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ECONOMIC & CONSUMER CREDIT ANALY TICS
JULY 2010
U.S. Macroeconomic Outlook
Alternative Scenarios
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U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Table of Contents
THE U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS ARE WRITTEN BY EDWARD FRIEDMAN
1
Forecast Assumptions
3
Scenario 1 — Stronger Recovery in 2010
5
Scenario 2 — Mild Second Recession
7
Scenario 3 — Deeper Second Recession
9
Scenario 4 — Complete Collapse, Depression
11
Scenario 5 — Aborted Recovery, Below-Trend Long-Term Growth
13
Scenario 6 — Fiscal Crisis, Dollar Crashes, Inflation
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Baseline Forecast Assumptions
Forecast Assumptions
BY MARK ZANDI
Monetary policy
The Federal Reserve is not expected
to begin raising interest rates—either the
interest rate paid on reserves or the federal
funds rate—until spring 2011. The initial rate
hike will coincide with the point when the
unemployment rate has begun to move definitively lower. Employment has stabilized,
but job growth sufficient to bring down the
unemployment rate on a consistent basis is
unlikely until year’s end.
Inflation should also remain low and inflation expectations well-contained through
at least spring 2011. Core inflation is already
below the Fed’s implicit target range and
will slow further in coming months given
the nearly double-digit unemployment rate,
high vacancy rates, and low utilization rates
in manufacturing.
The Fed will effectively begin tightening
monetary policy well before raising interest rates, however. It recently ended its
purchases of mortgage securities, and the
TALF, which had supported asset-backed
securities markets, has also ended. Also, just
prior to raising interest rates, policymakers
will likely begin draining reserves through
reverse repurchase agreements, in which
the Fed effectively borrows from banks, and
term deposits.
Policymakers will then be prepared to
begin raising rates, hiking the interest rate
on reserves and the federal funds rate simultaneously. The interest rate on reserves
is likely to become the key target rate until
the central bank successfully drains excess
reserves. The funds rate is expected to end
2011 at 2% and to have normalized to just
over 4% by year-end 2012.
Fiscal policy
The federal government’s fiscal problems
remain enormous. The budget deficit ballooned to $1.4 trillion in fiscal 2009 and is
expected to be a similar size this year. The
cumulative deficit from fiscal 2009 to 2012
will be nearly $5 trillion.
This very poor fiscal situation reflects the
expected ultimate price tag of more than $2
trillion to taxpayers for the financial crisis
and Great Recession, equal to 14% of GDP.
For historical context, the savings and loan
crisis in the early 1990s cost taxpayers some
$350 billion in today’s dollars, equal to almost 6% of GDP at that time.
Of the over $2 trillion cost of the financial crisis and recession, $1.3 trillion is
the direct cost to the government of its
response to the financial crisis. This includes
the fiscal stimulus and what has been committed to support the financial system and
the auto and housing industries, less what
the government will eventually recoup in
future asset sales. The weaker economy and
resulting loss of tax revenues and increased
spending to support those losing their jobs
and other income support programs will
cost the Treasury an additional $700 billion.
The budget outlook remains extraordinarily disconcerting even after the costs of
the financial crisis abate, because the costs
of the Medicare, Medicaid and Social Security programs will balloon as the baby boomers retire. President Obama’s recent budget
proposal does not significantly address the
nation’s long-term fiscal problems.
U.S. dollar
The European debt crisis and the global
flight to quality are lifting the value of the
U.S. dollar. Although the euro has strengthened a bit over the past month, it is still near
$1.25, just slightly above its recent four-year
low. The British pound is also under significant pressure, at around $1.50.
The dollar is expected to strengthen further vis-à-vis the euro and pound through
most of the year. The European economy is
expected to slip back into a mild recession by
early next year as a result of the recent crisis
and the resulting fiscal restraint. The European Central Bank and Bank of England are
thus not expected to begin normalizing their
monetary policies until well into 2011. The
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
ECB is purchasing sovereign debt to help quell
the crisis, but is sterilizing those purchases; if
conditions do not stabilize soon, it will likely
increase them and may even decide not to
sterilize, allowing interest rates to fall further.
The dollar is expected to drift lower beginning about this time next year when the
euro and pound stabilize and the Chinese
allow their currency to appreciate more
quickly. The dollar is about 25% overvalued
against the yuan, and while the Chinese will
be slow to revalue, the economic logic for
doing so is increasingly compelling.
Energy prices
The price of a barrel of West Texas Intermediate crude oil has weakened to below
$75 in response to the European debt crisis
and the implications for global growth and
energy demand. This is despite the mounting disruptions to offshore drilling from the
ongoing BP oil spill. Over the past two years,
oil prices have ranged from well below $50
at the start of 2009, during the depths of
the recession, to a record of almost $150 in
the summer of 2008. Retail gasoline prices
have declined to $2.70 per gallon, compared
with an all-time high of close to $4.
Oil prices are not expected to slump
much further, as the global economic expansion should remain intact and global oil producers will manage supplies. For all of 2010,
oil will average $80 per barrel, and range as
high as $100 over the next several years; this
is consistent with trend global demand and
supply fundamentals, abstracting from the
world business cycle.
The likelihood for even higher oil prices
is low given current significant global excess
productive capacity for oil, particularly in
Saudi Arabia. This supply is likely to come
online if oil prices rise too high, too fast.
Natural gas will have trouble keeping up
with oil prices over the next several years as
a very substantial glut of gas has developed.
Prices will average $6 per million BTU in
2010, and closer to $9 over the longer term.
