Image page  U.S. Q3’12 Economic Overview and Outlook  Bloomberg BRIEF: Economics  Joseph Brusuelas  July 2012
U.S. Q3’12 Economic Overview and OutlookImage page Summary Executive  • Growth is tracking at 1.2 percent in the second qu...
U.S. Q3’12 Economic Overview and OutlookImage page Cyclical Growth Scenarios  • Core Scenario: Below Trend (2.5%) Growth  ...
U.S. Q3’12 Economic Overview and OutlookBloomberg Consensus: Survey of Forecasters                          Q2 12        Q...
U.S. Q3’12 Economic Overview and OutlookOutput Gap Still Considerable                   20                                ...
U.S. Q3’12 Economic Overview and OutlookMind The Gap                                                                      ...
U.S. Q3’12 Economic Overview and OutlookImage page Overview U.S. Rates    • Bloomberg consensus forecast indicates higher ...
U.S. Q3’12 Economic Overview and OutlookFixed Income Markets Pricing in Slow Growth                             U.S. Nomin...
U.S. Q3’12 Economic Overview and OutlookProjected Path of Long and Short Term Rates                5.50                5.0...
U.S. Q3’12 Economic Overview and Outlook FX OverviewImage page  • Dollar appreciation versus euro- and-trade weighted bask...
U.S. Q3’12 Economic Overview and OutlookU.S. Dollar Appreciation Peaking?                 600                             ...
U.S. Q3’12 Economic Overview and OutlookU.S. Dollar Appreciation Peaking?                             U.S. Trade Weighted ...
U.S. Q3’12 Economic Overview and OutlookExternal Outlook and Overview  •   Euro Area       • Intensification of sovereign ...
U.S. Q3’12 Economic Overview and OutlookSafe Haven Move Due to EU Crisis                    8                             ...
U.S. Q3’12 Economic Overview and OutlookGermany Not Immune to Crisis                                        US and Germans...
U.S. Q3’12 Economic Overview and OutlookBanks at Center of the Storm                                       Rising Stress: ...
U.S. Q3’12 Economic Overview and OutlookImage page U.S. Manufacturing Outlook and Overview • Manufacturing growth slows.  ...
U.S. Q3’12 Economic Overview and OutlookSlower, More Sustainable Manufacturing Growth                                     ...
U.S. Q3’12 Economic Overview and OutlookSlower, More Sustainable Manufacturing Growth                                     ...
U.S. Q3’12 Economic Overview and OutlookGlobal Manufacturing Slows                65                                      ...
U.S. Q3’12 Economic Overview and OutlookFinancial Conditions Overview     • European sovereign debt crisis is offsetting t...
U.S. Q3’12 Economic Overview and OutlookBloomberg Financial Conditions Indices                 1                0         ...
U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing                                                            ...
U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing                                     Commercial and Industri...
U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing                                                 Credit Stan...
U.S. Q3’12 Economic Overview and OutlookLabor Markets and Consumer Outlook and Overview     • Private payroll growth barel...
U.S. Q3’12 Economic Overview and OutlookLabor Market                                           BLS Non-Farm Private Payrol...
U.S. Q3’12 Economic Overview and OutlookLabor Market Slack                                                                ...
U.S. Q3’12 Economic Overview and OutlookUnemployment Rate by Occupation                                          24       ...
U.S. Q3’12 Economic Overview and OutlookJOLTS Data Indicates Rising Separations              6.00              5.50       ...
U.S. Q3’12 Economic Overview and OutlookJobs, Earnings and Income                                  7                      ...
U.S. Q3’12 Economic Overview and OutlookConsumer Expectations Deteriorating                         10                    ...
U.S. Q3’12 Economic Overview and OutlookHousing Outlook and Overview   • Third quarter housing recovery?      • Recovery i...
U.S. Q3’12 Economic Overview and OutlookHousing Outlook   • Shadow inventory rising.      • Banks are likely to increase p...
U.S. Q3’12 Economic Overview and OutlookHousing Starts Stabilize                                     2.5                  ...
U.S. Q3’12 Economic Overview and OutlookShadow Inventory Growing                                                       Sha...
