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Election-Year Economics
A Look at the Pocketbook
Issues of 2004
C. Tannenbaum
Chief Economist
LaSalle Bank
ABN AMRO
“It’s the economy,
stupid!”
-- Bill Clinton, 1992
LaSalle Bank
ABN AMRO
Trends in U.S. GDP
Quarterly Change, Annualized
8%
6%
“Potential”
4%
2%
0%
-2%
2000
2001
2002
2003
LaSalle Bank
ABN AMRO
Year over Year Change in Retail Sales
Excluding Food and Autos
8%
7%
6%
5%
4%
3%
2%
1%
0%
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
LaSalle Bank
ABN AMRO
Index of Industrial
Production
118
116
114
112
110
108
106
104
102
Jan-99
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
LaSalle Bank
ABN AMRO
Key Concerns

The Employment
Puzzle
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Non-Farm Payrolls
Year-Over-Year Change
4000
thousands
3000
2000
1000
0
-1000
-2000
1991
Source: BLS
1993
1995
1997
1999
2001
2003
LaSalle Bank
ABN AMRO
Unemployment and Labor
Force Participation
Percent Rate
67.5
7.0
6.5
67.0
6.0
5.5
66.5
5.0
4.5
66.0
Participation Rate
Unemployment
Rate
4.0
3.5
65.5
1995
1998
2001
3.0
2004
LaSalle Bank
ABN AMRO
Consumer Confidence
170
150
130
110
90
70
50
January-99
January-00
January-01
January-02
January-03
January-04
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ABN AMRO
The $100 Million Question:
Why hasn’t hiring
picked up?
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ABN AMRO
Cost of Health Care Benefits
As a Percent of Total Hourly Compensation
7.5%
7.0%
6.5%
6.0%
5.5%
1998
Source: BLS
1999
2000
2001
2002
2003
LaSalle Bank
ABN AMRO
Hourly Wages for Selected
Occupations, U.S. vs. India
$35
U.S.
India
$30
$25
$20
$15
$10
$5
$0
Telephone
Operator
Payroll
Clerk
Paralegal Accountant Financial
Analyst
Source: Bardhan and Kroll, Fisher Center for Real Estate
and Urban Economics, UC Berkeley
LaSalle Bank
ABN AMRO
Productivity
Output per Hour, Q-o-Q
10%
5%
0%
-5%
1998
Source: BEA
1999
2000
2001
2002
2003
LaSalle Bank
ABN AMRO
Initial Jobless Claims
thousands of applicants
550
500
450
400
350
300
250
2000
Source: BLS
2001
2002
2003
2004
LaSalle Bank
ABN AMRO
Key Concerns


The Employment
Puzzle
Deepening Deficits
LaSalle Bank
ABN AMRO
Deficit and Surpluses
as Percent of GDP
4%
2%
0%
-2%
-4%
-6%
-8%
1980
1984
Source: OMB
1988
1992
1996
2000
2004
2008
estimate estimate
LaSalle Bank
ABN AMRO
The Boom is Coming
The Future of Social Security
Contribution Rate
Cost Rate
(% of Payrolls)
35
30
25
20
15
10
03 005 007 009 011 015 025 035 045 055 065 075
0
2
2
2
2
2
2
2
2
2
2
2
2
Source: Social Security Trustees Report
LaSalle Bank
ABN AMRO
Federal Government:
Outlays
National defense
International
Affairs
Health
Medicare
Income Security
Social Security
Interest
OtherLaSalle Bank
ABN AMRO
Yield Curve
U.S. Treasury Securities
Jan-01
6%
Feb-04
4%
2%
• Rates are at risk if the
deficit persists
0%
3 Months
Two Years
Ten Years
LaSalle Bank
ABN AMRO
Housing: Still A Bright Spot
—
—
Sales and
starts are
holding up
Mortgage rates
are still
reasonable
Carry over
spending to
come
U.S. Home Sales
9.0
Millions of Units
—
Existing
New
8.0
7.0
6.0
5.0
4.0
Jan-01
Jan-02
Jan-03
Jan-04
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ABN AMRO
S&P 500
1400
1300
1200
1100
1000
900
800
700
600
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
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ABN AMRO
Sustaining Investment



Diversification is
Essential
Reinforcing the Public
Trust
Maintaining a Balanced
Tax Posture
LaSalle Bank
ABN AMRO
Key Concerns



The Employment
Puzzle
Deepening Deficits
How Free is Free
Trade?
LaSalle Bank
ABN AMRO
($$ Billions)
Our Trade Balance
0
(50)
(100)
(150)
(200)
(250)
(300)
(350)
(400)
(450)
(500)
1980
1985
1990
1995
2000
LaSalle Bank
ABN AMRO
Brother, Can You Spare the
Dollar?
Dollars per Euro

1.3
1.2
1.1

1.0
Jun- Aug- Oct- Dec- Feb03
03
03
03
04

A weaker
currency makes
it easier to
export
One notable
exception: China
How long can
this last?
LaSalle Bank
ABN AMRO
Thoughts on Trade



Weak foreign economies limit
demand for U.S. products
Protectionist measures will lead
to retaliation
Who’s responsible for the shift of
production and jobs? We are!
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ABN AMRO
The Scorecard
2002
2003E 2004E
Real GDP Growth
2.4%
3.1%
4.7%
Inflation (CPI)
1.6%
2.3%
1.4%
Unemployment
5.9%
5.7%
5.5%
Year-End Fed Rate
1.3%
1.0%
1.5%
LaSalle Bank
ABN AMRO
Closing Thoughts
•
•
•
The remainder of the year should
see good economic performance
The risk of underachievement is
rising
The election looks like a real horse
race!
LaSalle Bank
ABN AMRO
“If the economy
doesn’t improve,
you’re fired!”
-- Carl Tannenbaum’s boss, 2004
LaSalle Bank
ABN AMRO
Election-Year Economics
A Look at the Pocketbook
Issues of 2004
C. Tannenbaum
Chief Economist
LaSalle Bank
ABN AMRO