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The Economic Outlook:
Will the Headwinds or Tailwinds
Prevail?
Lynn Reaser, Ph.D.
Houston, March 25, 2010
The Fermanian Business & Economic Institute – business & economics in action
© FBEI 2010
Key Topics
Global Outlook
U.S. Economy
Financial Markets
Texas/Houston
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Global Outlook
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Global Manufacturing Rebounds
Index, 50 plus = expansion
60
55
50
45
40
35
30
2005
2006
2007
2008
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2009
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World Trade Dives, Recovers
Real Volumes, annual percent change
8
6
4
2
0
-2
-4
-6
-8
-10
-12
-14
2007
2008
2009
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2010f
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China’s Motor Remains On
Real GDP, annual percent change
14
12
10
8
6
4
2
0
2006
2007
2008
2009
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2010f
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Nations’ Growth Rates to Diverge
7.0
Percent change in 2010 real GDP, forecast
6.0
5.0
4.0
3.0
2.0
1.0
0.0
Emerging
Markets
U.S.
Eurozone
U.K.
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Japan
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Crosscurrents Keep Dollar Stable in 2010
Broad Trade-Weighted Index, Jan 97=100, December average
130
Actual
125
Forecast
120
115
110
105
100
95
2001
2002
2003
2004
2005
2006
2007
2008
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2009
2010f
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U.S. Economy
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U.S. Real GDP to Rebound
4th quarter, percent change over prior year
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-3.0
2006
2007
2008
2009
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2010f
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Consumers Save More, but Trauma Contained
Saving rate, percent
12
Actual
10
Forecast
8
6
4
2
0
1970
1975
1980
1985
1990
1995
2000
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2005
2010f
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Recovery Weaker than Normal
Real GDP, percent change
14
12
10
8
6
4
2
0
-2
-4
-6
Trough to 6 qtrs later
Peak-to-trough
57-58
73-75
81-82
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07-10f
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Output to Recoup Losses in 2010
GDP, billions of chained 2005 dollars
13,800
Actual
13,600
Forecast
13,400
13,200
13,000
12,800
12,600
12,400
2007
2008
2009
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2010f
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Job Growth to Slowly Resume
Change in nonfarm employment, thousands
400
200
0
-200
-400
-600
-800
Q1-09
Q2-09
Q3-09
Q4-09
Q1-10f
Q2-10f
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Q3-10f
Q4-10f
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Jobless Rate to Edge Lower by Year-end 2010
Quarterly average, percent
12
Actual
Forecast
10
8
6
4
2
0
2006
2007
2008
2009
2010f
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Consumer Prices Still Subdued
4th quarter, percent change over prior year
5.0
4.0
3.0
2.0
1.0
0.0
2006
2007
2008
2009
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2010f
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Financial Markets
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Fed’s Balance Sheet Explodes
Billions of dollar, month-end
2300
2100
1900
1700
1500
1300
1100
900
700
2007
2008
2009
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2010
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Interest Rates to Slowly Rise
Quarter-end, percent
6.0
5.0
10-year Treasury Note
4.0
3.0
2.0
1.0
Fed Funds Target
0.0
2006
2007
2008
2009
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2010f
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Profits to Bounce Higher
20
After-tax profits, annual percent change
15
10
5
0
-5
-10
-15
2006
2007
2008
2009e
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Potential Potholes
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Debt Shifts to the Public Sector
Q3 2009, Percent change from prior quarter, annualized
25
20
15
10
5
0
-5
Household
Business
State and Local
Government
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Federal
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Federal Deficit Continues to Deepen
Deficit as percent of GDP, fiscal years
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Risks
•Oil Prices
10-15%
•China
•Sovereign Risk
15-20%
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•Terrorism
•Commercial
Real Estate
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Texas Tracks U.S. Job Performance
Percent change over prior year
6.0
Texas
4.0
2.0
U.S.
0.0
-2.0
-4.0
-6.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
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2009
2010
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Houston and U.S. Job Trends Converge
Percent change over prior year
6.0
Houston
4.0
2.0
U.S.
0.0
-2.0
-4.0
-6.0
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
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200
9
201
0
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Oil Prices Forecast to Stay at Higher Levels
Dollars per barrel, quarterly average, WTI
140
Actual
Forecast
120
100
80
60
40
20
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
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2009
2010f
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Most Houston Sectors Suffer Job Losses
January, percent change over prior year
Government
Private Services
Total
Mining
Manufacturing
Construction
-15
-13
-11
-9
-7
-5
-3
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-1
1
3
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Houston Home Prices* to Rise Moderately
4th quarter, percent change over prior year
6.0
5.0
4.0
3.0
2.0
1.0
0.0
2006
2007
2008
2009
2010f
*FHFA Index
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Houston
Positives
Oil drilling
Exports
Health care
Homebuilding
Negatives
Commercial real
estate
Oil refining
margins
Tight credit
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Houston to See More Jobs
December average, change over prior year, thousands
150
100
50
0
-50
-100
-150
2006
2007
2008
2009
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2010f
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Recap
Global Economy Uneven
U.S. Recovers
Higher Interest Rates and Stock Prices
Houston Outperforms Nation
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Real Change
Emerging Markets Take the Lead
Government Debt Escalates
Less Trust in Markets
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Change, but How Permanent?
Consumer Thrift
Green Economy
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Real Change
Complex Tax System
Risk Taking
Small Business
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