U.S. Q3’12 Economic Overview and OutlookHomeowners Submerged                          13.7                                ...
U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound                                    FOMC Projecti...
U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound                                         Federal ...
U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound                                  Falling Wealth ...
U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound                                  Taylor Rule Mod...
U.S. Q3’12 Economic Overview and OutlookFiscal Drag  • Medium-term policy shift.  • Discretionary spending declining.  • P...
U.S. Q3’12 Economic Overview and OutlookFiscal Policy and Financial Conditions Mix                                        ...
U.S. Q3’12 Economic Overview and OutlookFiscal Drag                                                             Federal Go...
U.S. Q3’12 Economic Overview and OutlookFiscal Cliff Impact                                                   Estimated Im...
U.S. Q3’12 Economic Overview and OutlookGovernment Transfers                                                              ...
U.S. Q3’12 Economic Overview and OutlookCommodities Outlook and Overview  • Commodity prices reverse slide.     • Middle E...
U.S. Q3’12 Economic Overview and OutlookMiddle East Tensions, Speculation Driving Rally in Commodities                    ...
U.S. Q3’12 Economic Overview and OutlookGasoline Prices Stable For Now                                 $3.75              ...
U.S. Q3’12 Economic Overview and OutlookAlternative Economic Outlook: The Long Malaise  • Housing remains deadweight on co...
U.S. Q3’12 Economic Overview and OutlookThe Long Malaise: Housing as Ground Zero                                          ...
U.S. Q3’12 Economic Overview and OutlookThe Long Malaise: Rate Comparison                                                 ...
U.S. Q3’12 Economic Overview and OutlookLong Malaise: Longer-Term Consumer Adjustment                                     ...
Bloomberg   Joseph Brusuelas,   Senior Economist   Bloomberg, LP   jbrusuelas3@bloomberg.net   Joseph Brusuelas is an anal...
U.S. Q3’12 Economic Overview and OutlookImage page Summary  Executive  • Rates: US 10-year yields likely to trade in range...
U.S. Q3’12 Economic Overview and OutlookThe U.S. Q3’12 Economic Overview & Outlook is an exclusive publication fromBloombe...
Q3 2012 US ECO OUTLOOK
Upcoming SlideShare
Loading in...5
×

Q3 2012 US ECO OUTLOOK

753

Published on

0 Comments
1 Like
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
753
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
0
Comments
0
Likes
1
Embeds 0
No embeds

No notes for slide

Q3 2012 US ECO OUTLOOK

  1. 1. Image page U.S. Q3’12 Economic Overview and Outlook Bloomberg BRIEF: Economics Joseph Brusuelas July 2012
  2. 2. U.S. Q3’12 Economic Overview and OutlookImage page Summary Executive • Growth is tracking at 1.2 percent in the second quarter of 2012 and will struggle to reach that level in the third quarter. • Sub-trend growth (2.5 percent) likely to continue through mid-2013. • The U.S. economy is downshifting amid broadening global deceleration. • Job growth near 100,000 per month with slight risk of higher unemployment rate through end of the third quarter. • Risks to the outlook: • External Sector: Euro zone, Middle East tensions. • Public policy: 2012 impact from 2013 „fiscal cliff.‟ • Political Economy: U.S. Presidential election. Subscribe @ Brief <GO> 2
  3. 3. U.S. Q3’12 Economic Overview and OutlookImage page Cyclical Growth Scenarios • Core Scenario: Below Trend (2.5%) Growth • Modest consumption • Household deleveraging and fiscal drag continue to weigh • Elevated unemployment persists • Low inflation • Alternative: The Long Malaise • Housing overhang persists • Liquidity trap ensnares economy • Policy Mistake: Premature fiscal & monetary tightening • Deflation • Low Probability: Cyclical Outperformance • Policy directed at housing • Acceleration in hiring quickly brings down unemployment • Corporate sector deploys cash • Inflation risk Subscribe @ Brief <GO> 3
