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Economic Outlook
Nevada Taxpayers Association
March 02, 2010
Where Are We Now?
Interest
Rates
Inflation
Growth
What is your outlook for…
Profits
Source:
Nevada Taxpayers Association
2
The Dollar
Business Quality: Where Are We Now?
Real GDP
Bars = CAGR
10.0%
Line = Yr/Yr Percent Change
10.0%
GDPR - CAGR: Q4 @ 5.7%
GDPR - Yr/Yr Percent Change: Q4 @ 0.1%
8.0%
6.0%
8.0%
6.0%
Forecast
Sustained recovery in 2010
4.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
2000
2002
2004
2006
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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2008
2010
Business Quality: Where Are We Now?
Real Final Sales
Bars = CAGR
8.0%
Line = Yr/Yr Percent Change
8.0%
6.0%
6.0%
4.0%
Some measures of growth show
a gloomier result
Forecast
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
Real Final Sales - CAGR: Q4 @ 2.2%
Real Final Sales - Yr/Yr Percent Change: Q4 @ 0.1%
-10.0%
-8.0%
-10.0%
2000
2002
2004
2006
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
4.0%
4
2008
2010
Where Are We Now?
Employment Cycles
Percent Change from Cycle Peak
10.0%
8.0%
6.0%
4.0%
Employment will eventually
regain its peak, but not quickly
10.0%
1948-1949 Cycle
1981-1982 Cycle
1989-1991 Cycle
2001 Cycle
2007-To-Date
Forecast
8.0%
6.0%
4.0%
2.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
0
4
8
12
16
20
24
28
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Nevada Taxpayers Association
5
32
36
40
44
48
Inflation
Timing of Recovery Will Vary Across Metro Areas
Inflation Indicators
(Yr/Yr Percent Change)
December-09
PCE Deflator
Core PCE Deflator
Average Hourly Earnings
Crude Oil
Inflation is not yet a concern for
the Fed
2.1%
1.5%
2.4%
92.9%
Historical Perspective
Historical Perspective
Crude Oil
PCE Deflator vs. Core PCE Deflator
Year-over-Year Percent Change
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
0.0%
PCE Deflator: Dec @ 2.1%
"Core" PCE Deflator: Dec @ 1.5%
-1.0%
94
96
98
00
02
$160
$140
$140
$120
$120
$100
$100
$80
$80
$60
$60
$40
$40
$20
$20
Crude Oil: Feb @ $71.19
-1.0%
92
NYMEX Front-Month Contract, Dollars per Barrel
$160
04
06
08
$0
2000
$0
2001
2002
2003
2004
2005
2006
2007
2008
2009
Source: U.S. Department of Commerce, U.S. Department of Labor, NYMEX and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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2010
Credit Spreads
Real Interest Rates and Monetary Base
Real Fed Funds Rate* vs. M2 Money Growth
16%
16%
*Fed Funds Rate Minus Core CPI
12%
The monetary base continues to
grow, more slowly now
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
Real Fed Funds Rate: Dec @ -1.7%
M2 Money Supply Growth: Dec @ 3.4%
-8%
1990
1992
1994
1996
1998
2000
2002
2004
2006
Source: Federal Reserve Board, U.S. Department of Labor and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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2008
-8%
2010
Bank Viability—Supply: Financing
Net Percentage of Banks Tightening Standards
C&I Loans to Large & Medium Firms
100%
Lending standards have eased
noticeably for large & medium
firms
100%
80%
80%
60%
60%
40%
40%
20%
20%
0%
0%
-20%
-20%
-40%
-40%
C&I Loans to Large & Medium Firms: Q1 @ -5.5%
-60%
1990
1994
1998
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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2002
2006
-60%
2010
Bank Viability: Yield Curve
Yield Curve Spread
Basis Points
300
300
10Y - 2Y: Jan @ 280 bps
250
Yield curve is steep but we
expect flattening ahead
250
2Y - FFR: Jan @ 82 bps
200
200
150
150
100
100
50
50
0
0
-50
-50
-100
-150
1996
-100
1998
2000
2002
Source: Federal Reserve Board and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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2004
2006
2008
-150
2010
Business Demand: Manufacturing
ISM Manufacturing Composite Index
Diffusion Index
65
Manufacturing sees recovery in
output and orders
65
60
60
55
55
50
50
45
45
40
40
35
35
ISM Manufacturing Composite Index: Jan @ 58.4
12-Month Moving Average: Jan @ 48.1
30
30
87
89
91
93
95
97
99
01
Source: Institute for Supply Management and Wells Fargo Securities, LLC
Nevada Taxpayers Association
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03
05
07
09
Business Demand: New Orders
NonDefense Capital Goods Orders, Ex-Aircraft
