Download The Economic Outlook Community Development Forum Salt Lake City July 19, 2012

Comptroller of the Currency
Administrator of National Banks
The Economic Outlook
Community Development Forum
Salt Lake City July 19, 2012
Ray Squitieri
Economic and Policy Analysis, OCC
Summary—US economy
•
Slow growth to persist, but US likely to avoid
recession
•
Slow growth means slow improvement in
unemployment
•
Housing has yet to turn around
•
Europe now a big risk to US economy
•
Positives: lower energy prices, continued low
interest rates
1
Recovery plods along
Real GDP, % change annual rate
Quarterly average unemployment rate, %
4.0
11.0
3.0
10.0
2.0
9.0
1.0
8.0
0.0
Consensus
Forecast
08
09
-1.0
10
11
12F 13F
Sources: BEA, BLS, Blue Chip Indicators (June 2012)
7.0
-2.0
6.0
-3.0
5.0
-4.0
Recession
07
Consensus
Forecast
Recession
07
08
09
10
4.0
11
12F 13F
2
Weekly leading index has waffled since end of
recession, unlike steady gains in past expansions
Weekly leading index
1992 = 100
150
140
130
120
110
100
90
80
70
Recessions
60
80
84
88
92
96
00
04
08
12
Source: Economic Cycle Research
Institute (ECRI)
3
After rising above 200K per month, job growth
faltered over the last 4 months
Change in nonfarm employment, thousands
300
100
07
08
09
10
11
12
3.8 million jobs
added since 2/10;
548 thousand in 2012
-100
-300
-500
Recession
-700
-900
8.8 million jobs lost in total through 2/10
Sources: BLS, E&PA calculations (data through May 2012)
4
Much of the improvement
in unemployment rate
Civilian Unemployment Rate: 16 yr +
SA, %
due to drop in labor force
participation rate
Civilian Participation Rate: 16 yr +
SA, %
10
Unemployment
rate % SA
RHS
67
9
66
8
65
7
64
6
5
Labor Force Participation
rate % SA
LHS
63
Note: if participation rate had
remained at 2010 average, latest
UE rate would be 9.5% not 8.2%
4
62
61
07
08
09
10
Sources:
Bureau
of
Labor
Statistics
/Haver
Analytics
Source: Bureau of Labor Statistics / Haver Analytics
11
5
If labor force exits had remained unemployed,
the statistics would look a lot worse today
Unemployment rate
share of labor force
Labor force participation rate
% of civilian population
14%
68
Unemployment rate assuming
all labor force exits remained
unemployed
66
12%
10%
64
Unprecedented drop
in LF participation in
recent years
Recessions
52
62
72
82
92
02
As published
62
12
8%
60
6%
58
4%
56
2%
54
0%
05
06
07
08
09
10
11
12
Source: BLS
6
For most states, employment likely to remain
below pre-recession levels through 2013
U.S. =-2.3%
Source: Moody’s Analytics; Federal Reserve Board Supervisory Stress-Test Baseline
7
Consumer confidence remains historically low
Consumer Confidence 1985 = 100
160
140
120
100
80
60
40
20
Recessions
0
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
Source: Conference Board
8
… though shoppers are gradually returning
to the stores
Retail sales (ex. auto)
Yr-yr % change
10%
5%
0%
-5%
forecast
-10%
06
07
Source: Census Bureau, Moody’s Analytics
08
09
10
11
12
13
9
Inventory of distressed properties still weighing
on housing market
“For-sale” and shadow inventory
millions
Single-family home sales
millions
New
6
6
5
5
Shadow inventory
of distressed
existing homes
4
3
3
Distressed existing
(estimated)
07
08
“For-sale” inventory
of all existing homes
2
Non-distressed
existing
09
10
Sources: CoreLogic; NAR;
S&P; Fiserv; E&PA calculations
11
12*
4
2
1
1
0
0
06
07
08
09
10
11
12*
