Obama Stimulus Package and Quantitative Easing: Will They Jump-Start the U.S. Economy?

Transcription

1 Obama Stimulus Package and Quantitative Easing: Will They Jump-Start the U.S. Economy? Presented by: Nigel Gault Chief U.S. Economist IHS Global Insight

2 The U.S. Recession Deepest, longest in post-war history All policy options blazing Monetary stimulus Fiscal stimulus Banking (and other) bail-outs Hints of improvement are appearing in the data Free fall appears to be over What next? And what signposts to watch?

3 Are Financial Conditions Easing?

4 Corporate Bond Spreads Still Wide 7 (Corporate Yield Less 10-Year Treasury, percentage points) BAA Spread AAA Spread

5 Mortgage Rates Have Fallen 7.0 (Percent) Jan-08 Mar-08 May-08 Jul-08 Sep-08 Nov-08 Jan-09 Mar Year Fixed Mortgage Rate

6 Household Credit Conditions Still Very Tight Consumer Credit Growth* Jan-07 Jul-07 Jan-08 Jul-08 Jan Home Mortgage Credit Growth* Jan-07 Jul-07 Jan-08 Jul-08 Jan Banks Tightening Cons. Credit (%) Banks Tightening Mortgage Credit (%) Other Loans 20 0 Credit Cards -20 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 *% change y/y; **Diffusion Index; ***Millions, SA; ****Index, 2002=100, SA Prime Loans Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

7 U.S. Recession: The Latest Evidence

8 Glimmers of Hope Retail Sales ex-autos and Gasoline* Jan-07 Jul-07 Jan-08 Jul-08 Jan ISM Manufacturing Index*** Jan-07 Jul-07 Jan-08 Jul-08 Jan Housing Starts** Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 ISM Manufacturing Orders Index*** Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 *M/M % change; **Millions, SA; ***Diffusion Index

9 But Employment Is Still Falling Sharply 600 (Establishment employment, thousands of jobs)

10 And an Inventory Overhang Has Built Up 1.6 (Inventory/shipments ratio, manufacturing and trade; months supply) Jan-93 Jan-97 Jan-01 Jan-05 Jan-09

11 Q1 Probably the Worst Quarter for GDP 6 (Annualized real rate of growth, q/q, percent) GDP Final Sales

12 U.S. Economic Growth by Sector (Percent change unless otherwise noted) Real GDP Domestic Demand Consumption Light Vehicle Sales (Millions) Residential Investment Housing Starts (Millions) Business Fixed Investment Government Exports Imports

13 Other Key Indicators (Percent change unless otherwise noted) Industrial Production (% growth) Employment (% growth) Unemployment Rate CPI Inflation Oil Prices (WTI, US$/bbl) Core PCE Price Inflation Federal Funds Rate year Government Bond Yield Dollar (Major Currencies, 2000=1)

14 Fiscal Stimulus Prevents an Even Worse Outlook

15 Fiscal Stimulus: $787 Billion Over Ten Years Real stimulus total is $717 billion ($70 billion extension of AMT relief is not real stimulus) Initial phasing (calendar years): 2009: $252 billion (1.8% of GDP) 2010: $309 billion (2.2% of GDP) Early stimulus is mostly tax cuts and transfers Transfers to state and local governments do not produce a spending surge; they prevent a spending collapse Infrastructure bonanza is overblown

16 Fiscal Stimulus Impacts 2 (Percent real GDP growth) Baseline No Stimulus

17 Who Gets the Stimulus? (Billions of dollars, fiscal year (Oct-Sep)) Personal Tax Cuts and Transfers State & Local Current Transfers Corporate Tax Cuts Infrastructure & Other

18 Neutralizing the Automatic Destabilizers : State and Local Government Spending 4 (Real spending on goods and services, y-y percent growth) Baseline No Stimulus

19 The Housing Bust

20 House Prices Will Probably Overshoot on the Downside 1.3 (FHFA house price index divided by average labor compensation, 2000 = 1.0)

21 Bloated Supplies of Homes for Sale 15 (Months supply at current selling rate, single-family homes) Existing Homes New Homes

22 Housing Starts Near a Bottom 2.5 (Million units)

23 Consumers Retrenching

24 Consumer Sentiment Deep in the Recession Zone 120 (Reuters/Univ. of Michigan Sentiment Index)

25 Household Net Worth Has Plunged End-Q to end-q4 2008: down $12.9 trillion End-Q to April 9, 2009: down $0.7 trillion* Total loss: $13.6 trillion* (down 21%) Wealth Effect 3 cents/$ 5 cents/$ Consumption Hit ($bln) $407 billion $679 billion Consumption Hit (%) 4.0% 6.7% Consumption hit depends on wealth effect (change in consumption per dollar of lost wealth) * Apr 9 wealth figures are IHS Global Insight estimates

26 Consumer Spending Outlook 6 (Annualized rate of growth)

27 Business Investment Contracting

28 Business Equipment Demand Falling 70 (Non-defense capital goods ex-aircraft, 3-mo moving average, $ billions) Orders Shipments

29 Architecture Billings Lead Nonresidential Construction Architecture Billings Index* (Left scale) Real Nonresidential Construction, ex. utilities (Right scale, % change y/y) * Source: American Institute of Architects

30 Business Capital Spending: Construction Lags The Cycle 30 (Percent change annualized rate, real spending) Software & Equipment Buildings

31 Foreign Trade: U.S. Imports to Rebound Before Exports

32 Imports to Rebound Before Exports 30 (Annualized rate of change, volumes) Real U.S. Exports Real U.S. Imports

33 The U.S. Dollar: How Big a Bounce? 1.3 (2000=1.0, inflation-adjusted) Major Currency Index Other Important Trading Partners Index

34 Inflation and Government Budget Outlook

35 Headline CPI Will Decline; Core Inflation Will Ease 6 (Percent change from a year earlier) All-Urban CPI Core Consumption Price Index

36 A Record U.S. Federal Budget Deficit in Fiscal (Billions of dollars, fiscal years) (Percent of GDP) , , , Unified Budget Deficit (Left scale) Deficit as % of GDP (Right scale)

37 Taxes Will Have to Rise Eventually 26 (Effective federal personal income tax rate, percent)

38 Alternative Scenarios and Signposts

39 GDP Growth Outlook (Percent real GDP growth) Baseline (60%) Pessimistic (20%) Optimistic (20%)

40 Signals to Watch Stock Market and Credit Spreads New home sales Single-family housing permits Light vehicle sales Retail sales ex-autos and gasoline Length of workweek Temporary employment Initial unemployment insurance claims ISM manufacturing orders Inventory/sales ratios

41 Key Housing and Employment Indicators Jan-07 Jul-07 Jan-08 Jul-08 Jan New Home Sales* Length of Workweek** Jan-07 Jul-07 Jan-08 Jul-08 Jan Single-Family Housing Permits* Jan-07 Jul-07 Jan-08 Jul-08 Jan Temporary Employment*** Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 *Millions, SA; **Hours, SA; ***Thousands, monthly change, SA

42 Peaks in Unemployment Insurance Claims Have Been a Good Signal of Cycle Troughs 800 (Initial unemployment insurance claims, 4-week moving average, thousands) Vertical lines mark official recession troughs

43 U.S. Bottom Line Free-fall ending Severe inventory correction extends through mid-2009 Watch final sales, not GDP Consumption and housing lead the upturn at first Imports revive before exports Business equipment spending revives before business construction Rapid recovery unlikely but will outperform Europe and Japan

44 Thank you! Nigel Gault Chief U.S. Economist