1
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Baseline Forecast Summary
U.S. MACRO BASELINE FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
2010
13,335.0 13,399.6 13,489.9 13,604.6
2.9
2.0
2.7
3.4
-317.9
-310.2 -346.3 -368.5
13,365.8
2.9
-1,303.2
2011
2012
2013
2014
13,851.7 14,552.2 15,094.8
3.6
5.1
3.7
-1,058.2
-833.8
-820.8
15,525.6
2.9
-796.2
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
130.5
0.4
9.8
130.8
1.0
9.9
131.3
1.3
10.0
130.4
-0.4
9.8
132.2
1.4
9.8
136.0
2.9
8.3
140.5
3.3
6.5
143.1
1.9
5.5
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
11.3
0.64
174.1
2.3
0.8
11.6
0.67
170.9
-1.2
1.1
12.1
0.72
167.8
-2.7
1.4
12.8
0.79
166.7
-3.6
1.9
11.5
0.66
171.4
-0.6
1.8
13.8
0.98
167.1
-2.5
2.0
16.0
1.65
171.1
2.4
3.1
16.8
1.88
181.9
6.3
2.7
17.0
1.85
195.9
7.7
2.2
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.2
3.56
2.6
0.2
3.23
3.1
0.1
3.87
2.6
0.2
4.26
2.4
0.2
3.59
2.7
1.0
4.85
2.2
3.2
5.59
2.0
4.2
4.91
2.0
4.2
4.62
2.2
1,565.5
27.6
1,135.4
27.3
1,558.8
14.7
1,149.2
15.3
1,544.2 1,552.4
5.2
-2.0
1,194.5 1,213.9
9.7
7.7
1,563.3
19.4
1,151.6
21.6
1,620.8
3.7
1,225.9
6.5
1,855.4 2,010.6
14.5
8.4
1,274.2 1,350.9
3.9
6.0
2,119.5
5.4
1,405.5
4.0
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
2
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 1
Stronger Recovery in 2010 (“S1”) Scenario
This above-baseline scenario is designed
so that there is a 10% probability that the
economy will perform better than in this
scenario, broadly speaking, and a 90%
probability that it will perform worse.
The upside scenario, “Stronger Recovery in 2010,” is based on the assumption
that the beginning of private sector job
gains, improving industrial production,
steady GDP growth since mid-2009, and
other signs that the recovery is continuing
cause consumer and business confidence
to rebound during the remainder of 2010.
The higher level of wealth, resulting from
the cumulative rise in the stock market
between its trough in early 2009 and its
level in the first part of 2010, ultimately
causes consumer spending to grow more
strongly than in the baseline in the second
half of 2010.
The Federal Reserve begins to raise the federal funds rate earlier than in the baseline but
maintains an accommodative stance throughout the remainder of 2010 and the first part
of 2011. Increased access to credit supports
the above-baseline growth. As a result, the
recent increases in house prices are sustained,
although additional increases are minimal in
2010 and 2011. As a result, the trough was
in the second quarter of 2009, based on the
National Association of Realtors’ median sale
price measure, and the peak-to-trough decline
was 25%. This figure is slightly less than in the
baseline, in which small remaining home price
declines contribute to a 26% peak-to-trough
decline. Stronger demand and improved confidence help to propel total new permits back
above the 1 million-unit annual pace by the
fourth quarter of 2010, nine months earlier
than in the baseline.
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
In this scenario, the stronger near-term
growth in GDP results in enough additional
hiring compared with the baseline that the
unemployment rate declines steadily. As
a result, on a quarterly average basis, the
unemployment rate peaked in the fourth
quarter of 2009 at 10% and declines to the
low-8% range by early 2011. In the baseline,
in contrast, the unemployment rate remains
near 10% through the first quarter of 2011.
The Federal Reserve begins to tighten
moderately in the second half of 2010 and
raises interest rates more steadily during
2011 and 2012.
Real GDP grows 2 percentage points faster than in the baseline over calendar 2010
and settles back to the prerecession trend by
2012, earlier than in the baseline. On an annual average basis, real GDP growth is 3.9%
in 2010 and 4.6% in 2011.
