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Economic Update:
North Carolina and the U.S.
September 15, 2010
Dr. Andrew Brod
Center for Business and Economic Research
Bryan School of Business and Economics
University of North Carolina at Greensboro
Email: [email protected]
Web: http://cber.uncg.edu
First, a Word from My Sponsor
• CBER is the main contact point at UNCG for
economic-development research
• Contract research
–
–
–
–
Economic-impact analyses
Surveys
Economic profiles
Econometrics, data mining… and more!
• Public education
The Recession is Over, But…
The Recession is Over, But…
The Recession is Over, But…
The Recession is Over, But…
The Recession is Over, But…
It’s Going to be Okay
… according to
2½-year-old
Meyer Brod
This Pie Chart Proves It
Expansion of 2001-07: Lame
Source: Economic Policy Institute
Great Recession of 2008-09
• It probably ended in the summer of ‘09.
– Longest and deepest recession since the Great
Depression
– The non-government National Bureau of
Economic Research will make the official call.
• But the economy isn’t strong yet.
– Expansion means things are getting better, not
that they’re good.
– Are we measuring and dating recessions
correctly?
• Unemployment rate is a lagging indicator.
• Should we focus on per-capita real GDP?
Great Recession of 2008-09
• NBER isn’t in the business of forecasting
recessions and expansions.
– November 2001: Announces that a recession
began in March 2001.
– July 2003: Announces that the recession ended
in November 2001.
• NBER’s announcement this time:
– Announced in December 2008 that the recession
began in December 2007.
– No surprise: 96% of NABE economists surveyed
in November 2008 said a recession was
underway.
Great Recession of 2008-09
• A double-dip recession-within-a-recession:
– In mid-2008, it looked like we might avoid an
outright recession.
• Real GDP actually rose in Q2.
• Rising commodity prices not due to speculation,
which implies they were being used.
– But on 9/15/08, the government let
Lehman fail.
• That’s when things got ugly
• The recession-within-a-recession was the
first since the Great Depression to be
triggered by a financial crisis.
• Will there be a triple dip?
– Probably not
Recession History
• Since WWII, recessions have been short.
– That wasn’t always the case.
Average Length (months)
Time Period
Recession
Expansion
1854–1933 (20 cycles)
22
25
1933–2001 (12 cycles)
10
58
• 1946 Employment Act, 1978 HumphreyHawkins Act:
– Authorized federal govt. to manage economy
– Creeping socialism, or effective management?
Source: National Bureau of Economic Research
Recession History
• Recessions are changing.
– The post-recession job recovery is slowing.
– Number of months for employment to reach prerecession levels:
50
47
40
30
20
Average of
1st 6
postwar
recessions
25
31
2001:
54 in
NC
19
10
10
0
28
Pre-1973
1973
1980
Source: Economic Policy Institute
1981
1991
2001
Recession History
1%
0%
0
Will we
miss
breaking
the record
set by the
2001
recession?
4
8
12
16
20
24
28
32
36
40
44
-1%
-2%
48
1973-75
1980
1981-82
-3%
1990-91
2001
-4%
-5%
-6%
-7%
Employment, SA, % change from peak month
Source: Bureau of Labor Statistics, Bureau of Census
2007-09
Net of Census
Real GDP Growth
8%
6%
4%
2%
GDP in 2005 dollars: Annual growth
Source: Bureau of Economic Analysis
2006
2002
1998
1994
1990
1986
1982
-4%
1978
-2%
1974
0%
1970
Average
growth
1946-2000
= 3.4%
2009 @
-2.6%
Real GDP Growth
8%
4%
2010:2
@ 1.6%
2%
-6%
-8%
GDP in 2005 dollars: Chge from prev qrtr, SAAR
Source: Bureau of Economic Analysis
2010
2009
2008
2007
2006
2005
2004
2003
2002
-4%
2001
-2%
2000
0%
1999
Strong
growth in
2009:4 but
weakening
since then
6%
1998
2008:3 thru
2009:1 were
the worst 3
quarters
“ever” (since
1947)
Real GDP & GDP/S Growth
7%
6%
5%
US
4%
NC
3%
2%
1%
-3%
-4%
Source: Bureau of Economic Analysis
2009
2008
2007
2006
2005
2004
2003
2002
2001
-2%
2000
-1%
1999
0%
NC: 2008
@ 0.1%
Real GDP/S Growth, 2007
.
