Us Economy Historical Review And Forecast General

Client-tailored solutions for what’s next

US Economy Review and Forecast

Prepared byE-forecasting.comOctober 27th, 2009

Client-tailored solutions for what’s next 10/27/2009

2

Presentation Agenda

Overview of recent US recession

Snapshot of current economic climate

Future outlook thru 2015

Q&A


3

The Recent Economic Episode?

A catastrophe ?

Or

Life as Usual?

A Brief Review in Pictures


4NYSE Oct 10, 2008 Stocks on free fall


5Frankfurt October 10, 2008 European stocks in free fall


6


7


8


9

Is Capitalism

Dead ?


10

A Global Catastrophe?

Business schools have done too little to reform themselves in the light of the credit crunch

So what should business schools do? The Economist, Sep 24th 2009


11

A Global Catastrophe?

“More history classes would help. Would-be business titans need to learn that economic history is punctuated with crises and disasters, that booms inevitably give way to busts, and that the business cycle, having survived many predictions of extinction, continues to prey on the modern economy.”


12National Business Activity,

Since 1880


13

Stock Market History


14

Then: 1930s Depression

July 9, 1932 was a day Wall Street would never wish to relive. The Dow Jones Industrial Average closed at 41.63, down 91% from its level exactly three years earlier. Total trading volume that day was a meager 235,000 shares. "Brother, Can You Spare a Dime," was one of the top songs of the year. Investors everywhere winced with the pain of recognition at the patter of comedian Eddie Cantor, who sneered that his broker had told him "to buy this stock for my old age. It worked wonderfully. Within a week I was an old man!“

New York's Sub-Treasury Building (now Federal Hall National Memorial), in the early 1930s. Hulton Archive/Getty Images


15Now: Bailout Proposal Gets Hung Up

Over Central Issue: Will It Work?

A crowd gathered outside NYSE on Thursday afternoon to protest Bush administration's proposed bailout of Wall Street's missteps in mortgage crisis.

WSJ SEPTEMBER 26, 2008


16 A Bubble is a Bubble, is a Bubble, is

a Bubble,…………………

Keynes argues that we have a system where speculators seeking short-term gains cause erratic movements in stock prices which leads to unstable investment.

“Stock prices, which are partly based on prospective yields on capital, are determined by ‘a large number of ignorant individuals’ and ‘liable to change violently as a result of a sudden fluctuation of opinion due to factors which do not really make a difference to the prospective yield.” (Keynes 1936 p. 150)




Keynes contends that these speculators can be seized by fits of optimism or pessimism he terms their ‘animal spirits’ which cause the fluctuations in share prices.

This is consistent with the ‘greater fool’ theory of stock prices which states that individuals will buy stocks at perhaps greatly inflated prices as long as they believe that greater fools exist who will pay even more for stocks.




During downturns stock prices collapse because there are no fools left to buy shares. Indeed, this behavior characterizes several of the famous speculative bubbles that have occurred throughout history, such as the 1720s South Sea bubble and the 1920s Florida land bubble.


19

The Drill: Winners & Losers

Big stock market bubbles have typically been followed by crashes, then by recessions.

During bubble times people’s hopes become unrealistic. The high returns cause people to save less and companies to invest more.


20

The Drill: Winners & Losers

Post-bubble economies are hard to manage. They don’t respond well to falling interest rates.

The greater the debt building the worse will be the subsequent pain and the more difficult the subsequent recovery.


21

Real-Time Look @ Economy NOW

What is happening RIGHT now with the economy– US monthly GDP, current macro

components, policies, etc


22

Real Time Monthly GDP

• e-forecasting estimates US monthly GDP increased 1.9% in September to $13,044.5B, after going up 4.6% in August

• Annual growth rate in the third quarter is estimated to have been 3.6%

• Six-month growth rate, which signals confirmation of turning points, went up 0.5% in September, first time it is positive since August 08

$12,800

$12,900

$13,000

$13,100

J F M Q1 A M J Q2 J A S Q3

Monthly GDP Up in September

BEA, Quarterly e-forecasting, Monthly


Growth in Monthly GDP

Looking @ growth rate, can see depth of recession and current upswing

First time positive since Aug 08

When negative, recession; when positive, expansion

60616263646566676869707172737475767778798081828384858687888990919293949596979899 00 01 02 03 04 05 06 07 08 09 10

-8.0

-4.0

0.0

4.0

8.0

12.0

Growth in U.S. Monthly GDPNBER-Defined U.S. Recessions

Six-Month Growth Rate Smoothed, Annualized

Long-Term Growth Rate: 3.3%

%

23


Historical View

Taking the current recession in context over a long history, we can see how deep the recession was as well as the length (solid fill)

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

$14,000

59 61 63 65 67 69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

BillionsMonthly GDP & the Business Cycle

NBER-Defined U.S. Recessions

Real GDP, at Seasonally Adjusted Annual Rates (SAAR)


Q3 will be positiveLooking @ table, we see Q3 as being first month out of recession

Chained $2005 annual % change annual % change annual % change MA3

SAAR*, Billions from quarter ago from month ago from 3 months ago**

2008 September $13,324.6 -2.7% $13,215.2 ▼ -13.5% -2.7%

2008 October $13,209.3 ▼ -0.5% -4.1%

2008 November $13,155.4 ▼ -4.8% -5.7%

2008 December $13,141.9 -5.4% $13,061.0 ▼ -8.3% -5.4%

2009 January $12,951.1 ▼ -9.6% -6.2%

2009 February $12,934.9 ▼ -1.5% -6.2%

2009 March $12,925.4 -6.4% $12,890.2 ▼ -4.1% -6.4%

2009 April $12,899.3 ▲ 0.9% -4.4%

2009 May $12,914.6 ▲ 1.4% -2.5%

2009 June $12,901.5 -0.7% $12,890.6 ▼ -2.2% -0.7%

2009 July $12,975.3 ▲ 8.2% 0.6%

2009 August $13,024.3 ▲ 4.6% 1.9%

2009 September $13,014.7 3.6% $13,044.5 ▲ 1.9% 3.6% *SAAR: Seasonally Adjusted Annual Rate.

Year

Quarterly GDP

Table 1: U.S. Monthly GDP, Latest Estimates

**MA3: 3-month mov ing av erage monthly GDP. End-month of quarter grow th rate is the same as the annual quarterly grow th rate.

