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Economic Outlook
CCIM
March 5, 2008
Economic Growth
Wachovia
While Risks to the Economic Expansion Have Increased Considerably,
We Continue To Believe We Will Avoid A Recession
Real GDP
8.0%
Bars = Compound Annual Growth Rate
Line = Yr/ Yr Percent Change
8.0%
7.0%
7.0%
6.0%
6.0%
Forecast
Growth will be slower
during the first half of
the year but Real
GDP should remain
positive
5.0%
5.0%
4.0%
4.0%
3.0%
3.0%
2.0%
2.0%
1.0%
1.0%
0.0%
0.0%
-1.0%
GDPR - CAGR: Q4 @0.6%
GDPR - Yr/ Yr Percent Change: Q4 @2.5%
-2.0%
1998
-1.0%
-2.0%
2000
2002
2004
2006
2008
Wachovia Economics Group
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Employment Growth
Wachovia
Preliminary Figures Show Job Growth Fell Slightly In January. Declines
Would be Much Larger In An Actual Recession
Nonfarm Employment Change
Total Employed in Thousands
500
Employment growth
has weakened but is
nowhere near
recession levels
500
400
400
300
300
200
200
100
100
0
0
-100
-100
-200
-200
-300
-300
Nonfarm Employment Change: Jan @-17,000
-400
2000
-400
2001
2002
2003
2004
2005
2006
2007
2008
Wachovia Economics Group
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Labor Markets
Wachovia
The Unemployment Rate Has Risen But Remains Relatively Low. Past
Gains Of This Magnitude Have Coincided With Recessions Or Sharp
Slowdowns
Unemployment and Wage Rates
Seasonally Adjusted
8%
5%
7%
4%
The unemployment
rate remains slightly
below “full
employment”
6%
3%
5%
2%
4%
Unemployment Rate: Jan @4.9% (Left Axis)
Hourly Earnings: Jan @3.7% (Right Axis)
3%
1%
86
88
90
92
94
96
98
00
02
04
06
Wachovia Economics Group
08
4
Consumer Spending
Wachovia
Consumer Spending Is Primarily Driven By Income Growth, Which
Remains Solidly Positive. However, The Housing Slump Will Slow
Spending Growth
Retail Sales Ex. Auto and Gas vs. Income Growth
3 Month Moving Averages
15.0%
15.0%
Tax Cut 2
12.5%
Housing Refi Boom
12.5%
Stock Market
Bubble
10.0%
10.0%
Tax Cut 1
Concerns about the
wealth effect are
overblown
7.5%
7.5%
5.0%
5.0%
2.5%
2.5%
0.0%
0.0%
Disposable Personal Income Yr/ Yr % Change: Dec @5.8%
3 Month Annual Rate: Jan @1.9%
-2.5%
-2.5%
96
97
98
99
00
01
02
03
04
05
06
07
08
Wachovia Economics Group
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ISM Manufacturing
Wachovia
ISM Manufacturing Composite Index
Diffusion Index
65
Manufacturing activity
is consistent with a
slowdown not a
recession
65
60
60
55
55
50
50
45
45
40
40
ISM Composite Index: Feb @48.3
12 Month Moving Average: Feb @51.0
35
35
87
89
91
93
95
97
99
01
03
05
07
Wachovia Economics Group
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Housing
Wachovia
The Bulk Of The Declines In Homebuilding Are Behind Us
Real Residential Investment
30.0%
Bars = Compound Annual Growth Rate
Line = Yr/ Yr Percent Change
20.0%
30.0%
20.0%
Forecast
Permits in many of
the most challenged
markets are
approaching zero
10.0%
10.0%
0.0%
0.0%
-10.0%
-10.0%
-20.0%
-20.0%
Res. Investment - CAGR: Q4 @-23.9%
Res. Construction - Yr/ Yr Percent Change: Q4 @-18.3%
-30.0%
1998
-30.0%
2000
2002
2004
2006
2008
Wachovia Economics Group
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Housing
Wachovia
We Overbuilt Homes for Five Straight Years & We Will Need to UnderBuild For A Few Years Before the Excess Inventory is Corrected
Housing Starts
Millions of Units
2.1
2.1
Dashed Line is Underlying Demographic Trend
Housing will not
meaningfully rebound
before the end of the
decade
1.9
1.9
1.7
1.7
1.5
1.5
1.3
1.3
1.1
1.1
0.9
0.9
0.7
0.7
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
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8
OFHEO
Wachovia
Over Sixty Percent of the U.S. Population Live in Cities With Positive Home Price Growth
OFHEO Home Price Index
OFHEO Home Price Index
Q4-2007 vs. Q4-2006
Greater than 4.9%
3.1% to 4.9%
1.5% to 3.1%
-2.0% to 1.5%
Less than -2.0%
Source: OFHEO and Wachovia Corp.
