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Today’s Economic Landscape and What’s on the Other Side February 2010

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Today’s Economic Landscape and What’s on the Other Side. February 2010

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Today’s Economic Landscape and What’s on the Other Side February 2010

  1. 1. Today’s Economic Landscape and What’s on the Other SideFebruary, 2010 <br />Presented by: <br />Morris Segall, President <br />SPG Trend Advisors<br />
  2. 2. THE ECONOMY<br />
  3. 3. Gross Domestic ProductQ1 2001 – Q4 2009<br />Source: Bureau of Economic Analysis<br />
  4. 4. Contributions to GDP Growth by Component Q3 2008 – Q4 2009<br />Source: Bureau of Economic Analysis<br />
  5. 5. Historic and Projected Real GDP Growth around the World 2007 – 2011*<br />The world-wide recession is over with emerging market economies led by China, India and Brazil leading the overseas recovery. For the first time in post WWII history, the U.S. and Europe are not the locomotives of worldwide economic growth. However both the U.S. and Europe are recovering led by government stimulus programs. Barring a “double dip “ recession on the expiration of government stimulus later in 2010, the estimates below of worldwide economic growth in 2011 are likely to be exceeded, particularly in developing countries. <br />*2008/09 data are actual <br />Source: International Monetary Fund<br />
  6. 6. S&P Reported Operating Earnings for Listed CompaniesQ1 2000-Q4 2009*<br />Source: Standard & Poors<br />
  7. 7. Industrial Production January, 2008 - December, 2009<br />% decline Jan. 08- Dec. ’09: 10.2%<br />Source: Federal Reserve Bank<br />
  8. 8. Capacity Utilization by Status of ProductionJanuary, 2008 – December, 2009<br />Source: Federal Reserve Bank<br />
  9. 9. Manufacturers Orders & ShipmentsExcluding TransportationJanuary, 2008 – December, 2009<br />Source: Census Bureau<br />
  10. 10. Net Change in U.S. Jobs (Total Non-farm)January, 2006 – January, 2010<br />Source: Bureau of Labor Statistics<br />
  11. 11. National Nonfarm Employment by Industry Sector GroupsDecember, 2007 – January, 2010<br />The loss of jobs is pervasive throughout the entire economy and has not spared previously immune professional , executive and managerial positions. This has been as much, if not more, a white collar, middle class recession.<br />Source: Bureau of Labor Statistics<br />
  12. 12. Initial Unemployment Claims January, 2009 – January, 2010<br />Reflecting the rise in unemployment, new job losses rose dramatically in the first quarter of 2009. The trend of new job losses has been declining since then but reversed to the upside in January. The absolute level of new job loss remains high. <br />Source: Department of Labor<br />
  13. 13. Continued Unemployment Claims December, 2006 – January, 2010<br />Source: Department of Labor<br />
  14. 14. Number of Unemployed on Federal Extended Benefit ProgramsMay, 2008 – January, 2010<br />Source: Department of Labor<br />
  15. 15. Retail Sales Less Food and Fuel September, 2007 – December, 2009<br />Consumer CreditQ3 2006 – November, 2009<br />Consumer spending stabilized in the second quarter and improved in the third. Since the third quarter of 2008 consumer spending had been declining and the consumer has been paying down outstanding debt. These trends have been negative for the economy in the short term but the reduction of consumer debt and an increase in consumer savings are positive for the economy and the improved creditworthiness of the consumer longer term.<br />Source: (Left) Census Bureau, (Right) Federal Reserve Bank<br />
  16. 16. National Saving Rateas Percentage of Personal Disposable IncomeQ1 2005 – Q4 2009<br />Source: Bureau of Economic Analysis<br />
  17. 17. New Home Sales Units Sold <br />v. Length on Market <br />April, 2006 - December, 2009<br />Existing Home Sales v. Length on MarketApril, 2006 - December, 2009<br />Housing sales have improved since March, 2009 and inventories have declined, particularly in new home construction. The improvement in housing reflects the government’s buyer tax credit, the cutback in new home construction, much reduced home prices and lower mortgage interest rates. <br />Source: (Left) National Association of Realtors, (Right) Census Bureau <br />
  18. 18. S&P/Case-Shiller Home Price Index 2006 – November, 2009<br />Source: Standard and Poor&apos;s<br />
  19. 19. Conference Board Consumer Confidence2005 – January, 2010<br />Source: Conference Board<br />
  20. 20. Commercial Mortgage Backed Securities (CMBS): Delinquency Rates for All Private-labels*<br />Q2 2006 – Q3 2009<br />Source: Mortgage Banker’s Association<br />*CMBS issued by private entities (i.e. other than Fannie Mae, Ginnie Mae, or Freddie Mac). The percentage of loans that are 30-days delinquent. The delinquency includes foreclosed estates.<br />