3
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 1
U.S. MACRO S1 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
61.5
1.9
0.1
173.1
3.4
45.7
264.2
2.7
94.3
295.6
0.9
121.4
124.7
1.0
140.1
262.6
1.0
379.7
76.1
-1.4
128.7
-8.2
-0.6
16.9
-2.2
0.0
37.1
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
0.9
2.7
-1.3
1.2
1.0
-1.7
1.6
1.2
-1.9
0.5
0.4
-0.7
1.5
0.7
-1.7
0.8
-0.6
-0.6
0.2
-0.5
0.0
0.1
-0.0
0.0
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
0.5
0.05
4.8
2.8
0.7
1.2
0.18
8.5
4.9
1.3
1.5
0.39
10.9
6.3
0.3
2.0
0.51
12.4
7.2
0.0
0.8
0.16
6.0
3.5
0.3
1.5
0.53
13.8
4.5
0.2
0.2
0.12
12.3
-1.0
-0.2
-0.0
-0.01
4.4
-4.7
-0.1
-0.0
-0.02
0.5
-2.3
-0.2
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.0
0.35
-7.5
1.1
0.61
-6.7
1.4
0.78
-8.1
1.2
0.88
-8.9
0.6
0.43
-7.4
1.0
0.75
-10.0
0.2
-0.14
-11.1
-0.0
-0.02
-9.7
-0.0
-0.02
-9.2
bil $
%YA
1941=10
%YA
18.4
1.5
0.0
0.0
62.5
4.6
73.3
7.4
98.0
6.7
64.9
6.0
104.7
44.7
3.4
34.5
3.6
78.6
2.0
27.5
-0.8
-5.8
-5.6
11.3
-1.4
-34.6
-1.5
4.1
-0.6
-36.6
-0.0
1.6
-0.2
2011
2012
2013
2014
Corporate Profits With IVA & CCA
Change
S&P 500
Change
6.6
51.2
4.5
U.S. MACRO S1 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
2010
13,396.5 13,572.7 13,754.0 13,900.3
4.9
5.4
5.5
4.3
-317.7 -264.5
-251.9
-247.1
13,490.5
3.9
-1,163.1
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
131.4
3.1
8.5
132.0
2.0
8.3
132.9
2.5
8.1
130.9
-0.0
9.0
133.7
2.1
8.1
136.8
2.3
7.6
140.6
2.8
6.5
143.2
1.8
5.6
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
11.8
0.69
178.9
5.1
1.4
12.8
0.85
179.3
3.8
2.3
13.7
1.11
178.7
3.6
1.8
14.8
1.30
179.1
3.5
1.9
12.3
0.82
177.5
2.9
2.1
15.3
1.51
180.9
1.9
2.1
16.2
1.77
183.4
1.3
2.9
16.8
1.86
186.3
1.6
2.6
17.0
1.83
196.4
5.4
2.0
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.2
3.90
2.3
1.3
3.84
2.8
1.6
4.65
2.3
1.5
5.14
2.0
0.8
4.03
2.5
2.0
5.59
1.8
3.4
5.45
2.0
4.2
4.88
2.1
4.2
4.60
2.2
1,583.9
29.1
1,135.4
27.3
1,621.3
19.3
1,222.6
22.7
1,642.2 1,657.1
11.9
4.6
1,259.4 1,265.1
15.7
12.2
1,608.0
22.8
1,186.2
25.3
1,699.5
5.7
1,253.5
5.7
1,849.6 1,976.0
8.8
6.8
1,285.5 1,355.0
2.6
5.4
2,082.9
5.4
1,407.0
3.8
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
14,114.2 14,628.3 15,086.6 15,523.4
4.6
3.6
3.1
2.9
-678.5
-705.2
-803.9
-759.2
4
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 2
Mild Second Recession (“S2”) Scenario
In this recession scenario, in which a mild
second downturn develops, there is a 75%
probability that economic conditions will
be better, broadly speaking, and a 25%
probability that conditions will be worse.
The downside 25% scenario, “Mild Second
Recession,” is based on the assumption that
the growth rate of consumer spending slows
from its pace earlier in 2010 because credit
availability remains restrained and confidence
declines. Additionally, European debt problems weaken the global rebound and, consequently, the growth rate of U.S. exports. Further, U.S. federal budget constraints prevent
more aggressive fiscal policy initiatives to
support the recovery. After federal census-related hiring ends, the economy descends into
a mild second recession. Less severe than the
2008-2009 downturn, it lasts for two quar-
ters, the third and fourth quarters of 2010.
Although additional financial policy initiatives such as foreclosure mitigation are
put in place and access to credit improves
moderately, the improvement is too gradual
to allow a significant rebound in the housing
market until 2012. Foreclosures continue to
weigh on house prices. The modest rebound
in housing construction that took place in
the first half of 2009 continues to stall, and
housing starts are essentially flat through
mid-2011. House prices resume their decline
in mid-2010, and the NAR median sales
price ultimately falls by 35% cumulatively,
with the trough occurring in mid-2011.
The combination of declining payroll
employment during the second half of 2010
and the lack of recovery in the housing market keeps the demand for housing-related
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
durables and motor vehicles weak. The unemployment rate rises, peaking at 11.8%, 1.8
percentage points higher than the peak in the
baseline, in the second quarter of 2011.
Owing to the second downturn, the
Federal Reserve does not begin to tighten
monetary policy until late 2011 and does
not begin to raise interest rates significantly
until 2012.
In contrast to the 2008-2009 recession
in which real GDP fell cumulatively by 3.8%,
the cumulative decline between the second
quarter of 2010 and the first quarter of 2011
in the S3 recession is 0.5%. The economy
begins to recover in the first quarter of 2011,
after problems in the U.S. housing market
and European debt concerns subside. Real
GDP growth is 2% in 2010 on an annual average basis and 1.3% in 2011.