*2012 sales data are first quarter at annualized rate. 2012 inventory data are through
January.
Distressed existing home sales estimates include short-sales and sales from REO inventory;
latter is two-thirds of volume. Shadow inventory includes all properties in serious
10
Inventory of distressed properties still weighing
on house prices
First mortgage loans (number)
Case-Shiller 20-Metro Home Price Index,
SA, 2006Q2=100
5,000
100
90+days delinquent
In foreclosure
4,000
90
- 33%
3,000
80
2,000
70
1,000
- 36%
0
06
07
08
09
10
11
12
60
50
00 01 02 03 04 05 06 07 08 09 10 11 12F13F
Sources: Equifax/Moody’s Analytics , Fiserv/Moody’s Analytics (May 2012 baseline forecast)
11
Few housing markets are showing much price
appreciation yet
Existing single-family (constant quality) home price indexes
Index April 2006 peak = 100
100%
Tampa
Los Angeles
90%
Boston
90%
80%
NYC
80%
70%
DC
60%
50%
Miami
Phoenix
06
07
08
09
Source: S&P Case-Shiller
monthly data through April
2012
10
Las Vegas
11
12
100%
Dallas
70%
Chicago
60%
50%
Detroit
40%
40%
30%
30%
20%
20%
10%
10%
0%
0%
06
07
08
09
10
11
12
12
Mortgages with negative equity will keep RES
RE loss rates high in some states
Share of 1st liens (count) with negative equity
70%
60%
Underwater less than 20% (LTV 100% to 120%)
Underwater more than 20% (LTV >120%)
50%
40%
30%
45%
20%
27%
31%
26%
21%
22%
10%
US
10%
18%
2%
NV
MI
Sources: OCC Mortgage Metrics; LPS
Home Price Index; data as of January
2011
FL
AZ
GA
IL
CA
0%
UT
Data are for 9 large servicers. Data reflect both loans held in portfolio and
serviced for others. Data include FHA/VA mortgages but exclude 1st liens
without a refreshed LTV.
13
Euro area slowdown weighing on U.S. export
growth
Real GDP
Yr-yr % chg
Real quarterly U.S. GDP and exports
% chg. annualized, seasonally adjusted
3.5
15
exports
3.0
10
2.5
2010
5
2.0
2011
0
GDP
1.5
2012
est.
-5
1.0
-10
0.5
0.0
-15
Recessions
-0.5
Euro Area
U.K.
U.S.
Advanced
Economies
-20
98
00
02
04
06
08
10
12
Sources: IMF July 2012 World
Economic Outlook update; BEA
14
Obstacles to growth still outweigh positives
Negatives
 Weak housing market
 Fiscal drag
 Continued deleveraging
 Generally tight credit
 Low consumer and
business confidence
 Risk from Europe
Positives
 Signs of life in construction
 Stronger household
balance sheets
 Lower energy prices
 Some credit easing; low
interest rates and inflation
 Better US competitiveness
15
Loss rates still high for residential real estate
National banks and federal thrifts
Annual net charge-off rates, %
Large
Community
Midsize
3.0
3.0
3.0
2.5
2.5
2.5
2.0
2.0
2.0
1.5
1.5
1.5
1.0
1.0
1.0
0.5
0.5
0.5
0.0
0.0
0.0
1Q:12
91-12
avg
1-4 famly
HELOC
Source: Integrated Banking
Information System (OCC)
1-4 famly
HELOC
1-4 famly
HELOC
Data are merger adjusted as of 1Q:2012 and use the current
supervision designation.
16
Loss rates well above average on CRE loans at
community banks
National banks and federal thrifts
Annual net charge-off rates, %
Large
1Q:12
Construction
91-12
avg
Cmmrcl
mortgage
Source: Integrated Banking
Information System (OCC)
Community
Midsize
4.0
4.0
4.0
3.5
3.5
3.5
3.0
3.0
3.0
2.5
2.5
2.5
2.0
2.0
2.0
1.5
1.5
1.5
1.0
1.0
1.0
0.5
0.5
0.5
0.0
0.0
0.0
Construction
Cmmrcl
mortgage
Construction
Cmmrcl
mortgage
Data are merger adjusted as of 1Q:2012 and use the current
supervision designation.
17
Risks to economy: What did we say last year?
[From March 13, 2011 presentation to Utah Bankers’ Roundtable]
Downside risks