  4. 4. U.S. Q3’12 Economic Overview and OutlookBloomberg Consensus: Survey of Forecasters Q2 12 Q3 12 Q4 12 Q1 13 Q2 13 Q3 13 Real GDP 1.8% 2.20% 2.20% 1.9% 2.40% 2.60% CPI 1.9% 1.5% 1.75% 1.6% 1.90% 2.10% Core PCE 1.80% 1.80% 1.90% 1.70% 1.80% 1.80% Unemployment 8.17% 8.20% 8.10% 8.0% 7.90% 7.80% Central Bank Rate 0.25% 0.25% 0.25% 0.25% .25% 0.38% 2-Year Rate 0.30% 0.30% 0.37% 0.52% .59% 0.74% 10-Year Rate 1.65% 1.75% 1.91% 2.09% 2.28% 2.52% EUR/USD 1.23 1.23 1.24 1.24 1.25 ..Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 4
  5. 5. U.S. Q3’12 Economic Overview and OutlookOutput Gap Still Considerable 20 Shadow=Forecast Real GDP Real Potential GDP 19 18 17 16 15 Trillions 14 13 12 11 10 9 8 7 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 5
  6. 6. U.S. Q3’12 Economic Overview and OutlookMind The Gap Growth and Jobs 400.0 5.0 Q212 GDP Tracking at 1.5% 200.0 3.0 Quarterly Average (Percentage) Quarterly Average (Thousands) 0.0 1.0 -200.0 -1.0 -400.0 -3.0 -600.0 -5.0 -800.0 Real GDP Y/Y (RHS) Total Change in Employment (LHS) -1000.0 -7.0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg R2=.77Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 6
  7. 7. U.S. Q3’12 Economic Overview and OutlookImage page Overview U.S. Rates • Bloomberg consensus forecast indicates higher 10- and 30-year rates. • Fed Operation Twist to Continue at $44 billion per month pace. • Current Rates: • 2-Year: .22% • 10-year: 1.48% • 30-year: 2.56% • Third Quarter Consensus Survey Rate Forecast • 2-Year: .30% • 10-year: 1.75% • 30-year: 2.83% • Risk to that forecast: • Slowing U.S. economy • Euro zone debt • U.S. fiscal cliff Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 7
  8. 8. U.S. Q3’12 Economic Overview and OutlookFixed Income Markets Pricing in Slow Growth U.S. Nominal GDP Growth and Five Year Bond Yields 10 8 6 Nominal GDP Growth Projections 4 2 0 Five-Year Yield Expectations -2 -4 Nominal GDP Growth 5-Year Yield -6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 8
  9. 9. U.S. Q3’12 Economic Overview and OutlookProjected Path of Long and Short Term Rates 5.50 5.00 4.50 4.00 3.50 Percent 3.00 2.50 2.00 1.50 1.00 0.50 US 10-Year (LHS) 3-Month, 2-Year Forward (RHS) 0.00 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Source: Bloomberg USGG10YR INDEX, G0025 2Y3M BLC2CURNCY<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 9
  10. 10. U.S. Q3’12 Economic Overview and Outlook FX OverviewImage page • Dollar appreciation versus euro- and-trade weighted basket of currencies eases: • Near-term test of $1.18 euro • Likely to move toward $1.15 by end of the third quarter • Euro zone recession supports modest USD appreciation • Risks to the outlook: • Fiscal concerns at year end • Weak labor market outlook • Economic slowdown stimulates Fed action • Global U.S. dollar strength: Dollar safe haven bid: • Global economic slowdown • Intensification of euro zone sovereign debt crisis • Global central banks drive policy rates lower Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 10
  11. 11. U.S. Q3’12 Economic Overview and OutlookU.S. Dollar Appreciation Peaking? 600 1.18 1.23 500 1.28 400 1.33 Basis Points EUR/USD 300 1.38 200 1.43 100 1.48 Italian-German 10-Year Spread (LHS) EUR/USD (RHS, Inverted) 1.53 0 2011 2012 Source: Bloomberg EUR CURNCY, GDBR10, GBTPGR10 INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 11
  12. 12. U.S. Q3’12 Economic Overview and OutlookU.S. Dollar Appreciation Peaking? U.S. Trade Weighted Real Broad Dollar Index 98 96 94 92 90 Index 88 86 84 82 80 2008 2009 2010 2011 2012 Source: Bloomberg USTRBROA INDEX<GO>Subscribe @ Brief <GO> 12