Source: Bureau of Economic Analysis
Real GDP/S Growth, 2008
.
Source: Bureau of Economic Analysis
Payroll Employment
140
47 months
132
Aug @
130.3
million
128
124
Monthly, SA, millions
Source: Bureau of Labor Statistics
2010
2008
2006
2004
2002
120
1998
Good rises
in spring,
but stalling
this summer
136
2000
Late 2008/
early 2009:
drops of
600K+ for 5
months in a
row
Payroll Employment in N.C.
4.3
SA
employment
gains
stalling in
NC as well
4.1
54 months
Jul @
3.90
million
3.9
3.7
Monthly, SA, millions
Source: Bureau of Labor Statistics
2010
2008
2006
2004
2002
2000
1998
3.5
Initial Unemployment Claims
700
600
No longer 500
moving in
the right
direction 400
9/4
@ 478K
300
Weekly, in thousands, SA, 4-week moving avg
Source: Department of Labor
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
200
NC Initial Unemployment Claims
50
40
Possibly 30
still
moving
20
in the
right
direction 10
8/28
@ 12.7K
Weekly, in thousands, NSA, 4-week moving avg
Source: Department of Labor
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0
Unemployment Rates
12%
NC: Jul @
9.8%
10%
Improving
slowly
US
NC
US: Aug
@ 9.6%
8%
6%
US Avg.
1947-2000
= 5.7%
4%
2%
Monthly, SA
Source: Bureau of Labor Statistics
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
0%
State Unemployment Rates
Source: Bureau of Labor Statistics
A Little Political Economy
Source: John Judis, “Job One,” The New Republic,
September 22, 2009
A Little Political Economy
Source: John Judis, “Job One,” The New Republic,
September 22, 2009
A Little Political Economy
Direction
matters as
well:
A year
later,
unemp. is
about the
same, but
Obama’s
disapproval
rating is up
slightly, to
45-50%
Source: John Judis, “Job One,” The New Republic,
September 22, 2009
A Little Political Economy
A Little Political Economy
Avg. Private Sector Work Week
35.0
34.5
34.0
Production
and non33.5
supervisory
employees 33.0
Aug @
33.5
32.5
Monthly, hours per week, SA
Source: Bureau of Labor Statistics
2010
2008
2006
2004
2002
2000
1998
32.0
Avg. Manufacturing Work Week
42.0
US: Aug
@ 41.2
41.0
NC: Jul @
40.3
Production
and non- 40.0
supervisory
employees
39.0
US
NC
Monthly, hours per week, SA for US, NSA for NC
Source: Bureau of Labor Statistics
2010
2008
2006
2004
2002
2000
1998
38.0
N.C. Employment Growth
Sector
2006
2007
Construction
7.8%
0.1% -13.7% -19.0%
Manufacturing
2008
2009
-1.7%
-2.6%
Retail Trade
3.3%
2.1%
-4.3%
-4.5%
Transportation
2.6%
-3.0%
-3.2%
-9.5%
-2.1%
-0.1%
-0.5%
-4.3%
Finance & Insurance
4.5%
1.1%
-0.6%
-4.9%
Real Estate
6.5%
3.6%
-4.5%
-1.7%
Professional, Science, Tech
8.7%
5.7%
-1.5%
-7.6%
Education
6.2%
6.1%
2.1%
6.4%
Health Care
5.9%
4.7%
1.1%
0.5%
3.9%
1.6%
-2.8%
-4.5%
Information
Total
Change from December to December, NSA
Source: Bureau of Labor Statistics
-7.4% -12.7%
S&P 500 Index
1,200
9/13
@ 1122
Daily close, 2008-10
Source: Wall Street Journal
19-Aug
21-Apr
22-Dec
600
24-Aug
2008: 38%
2009: 23%
2010:  1%
26-Apr
800
27-Dec
But 66%
since then
29-Aug
1,000
1-May
57% from
Oct ‘07 peak
to Mar ‘09
trough
1,400
2-Jan
Oct ‘08: 8th
worst month
on record
Lowest
close
since
9/12/96
Consumer Confidence Index
160
Decline in
Oct ‘08 was
3rd largest
in CCI
history
140
Feb ’09:
all-time low
since index
began in
1967
60
120
100
80
Aug @
53.5
40
20
Monthly, SA, 1985 = 100
Source: Conference Board
2010
2008
2006
2004
2002
2000
1998
0
