Rudney Associates Presents
Looking Better
... but Still Not Great
Steven A. Wood
Lecturer
University of California, Berkeley
March 26, 2014
1
The Economy is Growing …
Real Gross Domestic Product
Quarter-to-Quarter Percent Change
Real Gross Domestic Product
Billions of Chained 2009 Dollars
9
16000
6
15600
3
15200
0
14800
-3
14400
-6
-9
14000
06
07
08
09
10
11
Sources: Bureau of Economic Analysis /Haver Analytics
12
13
14
2
and Jobs are Being Created
Nonfarm Payroll Employment
Monthly Change, Thousands
Nonfarm Payroll Employment
Millions
800
140
138
400
136
0
134
-400
132
-800
130
-1200
128
06
07
08
Source: Haver Analytics
09
10
11
12
13
14
3
Unemployment is Retreating …
Civilian Unemployment Rate
Percent
10
10
9
9
8
8
7
7
6
6
5
5
4
4
06
07
08
09
10
11
Source: Bureau of Labor Statistics /Haver Analytics
12
13
14
4
and Wages are Picking Up
Average Hourly Earnings
Year-to-Year Percent Change
5
5
4
4
3
3
2
2
1
1
06
07
08
09
10
11
Source: Bureau of Labor Statistics /Haver Analytics
12
13
14
5
The Fed is Highly Accommodative
Federal Reserve Credit Outstanding
Billions of Dollars
4500
4500
3750
3750
3000
3000
2250
2250
1500
1500
750
750
06
07
08
Source: Haver Analytics
09
10
11
12
13
14
6
Keeping Interest Rates Low
Federal Funds Rate, Percent
10-Year Treasury Note Yield, Percent
Moody's Seasoned Baa Corporate Bond Yield, Percent
20
20
16
16
12
12
8
8
4
4
0
0
60
65
70
75
80
85
90
Sources: Federal Reserve Board /Haver Analytics
95
00
05
10
7
Banks are Lending Again
Commercial Bank Loans
Billions of Dollars
8400
8400
8000
8000
7600
7600
7200
7200
6800
6800
6400
6400
06
07
08
09
10
Source: Federal Reserve Board/Haver Analytics
11
12
13
14
8
Housing Starts are Climbing
New Single Family Home Sales
12-Month Average, Thousands of Units
Existing Single Family Home Sales
12-Month Average, Thousands of Units
1400
6750
1200
6000
1000
5250
800
4500
600
3750
400
3000
200
2250
90
95
00
05
10
Sources: Census Bureau, National Association of Realtors /Haver Analytics
9
and Car Sales have Rebounded
Total Motor Vehicle Sales
12-Month Average, Millions of Units
18
18
16
16
14
14
12
12
10
10
90
95
00
Source: Autodata /Haver Analytics
05
10
10
Exports are Growing
Exports of Goods & Services
Billions of Chained 2009 Dollars
2200
2200
2000
2000
1800
1800
1600
1600
1400
1400
06
07
08
09
10
11
Source: Bureau of Economic Analysis /Haver Analytics
12
13
14
11
But …
12
But Growth is Still Sluggish …
Real GDP
Business Cycle Peak = 100
140
1948 Q4
1953 Q2
1957 Q3
1960 Q2
1969 Q4
130
1973 Q4
1981 Q3
1990 Q3
2001 Q1
120
Index
Average 10 Prior
Recessions
2007 Q4
110
100
90
-4
PEAK
4
8
12
16
20
24
Cumulative Quarterly Change Relative to Business Cycle Peak
28
13
and Job Creation is Still Soft
Payroll Employment
Business Cycle Peak = 100
120
October 1949
May 1954
April 1958
February 1961
November 1970
March 1975
July 1981
March 1991
November 2001
Average of 10 Prior Recessions
June 2009
115
Index
110
105
100
95
90
-12
Peak
12
24
36
48
60
Cumulative Monthly Change Relative to Business Cycle Peak
72
14
The Output Gap Remains Wide
Real Gross Domestic Product
Billions of Chained 2009 Dollars
Real Potential Gross Domestic Product
Billions of Chained 2009 Dollars
17000
17000
16000
16000
15000
15000
14000
14000
13000
13000
12000
12000
11000
11000
00
01 02
03
04 05
Sources: BEA, CBO /Haver
06 07
08
09 10
11 12
13
14
15
Leaving Employment Depressed
Employment-to-Population Raio
Ratio
65
65
63
63
61
61
59
59
57
57
55
55
60
65
70
75
80
85
90
Source: Bureau of Labor Statistics /Haver Analytics
95
00
05
10
16
with Lots of Part-Time Workers
W orking Part-Time for Economic Reasons
Percent of Total Employment, 12-Month Average
7
7
6
6
5
5
4
4
3
3
2
2
60
65
70
75
Source: Haver Analytics
80
85
90
95
00
05
10
17
Unemployment is Still High
Civilian Unemployment Rate
Percent
12
12
10
10
8
8
6
6
4
4
2
2
60
65
70
75
80
85
90
Source: Bureau of Labor Statistics /Haver Analytics