  13. 13. U.S. Q3’12 Economic Overview and OutlookExternal Outlook and Overview • Euro Area • Intensification of sovereign debt crisis as recession continues • Bloomberg consensus survey • -0.7% Growth in third quarter • Unemployment Rate to 11.2% • ECB likely to ease policy rate to .50% in third quarter • China • Growth decelerating • Further downward adjustment in residential investment • State owned enterprises drive investment • Fiscal and monetary stimulus likely • Emerging Markets • Growth eases to 3% from 3.2% previously • Rising unemployment • Policy rates likely to ease on central banks actionSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 13
  14. 14. U.S. Q3’12 Economic Overview and OutlookSafe Haven Move Due to EU Crisis 8 German 10-Year Yield US 10-Year Yield Spanish 10-Year Yield Italian 10-Year Yield 7 6 Percentage 5 4 3 2 1 2010 2011 2012 Source: Bloomberg GDBR10, USGG10YR, GSPG10YR, GBTPGR10 INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 14
  15. 15. U.S. Q3’12 Economic Overview and OutlookGermany Not Immune to Crisis US and Germans Equity Markets 8000 1450 DAX (LHS) S&P 500 (RHS) 1400 7500 1350 7000 1300 1250 Index Index 6500 1200 6000 1150 1100 5500 1050 5000 1000 2010 2011 2012 Source: Bloomberg SPX INDEX, DAX INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 15
  16. 16. U.S. Q3’12 Economic Overview and OutlookBanks at Center of the Storm Rising Stress: Bank 5-Year Credit Default Swaps 800 BBVA 700 BNP Paribas 600 Banco Santander Credit Agricole 500 Intesa Sanpaolo Basis Points 400 Soc Gen UniCredit 300 200 100 0 2010 2011 2012 Source: Bloomberg SOVR INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 16
  17. 17. U.S. Q3’12 Economic Overview and OutlookImage page U.S. Manufacturing Outlook and Overview • Manufacturing growth slows. • Fixed business investment and capital expenditures spending likely to increase by 5 percent in the third quarter • Auto production slows, remains solid • U.S. ISM suffers “Europe Effect” in June. • Likely rebound in third quarter • Global production decelerating • European recession • Weak U.S. aggregate demand • China‟s macroeconomic adjustment Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 17
  18. 18. U.S. Q3’12 Economic Overview and OutlookSlower, More Sustainable Manufacturing Growth Industrial Production and Growth 6.0 10.0 5.0 Y/Y Percentage Change (Quarterly Average) 4.0 5.0 3.0 Y/Y Percentage Change 2.0 0.0 1.0 0.0 -5.0 -1.0 -2.0 -3.0 -10.0 -4.0 GDP CYOY Industrial Production -5.0 -15.0 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg IP YOY, GDP CYOY INDEX<GO> R2=.7Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 18
  19. 19. U.S. Q3’12 Economic Overview and OutlookSlower, More Sustainable Manufacturing Growth ISM Manufacturing Survey and Growh 65.0 6.0 60.0 4.0 GDP Y/Y Percentage Change Index (Quarterly Average) 55.0 2.0 50.0 0.0 45.0 -2.0 40.0 -4.0 ISM Manufacturing Survey GDP Y/Y 35.0 -6.0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 19
  20. 20. U.S. Q3’12 Economic Overview and OutlookGlobal Manufacturing Slows 65 60% 60 40% Y/Y Percentage Change (Index) 55 20% 50 Index 0% 45 -20% 40 -40% 35 MSCI World Index (RHS) US ISM (LHS) China PMI (LHS) Euro Zone PMI (LHS) 30 -60% 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg MXWO, NAPMPMI, CPMINDX, PMITMEZ, JPMIGLOB INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 20
  21. 21. U.S. Q3’12 Economic Overview and OutlookFinancial Conditions Overview • European sovereign debt crisis is offsetting the mild thaw in domestic credit conditions. • The pace of credit creation is on an upswing. • Both demand and supply of credit is improving. • This has not resulted in an increase in monetary velocity.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 21
  22. 22. U.S. Q3’12 Economic Overview and OutlookBloomberg Financial Conditions Indices 1 0 -1 -2 Index -3 -4 -5 US Financial Conditions Index EU Financial Conditions Index -6 2010 2011 2012 Source: Bloomberg BFCIUS, BFCIEU INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 22
  23. 23. U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing Private Credit Creation & Nominal Growth 20% Nominal GDP Total Credit Creation Private Financial Instiutions 15% Year Over Year Percentage Change 10% 5% 0% -5% 1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 Source: Federal Reserve, BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 23
