The U.S. Economy & Small Business Credit

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The U.S. Economy & Small Business Credit

  1. 1. The U.S. Economy & Small Business CreditEugenio J. Aleman, Director and Senior EconomistMarch 14, 2013
  2. 2. Let’s Look at the Federal Government Federal Budget Surplus or Deficit 12-Month Moving Sum in Billions of Dollars $400 $400 $200 $200 $0 $0 -$200 -$200 Fiscal Conservatism? Where? -$400 -$400 When? -$600 -$600 -$800 -$800 -$1,000 -$1,000 -$1,200 -$1,200 -$1,400 -$1,400 Surplus or Deficit: Jan @ -$1,030 Billion -$1,600 -$1,600 67 71 75 79 83 87 91 95 99 03 07 11 Source: U.S. Department of the Treasury and Wells Fargo Securities, LLCEconomics 2
  3. 3. Real GDP Growth U.S. Real GDP Bars = Compound Annual Rate Line = Yr/Yr % Change 10% 10% 8% 8% 6% 6% 4% 4% 2% 2% U.S. real GDP growth recovered 0% 0% somewhat, but remains weak -2% -2% -4% -4% -6% -6% Real GDP: Q4 @ 0.1% -8% -8% Real GDP: Q4 @ 1.6% -10% -10% 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomics 3
  4. 4. U.S. Nonfarm Employment Nonfarm Employment Change Change in Employment, In Thousands 600 600 400 400 200 200 0 0 Employment turned the corner in October of 2010, but it is still -200 -200 weak -400 -400 -600 -600 -800 -800 Monthly Change: Feb @ 236.0 Thousand -1,000 -1,000 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 4
  5. 5. U.S. Employment By Industry U.S. Employment by Industry Year-over-Year Percent Change of 3-M Moving Average Total Nonfarm Trade, Trans. & Utilities Government Educ. & Health Svcs. While employment growth has Prof. & Bus. Svcs. More been broad based, the Number of Leisure & Hospitality government sector has Employees continued to struggle Manufacturing Financial Activities Less Construction Other Services February 2013 Information -2% -1% 0% 1% 2% 3% 4% Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 5
  6. 6. Government Employment U.S. Government Employment Composition State Government, 23% It is not the Federal Government! Local Government, 64% Federal Government, 13% Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 6
  7. 7. Unemployment Rate Unemployment Rate Seasonally Adjusted 12% 12% 10% 10% 8% 8% Not as high as during the 1980s recession, but more damaging 6% 6% 4% 4% Unemployment Rate: Feb @ 7.7% 2% 2% 60 65 70 75 80 85 90 95 00 05 10 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 7
  8. 8. The Employment Situation Labor Force Participation Rate 16 Years and Over, Seasonally Adjusted 68% 68% 67% 67% 66% 66% One of the reasons for the decline in the unemployment rate is tied to the drop-off in the 65% 65% labor force participation rate 64% 64% Labor Force Participation Rate: Feb @ 63.5% 63% 63% 90 92 94 96 98 00 02 04 06 08 10 12 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 8
  9. 9. Mean Duration of Unemployment Mean Duration Unemployment Average Weeks Unemployed 44 44 Average Duration of Unemployment: Feb @ 36.9 40 40 36 36 32 32 Duration of unemployment 28 28 shows a struggling labor market 24 24 20 20 16 16 12 12 8 8 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 9
  10. 10. Unemployment by Education Level Unemployment Rate by Education Level February 2013 14% 14% 12% 12% 10% 10% 8% 8% College graduates have the edge even in the worst recession since 6% 6% the depression 4% 4% 2% 2% 0% 0% No High School High School Some College College Degree Diploma Diploma Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 10
  11. 11. Consumer Price Index U.S. Consumer Price Index Both Series are 3-Month Moving Averages 9% 9% 6% 6% 3% 3% 0% 0% Consumer prices are slowing once again -3% -3% -6% -6% -9% -9% CPI 3-Month Annual Rate: Jan @ 0.3% CPI Year-over-Year: Jan @ 1.7% -12% -12% 92 94 96 98 00 02 04 06 08 10 12 Source: U.S. Department of Labor and Wells Fargo Securities, LLCEconomics 11
