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The State of the U.S. economy
Florence Pisani
December 6, 2013
The contrast with the euro area is striking:
in the US, the recovery did not stopped in mid-2011…
GDP
Cumulative fiscal tightening since 2010
(2007 = 100)
5
108
(% of region’s potential GDP)
United States
United States
106
4
104
3
Euro area
8% gap
102
2
100
1
98
0
Euro area
-1
96
07
2
08
09
10
Sources: Thomson Datastream, IMF, Dexia-AM
11
12
13
2010
2011
2012
2013
… as the government has adjusted the pace of fiscal
consolidation to the private sector spending behavior
Financial surplus (+) or deficit (-)
(2 quarters moving average, % of GDP)
8
Business sector
6
4
Financial surplus (+) or deficit (-) by sector
2
(% of GDP)
0
10
-2
Private sector
-4
5
-6
0
Rest of the
World (-)
-5
Households
00
02
04
06
08
10
12
Business sector’s
saving and investment
(% of GDP)
16
Saving
-10
Government
14
12
-15
80 83 86 89 92 95 98 01 04 07 10 13
10
Investment
8
3
Sources: Thomson Datastream, Dexia-AM
00
02
04
06
08
10
12
US private balance sheet’s healing process is almost over
4
Households have deleveraged and non financial corporations’
financial health is good
Household debt
(% of GDP)
100
90
80
70
Non financial corporations
interest paid / cash-flows
60
35
50
40
(%)
30
80 84 88 92 96 00
04 08 12
25
20
Household financial obligation ratio
(% of disposable income)
15
19.5
10
19
5
0
18
17
16
15
80
84 88
92 96
5
Sources: Thomson Datastream, Dexia-AM
00 04
08 12
55 60 65 70 75 80 85 90 95 00 05 10
Despite the recent rise in mortgage rates,
residential investment should continue to increase…
Share of young adults (18-31)
living with their parents
(%)
38
36
2.4
millions
adults
34
Stock of seriously
delinquent loans
Home sales
32
(millions of homes)
4.5
1600
30
4
28
3
90+ days
delinquent
2
Foreclosure
inventory
0
00
02
04
06
08
10
12
1968
1981
2007
600
3400
500
3000
New homes
400
2600
300
2200
200
1800
6
Sources: Thomson Datastream, Dexia-AM
Existing homes [R.H.S.]
86
90
94
98
02
06
10
Existing homes
[R.H.S.]
1200
2013
Inventory of homes
available for sale
100
82
6500
1400
(thousands)
1
(thousands, annual rate)
1400
6000
5500
1000
5000
800
4500
600
4000
400
200
00
3500
New homes
02
04
06
08
10
12
3000
… and home prices to recover (although at a more “reasonable” pace)
CS home prices by metropolitan area
(January 2000 = 100)
“Bubble” areas
300
250
Case Shiller home prices
by metropolitan area
Home prices
(Case Shiller, existing homes, % year on year)
(% year on year)
200
150
25
30
20
25
15
20
50
10
15
0
5
10
0
5
-5
0
-10
-5
-15
-10
-20
92 94 96 98 00 02 04 06 08 10 12
-15
100
Washington
New York
Phoenix
Las Vegas
Los Angeles
San Diego
San Francisco
Miami
Tampa
National trend
87 90 93 96 99 02 05 08 11
“No bubble” areas
300
Dec. 2012
Dec. 2011
Sep. 2013
250
Seattle
Boston
Chicago
Minneapolis
200
150
100
Charlotte
50
Portland
0
7
Sources: Thomson Datastream, Dexia-AM
87 90 93 96 99 02 05 08 11
National trend
Denver
Cleveland
Atlanta
Detroit
Less tightening… more growth!
9
From now on, fiscal policy should weigh less on growth
Budget balance of States
and Local entities
(% of GDP)
0.5
Fiscal restriction
0.0
(change in structural balance,
general government, % of GDP)
-0.5
3
2
Contribution to
GDP growth
0.4
0.2
-1.0
0.0
-1.5
-0.2
(%)
Lower deficit
Stable deficit
-2.0
restriction
1
-2.5
0
-3.0
80
-0.4
85
90
95
00
05
-0.6
10
07
09
11
13
-1
-2
Government employment
stimulation
(annual change, thousands)
400
-3
Local entities
States
Federal*
Total
300
-4
07
08
09
10
11
12
13
14
200
100
0
-100
-200
-300
-400
10
Sources: CBO, Thomson Datastream, Dexia-AM
07
08
09
10
11
12
13
(*) Corrected for the 2010 Census
Disposable income will cease being affected
by tax increases and help consumption grow faster
Private employment
400
(3mo3m change, monthly rate, thousands)
200
170
0
-200
-400
14
8
5
6
4
4
35.0
3
2
34.5
34.5
2
0
1
-2
34.0
Calculated wages
-4
Hours worked
-6
02
04
06
08
10
12
-8
14
-10
Hourly earnings
(% 3mo3m, annual rate)
5
06
07
08
09
10
11
Employment
-1
Hourly earnings
-2
12
13
14
4
3
2
2.0%
1
11 0
02
Sources: Thomson Datastream, Dexia-AM
04
06
08
10
12
14
0
Disposable
income
12
Taxes
10
Social benefits
less contribution
08
Income
on assets
06
2012
2013
2014
04
Average weekly hours worked
33.5
(contribution, %)
(% year on year)
Wages and
supplements
-800
02
Household disposable income
Contribution to private wages growth
-600
Wealth effects should push the saving rate lower,
but for this to happen, favorable financial conditions are necessary
Household borrowing
Household borrowing and saving rates
(% of disposable income)
14
7
14
12
6
12
10
5
10
8
4
8
6
3
6
4
2
4
1
2
0
0
-1
-2
-2
-4
Net borrowing rate -3
-6
2
?