Monthly GDP

Chained $2005

SAAR*, Billions

Month


26

What’s Ahead?

Focus on manufacturing, inflation, other major factors

Global overview Exports/imports outlook


27

Short-Term Outlook: US Lead

Using leading indicator helps with short-term forecast and turning point identification

US leading indicator has gone up 6X, growth rate above long-term trend

e-forecasting Leading Economic Index

0

20

40

60

80

100

120

59 63 67 71 75 79 83 87 91 95 99 03 07

© 2009 e-forecasting.com

U.S. Recessions* eLEI, 2000=100


28

Short-Term Outlook: US

Looking at growth in the US economy, we see a peak then growth to stabilize just under 2% through 2012

Forecast of Growth in Monthly GDP

-8

-6

-4

-2

0

2

4

6

07:Sep 08:Sep 09:Sep 10:Sep 11:Sep

Annual % change from three months ago1

Actual Forecast


29

US Manufacturing

Manufacturing hit its bottom and already has started to rebound

Manufacturing Production

90

95

100

105

110

115

120

99:Aug 01:Aug 03:Aug 05:Aug 07:Aug 09:Aug 11:Aug

Index, 2002=100


30

US Consumer Prices

Look for inflation due to major increases in money supply

Consumer Price Index (CPI)

160

170

180

190

200

210

220

230

240


Index, 1982-84=100 , SA


31

US Durable Goods

Consumer expenditures on durable goods will level off near $1 trillion at 2005 constant prices

Consumer Expenditures on Durables

$700

$800

$900

$1,000

$1,100

$1,200

$1,300


In Billions, SAAR


32

Trade Outlook

Exports have hit the bottom

Real imports will sharply rebound

Real Exports of Manufactures

$500

$600

$700

$800

$900


In Billions, SAAR

Real Imports of Manufactures

$700

$900

$1,100

$1,300

$1,500


In Billions, SAAR


33

Trade Balance Outlook

Trade balance of manufactures as percent of GDP will increase through forecast horizon

Percent of Trade Balance of Manufactures to GDP

-8

-6

-4

-2

0

2


P ercent

Forecast


34Monetary Policy on the

Horizon Look for the Fed

Funds rate to start going North Monetary Policy: Federal Funds Rate

-2

0

2

4

6

8


P ercent


35

Global Future Outlook

Looking @ major economic blocs and their leading indicators helps give an idea of turning points, which areas suffered more than others and which will come out of recession faster and stronger…


36

World vs. US

The US moves with the world economy, usually the timing of recessions and peaks are the same

Dynamics of the Global Business Cycle USA Leading Index Moves Up or Down Ahead of the Rest of the World

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09

Leading Indicators: Six-Month Smoothed Growth Rate, Annualized (percent)

World, excluding USA United States

Consecutive negative values (below x-axis) predict recessions


37

BRIC Attack

BRIC continually outperforms the world and is moving out of recession much faster

BRIC only experienced negative growth in the leading indicator for a brief time during last recession

Early Warning Signals for Booms and Busts in BRIC Area

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09


World BRIC Area



38

Latin America’s Bumpy Ride

Latin America’s economy fluctuates much greater than rest of world, still feeling negative effects and in negative territory although improving

Early Warning Signals for Booms and Busts in Latin America

-40-30-20-10

01020304050

00 01 02 03 04 05 06 07 08 09


World Latin America



39

Euro vs Non-Euro Area

Early Warning Signals for Booms and Busts in Euro Area

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09


World Euro Area


Euro area mirrors global economy, headed out of recession with the same timing and nearly same degree

Non-Euro area is experiencing more growth than Euro area

Early Warning Signals for Booms and Busts in Non-Euro Area

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09


World Non-Euro Area



40

Africa & Middle East

Africa and Middle East moving along with world economy, reaching expansion to a slower degree

Early Warning Signals for Booms and Busts in Africa & Middle East

-20

-10

0

10

20

00 01 02 03 04 05 06 07 08 09


World Africa & Middle East



41

Asia Pacific

Asia Pacific continues to show strength, on par with global recovery, most likely will move past world in next few months

Early Warning Signals for Booms and Busts in Asia & Pacific Area

-24

-18

-12

-6

0

6

12

18

24

00 01 02 03 04 05 06 07 08 09


World Asia & Pacific Area



42

Market Size of Regions

Euro Area (16)

Non-Euro Area (11)

OTHER EUROPE

NORTH AMERICA

SOUTH AMERICA

ASIA & PACIFICINDUSTRIALEMERGING ASIA

MIDDLE EAST & AFRICA

Market Size

2008 GDP measured in $PPP Billions


43

Long-Term Global Forecast

-30

-20

-10

0

10

20

30

40

2008 2009 2010 2011 2012 2013 2014 2015Euro Area (16) Non-Euro Area (11) OTHER EUROPE NORTH AMERICA

SOUTH AMERICA ASIA & PACIFIC INDUSTRIAL EMERGING ASIA MIDDLE EAST & AFRICA

Global Economic Growth Forecast


44

Q&A

Any questions, please contact:

Maria [email protected]

Thank you!

mailto:[email protected]