  12. 12. The U.S. Economy On this side of the wall: Inflation & stagnation = stagflation On this side of the wall: 1930’s depression/ Japan-like depression The Humpty-Dumpty Economy The U.S. Economy sat on a wall, The U.S. Economy had a great fall. All the kings Treasury-men, And all the kings Federal Reserve-men, Couldnt put The U.S. Economy together again.Economics 12
  13. 13. Helicopter Ben to the Rescue The Helicopter Effect!Economics 13
  14. 14. Federal Reserve Target Rate U.S. Federal Reserve Target Rate 7.00% 7.00% U.S. Target Rate: Feb @ 0.25% 6.00% 6.00% 5.00% 5.00% 4.00% 4.00% Monetary policy remains extremely expansive 3.00% 3.00% 2.00% 2.00% 1.00% 1.00% 0.00% 0.00% 2000 2002 2004 2006 2008 2010 2012 Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomics 14
  15. 15. Federal Reserve Balance Sheet Federal Reserve Balance Sheet Trillions $3.5 $3.5 Other: Feb @ $232.6B Foreign Swaps: Feb @ $5.2B $3.0 PDCF & TAF $3.0 Commercial Paper & Money Market Repos & Dis. Window: Feb @ $0.0B $2.5 Agencies & MBS: Feb @ $1,095.0B $2.5 Treasuries: Feb @ $1,734.5B $2.0 $2.0 A Monetary Tsunami? $1.5 $1.5 $1.0 $1.0 $0.5 $0.5 $0.0 $0.0 2007 2008 2009 2010 2011 2012 2013 Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomics 15
  16. 16. The Housing Market TodayEconomics
  17. 17. Your House As Seen By: You…Economics
  18. 18. Your House As Seen By: Your Buyer…Economics
  19. 19. Your House As Seen By: Your Lender…Economics
  20. 20. Your House As Seen By: Your Appraiser…Economics
  21. 21. Your House As Seen By: And… Your County’s Tax Assessor…Economics
  22. 22. New Home Sales New Home Sales Seasonally Adjusted Annual Rate, In Thousands 1,500 1,500 1,300 1,300 1,100 1,100 900 900 New home sales are still low but improving 700 700 500 500 300 300 New Home Sales: Jan @ 437,000 3-Month Moving Average: Jan @ 402,667 100 100 89 91 93 95 97 99 01 03 05 07 09 11 13 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomics 22
  23. 23. Housing Starts Housing Starts Seasonally Adjusted Annual Rate, In Millions 2.4 2.4 2.0 2.0 1.6 1.6 As well as housing starts 1.2 1.2 0.8 0.8 0.4 0.4 Housing Starts: Jan @ 890K 0.0 0.0 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomics 23
  24. 24. Existing Home Sales Existing Single-Family Home Resales Seasonally Adjusted Annual Rate - In Millions 7.0 7.0 6.0 6.0 5.0 5.0 Existing home sales are relatively strong 4.0 4.0 3.0 3.0 Existing Home Sales: Jan @ 4.3 Million 2.0 2.0 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomics 24
  25. 25. Home Prices Home Prices Year-over-Year Percentage Change 24% 24% 20% 20% 16% 16% 12% 12% 8% 8% 4% 4% Home prices are finally showing 0% 0% signs of recovery -4% -4% -8% -8% -12% -12% Median Sale Price: Jan @ $174,100 -16% Median Sale Price, 3-M Mov Avg: Jan @ 10.9% -16% FHFA Purchase Only Index: Dec @ 5.8% -20% -20% S&P Case-Shiller Composite-10: Dec @ 5.9% -24% -24% 97 99 01 03 05 07 09 11 13 Source: National Association of Realtors, FHFA, S&P Case-Shiller and Wells Fargo Securities, LLCEconomics 25
  26. 26. Home Mortgages Real Estate Lending By Commerical Banks, Year-over-Year Percent Change 25% 25% 20% 20% 15% 15% Home mortgages have been 10% 10% declining for the past four years and are just recently showing 5% 5% some improvement 0% 0% -5% -5% Real Estate Loans: Jan @ 1.3% -10% -10% 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013 Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomics 26
  27. 27. Negative Equity Negative Equity Mortgages - By State Percent of Mortgages Outstanding Utah 18.5 As of Q3 2012 Washington 18.6 Oregon 18.6 New Jersey 19.9 Virginia 20.0 New Hampshire 20.3 Rhode Island 22.1 Idaho 22.3 Maryland 22.9 O…M…G…? Ohio 23.8 Illinois 25.4 California 28.3 Michigan 32.0 Georgia 35.6 Arizona 38.6 Florida 42.1 Nevada 56.9 US 22.0 0% 10% 20% 30% 40% 50% 60% 70% Source: FHFA and Wells Fargo Securities, LLCEconomics 27
