Download The U.S. Economic Outlook

The Global Economic Outlook
May 2005
Jay H. Bryson, Global Economist
Wachovia Corporation
Contributions to U.S. Growth
(year-on-year rates)
6%
4%
2%
0%
-2%
-4%
1997
1998
1999
2000
GDP
2001
Consumption
2002
2003
Investment
2004
2005
U.S. Real GDP Components
(year-on-year growth)
6%
4%
2%
0%
-2%
1998
1999
2000
GDP
2001
2002
Productivity
2003
Employment
2004
2005
Real Spending Indicators
(year-on-year growth, 3-month moving average)
8%
6%
4%
2%
0%
-2%
1991
1993
1995
Disposable Income
1997
1999
2001
2003
Personal Consumption Expenditures
2005
Consumer Purchases of Oil and Gas
(as percent of disposable income)
5%
4%
3%
2%
1%
1970
1975
1980
1985
1990
1995
2000
2005
Household Debt
(as percent of disposable income)
120%
100%
80%
60%
40%
1960
1970
1980
1990
2000
Household Financial Indicators
45%
16%
40%
14%
35%
12%
30%
10%
25%
8%
20%
1960
6%
1970
1980
Liabilities as % of financial assets (LHS)
1990
2000
debt service as % of disposable income
Inventory-to-Sales Ratio
(months of inventories at current sales pace)
1.6
1.5
1.4
1.3
1.2
1990
1992
1994
1996
1998
2000
2002
2004
“Core” Capital Goods Orders
(year-on-year growth, 3-month moving average)
20%
10%
0%
-10%
-20%
-30%
1997
1998
1999
2000
2001
2002
2003
2004
2005
Corporate Financial Indicators
11%
60%
10%
50%
9%
40%
8%
30%
7%
20%
6%
1970
10%
1980
1990
Corporate Profits as percent of GDP (lhs)
2000
Debt/Net Worth (rhs)
“Core” PCE Deflator
(year-on-year change)
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
1995
1997
1999
2001
2003
2005
U.S. Outlook
05-Q2
05-Q3
05-Q4
06-Q1
06-Q2
06-Q3
06-Q4
3.1
3.1
3.2
3.3
3.3
3.3
3.3
PCE
2.3
2.7
2.8
2.7
2.7
2.6
2.6
BFI
8.2
7.8
7.8
7.9
8.2
8.3
8.3
"Core" CPI Inflation
2.5
2.6
2.7
2.8
2.8
2.9
3.0
Fed Funds Rate
3.25
3.75
4.00
4.25
4.50
4.75
4.75
10-Year Treasury
4.70
5.00
5.20
5.40
5.50
5.80
5.90
GDP Growth
Monetary Policy Indicators
10%
8%
6%
4%
2%
0%
1985
1988
1991
1994
1997
Nominal GDP (year-on-year growth)
2000
2003
Fed Funds rate
U.S. External Indicators
(4-quarter moving sums)
billions of dollars
800
600
400
200
0
1995
1996
1997
1998
1999
Current Account Deficit
2000
2001
2002
2003
Private Capital Inflows
2004
Trade in Goods & Services
(year-on-year growth, 3-month moving average)
30%
20%
10%
0%
-10%
-20%
1998
1999
2000
2001
Exports
2002
Imports
2003
2004
2005
Dollar Exchange Rates
Currency
05-Q2
05-Q3
05-Q4
06-Q1
06-Q2
06-Q3
06-Q4
Euro ($/€)
1.32
1.36
1.40
1.42
1.43
1.44
1.45
U.K. ($/£)
1.90
1.92
1.94
1.95
1.96
1.97
1.97
Switzerland (CHF/$)
1.18
1.15
1.12
1.11
1.11
1.10
1.10
Japan (¥/$)
105
102
100
97
94
92
90
Canada (C$/US$)
1.20
1.18
1.16
1.15
1.14
1.13
1.12
Global Exports
(as percent of Global GDP)
30%
25%
20%
15%
10%
5%
0%
1970
1975
1980
1985
1990
1995
2000
Imports-to-Shipments Ratios
5%
40%
4%
30%
3%
20%
2%
10%
1994
1996
1998
Printed Materials (left)
2000
2002
2004
All Manufacturing Industries (right)
Real GDP Growth Rates
(year-on-year rates)
12%
10%
8%
6%
4%
2%
0%
1997
1998
1999
2000
2001
China
2002
India
2003
2004
2005
Chinese CPI Inflation
(year-on-year rate)
6%
4%
2%
0%
-2%
-4%
1999
2000
2001
2002
2003
2004
2005
Chinese Industrial Production
(year-on-year growth, 3-month moving average)
25%
20%
15%
10%
5%
0%
1999
2000
2001
2002
2003
2004
2005
GDP & Population
25%
20%
15%
10%
5%
0%
U.S.
China
Percent of World Population
India
Percent of World Output
Real GDP
1600
1400
index
1200
1000
800
600
400
200
0
0
10
20
30
40
50
years
US: 1869-1929
China: 1978-2004
Japan: 1955-2004
60
Per Capita GDP
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
$0
India
China
Russia
Malaysia
Poland
Mexico
Chinese Renminbi
• Although not necessarily imminent, the
currency will become more flexible.
• China is slowly liberalizing its financial
system. Flexibility needs to be seen in that
context.
• Managed float?
• Not apparent that currency would
necessarily appreciate in long run.
Notable Near-Term Risks
Upside
• Synchronous global
upswing in capital
spending.
• Decline in foreign
savings rates.
• More fiscal stimulus,
especially in the
Eurozone.
Downside
• Dollar crash.
• Geopolitical tension
(terrorism, Iran/North
Korea).
• Spike in oil prices.
• Inflation scare in U.S.
Summary of
Near-Term Outlook
• Global growth should be solid in 2005,
albeit somewhat slower than last year.
• Inflation is starting to turn up, although a
return to the 1970’s is very unlikely.
• Short-term interest rates should rise further
over the next year or so.
• Dollar should trend even lower.