0
-2
-4
-6
94
13
(% of disposable income)
Net financial
saving rate [R.H.S.]
97
Source: Thomson Datastream
00
03
06
09
12
Credit market borrowing
Other
Home mortgages
Consumer credit
94
97
00
03
06
09
12
After a slowdown in 2013,
growth should accelerate towards 2.5% in 2014
GDP growth
GDP growth in the United States
(%, year on year)
6
12 Q4
13 Q1
13 Q2
13 Q3
2009
2010
2011
2012
2013
2014
Consumption
1.7
2.3
1.8
1.5
-1.6
2.0
2.5
2.2
1.9
2.7
Investment
11.5
-1.4
7.7
4.0
-16.7
7.0
6.3
8.3
4.5
7.4
- Residential
19.8
12.5
14.2
14.6
-21.2
-2.5
0.5
12.9
14.1
13.5
-Equipment &
artistic originals
7.6
2.5
4.0
-1.4
-14.3
9.4
9.2
5.9
2.4
4.8
- Structures
17.5
-25.7
17.6
12.3
-18.9
-16.4
2.1
12.7
1.8
9.9
Inventory changes
(contribution)
-1.8
0.9
0.4
0.8
-0.8
1.4
-0.2
0.2
0.0
-0.1
Government
-6.5
-4.2
0.0
0.0
3.1
0.1
-3.2
-1.0
-2.0
-0.9
Q/Q annual rate (%)
External balance
(contribution)
2
0
-2
-4
-6
95 97 99 01 03 05 07 09 11 13
Unemployment rate
(%)
12
10
0.6
-0.3
-0.1
0.3
1.0
-0.5
0.1
0.1
0.1
-0.2
- Exports
1.1
-1.3
8.0
4.6
-9.1
11.5
7.1
3.5
2.6
6.1
- Imports
-3.1
0.6
6.9
1.8
-13.7
12.8
4.9
2.2
1.7
6.1
0.1
1.1
2.5
2.8
-2.8
2.5
1.8
2.8
1.7
2.6
GDP
4
8
6
4
2
95 97 99 01 03 05 07 09 11 13
16
Sources: Thomson Datastream, Dexia-AM
Some issues still unsolved
17
The return to a more “normal” labor market will take more time (I)
Employment rate
(%)
65
64
63
Unemployment rate
(%)
62
11
61
10
60
Employment to
59 population aged 16 & over
9
58
90
8
93
96
99
02
05
08
11
7
Involuntary part-time employment
6
(% of labor force)
5
7
4
3
90
6
93
96
99
02
05
08
11
5
4
3
2
18
Sources: Thomson Datastream, BLS, Dexia-AM
56
63
70
77
84
91
98
05
12
Polarization of job market creations has increased…
Change in employment
by earnings category and sector
(2008-10, millions)
1
Employment
by earnings category
0
(millions)
-1
47
-2
Higher
45
-3
Lower
43
-4
-5
41
-6
Lower
earnings
39
Medium
37
35
05
06
07
08
09
10
11
12
Medium
earnings
Higher
earnings
Manufacturing
Construction
Retail trade
Administrative and support and waste
management and remediation services
Educational services, health care and social assistance
Other net jobs losing sectors
Other net jobs creating sectors
20
Sources: Thomson Datastream, BLS, Dexia-AM
… inequalities have continued rising and poverty rates are elevated
55
Top 10% income share
in the United State
24
(%, including capital gains, 1917-2012)
22
Poverty rate (%)
Poverty thresholds in 2012 :
1 adult : 11 945 $
1 family with 2 children = 23 283$
20
50
18
45
16
14
40
12
35
10
59
30
69
79
89
99
09
1917 1927 1937 1947 1957 1967 1977 1987 1997 2007
Poverty rate by age (%)
Top 0.1% income share
30
(excluding capital gains, %, 1913-2012)
12
25
10
Under 18 years
United States
8
20
6
United
Kingdom
4
15
18-65 years
2
France
10
0
1913 1923 1933 1943 1953 1963 1973 1983 1993 2003
21
Source: Emmanuel Saez’s website at University of California, Berkeley, Census Bureau
> 65 years
5
68
73
78
83
88
93
98
03
08
The Budget debate is not over yet, but the ongoing political drama
is distracting attention from longer term fiscal issues
US federal Budget: CBO forecasts
(% of GDP)
Receipts and outlays
26
Outlays
24
+3%
22
Budget balance
Debt held by the public
4
20
120
2
18
100
0
16
-2
80
Receipts
14
80 84 88 92 96 00 04 08 12 16 20 24 28
-4
-6
40
-8
20
Outlays
-10
-12
60
14
80 84 88 92 96 00 04 08 12 16 20 24 28 12
10
Social Security + health
Discretionary
4
Other mandatory spending
3 Medicare
2
1
Net interest
0
80
Sources: CBO, Dexia-AM
Social Security
4
2
22
6
5
8
6
7
88
96
04 12
20 28
Medicaid &
exchange subsidies
0
80 88 96 04 12 20 28
0
80
88
96
04
12
20
28
36
Conclusions
□ Most of the fiscal restraint has now been absorbed by the US
economy: from now on, the pace of growth should pick up.
□ While a “grand fiscal bargain” seems out of reach, some
compromise should be found that would fix the current budget
issues (i.e. raise the debt ceiling and vote a budget for FY2014).
But the weakening of both the Tea Party and President Obama
is making the outcome more uncertain.
□ Should growth surprise on the upside, bond rates would be
under pressure, but monetary policy should still remain
accommodative.
23
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33