  28. 28. Small Businesses and the Credit Markets
  29. 29. Small Business Sentiment Regulation, taxes and poor sales as lead concerns Source: NFIB and Wells Fargo Securities, LLCEconomics 29
  30. 30. Small Business Sentiment Small Businesses are still feeling as if in recession Source: NFIB and Wells Fargo Securities, LLCEconomics 30
  31. 31. Small Business Sentiment Expectations of the future are very weak, but the same thing happened in the 1990s Source: NFIB and Wells Fargo Securities, LLCEconomics 31
  32. 32. Small Business Sentiment Small Business surveys remain weak Source: NFIB and Wells Fargo Securities, LLCEconomics 32
  33. 33. Small Business Sentiment Small Business following consumer confidence very closely Source: NFIB and Wells Fargo Securities, LLCEconomics 33
  34. 34. Small Business Sentiment According to Small Businesses, the economy remains in recession Source: NFIB and Wells Fargo Securities, LLCEconomics 34
  35. 35. Small Business Sentiment It is clear that weak sales are behind the weakness felt by Small Businesses Source: NFIB and Wells Fargo Securities, LLCEconomics 35
  36. 36. Small Business Credit Small Businesses are not borrowing Source: Federal Reserve Bank and Wells Fargo Securities, LLCEconomics 36
  37. 37. Small Business Credit Credit access has improved but remains above pre- recession levels Source: Federal Reserve Bank and Wells Fargo Securities, LLCEconomics 37
  38. 38. Small Business Credit Credit demand is weak but improving Source: Federal Reserve Bank and Wells Fargo Securities, LLCEconomics 38
  39. 39. Small Business Credit Lending standards have loosened considerably Source: Federal Reserve Bank and Wells Fargo Securities, LLCEconomics 39
  40. 40. ISM Manufacturing Index ISM Manufacturing Composite Index Diffusion Index 65 65 60 60 55 55 Manufacturing has weakened 50 50 but it is back to expansion territory 45 45 40 40 35 35 ISM Manufacturing Index: Feb @ 54.2 12-Month Moving Average: Feb @ 51.8 30 30 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Source: Institute for Supply Management and Wells Fargo Securities, LLCEconomics 40
  41. 41. ISM Non-Manufacturing Index ISM Non-Manufacturing Composite Index 65 65 60 60 55 55 But the service economy 50 50 continues to move along 45 45 40 40 ISM Non-Manufacturing Index SA: Feb @ 56.0 35 35 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 Source: Institute for Supply Management and Wells Fargo Securities, LLCEconomics 41
  42. 42. Consumer Credit Revolving & Nonrevolving Debt Month-over-Month Change, 3-M Mov. Avg., Billions of Dollars $60 $60 Revolving: Jan @ -$0.7 Billion Nonrevolving: Jan @ $16.5 Billion $48 $48 $36 $36 Credit card lending is non- $24 $24 existent $12 $12 $0 $0 -$12 -$12 2007 2008 2009 2010 2011 2012 Source: Federal Reserve Board and Wells Fargo Securities, LLCEconomics 42
  43. 43. Household Debt Household Debt Service Ratio Debt Payments as a Percent of Disposable Personal Income 14.5% 14.5% 14.0% 14.0% 13.5% 13.5% 13.0% 13.0% 12.5% 12.5% U.S. Households are ready to start borrowing 12.0% 12.0% 11.5% 11.5% 11.0% 11.0% 10.5% 10.5% DSR: Q3 @ 10.6% 10.0% 10.0% 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 Source: The Conference Board and Wells Fargo Securities, LLCEconomics 43
  44. 44. Consumer Confidence Consumer Confidence Index Conference Board 160 160 140 140 120 120 100 100 Consumer confidence is still very weak for a strong recovery 80 80 60 60 40 Confidence Yr/Yr % Chg: Feb @ -2.8% 40 Confidence: Feb @ 69.6 12-Month Moving Average: Feb @ 66.6 20 20 87 89 91 93 95 97 99 01 03 05 07 09 11 13 Source: The Conference Board and Wells Fargo Securities, LLCEconomics 44