  24. 24. U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing Commercial and Industrial Loan Demand Rising 50 25 0 -25 -50 -75 Net % of Domestic Respondents Reporting Strong Demand for C&I Loans: Large/Medium Size Firms -100 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg FRLSSDLM<GO>, FRLSSDS INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 24
  25. 25. U.S. Q3’12 Economic Overview and OutlookCredit Markets Healing Credit Standards Easing 100 80 60 40 20 0 -20 -40 Net % Domestic Respondents Reporting Tightening Standards for C&I Loans: Large & Medium Size Firms -60 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg FRLSCILM INDEX<GO>, FRLSCIS INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 25
  26. 26. U.S. Q3’12 Economic Overview and OutlookLabor Markets and Consumer Outlook and Overview • Private payroll growth barely sufficient to stabilize unemployment rate. • Pace of firings on the rise. • Tepid earnings and income indicate weak consumption path to persist. • Gasoline prices have stabilized, likely to provide no further relief to consumer. • Consumer expectations sour.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 26
  27. 27. U.S. Q3’12 Economic Overview and OutlookLabor Market BLS Non-Farm Private Payrolls 300 200 100 0 -100 -200 -300 -400 -500 -600 -700 -800 3-Month Average Change in Private Employment -900 Jan-07 Jan-09 Jan-11 Source: Bloomberg NFP TCH INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 27
  28. 28. U.S. Q3’12 Economic Overview and OutlookLabor Market Slack Labor Market Slack 65 3 64 4 5 63 6 62 Percent Percent 7 61 8 60 9 59 10 Employment to Population Ratio (LHS) Unemployment Rate (RHS) 58 11 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Source: Bloomberg USERTOT , USURTOT INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 28
  29. 29. U.S. Q3’12 Economic Overview and OutlookUnemployment Rate by Occupation 24 Management & Professional 22 Services Occupations 20 Percent (Household Survey, NSA) Sales & Office 18 Natural Resources, Construction & Maintenance 16 Production and Transportation 14 12 10 8 6 4 2 May-11 May-12 May-11 May-12 May-11 May-12 Total Men Women Source: Bureau of Labor StatisticsSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 29
  30. 30. U.S. Q3’12 Economic Overview and OutlookJOLTS Data Indicates Rising Separations 6.00 5.50 5.00 Millions 4.50 4.00 3.50 Hires Seperations 3.00 2000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 30
  31. 31. U.S. Q3’12 Economic Overview and OutlookJobs, Earnings and Income 7 6 5 4 3 Percentage Change (Y/Y) 2 1 0 -1 -2 -3 -4 -5 -6 Average Hourly Earnings Real Personal Disposable Income Private Payrolls -7 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg USHEYOY, NFP P, PIDSCWT%T INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 31
  32. 32. U.S. Q3’12 Economic Overview and OutlookConsumer Expectations Deteriorating 10 0 -10 -20 Index(Monthly) -30 -40 -50 -60 Expectations: Economy Better/Worse Diff -70 CCI Incomes Over $50K CCI Incomes $50K To $74.9K -80 2008 2009 2010 2011 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 32
  33. 33. U.S. Q3’12 Economic Overview and OutlookHousing Outlook and Overview • Third quarter housing recovery? • Recovery in starts driven by demand for multifamily dwellings. • Prices still falling year-over-year. • Some metro-areas experiencing price appreciation. • Overall housing recovery still years away. • Inventory • Pricing • Tight credit • Attractive rates support sales albeit at historically low levels.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 33
