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The Recession is Over Haley Araki Owen Chen Richard Cheng Peter Shao Stock Markets 11,205 on 4/26/10 Up 70% 6,547 on 3/9/09 Up 70% Interest rate Money Supply Interest rate Investment Demand Money Demand Quantity of Money Investment Nonfarm Employment Unemployment Rate (%) (thousands, SAAR) Labor Force Labor Force (thousands) (thousands) 155,500 155,000 154,500 154,000 153,500 153,000 152,500 152,000 Apr May Jun July Aug Sep Oct Nov Dec Jan Fab Mar Apr 09 09 09 09 09 09 09 09 09 10 10 10 10 Capacity Utilization Rate (percent) April 2010 73.6% April 2009 69.5% Retail Sales ($ Billions, SAAR) Up 6% New Home Sales (thousands, SAAR) U.S. Census Bureau Building Permits (thousands, SAAR) + 29% U.S. Census Bureau Summary 2009 2010 DJIA 6,547 points 10,000+ points GDP -6.5% 3.6% Capacity Utilization 69.5% 73.6% Retail Sales $344 billion $364.6 billion New Home Sales 337,000 411,000 Building Permits 523,000 685,000 • The recovery is clearly gaining traction as shown by the indicators above, which are just a representation of the myriad of indicators demonstrating positive trends. However, the European debt crisis may slow the recovery Ventura County Star, May 22, 2010, page A16 What’s Happening in Europe European Union GDP Growth Rate Frankfurt Stock Exchange (DAX index) Up nearly 30% European Industrial Production Index 2005 = 100 PIIGS Credit-default swaps linked to Greek government bonds have surged to record highs, signaling investors perceive them to be the world’s riskiest debt. • • • • PIIGS - Portugal, Italy, Ireland, Greece, Spain Greece’s debt to GDP ratio is at 115% Germany’s debt to GDP ratio is at 69% Insurance premiums have increased eight-fold since ‘08 Ten-Year Bond Yield Spreads Greek 10 year rate up to 9.76% Spread to German Bunds also rises to over 400 basis points • In late April 2010, the 10-year Greek bond yield rose 164 basis points to nearly 12 percent. • The spread exceeded 900 basis points over the German bond yield. Value of the Euro $/ € • Fears of possible default push Euro down 20% since 2008 • However, the European Commission forecasts a comeback after the bailout Future of the Euro • • • May 7 - ECB and IMF approved a $1 trillion bailout Euro shot up by $0.015 in one day after bailout announcement Over time, as fears of default subside, the strength of the Euro should increase, bolstering US exports to Europe €/$ $/€ Dollar Supply Dollar Demand quantity Euro Supply Euro Demand quantity Conclusion • Most US economic indicators are showing positive trends • The recovery is gaining traction • The European debt crisis is causing volatility in global markets due to uncertainty • However, the bailout is likely to fix the problem. The Euro is expected to recover • US economic growth is unlikely to be significantly impacted • The US economy will most likely transition to an expansionary phase by 2011