5
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 2
U.S. MACRO S2 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
-65.9
-2.0
0.6
-149.3
-2.5
-25.8
-256.1
-3.2
-60.5
-355.4
-3.0
-92.5
-117.8
-0.9
-85.7
-436.5
-2.4
-468.1
-448.8
0.1
-604.8
-217.4
1.8
-546.3
-24.0
1.3
-226.7
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
-0.6
-1.8
0.7
-1.0
-1.3
1.1
-1.3
-0.9
1.4
-0.4
-0.3
0.4
-1.6
-0.9
1.8
-1.6
0.0
2.4
-2.1
-0.3
2.1
-0.7
1.0
0.9
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
-0.3
-0.03
-5.6
-3.3
-0.5
-0.8
-0.08
-10.1
-5.8
-1.4
-1.8
-0.15
-14.7
-8.5
-1.5
-2.4
-0.23
-18.3
-10.6
-0.8
-0.7
-0.06
-7.6
-4.4
-0.4
-3.1
-0.36
-19.9
-7.6
-0.8
-2.8
-0.56
-17.4
2.0
0.5
-0.4
-0.15
-10.6
5.1
0.5
-0.0
0.09
-4.8
3.9
0.2
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
-0.1
-0.70
-6.4
-0.0
-1.01
-6.1
-0.0
-1.15
-7.3
-0.0
-1.17
-8.0
-0.0
-0.71
-6.8
-0.7
-1.11
-9.2
-1.5
-0.92
-10.7
-0.4
-0.05
-9.9
-0.3
-0.01
-9.4
bil $
%YA
1941=10
%YA
-17.3
-1.4
0.0
0.0
-55.6
-4.1
-81.2
-8.1
-95.1 -125.3
-6.5
-7.9
-128.2
-145.4
-11.8
-12.9
-42.0
-3.2
-52.4
-5.5
-139.8
-6.3
-140.2
-7.7
-97.4
4.2
-25.9
11.0
4.5
6.3
0.0
2.2
75.4
3.5
0.0
0.0
Corporate Profits With IVA & CCA
Change
S&P 500
Change
U.S. MACRO S2 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
13,269.1 13,250.3 13,233.8 13,249.2
0.9
-0.6
-0.5
0.5
-317.2 -335.9 -406.8
-461.0
13,247.9
2.0
-1,388.9
13,415.1
1.3
-1,526.3
14,103.4
5.1
-1,438.7
14,877.4
5.5
-1,367.1
15,501.7
4.2
-1,023.0
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
129.9
-1.4
10.5
129.8
-0.4
11.0
129.9
0.4
11.5
130.0
-0.7
10.2
130.6
0.5
11.6
134.4
2.9
10.6
138.4
3.0
8.6
142.4
2.9
6.5
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
11.0
0.61
168.6
-1.0
0.3
10.8
0.60
160.8
-7.0
-0.3
10.4
0.57
153.1
-11.2
-0.1
10.4
0.56
148.4
-14.2
1.1
10.8
0.60
163.9
-5.0
1.4
10.7
0.62
147.2
-10.2
1.2
13.2
1.09
153.7
4.4
3.6
16.4
1.72
171.3
11.5
3.2
17.0
1.94
191.2
11.6
2.3
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.2
2.86
3.3
0.1
2.22
3.4
0.1
2.72
3.1
0.2
3.09
2.9
0.1
2.88
3.1
0.3
3.74
2.7
1.7
4.67
2.4
3.8
4.86
2.0
3.9
4.61
2.0
1,548.2
26.2
1,135.4
27.3
1,503.3
10.6
1,068.0
7.2
1,449.1 1,427.1
-1.3
-9.9
1,066.3 1,068.5
-2.1
-5.2
1,521.3
16.2
1,099.3
16.1
1,481.1
-2.6
1,085.8
-1.2
1,758.1 2,015.0
18.7
14.6
1,248.3 1,350.9
15.0
8.2
2,195.0
8.9
1,405.5
4.0
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
6
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 3
Deeper Second Recession (“S3”) Scenario
In this recession scenario, in which a
deeper second downturn develops, there
is a 90% probability that the economy will
perform better, broadly speaking, and a
10% probability that it will perform worse.
The downside 10% “Deeper Second Recession” scenario is a downturn similar to the
S2 but deeper. First, as in the S2, households
do not sustain the early-2010 gains in spending, because of a continued lack of credit
availability and diminished confidence. Ongoing weakness at many banks forces them
to keep the flow of credit restrained. Second,
European debt problems magnify to the extent that a significant second European recession develops, causing U.S. exports to decline.
Also as in the S2, after the temporary boost
to employment from census-related hiring
ends in June 2010, a second U.S. recession
develops. Less severe than the 2008-2009
downturn but deeper than the S2, it lasts
from the third quarter of 2010 through the
first quarter of 2011.
The difficulty that firms and consumers
encounter obtaining loans extends for a longer
time, and this weighs on business investment
spending. Additionally, foreclosure mitigation
policies are largely unproductive, and federal
budget constraints limit additional policy initiatives that might stem the second downturn.
As a result of restricted access to credit
and continuing high unemployment, the
moderate rebound in housing construction
that occurred over the first half of 2009 not
only pauses but reverses course. Housing
starts resume their decline and do not bottom out until 2011, more than 80% below
their peak back in 2005. No significant
recovery begins until 2012. House prices, as
measured by the NAR median sales price,
resume their decline and fall 39% peak to
trough before bottoming out in early 2012.
With the economy weak, the Federal Reserve keeps the fed funds target rate below
1% until well into 2012. No significant tightening occurs until 2013.
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
As a result, the labor market declines
again. In conjunction with the lack of credit
availability, another wave of consumer
retrenchment ensues. Auto sales remain below 11 million units per year between 2010
and 2012. Further, business investment falls
from mid-2010 through the first half of
2011.
In contrast to the 2008-2009 recession
in which real GDP fell cumulatively by 3.8%,
the cumulative decline between the second
quarter of 2010 and the first quarter of
2011 in the S3 recession is 1.4%. Recovery
begins in the second quarter of 2011 but
proceeds slowly throughout the rest of that
year. Real GDP growth on an annual average
basis is 1.6% for 2010 and -0.7% for 2011.
The deeper contraction in the labor market
causes the unemployment rate to hit a peak
of 13.9% in the fourth quarter of 2011. The
weakness in spending results in consumer
price deflation during the second half of
2010 and the first quarter of 2011.