Series are 3-Month Moving Averages
40%
40%
30%
30%
20%
20%
10%
10%
0%
Signs of life have appeared in
business spending
0%
-10%
-10%
-20%
-20%
-30%
-30%
-40%
-40%
3-Month Annual Rate: Dec @ 10.7%
Year-Over-Year Percent Change: Dec @ -7.1%
-50%
-50%
93
95
97
99
01
03
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
11
05
07
09
Business Demand: Housing
Housing Starts
Millions of Units
2.4
2.4
2.1
2.1
Forecast
The declines in construction are
behind us, but recovery will not
be quick
1.8
1.8
1.5
1.5
1.2
1.2
0.9
0.9
0.6
0.6
0.3
0.3
0.0
0.0
80
82
84
86
88
90
92
94
96
98
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
12
00
02
04
06
08
10
Business Demand: Small Businesses
Small Business Optimism
Overall Index 1986 = 100
110
Renewed confidence is still
distant
110
105
105
100
100
95
95
90
90
85
85
Small Business Optimism Index: Dec @ 88.0
80
80
87
89
91
93
95
97
99
01
03
05
Source: National Federation of Independent Businesses and Wells Fargo Securities, LLC
Nevada Taxpayers Association
13
07
09
Business Demand: Large and Medium Firms
Net Percent of Banks Reporting Stronger Demand
Large & Medium Firms
60%
60%
40%
40%
20%
20%
0%
Credit demand is still minimal
0%
-20%
-20%
-40%
-40%
-60%
-60%
Demand for C&I Loans to Large & Medium Firms: Q1 @ -25.5%
-80%
1992
-80%
1996
2000
Source: Federal Reserve and Wells Fargo Securities, LLC
Nevada Taxpayers Association
14
2004
2008
Difficult Choices
Federal Budget Balance
Percentage of GDP
4.0%
Forecast
2.0%
The deficit soared during the
crisis, and remains large relative
to the economy
4.0%
2.0%
0.0%
0.0%
-2.0%
-2.0%
-4.0%
-4.0%
-6.0%
-6.0%
-8.0%
-8.0%
-10.0%
-10.0%
Budget Balance: Q4 @ -10.3%
-12.0%
-12.0%
2000
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce, U.S. Department of the Treasury and Wells Fargo Securities, LLC
Nevada Taxpayers Association
15
Global Economies
U.S. Trade Weighted Dollar Major Index
March 1973=100
115
Economic and political
fundamentals will drive the
dollar upward
110
110
105
105
100
100
95
95
90
90
85
85
80
80
75
75
70
65
2000
70
Major Currency Index: Jan @ 75.8
65
2001
2002
2003
2004
2005
Source: Federal Reserve and Wells Fargo Securities, LLC
Nevada Taxpayers Association
115
16
2006
2007
2008
2009
2010
Nevada
Nevada
Nevada Employment
Year-over-Year Percent Change
10%
Construction, leisure &
hospitality services were
important drivers of NV growth,
but were crushed in the
recession
10%
5%
5%
0%
0%
-5%
-5%
Manufacturing: Dec @ -7.1%
Non-Manufacturing: Dec @ -6.5%
-10%
-10%
98
99
00
01
02
03
04
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Nevada Taxpayers Association
18
05
06
07
08
09
Nevada
Nevada Housing Permits
Seasonally Adjusted Annual Rate
40
40
Single-Family: Dec @ 4,576
Multi-Family: Dec @ 2,343
The housing boom generated an
excess supply of new homes, and
new activity is on hold until
existing inventory is absorbed
30
30
20
20
10
10
0
0
90
92
94
96
98
00
02
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
19
04
06
08
Nevada
Nevada Population Growth
In Thousands
100
Migration patterns in the west
support Nevada’s population
growth, though the boom years
will not likely return in the near
future
100
75
75
50
50
25
25
0
0
80
82
84
86
88
90
92
94
96
98
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
20
00
02
04
06
08
Nevada
Nevada Home Prices
FHFA (OFHEO) Home Price Index
70%
The overbuild in housing and
flood of foreclosures continue to
wreak havoc on prices
70%
60%
60%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
-20%
-20%
Quarterly Change, Annual Rate: Q3 @ -23.6%
-30%
-30%
Year-over-Year Percent Change: Q3 @ -16.7%
-40%
-40%
90
92
94
96
98
00
02
Source: Federal Housing Finance Agency and Wells Fargo Securities, LLC
Nevada Taxpayers Association
21
04
06
08
Nevada
Las Vegas MSA Employment
Year-over-Year Percent Change
20%
Las Vegas’ reliance on gaming
helped in the boom, but now
retards the recovery
20%
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
-8%
-8%
Manufacturing: Dec @ -6.9%
Non-Manufacturing: Dec @ -7.5%
-12%
-12%
91
93
95
97
99
01
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Nevada Taxpayers Association
22
03
05
07
09
Nevada
Las Vegas MSA Housing Permits
Seasonally Adjusted Annual Rate
50
50
Single-Family: Dec @ 4,176
Single-Family, 12-Month Mov. Avg.: Dec @ 3,813
Multi-Family, 12-Month Mov. Avg.: Dec @ 1,869
The majority of home sales are