  45. 45. Personal Saving Rate Personal Saving Rate Disp. Personal Income Less Spending as a % of Disp. Income 15% 15% 12% 12% 9% 9% The best news is that the saving rate has improved 6% 6% 3% 3% Personal Saving Rate: Jan @ 2.4% Personal Saving Rate, 12-Month M.A.: Jan @ 3.8% 0% 0% 60 63 66 69 72 75 78 81 84 87 90 93 96 99 02 05 08 11 Source: U.S. Department of Commerce and Wells Fargo Securities, LLCEconomics 45
  46. 46. Mortgage and Treasury Rates Conventional Mortgage Rate vs. 10-Year Treasury Yield Percent 7.0% 7.0% 6.0% 6.0% 5.0% 5.0% Mortgage interest rates are 4.0% 4.0% starting to edge up again but from a very low base 3.0% 3.0% 2.0% 2.0% Conventional 30-Year Fixed Mortg. Rate: Feb @ 3.53% 10-Year Yield: Feb @ 2.02% 1.0% 1.0% 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Freddie Mac, Federal Reserve Board and Wells Fargo Securities, LLCEconomics 46
  47. 47. Global Forecast Wells Fargo International Economic Forecast (Year-over-Year Percent C hange) GDP CPI 2012 2013 2014 2012 2013 2014 Global (PPP weights) 2.7% 2.8% 3.7% 4.2% 3.9% 4.3% Global (Market Exchange Rates) 1.5% 1.6% 2.4% n/a n/a n/a 1 Advanced Economies 1.2% 1.2% 2.3% 2.1% 1.3% 1.8% United States 2.2% 2.0% 2.3% 2.1% 1.6% 2.1% Eurozone -0.5% -0.1% 1.8% 2.5% 1.3% 1.7% United Kingdom 0.2% 1.1% 2.0% 2.8% 2.5% 2.1% Growth will remain positive but Japan 1.9% 0.4% 2.5% 0.0% -0.2% 0.1% Korea 2.1% 2.8% 4.3% 2.2% 2.6% 3.1% weak Canada 1.8% 1.5% 2.6% 1.5% 1.1% 2.0% 1 Developing Economies 4.4% 4.7% 5.4% 6.7% 7.0% 7.2% China 7.7% 8.1% 8.4% 2.7% 3.0% 3.5% India 5.0% 5.7% 6.5% 9.7% 9.0% 9.3% Mexico 4.1% 3.3% 3.4% 4.1% 4.1% 4.8% Brazil 0.8% 2.2% 4.2% 5.4% 6.3% 6.1% Russia 3.4% 3.1% 3.7% 5.1% 6.0% 5.5% Forecast as of: February 6, 2013 1 Aggregated Using PPP Weights Source: Wells Fargo Securities, LLCEconomics 47
  48. 48. Wells Fargo Securities, LLC Economics Group Global Head of Research and Economics Economists Diane Schumaker-Krieg ………………… ….diane.schumaker@wellsfargo.com …… Azhar Iqbal, Econometrician………………………………azhar.iqbal@wellsfargo.com Global Head of Research & Economics Tim Quinlan, Economist …………………………………..tim.quinlan@wellsfargo.com Chief Economist Michael A. Brown, Economist ………………… michael.a.brown@wellsfargo.com John Silvia … ...................... … . john.silvia@wellsfargo.com Economic Analysts Sarah Watt, Economic Analyst …………………………… .sarah.watt@wellsfargo.com Senior Economists Kaylyn Swankoski, Economic Analyst kaylyn.swankoski@wellsfargo.com Mark Vitner, Senior Economist……………....………. . mark.vitner@wellsfargo.com . Zachary Griffiths, Economic Analyst zachary.griffiths@wellsfargo.com Jay Bryson, Global Economist …………………....……….jay.bryson@wellsfargo.com Sara Silverman, Economic Analyst sara.silverman@wellsfargo.com Eugenio Aleman, Senior Economist …………….eugenio.j.aleman@wellsfargo.com Administrative Assistants Sam Bullard, Senior Economist ………………………….sam.bullard@wellsfargo.com Peg Gavin, Executive Assistant. peg.gavin@wellsfargo.com Anika Khan, Senior Economist .… . anika.khan@wellsfargo.com Cyndi Flowe, Senior Administrative Assistant cyndi.h.flowe@wellsfargo.com Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. (“WFS”) is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. (“WFBNA”) is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company © 2013 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited (“WFSIL”). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Services Authority. The content of this report has been approved by WFSIL a regulated person under the Act. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive 2007. The FSA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, not will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the “Materials”) are provided for general informational purposes only.Economics 48

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