7
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 3
U.S. MACRO S3 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
-94.3
-2.9
0.7
-220.1
-3.8
-63.0
-376.0
-4.7
-141.6
-543.2
-5.0
-204.4
-172.6
-1.3
-203.9
-747.5
-4.3
-1,033.2
-999.8
-1.6
-1,424.9
-758.8
2.1
-1,289.7
-393.5
2.7
-985.5
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
-1.1
-3.3
1.7
-2.1
-3.2
2.3
-3.2
-3.3
2.9
-0.8
-0.6
1.0
-4.8
-3.1
3.8
-7.0
-1.6
4.9
-6.8
0.4
4.4
-4.4
1.9
3.0
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
-0.5
-0.10
-6.6
-3.9
-0.7
-1.1
-0.20
-10.8
-6.3
-2.0
-2.1
-0.30
-15.8
-9.2
-3.0
-2.8
-0.40
-20.6
-11.9
-2.0
-0.9
-0.15
-8.3
-4.8
-0.6
-3.7
-0.58
-25.6
-10.7
-1.9
-5.4
-0.95
-32.1
-4.2
0.0
-4.3
-0.54
-30.0
3.0
0.8
-2.1
-0.17
-25.3
4.6
0.9
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
-0.1
-0.84
-6.3
-0.1
-1.22
-4.9
-0.0
-1.45
-5.9
-0.0
-1.63
-6.5
-0.0
-0.88
-6.1
-0.8
-1.84
-7.5
-2.7
-1.55
-9.3
-2.3
-0.18
-9.6
-1.0
0.01
-9.3
bil $
%YA
1941=10
%YA
-24.9
-2.0
0.0
0.0
-80.5
-5.9
-131.7
-13.2
-144.7 -196.2
-9.9
-12.4
-193.1
-267.2
-17.7
-23.7
-62.5
-4.8
-81.2
-8.6
-248.1
-12.2
-319.1
-21.7
-260.2
1.7
-362.9
-3.4
-114.3
10.5
-278.5
11.7
64.1
9.7
-160.1
12.1
2011
2012
2013
2014
13,104.1 13,552.4 14,336.0
-0.7
3.4
5.8
-2,091.4 -2,258.7 -2,110.5
15,132.1
5.6
-1,781.7
Corporate Profits With IVA & CCA
Change
S&P 500
Change
U.S. MACRO S3 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
2010
13,240.7 13,179.5 13,113.9 13,061.4
0.1
-1.8
-2.0
-1.6
-317.2
-373.2
-487.8
-572.9
13,193.2
1.6
-1,507.2
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
129.5
-2.8
11.4
128.7
-2.3
12.2
128.0
-2.0
12.9
129.6
-1.0
10.8
127.4
-1.7
13.5
128.9
1.2
13.2
133.7
3.7
10.8
138.8
3.8
8.5
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
10.8
0.54
167.5
-1.6
0.1
10.5
0.48
160.0
-7.4
-0.9
10.0
0.42
152.0
-11.9
-1.6
10.0
0.39
146.0
-15.6
-0.1
10.6
0.51
163.1
-5.5
1.2
10.1
0.40
141.5
-13.3
0.1
10.7
0.70
138.9
-1.8
3.1
12.6
1.34
151.9
9.3
3.5
15.0
1.67
170.7
12.4
3.1
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.1
2.71
3.5
0.1
2.01
4.7
0.1
2.42
4.5
0.2
2.63
4.4
0.1
2.72
3.8
0.2
3.01
4.4
0.5
4.04
3.9
1.9
4.73
2.3
3.2
4.64
2.2
1,540.6
25.6
1,135.4
27.3
1,478.4
8.8
1,017.5
2.1
1,399.5 1,356.1
-4.6
-14.4
1,001.5
946.7
-8.0
-16.0
1,500.8
14.7
1,070.4
13.1
1,372.7
-8.5
906.8
-15.3
1,595.2 1,896.3
16.2
18.9
911.3
1,072.4
0.5
17.7
2,183.6
15.2
1,245.4
16.1
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
8
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 4
Complete Collapse, Depression (“S4”) Scenario
With this depression scenario, there is a
96% probability that the economy will
perform better, broadly speaking, and a
4% probability that it will perform worse.
The downside 4% scenario, “Complete
Collapse, Depression Scenario,” is caused by
several factors. First, long-running restricted
credit from banks prevents the consumer
spending rebound from being sustained.
Second, the debt crisis in Europe results in
a deep recession there, causing U.S. exports
to fall sharply. Third, the U.S. federal government reaches the limit of its resources to
boost the economy, rendering it unable to
prevent a deep economic slump. This scenario assumes that the effects of the 2009
federal stimulus proved to be only temporary. The recovery in the economy after
mid-2009 essentially ends in the first half
of 2010, as the census-related job creation
in the first half of 2010 at best prevented
a decline during that time. After June, the
downturn accelerates and continues until
the third quarter of 2011.
In the housing market, foreclosure mitigation policies are unproductive. Businesses
have little incentive to engage in investment
spending because of the very low levels of
capacity utilization, poor profitability, and
the difficulty of obtaining capital. High unemployment and depressed income levels
not only prevent consumers from obtaining
access to credit but also cause them to return to a pattern of high precautionary saving and debt pay-down.
Housing starts resume their decline and
ultimately fall by 85% cumulatively from
their 2005 peak. Although they finally bottom out in mid-2011, the increase is at a
snail’s pace for several years. House prices
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
resume their decline, and the NAR median
existing sales price ultimately falls cumulatively by 45% from its 2005 peak to the third
quarter of 2012. Reduced household wealth,
high unemployment, and the lack of credit
cause consumers to pull back sharply on their
spending. Unit auto sales average below 10
million throughout 2011 and 2012. Business
investment falls throughout 2010 and 2011
and does not begin to recover until 2012.
In the second recession, real GDP falls
from the second quarter of 2010 until the
third quarter of 2011, cumulatively declining
by 2.7% peak to trough. On an annual average basis, real GDP growth is 1.3% in 2010
and -1.9% in 2011. The unemployment rate
reaches a high of 15.1% in mid-2012 and remains in double digits until 2015. The extreme
weakness results in consumer price deflation
from mid-2010 through the end of 2011.
