
Texas: Jun @ 135.8
United States: Jun @ 142.1
180
180
Multi-Family, 12-Month Moving Avg.: Jun @ 39,882
200
160
160
140
140
120
120
100
100
200
TX Single-Family Average (1998 to 2003): 100,689
150
150
100
100
50
80
50
80
60
0
60
90
92
94
96
98
00
02
04
06
08
10
Source: CoreLogic, U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics
0
90
12
39
92
94
96
98
00
02
04
06
08
10
12
Wells Fargo Securities, LLC Economics Group
Global Head of Research and Economics
Economists
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
Azhar Iqbal, Econometrician………………………………[email protected]
……
Tim Quinlan, Economist …………………………………[email protected]
Chief Economist
Michael A. Brown, Economist ………………… [email protected]
John Silvia
…
...................... …
[email protected]
.
Senior Economists
Mark Vitner, Senior Economist……………....………. .
Jay Bryson, Global Economist
Anika Khan, Senior Economist
.
[email protected]
Sarah Watt, Economic Analyst ……………………………[email protected]
…………………....………[email protected]
Eugenio Aleman, Senior Economist
Sam Bullard, Senior Economist
Economic Analysts
Kaylyn Swankoski, Economic Analyst
……………[email protected]
Administrative Assistants
…………………………[email protected]
.…
[email protected]
Peg Gavin, Executive Assistant.
. [email protected]
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[email protected]
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Economics
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