95
00
05
10
18
Government Spending is Fading
Federal Government Outlays
Billions of Dollars, 12-Month Average
3200
3200
2800
2800
2400
2400
2000
2000
1600
1600
1200
1200
00
01 02
03
Source: Haver Analytics
04 05
06 07
08
09 10
11 12
13
14
19
Government Spending is Fading
Real Federal Government Purchases
Index: 2007 Q4 = 100
Real State & Local Government Purchases
Index: 2007 Q4 = 100
120
120
115
115
110
110
105
105
100
100
95
95
90
90
06
07
08
09
10
11
Sources: Bureau of Economic Analysis /Haver Analytics
12
13
14
20
Government Jobs Disappear
Total Government Employment
Business Cycle Peak = 100
120
October 1949
May 1954
April 1958
February 1961
November 1970
March 1975
July 1981
March 1991
November 2001
Average 10 Prior Recessions
June 2009
115
Index
110
105
100
95
90
-12
Peak
12
24
36
48
60
72
Cumulative Monthly Change Relative to Business Cycle Peak
21
Budget Deficit Rapidly Shrinks
Federal Government Budget Balance
Billions of Dollars, 12-Month Total
250
250
0
0
-250
-250
-500
-500
-750
-750
-1000
-1000
-1250
-1250
60
65
70
75
Source: Haver Analytics
80
85
90
95
00
05
10
22
Money Supply Grows Slowly
Federal Reserve Credit Outstanding
Index: 2007 Q4 = 100
Money Supply
Index: 2007 Q4 = 100
500
500
400
400
300
300
200
200
100
100
0
0
06
07
08
09
10
Sources: Federal Reserve Board /Haver Analytics
11
12
13
14
23
Banks Are Not Lending Much
Total Reserve Balances
Billions of Dollars
Required Reserve Balances
Billions of Dollars
2500
2500
2000
2000
1500
1500
1000
1000
500
500
0
0
06
07
08
Source: Haver Analytics
09
10
11
12
13
14
24
Banks Continue to Deleverage
Financial Institutions Debt Outstanding
Percent of GDP
120
120
100
100
80
80
60
60
40
40
20
20
0
0
60
65
70
75
80
85
90
Source: Federal Reserve Board/Haver Analytics
95
00
05
10
25
Consumers Also Deleverage
Household Debt Outstanding
Percent of Disposable Income
125
125
100
100
75
75
50
50
60
65
70
75
80
85
90
Source: Federal Reserve Board/Haver Analytics
95
00
05
10
26
Inflation Stays Low
Personal Consumption Expenditure Price Index
Year-to-Year Percent Change
Core Personal Consumption Expenditure Price Index
Year-to-Year Percent Change
12
12
10
10
8
8
6
6
4
4
2
2
0
0
-2
-2
60
65
70
75
80
85
90
95
Sources: Bureau of Economic Analysis /Haver Analytics
00
05
10
27
Below the Fed’s Target
Personal Consumption Expenditure Price Index
Year-to-Year Percent Change
Core Personal Consumption Expenditure Price Index
Year-ot-Year Percent Change
6
6
4
4
2
2
0
0
-2
-2
06
07
08
09
10
11
Sources: Bureau of Economic Analysis /Haver Analytics
12
13
14
28
What about
financial markets?
29
Interest Rates to Stay Low
Federal Funds Rate, Percent
10-Year Treasury Note Yield, Percent
Moody's Seasoned Baa Corporate Bond Yield, Percent
20
20
16
16
12
12
8
8
4
4
0
0
60
65
70
75
80
85
90
Sources: Federal Reserve Board /Haver Analytics
95
00
05
10
30
Corporate Profits at Record Levels
Corporate Profits
Percent of GDP
14
14
12
12
10
10
8
8
6
6
60
65
70
75
Source: Haver Analytics
80
85
90
95
00
05
10
31
Stock Market at Record Levels
S&P 500 Compsite Index
Index: 1941 - 43 = 100
2000
2000
1600
1600
1200
1200
800
800
400
400
0
0
60
65
70
75
80
85
Source: Standard & Poor's /Haver Analytics
90
95
00
05
10
32
Stocks Appear “Fairly” Valued
S&P 500 Composite Index
Price/ Earnings Ratio
50
50
40
40
30
30
20
20
10
10
0
0
60
65
70
75
80
85
Source: Standard & Poor's/Haver Analytics
90
95
00
05
10
33
But Profit Growth has Slowed
Corporate Profits
Year-to-Year Percent Change
60
60
40
40
20
20
0
0
-20
-20
-40
-40
60
65
70
75
80
85
90
95
Source: Bureau of Economic Analysis /Haver Analytics
00
05
10
34
The Major Known Risks
1. Confrontation with Russia/oil price shock
2. Weaker European growth/new recession
3. European sovereign debt problems
4. Political stalemate in Washington
5. The Chinese “bubble” economy
6. Slower emerging market growth
35
Looking Better
… but Still Not Great
Questions?
36