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U.S. and Michigan Economic Outlook Passages Through a Sea of Uncertainty Robert A. Dye Chief Economist, Comerica Bank January, 2013 Mare Incognitum…The Sea of Uncertainty Economic Policy Uncertainty Index U.S. and European Fiscal Issues Lehman and TARP 250 Debt ceiling dispute Treaty of Accession & 2nd Gulf War 9/11 200 Bear Stearns 150 100 50 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 2 EPUI Explains Persistent Weak Business Confidence Economic Policy Uncertainty Index and the NFIB Survey 250 110 105 200 100 150 95 90 100 85 50 Components of NFIB Survey Employment plans Current job openings Capital outlay plans Inventory plans Current inventory Expectations about economy Expectations about sales Expected credit conditions Good time to expand Earnings 80 '00 '02 '04 '06 '08 '10 Economic Policy Uncertainty index (L) '12 NFIB Business Optimism, (R) 3 The Fiscal Cliff, Happy New Year! • Obama era payroll tax cut has expired for everyone • Increased income, capital gains, dividend taxes for the wealthy 1% • Will add up to about $160 billion in additional revenue in 2013 • RDPI set to fall 3.5-4.0 percent annualized 2013Q1 • Debt ceiling debate still to come • $110 budget sequester still unresolved • Long-term entitlement spending still unresolved 4 Recent U.S. Data Is Mixed • 2012Q3 real GDP 3.1%, Q4 weaker • Dec. payroll employment +155,000 • Unemployment rate stable at 7.8% • House sales • Home prices • Home construction Home Sales Trending Up 5,500 5,000 4,500 4,000 3,500 3,000 • Dec. auto sales 15.4 million unit rate 700 600 500 400 300 New, ths (R) 200 2011 2012 Existing, ths (L) 2008 2009 2010 • Dec. ISM MF Survey 50.7 percent 5 2012Q4 Helped by Household Sector, Hurt by Uncertainty • Consumer confidence improving Auto Sales and Consumer Confidence • Vehicle sales, Sandy • Housing sector strengthening • Other credit fueled purchases • Labor markets • Asia • U.S. policy uncertainty 18 Auto Sales, millions SAAR (L) 17 16 15 120 110 100 90 14 13 80 70 12 11 60 50 10 9 8 2006 40 30 20 Confidence Index (R) 2007 2008 2009 2010 2011 2012 • Europe continues to melt 6 Consumer Deleveraging...And Releveraging Non-revolving Consumer Credit and Financial Obligations Ratio 16 19 Non-revolving cons. credit, pchya (L) 12 18 8 4 17 0 16 -4 Financial Obligations Ratio, (R) -8 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 15 '12 7 Job Creation Is Key to Sustaining the Economy Monthly Job Creation, ths Unemployment Rate, percent 300 U.S. Payroll Job Growth, ths (L) 10.5 200 10.0 100 9.5 0 9.0 -100 8.5 -200 -300 11.0 8.0 U.S. Unemployment Rate (R) 7.5 J F M A M J J A S O N D J F M A M J J A S O N D '11 '12 8 Forecast for 2013, Fiscal Tightening Trumps Monetary Easing U.S. Real GDP Growth, annualized rate History 5 3 1 (1) (3) (5) (7) (9) 2008 2009 2010 2011 2012 Forecast 2013 9 Interest Rates Face Upward Pressure As Flight to Quality and Financial Repression Eventually Unwind Yield, percent 6.0 5.0 4.0 10-Year Treasury 3.0 2.0 1.0 Fed Funds 0.0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10 Forecast Risks Downside Risks Upside Risks • Consumer spending • QE3 gains traction • Job growth • Equity markets rally • Biz investment • Jobs! • Federal Spending • Construction • Eurozone and Asia • Households unleash pent-up demand • More “transitory” factors/oil prices • Low interest rates/investment boom • Housing market languishes • Energy/manufacturing renaissance • Healthcare costs • Technology 11 Most Michigan Labor Markets Cooled 2012H2 Regional Labor Market Indicators 4 Payroll Employment, pchya 2 0 -2 -4 -6 -8 -10 2008 2009 U.S. 2010 Warren Metro Div 2011 Lan 2012 Kal GR Robert A. Dye Subscribe www.comerica.com/economics Follow on Twitter @Comerica_Econ 13