Industrial Production Index
105
Jul @
93.4
90
85
Monthly, SA, 2007 = 100
Source: Federal Reserve Board
2010
2008
2006
2004
80
2002
Sept ’08 was
the largest
one-month
drop since
1946
95
2000
2008: 9.4%
2009: 1.6%
2010: 4.3%
100
1998
Up in 11 of
the last 13
months
Industrial Utilization
90%
Jun ‘09 level 85%
lowest since
series started
80%
in 1967
But up since
then
75%
Jul @
74.8%
2008: 8.3% 70%
2009: 1.4%
2010: 3.3%
Monthly, SA
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
65%
ISM Indexes: PMI and NMI
70
60
PMI:
Aug @
56.3
Dec ‘08 PMI
was the
50
lowest since
1980
NMI:
Aug @
51.5
40
PMI
NMI
Monthly, SA, 50 = “no change”
Source: Institute for Supply Management
2010
2008
2006
2004
2002
2000
1998
30
Retail Sales*
400
Huge drops in
Fall ’08, but
350
upward trend
throughout ’09
and ‘10
Aug @
$363.7
billion
300
Aggregate
annual sales
250
(NSA) 0.4%
in 2008 and
6.2% in 2009
*and Food Services
Monthly, SA, billions of nominal dollars
Source: Census Bureau
2010
2008
2006
2004
2002
2000
1998
200
Retail Auto Sales
80
50
Monthly, SA, billions of nominal dollars
Source: Census Bureau
2010
2008
2006
40
2004
7.7% in
2009
Aug @
$55.4
billion
1998
But then
15.8% in
Sep
60
2002
Cash for
Clunkers:
11.5% in
Aug ‘09
70
2000
Auto sales
fell 27% in
2008!
Retail Home-Furnishings Sales
Furniture
sales fell…
10
9
2.9% in ’07
6
Monthly, SA, billions of nominal dollars
Source: Census Bureau
2010
2008
2006
2004
5
2002
Increases in
Fall ‘09 and
Winter ‘10
have
disappeared
7
2000
3.1% in ’09
Aug @
$7.5
billion
8
1998
13.3% in ’08
Consumer Price Inflation
20%
15%
-10%
-15%
-20%
Monthly change in CPI, SAAR
Source: Bureau of Labor Statistics
2010
2008
2006
2004
-5%
2002
0%
2000
For 2009,
+2.7%
5%
1998
Still
dancing at
the edge of
deflation
10%
Jul @
3.8%
Consumer Price Inflation
6%
4%
2%
Core
-4%
-6%
Monthly change in CPI, 2008-10, SAAR
Source: Bureau of Labor Statistics
Jul-10
Apr-10
Jan-10
Oct-09
Jul-09
Apr-09
Jan-09
Oct-08
Jul-08
-2%
Apr-08
0%
Jan-08
“Core”
inflation
still too
close to
zero for
comfort
All
Oil Prices
$150
$125
$100
Aug @
$76.60
$75
$50
$25
Crude oil, WTI, spot price ($/bbl), monthly avg.
Source: Department of Energy
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
1986
$0
Energy Prices Matter Less Now
25
High oil prices 20
didn’t push us
into recession, 15
in part
because the
10
economy is
becoming
5
more energyefficient
Relative annual energy consumption:
1000 Btu per dollar of real GDP
Source: Department of Energy
2005
1997
1989
1981
1973
1965
1957
1949
0
Interest Rates
20%
16%
12%
8%
4%
Aug @
0.19%
Federal Funds Rate (effective), monthly average
Source: Federal Reserve Board
2010
2005
2000
1995
1990
1985
1980
1975
1970
0%
Interest Rates
20%
16%
12%
8%
Aug @
4.43%
4%
Conventional mortgage rate, monthly average
Source: Federal Reserve Board
2008
2005
2002
1999
1996
1993
1990
0%
Dollar Hovering
130
120
TradeWeighted
Dollar
Index
(real)
110
100
Aug @
87.9
90
80
Broad index, 1973 = 100
Source: Federal Reserve Board
2008
2004
2000
1996
1992
1988
1984
1980
70
Housing Slump
Here’s a slide from a
presentation in early
2008…
• More a debacle than merely a slump,
resulting in:
– Falling home prices
– Falling rates of residential construction
• Commercial not as badly off
– Rising inventories
– Tighter lending standards
• Broader effects on the economy:
– Falling consumer spending (is that so bad?)