  34. 34. U.S. Q3’12 Economic Overview and OutlookHousing Outlook • Shadow inventory rising. • Banks are likely to increase pace of foreclosures in the third quarter. • Housing drag persists. • 25 percent of homeowners have negative equity. • 5 percent near-negative equity. • Falling prices, shadow inventory a drag on household consumption. • This drag is blocking the monetary transmission mechanism. • Likely to need a policy response to target underwater homeowners and the shadow inventory to move back toward growth path.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 34
  35. 35. U.S. Q3’12 Economic Overview and OutlookHousing Starts Stabilize 2.5 Multi-Family Starts Single Family Starts 2 Millions (Annualized Pace) 1.5 1 0.5 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Bloomberg NHSPS1, NHSPS5 INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 35
  36. 36. U.S. Q3’12 Economic Overview and OutlookShadow Inventory Growing Shadow Inventory Looms Large 9 Shadow Inventory Existing Inventory Shadow Inventory= Foreclosures and 90 8 Days Late 7 6 Millions 5 4 3 2 2005 2006 2007 2008 2009 2010 2011 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 36
  37. 37. U.S. Q3’12 Economic Overview and OutlookHomeowners Submerged 13.7 Negative and Near Negative Equity 13.6 13.5 13.4 Units: Millions 13.3 13.2 13.1 13.0 12.9 12.8 Q409 Q110 Q210 Q310 Q410 Q111 Q211 Q311 Q411 Source: Core Logic, Bloomberg NEQSNATI + NNEQNATI INDEX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 37
  38. 38. U.S. Q3’12 Economic Overview and OutlookCentral Bank Policy Outlook and Overview • Fed balance sheet remains extremely accommodative. • Shifting duration of assets out along curve. • Fed likely to extended pledge to hold rates effectively at zero until 2015. • Questionable efficacy of further asset purchases. • September 2012 FOMC meeting likely will see decision made whether or not to purchase assets this year.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 38
  39. 39. U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound FOMC Projections of Year-End Levels of the Fed Funds Rate (Median Projections as of January and June 2012) 4.5% 4.25% January Median FOMC Projection June Median FOMC Projection 4.0% 3.5% 3.0% 2.5% Percent 2.0% 1.5% 1.0% 0.50% 0.5% 0.25% 0.25% 0.0% 2012 2013 2014 Longer Run Source: Federal ReserveSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 39
  40. 40. U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Federal Reserve SOMA Maturity Distribution $275 9/22/2011 (Wt Avg Years to Maturity 6.09) $250 06/18/2012 (Wt Avg Years to Maturity 8.79) $225 $200 $175 Billions $150 $125 $100 $75 $50 $25 $0 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 2036 2038 2040 Source: Bloomberg Debt FED<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 40
  41. 41. U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Falling Wealth Effect from Fed Purchases 1450 End of QE1 End of QE2 1400 1350 1300 1250 S&P 500 Gains 80% 1200 1150 1100 Index 1050 1000 S&P 500 Gains 30% S&P 500 Gains 17% 950 During Operation 900 Twist 850 800 750 700 S&P 500 650 2009 2010 2011 2012 Source: Bloomberg SPX<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 41
  42. 42. U.S. Q3’12 Economic Overview and OutlookMonetary Policy at the Zero Bound Taylor Rule Model Estimates of the Fed Funds Rate 8 Fed Funds Rate Hawks Baseline Taylor Rule Estimate Doves June Median FOMC Projection Baseline 6 Rudebusch Model 4 Percent 2 0 -2 -4 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 42
  43. 43. U.S. Q3’12 Economic Overview and OutlookFiscal Drag • Medium-term policy shift. • Discretionary spending declining. • Potential fiscal shock in first quarter of 2013. • Expiration of Bush tax cuts, Obama Tax holiday, tax increases to support Affordable Healthcare Act, and fiscal sequestration begins. Equivalent to 4% of GDP.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 43
  44. 44. U.S. Q3’12 Economic Overview and OutlookFiscal Policy and Financial Conditions Mix Financial Conditions Easy Financial Tight Financial Conditions Conditions Expansionary Fiscal Policy 2009-2010 Fiscal Policy Restrictive Fiscal Policy 2011-2014 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 44