the result of foreclosure—no
new construction is needed
40
40
30
30
20
20
10
10
0
0
90
92
94
96
98
00
02
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
23
04
06
08
Nevada
Las Vegas MSA Population Growth
In Thousands
80
Population growth will likely be
slower than average for several
years
80
60
60
40
40
20
20
0
0
80
82
84
86
88
90
92
94
96
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Nevada Taxpayers Association
24
98
00
02
04
06
08
Nevada
Las Vegas MSA Home Prices
FHFA (OFHEO) Home Price Index
75%
The market is flooded with
properties and prices will
continue to fall until supply and
demand begin to align
75%
50%
50%
25%
25%
0%
0%
-25%
-25%
Quarterly Change, Annual Rate: Q3 @ -29.8%
Year-over-Year Percent Change: Q3 @ -22.5%
-50%
-50%
90
92
94
96
98
00
02
Source: Federal Housing Finance Agency and Wells Fargo Securities, LLC
Nevada Taxpayers Association
25
04
06
08
Appendix
Wells Fargo Economics Group Publications
A Sampling of Our Recent Special, Regional & Industry Commentary
Recent Special Commentary
Title
Commercial Real Estate Chartbook: Quarter 4
Housing Chartbook: February 2010
Texas Economic Outlook: February 2010
The Long Road Ahead for Greece (and Others)
Employment: Growth is Finally Coming
Authors
Vitner, Khan & Kamar.
Vitner & York
Aleman & Vitner
Bryson
Silvia, York & Whelan
2010: Year of the Tiger or Asian Bubble?
U.S. and Chinese Labor Markets: Interdependencies
Colorado Economic Outlook: January 2010
Bryson & Kamaruddin
Silvia
Anderson & Kashmarek
December-31
December-31
December-31
December-30
December-15
Georgia Economic Outlook: December 2009
Florida Economic Outlook: December 2009
California Economic Outlook: December 2009
New Jersey Economic Outlook: December 2009
Pennsylvania Economic Outlook: Spotlight on Jobs
Vitner & Kamaruddin
Vitner & Kamaruddin
Anderson
Vitner, Khan & Kamar.
Bryson & Quinlan
November-18
November-13
November-11
November-04
November-04
November-04
November-03
Santa Tightens His Belt Another Notch
North Carolina Faces Difficult Road to Recovery
Commercial Real Estate Chartbook: Q3
Did the Nation Overdose on Debt?
An Economy at Non-Market Prices
Inflation Chartbook: November 2009
How Bleak Is the British Consumer Spending Outlook
Vitner & York
Silvia, York & Whelan
Vitner, Khan & Kamar.
Silvia & Whelan
Silvia
Vitner, Khan & Kamar.
Bryson
What Is Gold Telling Us?
Housing Chartbook: October 2009
Beyond America, Canadian Economic Prospects
Georgia Economic Outlook: October 2009
Comments Before Federal Reserve Advisory Panel
Bryson, Khan & Kamar.
Vitner & York
Bryson & Quinlan
Vitner & Kamaruddin
Silvia
Date
February-17
February-12
February-09
February-05
February-01
January-28
January-28
January-12
To join any of our research
distribution lists please visit our
website:
http://www.wachovia.com/
economicsemail
October-20
October-19
October-15
October-06
October-05
September-24 What's Wrong With the Dollar?
September-03 Commercial Real Estate Chartbook: Q2
September-02 Clunkernomics: Auto Sales Set to Boost Real GDP
Nevada Taxpayers Association
27
Bryson
Vitner, Khan & Kamar.
Vitner & Khan
Wells Fargo Securities, LLC Economics Group
Diane Schumaker-Krieg
Global Head of Research & Economics





[email protected]
Mark Vitner
Jay H. Bryson, Ph.D.
Senior Economist
Global Economist
[email protected]
 U.S. Macro Economy
 Real Estate
John E. Silvia, Ph.D.
Chief Economist

[email protected]
Scott Anderson, Ph.D.
Eugenio Aleman, Ph.D.
Senior Economist

[email protected]
 Global Economies
[email protected]

Senior Economist

[email protected]

U.S. Macro Economy
U.S. Macro Economy
Sam Bullard
Anika Khan
Azhar Iqbal
Adam G. York
Economist
Economist
Econometrician
Economist
[email protected]
 U.S. Macro Economy
 Financial Services


[email protected]
 Real Estate
 Retail & Automotive
[email protected]
 Quantitative MacroEconomic Modeling

[email protected]
 U.S. Consumer
 Real Estate
Ed Kashmarek
Tim Quinlan
Kim Whelan
Yasmine Kamaruddin
Economist
Economic Analyst
Economic Analyst
Economic Analyst
[email protected]
 U.S. Macro Economy


[email protected]
 Global Economies
 Business Investment
[email protected]
 U.S. Macro Economy
 Business Investment

[email protected]

U.S. Macro Economy
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Nevada Taxpayers Association
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