Babson Capital/UNC Charlotte
Economic Forecast
December 12, 2012
Outline for Today
• Immediate Period
• Short Run (1 year)
• Longer Run
Immediate Period
The Fiscal Cliff?
Kaffee: I want the
truth!
Kaffee: I want the
truth!
Jessep: You can't
handle the truth!
1980 – 2017
U.S. Budget Deficit
1000
October 2011 Budget
Deficit $98 billion
October 2012 Budget
Deficit $120 billion
500
0
-500
-1000
2017 f
2015 f
2013 f
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
1991
1989
1987
1985
1983
1981
Year
-1500
US Annual Real GDP
Growth Rates
1991-2000 Average
Growth Rate 3.4%
6
2001-2010 Average
Growth Rate 1.6%
Real GDP
5
4
3
2
1
0
-1
-2
2010
2007
2004
2001
1998
1995
1992
1989
-3
US Debt and Deficit
•
•
•
•
•
•
•
•
•
Debt
Debt as a % of GDP
Current Deficit
Deficit as a % of GDP
2008 GDP Growth
2009 GDP Growth
2010 GDP Growth
2011 GDP Growth
2012 GDP Forecast
•
•
•
•
•
•
•
•
•
$16,300 billion
103.2%
$1,326 billion
8.5%
-0.3%
-3.1%
+2.4%
+1.8%
<2.0%
Euro Debt Crisis
(Italy)
•
•
•
•
•
•
•
•
•
Debt
Debt as a % of GDP
Current Deficit
Deficit as a % of GDP
2008 GDP Growth
2009 GDP Growth
2010 GDP Growth
2011 GDP Growth
2012 GDP Growth
•
•
•
•
•
•
•
•
•
€1,897.2 billion
120.1%
€62.3 billion
3.9%
-1.2%
-5.5%
+1.8%
+0.4%
-2.3%
US Expenditures
and Receipts: 1990-2012
Revenue Growth 1990-2007 5.4%
2012 Deficit $300 Billion
4,000.00
Current Receipts
Current Expenditures
3,000.00
Potential Receipts
2,000.00
1,000.00
US Expenditures
and Receipts: 2005-2012
4,000.00
Current Receipts
Current Expenditures
3,000.00
2,000.00
Potential Receipts
Third Quarter Federal Budget
(Annualized Rates)
• Receipts
• Expenditures
$2,683.3 billion
$3,756.8 billion
Tax Rate Changes
in 2013
Income
• 10% (First $8,700)
• 25%
• 28%
• 33%
• 35%
Capital Gains
• 15%
Dividends
• 15%
• New Medicare Tax
Income
Threshold
• 15%
• 28%
• $68,000
• 31%
• $137,300
• 36%
• $209,350
• 39.6%
• $373,650
Capital Gains
• 20%
Dividends
• Ordinary Income Rate
• 3.8% (Above AGI $250,000)
Potential Tax
Increases in 2013
•
•
•
•
•
Social Security Holiday
Bush Tax Cuts
AMT Patches
Spending Cuts
Total Direct Impact
• Percent of GDP
•
•
•
•
•
$95 billion
$110 billion
$125 billion
$110
$440 billion
• 2.9%
Impact of Higher
Income Tax Increases
Tax Increases on High-Income Earners in President's 2013 Budget
Tax Increase ($Billions)
Provision
2013
2013-2022
$23.1
$441.6
$5.9
$164.9
Raise capital gains rate to 20%
$5.8
$36.0
Raise dividend rate to 39.6%
$21.5
$206.4
Increase estate and gift taxes
$1.1
$143.3
Reduce value of certain deductions
and exclusions
$27.1
$584.2
Total
$84.6
$1,576.4
Raise top two rates to 36% and
39.6%
Reinstate limitation on itemized
deductions and the personal
exemption phaseout
We Are Going Over the Cliff!
• The only questions are:
– How severe?
– How long?
Likely Tax
Increases in 2013
•
•
•
•
Social Security Holiday
Bush Tax Cuts
Spending Cuts
Total Direct Impact
• Percent of GDP
•
•
•
•
$95 billion
$75 billion
$100
$270 billion
• 1.7%
GDP=C+I+G+X-M
•
•
•
•
Consumption
Business Investment
Net Government
Exports
The Short Run
Will The Recovery Continue?
Are We Heading for a Double-Dip?
2007 - 2012
U.S. GDP
4.0
3.0
2.4
1.9
1.8
2.0
2.0
1.0
0.0
-0.3
-1.0
-2.0
-3.0
-3.1
-4.0
2007
2008
2009
2010
2011
2012
2007-2012
United States
Payroll Employment
• Employment Decline:
• Employment Gain:
• Percent Recovered:
-8,738,000
4,608,000
52.7%
Job Growth in 2012
What’s the Target?
3,000,000 Jobs per Year
US Job Growth
in 2012
• January 2012
• February 2012
• March 2012
• April 2012
• May 2012
• June 2012
• July 2012
• August 2012
• September 2012
• October 2012
Job Growth 1.2%
•Total
275,000
259,000
143,000
68,000
87,000
45,000
181,000
192,000
132,000
138,000
1,520,000
2009-2012 U.S.
Unemployment Rate
12
11
10
9
8
7
US Seasonally Adjusted
6
5
4
Jan-08 Apr
Jul
Oct Jan-09April July Oct. Jan-10April July Oct. Jan-11April July Oct. Jan-12April July Oct
Jul-12
Sep-12
Jan-12
70
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jan-09
Jul-08
Jan-08
Jul-07
Jan-07
2007 – 2012
Labor Force Participation Rates
October US LFPR 63.8%
68
66
64
62
60
October
Unemployment Rate
• October HH Employment
• October HH Unemployment
• October Unemployment rate
143,384,000
12,258,000
7.9%
October Adjusted
Unemployment Rate
• October HH Employment
• October HH Unemployment
• October Unemployment rate
143,384,000
18,113,000
11.2%
The Long Run
Five Years of Recession and Weak
Recovery
10
9
8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1990 - 2011
U.S. GDP
The New Normal
• Households
• Business
• Government
Global Economy
Current
Unemployment Rate
•
•
•
•
•
•
•
•
Greece
Spain
Portugal
Ireland
Italy
France
Euro Zone
US
•
•
•
•
•
•
•
•
26.0%
26.2%
16.3%
14.7%
11.1%
10.7%
11.1%
7.9%
Did the Election Change Things?
October 2012
Unemployment Rates
State
Rate
NEVADA
11.5
RHODE ISLAND
10.4
CALIFORNIA
10.1
NEW JERSEY
9.7
NORTH CAROLINA
9.3
MICHIGAN
9.1
CONNECTICUT
9.0
MISSISSIPPI
8.9
ILLINOIS
8.8
GEORGIA
8.7
Keys to Watch
•
•
•
•
•
Consumer Confidence
Consumer Debt
Excess Reserves
Monthly Job Growth (1st Friday)
Gasoline Prices
Babson Capital/UNC Charlotte
Economic Forecast
December 12, 2012