Download of GDP - New York Association for Business Economics

US Economic Outlook
From Financial Crisis to Severe Recession
January 2009
Peter Hooper
Chief Economist
Deutsche Bank Securities
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US GDP Growth Outlook
Real GDP
Contributions to GDP Growth
Q4/Q4
Q/Q%, AR
Consumer spending (PCE)
Residential investment
Net exports
Business investment
Change in inventories
Government spending
Q/Q%, AR
2009 -1.1
8
8
Potential
growth
Real GDP growth
6
Forecast
6
4
4
2
2
0
0
-2
-2
-4
-4
2003-07
average
-6
-6
-8
-8
-10
-10
Q1
Q2
Q3
2008
Q4
Q1
Q2
Q3
2009
.
1
Source: BEA, DB Global Markets Research
Q4
2008 -0.4
Q4
2010
2010 2.6
The cyclical elements of GDP
$ bln
Consumer durables + BFI + residential investment (ls)
3750
$ bln
Other components of GDP (rs)
10000
3000
8000
2250
6000
1500
4000
750
2000
375
1000
200
1947
2
1959
1971
1983
Source: BEA, DB Global Markets Research
1995
2007
Cyclical elements of GDP: Key Components
$ bln
Real private nonresidential fixed investment
Real private residential investment
Real PCE: durable goods
1500
1250
1000
750
1500
1250
1000
750
500
500
250
250
125
125
50
50
1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007
3
$ bln
Source: BEA, DB Global Markets Research
Credit crunch depressing real consumer spending
%
80
2-qtr %chg, AR
FEB Survey:
banks willingness to lend (ls)
10.0
7.5
40
5.0
0
2.5
0.0
-40
Real PCE
(rs)
-80
1968
4
-2.5
-5.0
1973
1978
1983
1988
1993
1998
Source: FRB, BEA, DB Global Markets Research
2003
2008
Spreads on US consumer loans have blown out 5-10 fold
as securitization has died
bps
Fixed-rate spreads to swaps
3000
3-yr auto*
5-yr credit card
3000
2500
5-yr HEL
5-yr CMBS
2500
2000
2000
1500
1500
1000
1000
500
500
0
39451
0
39535
39619
39703
* 3-yr auto spreads are for prime benchmark autos
5
bps
Source: DB Global Markets Research
39787
Personal saving rate should jump in response to
plunge in household wealth
%
14
12
Ratio
Stock at current level,
House prices -12%
Personal saving
rate (ls)
6.5
6.0
10
5.5
8
Wealth-to-income
ratio (rs)
6
5.0
4
4.5
2
4.0
0
-2
1950
6
3.5
1960
1970
1980
1990
Source: BEA, FRB, DB Global Markets Research
2000
2010
Summing up impacts on consumer spending for year ahead
Driver
7
Impact on real PCE growth % pts
Wealth loss
-3.5
Credit crunch
-2.0
Oil price decline
2.0
Tax cuts + transfers
1.5
Total
-2.0
Residential investment has been in decline for 3+ years
Ratio
Ratio
Residential investment as a share of GDP
0.070
0.070
0.060
0.060
0.050
0.050
0.040
0.040
0.030
0.030
Forecast
0.020
1961
8
0.020
1968
1975
1982
1989
1996
Source: BEA, DB Global Markets Research
2003
2010
Homebuilding has fallen below demand trend
Thousands
Thousands
2500
New home
permits
2500
2000
2000
1500
1500
Trend
1000
1000
500
500
Household
formations
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
9
Source: Census,NAR, DB Global Markets Research
0
Excess Housing Stock beginning to recede
Thousands
18000
Thousands
18000
Vacant homes*
17000
16000
15000
14000
17000
16000
Trend calculated
from 1965 to
2003
15000
14000
13000
13000
12000
12000
11000
11000
10000
1990
10000
1994
1998
2002
2006
* Includes homes for sale, homes for rent, and homes held off the market;
excludes seasonal homes and second homes not used a primary residence.
10
Source: Census, DB Global Markets Research
Total housing stock has fallen less than homebuilding
Thousands
Total housing stock, yoy
Thousands
2500
2500
2000
2000
1500
1500
1000
500
0
1998
11
1000
Housing completions
plus mobile home
placements, 4-qtr MA
500
0
2000
2002
2004
2006
Source: Census, DB Global Markets Research
2008
Business fixed investment relatively subdued during
recent expansion
Business fixed investment as a share of GDP
Ratio
Ratio
0.16
0.16
0.14
0.14
Forecast
0.12
0.12
0.10
0.10
0.08
1961
0.08
12
1968
1975
1982
1989
1996
Source: BEA, DB Global Markets Research
2003
2010
Inflation risk has disappeared
yoy%
5
4
Consumer prices (PCE)
5
Core (ex food
and energy)
Headline
4
3
3
2
2
1
1
0
0
-1
-3
1996
-1
Fed's
comfort
zone
-2
13
yoy%
-2
-3
1998
2000
2002
2004
2006
Source: BEA,DB Global Markets Research
2008
2010
Projections of US federal budget balance
CBO baseline deficit excluding
Obama stimulus plan (OSP)
14
CBO baseline +
Obama
stimulus plan
+OSP and
extension of
tax cuts
Billion $
% of GDP
(% of GDP)
(% of GDP)
2008
-455
-3.2
-3.2
-3.2
2009
-1186
-8.3
-11.1
-11.1
2010
-703
-4.9
-7.6
-8.3
2011
-498
-3.3
-3.4
-4.8
2012
-264
-1.6
-2.0
-3.9
2013
-257
-1.5
-2.1
-4.1
Avg.