– Falling credit liquidity (scary stuff)
I was right to be
scared, apparently.
Cheap Money & Housing Boom
2,500
2,000
1,500
Total
Single-Family
1,000
Multifamily
500
Annual housing starts, in thousands
Source: Census Bureau
2008
2002
1996
1990
1984
1978
0
Housing: Signs of Life?
2500
April ’09:
“all-time 2000
low”
(since
1500
1959)
15%
1000
since then
but still
500
76%
from peak
Aug @
546K
Housing starts: monthly, all uses, in thousands,
SAAR
Source: Census Bureau
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
0
Housing: Signs of Life?
250
12
200
10
8
150
6
100
4
US (left)
50
NC (right)
2
Monthly residential building permits, in
thousands, NSA
Source: Census Bureau
2010
2008
2006
2004
2002
0
2000
0
Housing: Signs of Life?
80%
70%
60%
50%
40%
HOI
30%
% ARM
20%
10%
Source: National Association of Home Builders
2010
2008
2006
2004
2002
2000
1998
1996
1994
0%
1992
Housing
Opportunity
Index (HOI)
= share of
homes
affordable to
a family
earning the
median
metro
income.
Housing: Signs of Life?
* HOI lows for
these areas
occurred
between
2006Q3 and
2007Q3.
Metro area
Low*
2010:Q2
Atlanta
63.7
78.9
Chicago
40.3
69.4
5.1
19.9
Phoenix
26.6
80.8
St. Louis
70.4
86.3
5.7
21.0
Seattle
19.3
57.4
Charlotte
59.5
72.9
Greensboro
66.9
81.3
Raleigh
52.6
76.1
USA
40.4
72.3
New York
San Francisco
Source: National Association of Home Builders
No More Home-Price Declines?
250
CS10:
Case-Shiller
10-city homeprice index
CPI/OER:
CPI for ownerequivalent rent
200
150
CS10
100
CPI/OER
50
SA, January 2000 = 100
Sources: Bureau of Labor Statistics, Standard & Poor’s
2008
2005
2002
1999
1996
1993
1990
1987
0
Housing: Some Perspective
2,500
2,000
Booms and
busts are
1,500
hardly new
in the
construction 1,000
industry.
500
Previous Busts
Annual residential building permits, thousands
Source: Census Bureau
2007
2001
1995
1989
1983
1977
1971
1965
0
1959
This too shall
pass.
The Financial Crisis
• How did it happen?
– Cheap money
• The Fed freaked after 9/11
– Principal-agent problems in mortgage lending
• Origination vs. distribution
• Shouldn’t someone care if the loan pays off?
– Financial engineering vs. regulation and rating
• Innovative products: CDOs, CDSs, etc.
• Regulators and rating agencies: Couldn’t keep up,
or prisoners of their economic philosophy?
• Finger pointing: CRA vs. CFMA vs. FNMA/FHLMC
– Shocking fact: 82% of all subprime mortgage
debt received AAA ratings when repackaged as
mortgage-backed securities!
Financial Crisis: Problem Banks
900
$500
800
“Problem
institutions”:
number
(left scale);
assets
($ billions,
right scale)
$400
700
600
$300
500
400
$200
300
200
$100
100
Annual, through 2010:Q2
Source: Federal Deposit Insurance Corporation
2010
2007
2004
2001
1998
$0
1995
0
Number
Assets
Financial Crisis: Problem Banks
10%
8%
Number and
assets of
“problem
institutions,”
as a percent
of the total
6%
Number
4%
Assets
2%
Annual, through 2010:Q2
Source: Federal Deposit Insurance Corporation
2010
2007
2004
2001
1998
1995
0%
Senior Loan Officer Survey
100%
All
Prime
Subprime
60%
40%
20%
0%
Quarterly, NSA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
-40%
1994
-20%
1992
No data on
subprime
since the end
of 2008!