Soft job market keeps unemployment rate high

Housing falls again as foreclosure crisis drags on

Weak housing and job market further stresses banks

Overseas: Mid East turmoil, Japan disaster, European debt crisis

State and local fiscal woes intensify
Upside risks

Emerging market growth accelerates

Strong business sector drives hiring

Self-sustaining growth cycle kicks in
18
Risks to economy: This year’s story
US (high-impact, low probability)

Economy falls off fiscal cliff
US (lower-impact, higher-probability)
•
Housing falls again as foreclosure crisis drags on
Global (high-impact, low probability)
•
War in Persian Gulf, European financial meltdown
Global (lower-impact, higher-probability)
•
Long slump in Europe, Sharp slowdown in China
Upside possibilities

Emerging markets pick up

Strong US business sector drives hiring
19
Summary—US economy
•
Slow growth to persist, but US likely to avoid
recession
•
Slow growth means slow improvement in
unemployment
•
Housing has yet to turn around
•
Europe now a big risk to US economy
•
Positives: lower energy prices, continued low
interest rates
20
Outlook for Utah and Salt Lake City
•
Moderate growth in jobs, household
income
•
Positive signs in housing market, though
house prices have yet to turn around
21
SLC leads Utah and the U.S. in job growth
Sources: BLS, Moody’s Analytics
22
Office jobs increasing in Utah
Office-using employment 2011Q1 to 2012Q1
Salt Lake City
Provo
Ogden
Utah
Las Vegas
Denver
Seattle
US
-4.0%
-3.0%
-2.0%
-1.0%
Sources: BLS, Moody’s Analytics
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
23
Utah will show solid job growth over
next 12 months
Forecast employment growth 2012Q1 to 2013Q1
Sources: BLS, Moody’s Analytics (July 2012 forecast)
24
Foreign migration dominates in SLC
Sources: Census Bureau/Moody’s Analytics
25
Job gains support income gains in SLC
Sources: BLS, Moody’s Analytics
26
Moderate growth expected for
household incomes in Utah
Forecast household income growth 2012Q1 to 2013Q1
Sources: Census, Moody’s Analytics (July 2012 forecast)
27
Home sales picking up in SLC …
Sources: Utah Association of Realtors, Moody’s Analytics
28
… though house prices have yet to turn back up
Sources: Fiserv, Census Bureau, Moody’s Analytics
29
Comptroller of the Currency
Administrator of National Banks
The Economic Outlook
Community Development Forum
Salt Lake City July 19, 2012
Ray Squitieri
Economic and Policy Analysis, OCC
Monthly job gains over the past 18 months have
barely exceeded new labor force growth
Monthly nonfarm payroll growth, 000s
500
Job growth required simply
to accommodate 0.9% per
year growth in labor force
400
Extra needed to achieve 6%
unemployment rate in time shown
300
200
Jan 2011- June 2012
average (150,000)
280
137
90
67
53
100
116
117
118
120
121
0
1 year
Sources: BLS; E&PA calculations
2 years
3 years
4 years
5 years
Assumes no change in current labor force participation rate of 63.8% and
overall population growth of 0.9% per year.
There’s no doubt that since the recession,
growth has been well less than average
Recession start
Quarterly U.S. real GDP
Cumulative change from start of recession
30%
Average
of prior 10 cycles
20%
10%
0%
Current cycle
-10%
-20%
-30%
-16
-12
-8
-4
0
+4
+8
+12
+16
Quarters
Source: BEA
Dashed lines are minimum and maximum values for each month
across the 10 pre-2007 cycles.
32
U.S. economic policy uncertainty is rising again,
ahead of “fiscal cliff” concerns for 2013
Economic Policy Uncertainty Index
Mean = 100
monthly data through
June 2012
300
August 2011
U.S. debt
downgrade
250
200
150
100
50
Recessions
85
90
95
Source: Haver Analytics (index developed by Scott Baker
and Nicholas Bloom of Stanford University and Steven Davis
of the University of Chicago)
00
05
0
10
Index measures the frequency of references to economic uncertainty and policy in
Google news media catalog, the number of federal tax code provisions set to expire
in future years, and the extent of disagreement among economic forecasters over
future government purchases and the CPI.
33
After six years, new home construction is no
longer weighing on overall economic growth
Contribution to percent change in real GDP
percent
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12
Source: BEA
34
Despite some improvement, small business
optimism remains low, and sales concerns high
NFIB small business survey
Optimism Index
Reporting poor sales
as most important problem
120
40
115
35
110
30
105
25
100
20
95
15
90
10
85
5
80
0
Recessions
80 84 88 92 96 00 04 08 12
Sources: Federal Reserve, BEA
80
84 88 92 96 00 04 08 12
NFIB members responding to survey typically employ 10 people with annual sales of
$0.5 million.
35
Growth could be significantly reduced if U.S. falls
off the “fiscal cliff”
Real GDP
annualized growth, %
4.0
Blue Chip Consensus forecast, June 2012
CBO estimates of “fiscal cliff” effects, applied/scaled to Blue Chip Consensus forecast
3.0
Anticipatory
reduction in
activity
2.0
1.0
0.0
-1.0
-2.0
1st half 2012
Sources: Blue Chip Consensus
Forecasts June 2012; CBO analysis
May 2012; E&PA calculations
2nd half 2012
1st half 2013
2nd half 2013
“Fiscal Cliff” refers to expiration of various tax rate reductions, extended unemployment
benefits, and other fiscal programs, as well as sequestration (mandatory reductions) in
federal government spending set to begin in calendar year 2013. For details see:
http://www.cbo.gov/sites/default/files/cbofiles/attachments/FiscalRestraint_0.pdf
Forecasts for Europe have steadily weakened,
adding risk for U.S. economy and banks
GDP growth forecasts for 2012
Percent
1.5
UK
Eurozone
1
0.5
0
-0.5
Oct-11
Nov-11
Dec-11
Source: Consensus Forecasts
Jan-12
Feb-12
Mar-12
Apr-12
May-12
Jun-12
Jul-12
17