2014-18
-236
-1.2
-2.5
-4.3
Source: CBO, DB Global Markets Research
Projections of federal debt held by public
CBO baseline deficit excluding
Obama stimulus plan (OSP)
15
CBO baseline +
Obama
stimulus plan
+OSP and
extension of
tax cuts
Billion $
% of GDP
(% of GDP)
(% of GDP)
2008
5803
40.6
40.6
40.6
2009
7193
50.5
53.3
53.4
2010
7829
53.6
59.1
59.9
2011
8238
51.9
59.0
61.4
2012
8475
49.2
57.3
61.8
2013
8516
47.9
54.5
61.3
2018
9054
42.1
47.5
67.5
Source: CBO, DB Global Markets Research
US debt/GDP moving to highest level in 50 years
Debt held by the public
% of GDP
% of GDP
CBO baseline
+ OSP and extension
of tax cuts
100
90
100
90
CBO baseline
+ Obama Stimulus Plan
80
80
70
70
CBO baseline
projections
60
50
16
60
50
40
40
30
30
20
1947
20
1957
1967
1977
1987
1997
Source: Haver, CBO, DB Global Markets Research
2007
2017
US debt surges in WWII and in 1980s not strongly
associated with rising Treasury yields
% of GDP
120
US
Debt held by the public (ls)
20-yr real treasury bond yield (rs)
%
10
100
6
80
2
60
-2
40
-6
20
1939 1945 1951 1957 1963 1969 1975 1981 1987 1993 1999 2005
-10
17
Source: OMB, NBER, Haver, DB Global Markets Research
Rising debt in Japan has had little effect on real rates
%
%
Japan
180
2.5
160
2.0
1.5
140
1.0
120
0.5
100
0.0
Govt. debt as a % of GDP (ls)
80
10-yr real Govt. bond yield (4q MA, rs)
60
1996
18
-0.5
-1.0
1998
2000
2002
2004
Source: Haver, DB Global Markets Research
2006
2008
A positive relationship between debt and real rates in
Sweden
%
Sweden
80
%
10
8
60
6
40
4
2
20
Govt. debt as a % of GDP (ls)
10-yr real Govt. bond yield (4q MA, rs)
0
1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
19
Source: Haver, DB Global Markets Research
0
-2
Government debt and real interest rates across industrial
countries
Govt debt as % of GDP : 2007*
Real interest rate (10-yr): 2007
Govt. debt as
% of GDP
180
Japan
160
y = -4.4682x + 59.577
R2 = 0.013
140
120
Italy
Regression line
100
80
60
Germany
40
Ireland
20
0
-1
0
1
* For US Govt debt as % of GDP in 2008
20
2
3
4
5
Real interest rate (10-yr) (%)
Source: Haver, DB Global Markets Research
Government debt and real interest rates across industrial
countries, excluding Japan
Govt debt as % of GDP : 2007*
Real interest rate (10-yr): 2007
Govt. debt as
% of GDP
180
160
y = 0.0732x + 42.81
140
R = 8E-06
2
120
100
Regression line
Italy
Germany
80
60
40
20
Ireland
0
-1
0
1
2
* For US Govt debt as % of GDP in 2008
21
3
4
5
Real interest rate (10-yr) (%)
Source: Haver, DB Global Markets Research
Sovereign CDS spreads and debt levels across countries
Govt debt as % of GDP: 2007
Sovereign CDS spread as on Jan 09 latest value
Govt. debt as
% of GDP
180
Japan
160
140
120
Belgium
100
US
80
60
Germany France UK
40
Spain
20
Australia
0
0
50
100
22
y = -0.1612x + 77.898
2
R = 0.0851
Italy
Regression line
Brazil
Ireland
150
200
250
300
350
Sovereign CDS spread (bps)
Source: Haver, Bloomberg, DB Global Markets Research
US government deficit and nominal yields
16
Nominal
interest rate
(10-yr) (%)
US: 1955-2008
y = -0.1334x + 13.376
R2 = 0.3829
14
12
10
8
6
Regression line
4
2
20
23
30
40
50
60
Source: Haver, FRB, DB Global Markets Research
70
80
Debt as % of GDP
US government deficit and real yields
7
Real interest
rate (10-yr)
(%)
US: 1955-2008
y = -0.0358x + 5.2392
2
R = 0.1152
6
5
4
3
2
Regression line
1
0
20
24
30
40
50
60
Source: Haver, FRB, DB Global Markets Research
70
80
Debt as % of GDP
Regression model relating US real 10-year Treasury yield to
government finances
Sample
1960-2007
1990-2007
1960-2007
1990-2007
Expected
inflation
1.31
(0.00)
2.16
(0.00)
1.54
(0.00)
2.10
(0.00)
Output gap
-4.05
(0.53)
18.0
(0.09)
0.80
(0.90)
26.8
(0.00)
Deficit/GDP
-0.02
(0.82)
0.10
(0.33)
0.04
(0.00)
0.00
(0.86)
Debt/GDP
Constant
2.66
(0.00)
1.20
(0.00)
-0.00
(0.99)
0.94
(0.58)
R-squared
0.87
0.94
0.89
0.93
Note: P-values in parentheses. Bold indicates statistical significance at the 95%
level.
25
Source: DB Global Markets Research
Analyst Certification
The views expressed in this report accurately reflect the personal views of the undersigned lead analyst(s). In addition, the undersigned lead analyst(s)
has not and will not receive any compensation for providing a specific recommendation or view in this report. Peter Hooper
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Deutsche Bank and are subject to change without notice. Deutsche Bank has no obligation to update, modify or amend this report or to otherwise notify a reader thereof in
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