9
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 4
U.S. MACRO S4 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
-123.4
-3.8
0.7
-265.8
-4.3
-69.5
-450.5
-5.6
-155.3
-649.5
-6.0
-226.7
-209.9
-1.6
-224.1
-945.0
-5.5
-1,201.6
-1459.3
-3.6
-2,057.6
-1413.5
0.8
-2,117.9
-1145.4
2.3
-1,928.6
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
-1.2
-3.7
1.8
-2.4
-3.6
2.5
-3.5
-3.5
3.2
-0.9
-0.7
1.1
-5.4
-3.4
4.3
-9.0
-2.7
6.7
-9.4
-0.1
6.8
-7.6
1.5
5.7
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
-0.5
-0.12
-7.6
-4.5
-1.2
-1.3
-0.23
-12.7
-7.3
-2.6
-2.4
-0.33
-18.5
-10.7
-4.0
-3.1
-0.43
-24.0
-13.9
-3.3
-1.0
-0.17
-9.7
-5.6
-0.8
-4.2
-0.65
-31.2
-13.5
-3.2
-6.3
-1.29
-45.1
-9.7
-1.9
-6.0
-1.38
-47.3
0.6
0.9
-4.8
-1.20
-42.7
6.1
1.4
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
-0.1
-0.96
-6.2
-0.1
-1.36
-4.6
-0.0
-1.60
-5.6
-0.0
-1.81
-6.2
-0.1
-0.98
-6.0
-0.8
-2.10
-7.1
-2.9
-2.36
-8.3
-3.6
-1.34
-8.1
-2.9
-0.76
-8.3
bil $
%YA
1941=10
%YA
-35.4
-2.9
0.0
0.0
-104.1
-7.7
-145.2
-14.6
-179.6 -245.1
-12.2
-15.5
-209.3 -288.4
-19.2
-25.6
-79.8
-6.1
-88.6
-9.4
-332.6
-16.8
-356.6
-24.7
-439.3
-4.5
-441.4
-8.1
-322.1
10.9
-453.2
1.8
-155.1
10.9
-394.9
8.5
2011
2012
2013
2014
Corporate Profits With IVA & CCA
Change
S&P 500
Change
U.S. MACRO S4 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
129.3
-3.3
11.6
128.4
-2.6
12.4
127.7
-2.2
13.2
129.5
-1.1
10.8
126.8
-2.0
14.1
127.0
0.1
14.9
131.1
3.2
13.3
135.5
3.4
11.3
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
10.7
0.52
166.5
-2.1
-0.4
10.4
0.45
158.2
-8.5
-1.5
9.7
0.39
149.3
-13.4
-2.5
9.7
0.36
142.7
-17.5
-1.4
10.5
0.49
161.8
-6.2
1.0
9.6
0.33
135.9
-16.0
-1.2
9.7
0.36
125.9
-7.3
1.2
10.8
0.50
134.6
6.9
3.6
12.2
0.65
153.3
13.9
3.5
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.1
2.60
3.6
0.1
1.87
4.9
0.1
2.27
4.7
0.2
2.45
4.7
0.1
2.61
4.0
0.2
2.74
4.8
0.3
3.23
4.8
0.7
3.57
3.7
1.3
3.86
3.1
1,530.1
24.8
1,135.4
27.3
1,454.8
7.1
1,004.0
0.7
1,364.6 1,307.3
-7.0
-17.5
985.2
925.5
-9.5
-17.9
1,483.5
13.3
1,063.0
12.3
1,288.2
-13.2
869.3
-18.2
1,416.1 1,688.5
9.9
19.2
832.8
897.7
-4.2
7.8
1,964.4
16.3
1,010.6
12.6
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
13,211.6 13,133.8 13,039.4 12,955.2
-0.8
-2.3
-2.8
-2.6
-317.2 -379.6
-501.6
-595.1
2010
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
13,155.9 12,906.6 13,093.0 13,681.3 14,380.3
1.3
-1.9
1.4
4.5
5.1
-1,527.3 -2,259.8 -2,891.5 -2,938.8 -2,724.8
10
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 5
Aborted Recovery, Below-Trend Long-Term Growth (“S5”) Scenario
With this low-performance long-term
scenario, there is a 96% probability that
the economy will perform better, broadly
speaking, and a 4% probability that it will
perform worse.
In the downside 4% scenario, “Aborted
Recovery, Below-Trend Long-Term Growth,”
the recovery in the U.S. economy that began
in the second half of 2009 is not sustained.
By mid-2010, the stimulus proves to have
been temporary, the European debt crisis
slows exports, and no additional federal
spending measures are enacted. As a result,
GDP growth slows to a halt in the second
half of the year.
However, whereas the S2 features a subsequent demand-driven recovery back to
the baseline trend with just a one-year lag,
in the S5, supply-side constraints prevent a
full recovery back to the baseline trend.
In particular, when the economy does
begin to expand again in 2011, growth remains weaker than in the baseline or the S2
for an extended time for several reasons.
First, households engage in relatively more
precautionary saving and therefore less
spending. Second, lower risk-taking is manifest in higher-yield spreads and lower stock
prices than in the baseline. Since the cost
of borrowing is higher, business investment
spending is lower than the baseline. As a result, capital accumulation and productivity
growth are lower.
Real GDP growth averages 1 to 2 percentage points per year lower than in the
baseline between 2010 and 2012. Although
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
the gap in the growth rate subsequently
closes, it remains below the long-run rate
until 2020. After 2020, the growth rate
returns to the baseline pace, but the level
of real GDP is permanently lower than in
the baseline.