Wachovia Economics Group
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Investor & Second-Home Mortgages
Wachovia
Investors Were Responsible For More than Half of the Purchases in Some Markets in 2006
Non-Owner Occupied Purchase Loans: 2006
Non-Owner Occupied Purchase Loans
Percent of Total Value of Purchase Loans
Greater than 25%
15.0% to 25.0%
10.0% to 15.0%
7.5% to 10.0%
Less than 7.5%
Source: HMDA and Wachovia Corp.
Wachovia Economics Group
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Office Vacancies
Wachovia
Office Vacancy Rates
Percent Vacant
25.0%
25.0%
Metropolitan Office Vacancy Rate: Q4 @12.8%
Suburban Office Vacancy Rate: Q4 @14.2%
Downtown Office Vacancy Rate: Q4 @10.3%
The office market is
essentially in
equilibrium
20.0%
20.0%
15.0%
15.0%
10.0%
10.0%
5.0%
5.0%
0.0%
1990
0.0%
1994
1998
2002
2006
Wachovia Economics Group
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Industrial Vacancies
Wachovia
Industrial Vacancy Rates
Percent Vacant
12.0%
12.0%
10.0%
Industrial markets are
stronger than the
vacancy data suggest
10.0%
8.0%
8.0%
6.0%
6.0%
4.0%
4.0%
2.0%
2.0%
Industrial Vacancy Rate: Q4 @10.2%
0.0%
1980
0.0%
1984
1988
1992
1996
2000
2004
Wachovia Economics Group
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Greensboro
Wachovia
Greensboro MSA Unemployment Rate
Seasonally Adjusted
7%
Unemployment
remains near the
national average
7%
6%
6%
5%
5%
4%
4%
3%
3%
2%
2%
Unemployment Rate: Dec @4.8%
12-Month Moving Average: Dec @4.9%
1%
1%
90
92
94
96
98
00
02
04
06
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13
Greensboro
Wachovia
Greensboro MSA Home Prices
OFHEO Home Price Index
15%
15%
Quarterly Change, Annual Rate: Q4 @6.7%
Year-Over-Year Percent Change: Q4 @3.9%
Home price growth
remains steady
12%
12%
9%
9%
6%
6%
3%
3%
0%
0%
-3%
-3%
-6%
-6%
90
92
94
96
98
00
02
04
06
Wachovia Economics Group
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Greensboro
Wachovia
Greensboro MSA Population Growth
In Thousands
15
Population growth
has been a great
strength of many
North Carolina cities
15
12
12
9
9
6
6
3
3
0
0
80
82
84
86
88
90
92
94
96
98
00
02
04
Wachovia Economics Group
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Appendix
Wachovia Economics Group
16
Economics Group Publications
Appendix
A Sampling of Our Recent Special, Regional & Industry Commentary
Distribution Lists
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om
Recent Special Commentary
Date
February-22
February-14
February-11
February-11
Title
Will U.S. Export Growth Buckle?
The Outlook for Bank of England Monetary Policy
(When) Will the ECB Cut Rates?
Global Chartbook - February 2008
Bryson
Bryson
Bryson
Bryson
January-30
January-28
January-28
January-22
January-22
January-16
January-16
January-09
January-09
January-03
Fed Lowers Target Funds Rate by 50 Basis Points
It Would Be So Much Easier To Be a Pessimist
U.S. Recession? Who Would be Next?
Fed Slashes the Funds Rate 75 Basis Points
Recession: The Measure of Economic Weakness
2007 Holiday Sales Wrapped-Up
Housing Outlook 2008
Credit & The Real Economy: Part II
Global Chartbook - January 2008
Credit & The Real Economy: Part I
Silvia
Vitner
Bryson
Vitner
Silvia & Iqbal
Khan
Vitner & York
Silvia
Bryson
Silvia
State Personal Income - Third Quarter 2007
2008 Annual Outlook - What' s to Come in the Year Ahead?
Central Banks Take Step to Combat Credit Crunch
FOMC Meeting - December 11, 2007
Housing Chartbook - December 2007
Holiday Sales Forecast Update
Texas Feels Heat from the Housing Slump
OFHEO House Price Index
Recession Forecasting: A Statistical Approach
Vitner & York
December-19
December-17
December-12
December-11
December-11
December-07
December-04
December-04
December-03
Authors
November-30 Is a Lasting Improvement in the Trade Deficit in the Cards?
November-29 Impact of the Credit Crisis on Banks
Bryson
Silvia
Vitner & York
Vitner & Khan
Vitner & York
Vitner & York
Silvia & Lai
Bryson
Silvia
Wachovia Economics Group
17
Economics Group
U.S. Macro
Economy
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Economics Group
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Appendix
John E. Silvia, Ph.D.
Mark Vitner
Jay H. Bryson, Ph.D.
Chief Economist
Senior Economist
Global Economist
704.374. 7034
[email protected]
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