  45. 45. U.S. Q3’12 Economic Overview and OutlookFiscal Drag Federal Government Spending 12.0 Actual Projected 11.0 10.0 9.0 Percentage of GDP 8.0 7.0 6.0 5.0 4.0 3.0 Defense Nondefense Total 2.0 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017 2022 Source: Congressional Budget OfficeSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 45
  46. 46. U.S. Q3’12 Economic Overview and OutlookFiscal Cliff Impact Estimated Impact Tax Changes Spending Changes Bush Tax Cuts -221 Automatic Sequestration -65 2% Cut in Payroll Tax -95 Expiration of Emergency Unemployment -26 Benefits Partial Expensing of Investment -65 Scheduled Reduction in Medicare Payment -11 Rates Tax Provisions: Affordable Health Care Act -18 Other Revenue Increases/Spending -105 Reductions Impact of Tax Changes -400 Impact of Spending Changes -207 Gross Impact on Spending Changes -607 Less Secondary Effects on Economy 47 Net Impact on Fiscal Deficit -560 Potential Hit on GDP 4% Source: CBO, BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 46
  47. 47. U.S. Q3’12 Economic Overview and OutlookGovernment Transfers Austerity Bites 25% Government Transfers as Percentage of Total 24% Income 23% 22% 21% 20% Percentage 19% 18% 17% 16% 15% 14% 13% 12% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 47
  48. 48. U.S. Q3’12 Economic Overview and OutlookCommodities Outlook and Overview • Commodity prices reverse slide. • Middle East tensions. • Speculation on further central bank easing. • Domestic gasoline prices hold, albeit at elevated levels. • Wholesale futures point to stabilization. • Likely no further relief to U.S. consumer.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 48
  49. 49. U.S. Q3’12 Economic Overview and OutlookMiddle East Tensions, Speculation Driving Rally in Commodities 130 West Texas Intermediate (LHS) Brent (LHS) 560 Jefferies Commodity Index (RHS) 120 540 110 Price Per Barrel ($) 520 Index 100 500 90 80 480 70 460 Jul-11 Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 49
  50. 50. U.S. Q3’12 Economic Overview and OutlookGasoline Prices Stable For Now $3.75 $4.20 Wholesale Gasoline Futures (LHS) $3.50 $4.00 $3.25 $3.80 Price Per Gallon ($) Price Per Gallon ($) $3.00 $3.60 $2.75 $3.40 $2.50 $3.20 $2.25 $3.00 Jul-11 Jan-12 Jul-12 Source: Bloomberg 3AGSREG INDEX<GO> XB1 Commodity<GO>, CL1 Commodity<GO>Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 50
  51. 51. U.S. Q3’12 Economic Overview and OutlookAlternative Economic Outlook: The Long Malaise • Housing remains deadweight on consumer and economy. • Monetary policy fails to deliver as fiscal gridlock prevails. • Long-term adjustment in consumption continues parallel with household deleveraging. • Public sector still leveraging up, creating asymmetrical risks to growth once deleveraging starts. • Elevated risk of policy error due to premature fiscal or monetary policy tightening.Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 51
  52. 52. U.S. Q3’12 Economic Overview and OutlookThe Long Malaise: Housing as Ground Zero US-Japan Housing Price Comparison 80 Tokyo: Residential (LHS, %) 70 Osaka: Residential (LHS,%) 60 Case Schiller 20 City (RHS,%) 50 Percentage Change 40 30 20 10 0 -10 -20 -30 T-6 T-5 T-4 T-3 T-2 T-1 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Years Priort to and Following Housing Bubbles Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 52
  53. 53. U.S. Q3’12 Economic Overview and OutlookThe Long Malaise: Rate Comparison Direction of Long Term Yields 4.5 9 US 10- Year Yield (LHS) Japan 10-Year Yield (RHS) 4 8 3.5 7 3 6 2.5 5 Yield (%) Yield (%) 2 4 1.5 3 1 2 0.5 1 0 0 1 24 47 70 93 116 139 162 185 208 231 254 Months After Onset of Recession Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 53
  54. 54. U.S. Q3’12 Economic Overview and OutlookLong Malaise: Longer-Term Consumer Adjustment Real Spending Four Year Rolling Average 5.0 Inflation Adjusted Spending 4.5 4.0 Percentage Change (Y/Y) 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: BloombergSubscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 54