  21. 21. Real Estate & Consumer Loan Delinquency Rates: All Banks and Financial Institutions<br />Q2 2007 –Q3 2009<br />Source: Federal Reserve Bank<br />
  22. 22. While inflation has declined precipitously in the recession led by the collapse in energy and commodity prices. After bottoming in July, 2009, prices are moving up, driven by the reversal in energy prices. In addition, basic services, healthcare and education prices remain stubbornly high.<br />Source: Bureau of Labor Statistics<br />
  23. 23. Crude Oil Spot Prices in U.S. DollarsFebruary, 2005 – February, 2010<br />Source: Energy Information Administration<br />
  24. 24. Nominal Broad Dollar Index* August, 2000 – February, 2010<br /> * Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.<br />Source: Federal Reserve Board<br />
  25. 25. THE GOVERNMENT’S RESPONSE<br />
  26. 26. Money Supply (M2): January, 2007 – December, 2009<br />Source: Federal Reserve Bank<br />
  27. 27. U.S. Federal Budget Deficit, 1995-2012*<br />*2010-2012 data are projections<br />Source: Congressional Budget Office<br />
  28. 28. Federal Reserve Balance Sheet: Reserve Bank CreditJune, 2008 – February, 2010<br />Source: Federal Reserve Bank<br />
  29. 29. Federal Fund Rates, <br />January, 2008 - February, 2010<br />3-month LIBOR rates lent in $US <br />January, 2008 - February, 2010<br />The Fed and European Central Bank have cut interest rates to the banking systems here and abroad thus driving down the cost of bank funds to facilitate bank lending. The Fed has indicated it will continue to keep interest rates low for the time being but it will have to raise interest rates when the economy strengthens.<br />Source: (Left) Federal Reserve Bank, (Right) British Banker’s Association<br />
  30. 30. Where are the opportunities?<br />Healthcare <br />Education<br />Worker Retraining<br />Agriculture<br />Energy Conservation<br />Environmental Solutions <br />Electric Power<br />Transportation – Increase Mass Transit<br />Exports<br />Water Conservation – New Supplies and Recycling<br />U.S. Government Procurement and Outsourcing – Base Realignment Program (BRAC)<br />Real Estate – Recycle and Rehab Existing Commercial and Residential Property<br />
  31. 31. Overview of Where the $787 Billion is Going: Break-down of the Stimulus Dollars by Sectors<br />Source: Recovery.gov<br />
  32. 32. Conclusions <br />The deep and protracted recession that began in the fourth quarter of 2007 ended in the third quarter of 2009 and recovery accelerated in the fourth quarter thanks to federal stimulus, increased factory orders and reduced inventory liquidation.<br />The continuation of government stimulus is expected to lead to further GDP growth in the first half of 2010 but at lower growth rates from the outsized gain in Q’4, ‘09. <br />Second half 2010 economic growth will depend on contributions from the private sector and job creation.<br />Emerging industrialized economies, led by accelerated growth in China, are outpacing the U.S. in economic recovery and are poised to grow faster than the U.S. in 2010.<br />
  33. 33. Conclusions continued<br />Despite government stimulus the U.S. economy still faces near term economic pressures which include: <br />high cost and reduced availability of credit<br />improving but continued low level of corporate profits<br />continuing high levels of unemployment<br />continued weak levels of corporate capital and consumer spending<br />severe reductions in state and local government spending and eroded municipal financial strength <br />continued credit pressures in residential housing and consumer lending extending to commercial real estate markets and corporate lending<br />
  34. 34. Conclusions continued<br />After an expected cyclical recovery in 2010-2012, we believe longer term socio-economic issues facing this country will result in slower future economic growth for the United States featuring reduced growth in consumer spending, high levels of national debt and increased entitlement spending.<br />In addition, the availability and cost of credit, particularly to consumers, will be more restricted and expensive in the future, further curtailing the growth in private sector spending longer term.<br />
  35. 35. Thank You<br />You can always reach me at msegall@spgtrend.com<br />Also, if you need us in a hurry, we are at 410.522.7243 <br />Please contact us when you require economic and capital markets research & policy analysis.<br />Further information available at www.spgtrend.com<br />

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