Unemployment rises higher than in the
baseline and remains above 10% from 2010
through the end of 2012. Although the jobless rate ultimately declines to the baseline
level, this does not occur until 2020. The
long dislocation in the labor market hampers the typical long-term pattern of growth
in worker productivity, as employees find
fewer opportunities to develop their skills
while on the job. The result is productivity
growth below the long-run trend for the
entire decade.
11
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 5
U.S. MACRO S5 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
-59.2
-1.8
-0.5
-148.9
-2.7
-25.2
-231.5
-2.5
-61.1
-283.6
-1.5
-87.9
-109.9
-0.8
-86.8
-363.4
-1.9
-382.2
-527.7
-1.1
-582.8
-552.0
-0.0
-833.6
-527.6
0.3
-862.4
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
-1.5
-4.5
0.6
-2.2
-2.2
1.0
-2.6
-1.2
1.2
-0.9
-0.7
0.4
-3.1
-1.7
1.4
-4.9
-1.3
2.3
-6.8
-1.3
3.1
-6.6
0.3
3.0
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
-0.6
-0.07
-1.5
-0.9
-0.3
-1.1
-0.12
-2.0
-1.2
-0.9
-2.1
-0.18
-1.9
-1.1
-1.0
-2.5
-0.23
-3.8
-2.2
-0.7
-1.0
-0.09
-1.4
-0.8
-0.2
-3.4
-0.39
-4.8
-2.1
-0.7
-5.1
-0.83
-8.3
-2.0
-0.1
-4.8
-0.69
-10.0
-0.8
-0.0
-3.3
-0.31
-10.8
0.0
-0.1
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
-0.0
-0.01
-7.1
-0.0
-0.08
-6.2
-0.0
-0.22
-7.4
-0.0
-0.31
-8.1
-0.0
-0.08
-7.0
-0.7
-0.42
-9.1
-2.0
-0.58
-10.4
-1.3
-0.52
-9.0
-0.9
-0.50
-8.6
bil $
%YA
1941=10
%YA
-13.8
-1.1
0.0
0.0
-48.4
-3.6
-103.9
-10.4
-81.4
-5.5
-118.8
-10.9
-98.9
-35.9
-2.7
-55.7
-5.9
-115.1
-5.1
-109.7
-4.6
-143.3
-0.8
-73.2
3.7
-131.4
1.4
-48.1
2.5
-104.5
1.8
-31.1
1.4
2011
2012
2013
2014
13,255.9 13,488.3 14,024.5 14,542.8
2.1
1.8
4.0
3.7
-1,390.0 -1,440.4 -1,416.7 -1,654.4
14,998.1
3.1
-1,658.6
Corporate Profits With IVA & CCA
Change
S&P 500
Change
-6.2
-116.4
-10.3
U.S. MACRO S5 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
129.0
-4.1
10.4
128.6
-1.3
10.9
128.6
0.1
11.2
129.4
-1.1
10.2
129.1
-0.3
11.2
131.0
1.5
10.5
133.7
2.0
9.5
136.6
2.1
8.5
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
10.7
0.57
172.6
1.4
0.5
10.5
0.55
168.9
-2.3
0.2
10.0
0.55
165.9
-3.8
0.4
10.3
0.56
162.9
-5.8
1.2
10.5
0.57
170.1
-1.4
1.6
10.3
0.58
162.3
-4.6
1.3
10.9
0.82
162.8
0.3
2.9
12.1
1.19
171.9
5.6
2.7
13.7
1.54
185.1
7.7
2.1
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.2
3.54
2.6
0.1
3.15
3.3
0.1
3.65
3.0
0.2
3.95
2.9
0.1
3.51
2.9
0.3
4.42
2.8
1.2
5.01
2.8
2.9
4.39
2.8
3.3
4.13
2.8
1,551.7
26.5
1,135.4
27.3
1,510.5
11.2
1,045.3
4.9
1,462.9 1,453.4
-0.3
-8.3
1,075.7 1,097.5
-1.2
-2.7
1,527.4
16.7
1,096.0
15.8
1,505.8
-1.4
1,116.3
1.9
1,712.1 1,879.2
13.7
9.8
1,201.1 1,302.8
7.6
8.5
2,015.0
7.2
1,374.3
5.5
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
13,275.8 13,250.7 13,258.4 13,321.0
1.1
-0.8
0.2
1.9
-318.4 -335.4
-407.3 -456.4
2010
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
12
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 6
Fiscal Crisis, Dollar Crashes, Inflation (“S6”) Scenario
With this stagflation scenario, there is a
90% probability that the economy will
perform better, broadly speaking, and a
10% probability that it will perform worse.
The downside 10% scenario, “Fiscal Crisis,
Dollar Crashes, Inflation,” begins with the
U.S. economy recovering more slowly in 2010
than in the baseline. As a result, tax collection
is lower and the federal deficit is higher. The
resulting heavier debt issuance by the government forces the Fed to delay tightening
compared with the baseline, and inflationary
pressures begin to build in early 2011.
The dollar falls sharply beginning in mid2011 as foreign investors cut back purchases
of Treasury securities when it becomes clear
that no progress is being made in addressing
long-run fiscal problems and that 2012 will
be an election year. Oil price inflation starts
to accelerate, and prices ultimately hit $150
per barrel.
The Fed abruptly shifts gears to fight
inflation and the fed funds rate rises from
nearly 0% in mid-2011 up to nearly 7% the
following year. Yields on 10-year Treasury
securities rise to 8% in 2012, as a result
of both inflationary expectations and Fed
tightening. The economy weakens sharply
and drops into recession in 2012, driving the
federal deficit even higher. Forced to make
a choice in the stagflation environment, the
Fed keeps interest rates high to fight infla-
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
tion. The downturn continues throughout
2012, and the jobless rate rises to 13% in
early 2013.