  55. 55. Bloomberg Joseph Brusuelas, Senior Economist Bloomberg, LP jbrusuelas3@bloomberg.net Joseph Brusuelas is an analyst who writes for the Bloomberg Economic Brief. The observations he makes are his own. Bloomberg is a leading source of data, news, and analytics for financial and legal professionals, corporations, media organizations and private individuals around the globe. The BLOOMBERG PROFESSIONAL® service and Bloomberg’s media services provide real-time and historical pricing, indicative data, reporting, research, estimates, analytics, portfolio management tools, electronic trading and order management systems, multimedia events and electronic communications to Bloomberg clients in more than 150 countries, 24 hours a day. bloomberg.com Frankfurt London San Francisco Singapore Tokyo +49 69 9204 1210 +44 20 7330 7500 +1 415 912 2960 +65 6212 1000 +81 3 3201 8900 Hong Kong New York São Paulo Sydney +852 2977 6000 +1 212 318 2000 +55 11 3048 4500 +61 2 9777 8600The BLOOMBERG PROFESSIONAL service, BLOOMBERG Data and BLOOMBERG Order Management Systems (the "Services") are owned and distributed locally by Bloomberg Finance L.P. ("BFLP") and itssubsidiaries in all jurisdictions other than Argentina, Bermuda, China, India, Japan and Korea (the "BLP Countries"). BFLP is a wholly-owned subsidiary of Bloomberg L.P. ("BLP"). BLP provides BFLP with allglobal marketing and operational support and service for the Services and distributes the Services either directly or through a non-BFLP subsidiary in the BLP Countries. The Services include electronic tradingand order-routing services, which are available only to sophisticated institutional investors and only where the necessary legal clearances have been obtained. BFLP, BLP and their affiliates do not provideinvestment advice or guarantee the accuracy of prices or information in the Services. Nothing on the Services shall constitute an offering of financial instruments by BFLP, BLP or their affiliates.BLOOMBERG, BLOOMBERG PROFESSIONAL, BLOOMBERG MARKETS, BLOOMBERG NEWS, BLOOMBERG ANYWHERE, BLOOMBERG TRADEBOOK, BLOOMBERG BONDTRADER, BLOOMBERGTELEVISION, BLOOMBERG RADIO, BLOOMBERG PRESS and BLOOMBERG.COM are trademarks and service marks of BFLP, a Delaware limited partnership, or its subsidiaries.
  56. 56. U.S. Q3’12 Economic Overview and OutlookImage page Summary Executive • Rates: US 10-year yields likely to trade in range between 1.5% and 1.75% percent. External shocks posing downside risk of below 1.5% rate • US Dollar: Downside risk on consensus forecast of $1.24 against euro at end of Q3‟12. Given external risks a move to long term purchasing power parity of EUR/USD of $1.18 cannot be discounted. Subscribe @ Brief <GO> 56
  57. 57. U.S. Q3’12 Economic Overview and OutlookThe U.S. Q3’12 Economic Overview & Outlook is an exclusive publication fromBloomberg Brief Economics.Bloomberg BRIEF Economics is a new, groundbreaking publication written by leading economists in US, Europe andAsia, published by Bloomberg, the premier source of data and analytics in the financial world.Bloomberg BRIEF Economics is already read by thousands every morning and you’ll soon see why – the EconomicsBrief provides a clear, concise snapshot every morning of all the key information you need to know:• Valuable insight and independent analysis from our renowned economists whove spent decades on Wall Street including Joseph Brusuelas Michael McDonough, Tamara Henderson, Richard Yamarone, David Powell and Niraj Shah.• Proprietary data and commentary that gets beneath the numbers with eye catching charts.• Guest columnists from top-tier firms.• Exclusive publications such as the Orange Book, Quarterly Economic Overview, Daily Economic Outlook Videos and muchmore!Your time is valuable. Maximize it by switching to Bloomberg BRIEF Economics today.Take a free 30 day trial today!Or visit www.bloombergbriefs.com for more information. Subscribe @ Brief <GO> Email jbrusuelas3@bloomberg.net or call 212-617-7664 57

×