80%
1990
Net pct of
institutions
reporting
tightening
lending
standards on
mortgage
loans
Senior Loan Officer Survey
100%
80%
60%
40%
20%
0%
Quarterly, NSA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
-40%
1992
-20%
1990
Net pct of
institutions
reporting
tightening
lending
standards on
commercial
real-estate
loans
Senior Loan Officer Survey
100%
Net pct of
institutions
reporting
tightening
lending
standards on
consumer
loans
80%
Credit Cards
Inst Loans
60%
40%
20%
0%
Quarterly, NSA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
-40%
1990
-20%
Senior Loan Officer Survey
100%
80%
60%
40%
20%
0%
Quarterly, NSA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
-40%
1992
-20%
1990
Net pct of
institutions
reporting
tightening
lending
standards on
C&I loans to
medium-tolarge
businesses
Senior Loan Officer Survey
60%
40%
20%
0%
-60%
-80%
Quarterly, NSA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
-40%
1992
-20%
1990
Net pct of
institutions
reporting
stronger
demand for
C&I loans to
medium-tolarge
businesses
Delinquency Rates
10%
All realestate loans
(i.e. both
residential
and
commercial)
8%
6%
4%
2%
Quarterly, SA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
0%
Delinquency Rates
10%
8%
All consumer
loans
6%
4%
2%
Quarterly, SA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
0%
Delinquency Rates
10%
8%
Commercial
and
industrial
loans
6%
4%
2%
Quarterly, SA, thru 2010:Q2
Source: Federal Reserve Board
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
0%
Concluding Remarks
Concluding Remarks
Concluding Remarks
• Obama a socialist?
– If so, then so was Bush…
– …and good for him!
– Bush’s finest hour?
• Viewing an abnormal economy through the
prism of a normal one
–
–
–
–
–
Sharply increase in the “monetary base”
Large short-term federal deficits
Normally, these would be unwise policies
But these are not normal times
Think “enema”
Concluding Remarks
• This recession has three unfortunate
elements that make a strong recovery
unlikely:
– Declining domestic demand
– Financial crisis
– Weak global demand
• Big question:
– Will 2010 be like 1938?
Concluding Remarks
• Wells Fargo Economics Group forecasts:
U.S.
Indicator
2007
Actual
2008
Actual
2009
Actual
2010
F’cast
2011
F’cast
Real GDP
2.1%
0.4%
-2.4%
2.7%
2.2%
Unemp Rate
4.6%
5.8%
9.3%
9.7%
9.6%
Employment
0.90
-3.02
-3.95
0.77
1.03
Housing Sts
1.34
0.90
0.55
0.59
0.81
Annual growth rate
Annual average
Change in millions
Millions of units
September 2010 forecast
Concluding Remarks
• Wells Fargo Economics Group forecasts:
U.S.
Indicator
2007
Actual
2008
Actual
2009
Actual
2010
F’cast
2011
F’cast
Inflation
2.9%
3.8%
-0.3%
1.4%
1.0%
7.25%
3.25%
3.25%
3.25%
3.31%
73.3
79.4
74.8
77.3
83.0
$72.31
$99.65
$61.80
$77.15
$80.25
CPI, annual average
Prime Rate
At year end
Trd-Wtd $
Index, 1973=100
Crude Oil
WTI, ann avg/barrel
September 2010 forecast
Concluding Remarks
• UNC-Charlotte forecasts:
N.C.
Indicator
2006
Actual
2007
Actual
2008
2009
2010
Actual Act/Fore Forecast
Real GDP/S
6.5%
1.3%
-0.7%
-3.5%
2.2%
Unemp Rate
4.7%
4.9%
8.5%
10.9%
10.6%
3.9%
1.6%
-3.4%
-4.5%
1.5%
Annual growth rate
December rate, SA
Employment
Growth rate,
December-December
June 2010 forecast, Bureau of Labor Statistics
Economic Update:
North Carolina and the U.S.
September 15, 2010
Dr. Andrew Brod
Center for Business and Economic Research
Bryan School of Business and Economics
University of North Carolina at Greensboro
Email: [email protected]
Web: http://cber.uncg.edu