The crisis forces the next federal administration to make big changes to address the
fiscal crisis. The changes enacted in 2013
begin the process of reducing inflationary expectations, and the economy moves back toward the baseline rate of real growth in 2014.
However, the level of real GDP is ultimately
lower than in the baseline by a small amount.
On an annual average basis, real GDP
growth is 2.2% in 2010, 2.6% in 2011, and
0.7% in 2012. Inflation as measured by the
CPI rises to 5% in early 2012, before decelerating in 2013.
13
U.S. MACROECONOMIC OUTLOOK ALTERNATIVE SCENARIOS �� Scenario 6
U.S. MACRO S6 SCENARIO—DIFFERENCE FROM BASELINE
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
2012
2013
2014
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
-93.1
-2.8
-98.2
-109.4
-0.5
-76.5
-146.7
-1.1
-92.8
-174.3
-0.8
-93.6
-87.3
-0.7
-267.5
-231.8
-1.1
-358.0
-831.2
-4.3
-275.1
-1,148.9
-2.1
-178.4
-1,001.7
1.3
-115.3
Total Employment
Change
Unemployment Rate
mil
%AR
%
0.0
0.0
-0.0
-0.4
-1.2
0.2
-0.6
-0.6
0.3
-0.8
-0.7
0.3
-0.2
-0.2
0.1
-1.4
-0.9
0.6
-6.0
-3.5
3.7
-11.3
-4.0
6.2
-11.4
0.1
4.4
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
-0.5
-0.04
-1.0
-0.6
-0.3
-0.7
-0.06
-2.3
-1.3
-0.3
-0.9
-0.07
-3.9
-2.2
0.0
-1.0
-0.07
-5.9
-3.4
1.3
-0.5
-0.04
-1.8
-1.0
-0.1
-1.1
-0.14
-6.5
-2.8
0.8
-5.0
-0.79
-17.7
-6.9
1.7
-6.3
-0.86
-37.3
-12.0
0.9
-5.3
-0.60
-44.4
-2.9
-0.5
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
-0.0
0.22
-7.3
-0.0
0.32
-6.6
-0.0
0.61
-7.9
-0.0
0.99
-8.8
-0.0
0.29
-7.3
-0.1
1.55
-10.2
1.8
2.42
-11.9
2.3
2.59
-10.5
0.9
0.65
-9.4
bil $
%YA
1941=10
%YA
-21.0
-1.7
0.0
0.0
-43.0
-3.2
-48.7
-4.9
-43.8
-3.0
-53.6
-4.9
-40.2
-27.0
-2.1
-25.6
-2.7
-38.4
-0.7
-118.2
-8.1
-175.3
-8.3
-243.8
-10.9
-238.5
-2.9
-285.5
-2.6
-158.7
5.2
-91.9
19.3
2012
2013
2014
Corporate Profits With IVA & CCA
Change
S&P 500
Change
-2.5
-69.5
-6.2
U.S. MACRO S6 SCENARIO—FORECAST SUMMARY
Units
10Q2
10Q3
10Q4
11Q1
2010
2011
13,241.9 13,290.2 13,343.1 13,430.3
0.1
1.5
1.6
2.6
-416.0 -386.7
-439.1 -462.0
13,278.5
2.2
-1,570.7
13,619.9
2.6
-1,416.2
Gross Domestic Product
Change
Federal Budget
bcw$
%AR
bil $
Total Employment
Change
Unemployment Rate
mil
%AR
%
130.4
2.1
9.7
130.1
-0.8
9.9
130.3
0.4
10.2
130.5
0.6
10.3
130.1
-0.6
9.9
130.8
0.5
10.4
130.0
-0.6
12.0
129.2
-0.6
12.7
131.7
2.0
9.9
Light Vehicle Sales
Residential Housing Starts
Median Existing-House Price
Change
Consumer Price Index
mil, SAAR
mil, SAAR
ths $
%YA
%AR
10.8
0.60
173.1
1.7
0.5
10.9
0.62
168.5
-2.5
0.7
11.2
0.65
163.9
-5.0
1.4
11.8
0.72
160.8
-7.0
3.2
11.0
0.62
169.6
-1.7
1.7
12.7
0.84
160.6
-5.3
2.8
11.0
0.86
153.3
-4.6
4.8
10.5
1.01
144.6
-5.7
3.6
11.7
1.25
151.5
4.8
1.6
Federal Funds Rate
Treasury Yield: 10-Year Bond
Baa Corp. - 10Y Treasury
%
%
DIFF
0.2
3.77
2.4
0.1
3.55
3.0
0.1
4.48
2.5
0.2
5.25
2.1
0.1
3.88
2.6
0.9
6.40
1.7
5.0
8.01
1.3
6.5
7.49
1.4
5.1
5.28
2.1
1,544.5
25.9
1,135.4
27.3
1,515.8
11.5
1,100.5
10.4
1,500.4 1,512.2
2.2
-4.6
1,140.9 1,144.4
4.8
1.5
1,536.3
17.4
1,126.1
18.9
1,582.5
3.0
1,107.7
-1.6
1,680.1 1,772.1
6.2
5.5
1,030.5 1,065.4
-7.0
3.4
1,960.9
10.7
1,313.6
23.3
Corporate Profits With IVA & CCA
Change
S&P 500
Change
bil $
%YA
1941=10
%YA
MOODY’S ANALYTICS / U.S. Macroeconomic Outlook Alternative Scenarios / July 2010
13,721.0 13,945.9 14,523.9
0.7
1.6
4.1
-1,108.9
-999.2
-911.5
14
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