Mr. Gene Collins
John B. and Lillian E. Neff Department of Finance
College of Business and Innovation
The University of Toledo
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The Immediate Global Banking Liquidity Crisis
has been resolved – Slow Liquidity removal
remains.
Coordinated Global Credit management
efforts are working unevenly - Europe
Slow growth will likely continue through the
first quarter of 2013
The increase in taxes to pay for the prior
excesses has already begun
Dollar stability some strength until 2011
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More consistent but relatively slow growth
continues through 2012.
Bank Liquidity withdraw may need to wait
until 2013 as Bank Lending improves.
Manufacturing continues to grow - small
inventory rebuild – Euro jeopardizes dollar
competitiveness
Housing continues to be a drag on the
economy into 2012.
Government Deficits will continue to be a
drag through 2012 as State and Local
Governments reduce spending and Federal
reduction perception improves
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Relatively slow growth (1.5-3.1) continues
through Q2 2013 with real unemployment
slightly higher.
Bank Liquidity withdraw may need to wait
until 2013 as improved Bank Lending
continues.
Manufacturing continues to expand – dollar
competitiveness-some setbacks from Euro
Housing continues to be a drag on the
economy into 2013.
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Government Deficits will continue to be a
drag through 2012 stabilizing in 2013 as
State and Local Governments reduce
spending and Federal reduction perception
improves. Draconian measures of deficit
reduction will be softened by both parties
(after the November elections).
The Euro Zone will hold together as the
decline in the Euro improves their exports at
the expense of the US. Germany fights a rear
guard action but funds the Euro.
2012
2011
Y/Y %
Q1
Q2
Q3
Real GDP
Consumer
Spending
0.4
1.3
2.0
2.1
0.7
Business
Investment
2.1
Government
Spending
Net Exports
GDP Addition
2011
2012
(E)Q4 (E)Q1 (E)Q2
(E)Q3
(E)Q4
Annual Average
2.6
1.9
2.1
2.9
2.8
1.6
2.4
2.3
2.4
2.2
2.3
2.5
2.6
1.9
2.4
10.3
14.8
5.1
4.4
5.3
6.8
6.1
8.1
5.7
-5.9
-0.9
-0.1
0.0
-2.1
-1.8
-1.0
-0.6
-1.7
-1.4
-0.3
0.2
0.5
-0.2
0.1
0.2
0.6
0.0
0.0
0.2
2012
Y/Y %
2013
(E)Q1
(E)Q2
(E)Q3
1.9
2.1
2.9
2.8
2.4
2.2
2.3
2.5
2.6
Business
Investment
4.4
5.3
6.8
Government
Spending
-2.1
-1.8
0.1
0.2
Real GDP
Consumer
Spending
Net Exports
GDP Addition
(E)Q4 (E)Q1 (E)Q2
2012
2013
(E)Q3
(E)Q4
Annual Average
2.7
3.0
3.3
2.4
2.8
2.3
2.6
2.9
3.2
2.4
2.7
6.1
5.1
5.8
6.5
6.9
5.7
6.0
-1.0
-0.6
-2.0
-1.8
-1.6
-0.8
-1.4
-1.6
0.6
0.0
0.1
0.2
0.2
0.1
0.2
0.1
2011 Actual
2012
2011
2012
Q1
Q2
Q3
Headline CPI (Y/Y) 5.2
4.1
3.1
2.1
2.8
2.7
2.5
2.0
3.6
2.5
Core CPI (Y/Y)
2.5
2.7
1.8
2.1
2.5
2.3
1.3
2.2
2.0
1.7
(E)Q4 (E)Q1 (E)Q2 (E)Q3 (E)Q4 Annual Average
2013
2013
(E)Q1
(E)Q2
(E)Q3
(E)Q4
Average
Headline CPI (Y/Y)
2.3
2.6
2.9
3.1
2.7
Core CPI (Y/Y)
1.6
2.2
2.1
2.3
2.1
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Domestic CPI will rise gradually reaching an actionable target
range for the FED by Q4 2013.
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Core CPI will remain under control and show a stable to upward
bias.
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Unemployment Rate will not be a reliable economic indicator
because of participation rate variation. The percent of the
population employed will continue to decline in 2012– While
employment increases.
Housing price increases remain flat to weak in most areas as
knock-on foreclosures from continued unemployment and
underemployment increase with no further tax subsidies and
established tighter underwriting.
The over built and weak economic areas will continue to see
some further housing price depreciation into 2012 from
foreclosure pressure.
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Fed Funds rate will remain well below the Fed
0.5% target into 2013. Fed bond purchases
will continue through 2012 at decreasing
levels after Q3 2012 Year end Fed Funds still
below ¼ %.
Direct Fed stress sector lending has ended.
No major liquefying of the Fed balance sheet
until Q4 2012 or 2013
The term structure of interest rates indicates
low inflationary economic growth continues.
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Stimulating Federal Payroll Tax Holiday
o Extension of Tax reductions for another year
o Modest Spending Federal Increases
o Some further Public Works Infrastructure
o Deficit “Reduction” cuts will be moderated by
economic performance after November 2012
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State fiscal problems a major economic
negative
o Reductions in employment continues more slowly
o More Municipal Bankruptcies
o Capital projects reduction slows to maintenance
o Continued tax and user fee increases continues
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Annual Average Expected GDP Growth
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2010
(A) 2.7 %
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2011
1.6 %
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2012
2.4 %
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2013
2.8%
 Carpe
Diem
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BMO Capital Markets Economics, November 25,2011
Barclays Capital Markets Research
Bloomberg News, Bloomberg LLC
St. Louis Federal Reserve
Bank of Canada Monetary Policy Report October 2011Quarterly Report
Cleveland Federal Reserve