US & Global Economy: Review and forecast 2012

Client-tailored solutions for what’s next

Economic Review and Forecast: You Might Need These

e-forecasting.com’s outlook for US and global economic conditions

Friday, February 10th, 2012

Client-tailored solutions for what’s next 04/07/23

2

Presentation Agenda

New stylized facts in global trends

Snapshot of current economic climate: from stagnation to stagflation

Future outlook

Q&A


3

State Capitalism & Global Competition

state-backed companies account for 80% of the value of China’s stock market and 62% of Russia’s

Not a road to liberal capitalism

A sustainable model New view: redesign

capitalism to make it work better


4

The Rich is the Problem

99% vs. 1% Take their money Global anarchy Instability Uncertainty Lack of investment No job creation Erosion of wealth Decline in incomes


5

Jobs: Cooking The Numbers

Labor Force = Employed + Unemployed

Unemployed: 10 million

Labor Force: 100 million= 10%

Unemployed: 10 mil. - 1 mil.

Labor Force: 100 mil. - 1 mil.= 9.1%


6

FED, ECB, BoE, BoJ…. & IMF

Experiments with monetary policy

Took over fiscal policy from inept political leaderships

New asset bubbles? Do they rule? Are they doctors or

patients


7

Fifty Years of the European Socialist Experiment

Spend other peoples money

Hire the unemployed

Does government create wealth?

The end of the social state?


8

Current Risks

Ineffectiveness of low interest rates

Capping inflation at 2%

Negative saving rates

Deficits, Debts and Fear – The European experience

Free Fall of dollar, panic, policy reversal, high interest rates, a “real” depression

Geopolitical factors, Iran conflict & oil prices


9

Fed in a printing mode again


10

Employment: Where is the New Peak


11

Real-Time Look @ Economy NOW

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

components, policies, etc


12

Real Time Monthly GDP

• e-forecasting estimates US monthly GDP increased 2.8% in January to $13,487.6B, after jumping 3.4% in December

• Current annual growth rate in first quarter is estimated to be 2.9% (Nov, Dec, Jan average)

• Six-month growth rate, which signals confirmation of turning points, went up 2.4% in January, after going up 2.2% in December

$13,100

$13,200

$13,300

$13,400

$13,500

M J Q2 J A S Q3 O N D Q4 J

Monthly GDP Up in January

BEA, Quarterly e-forecasting, Monthly


Growth in Monthly GDP

Looking @ growth rate, can see depth of previous recession, upswing, and now slow recovery in economy

When negative, recession; when positive, expansion

13

-8.0

-4.0

0.0

4.0

8.0

12.0

60 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

%

Growth in U.S. Monthly GDP

NBER-Defined U.S. Recessions

Six-Month Growth Rate Smoothed, Annualized

Long-Term Growth Rate: 3.3%


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) and current recovery $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 11

BillionsMonthly GDP & US Business Cycle

NBER-Defined U.S. Recessions

Real GDP, at Seasonally Adjusted Annual Rates (SAAR)


Q4 was fastest quarter last yearLooking @ table, we see growth rates incrementally increasing over the last 12 months

Year Month

Quarterly GDP Monthly GDP

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

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

2011 January $13,225.0 ▼ -1.4% 1.9%

2011 February $13,224.5 ▬ 0.0% 1.2%

2011 March $13,227.9 0.4% $13,234.1 ▲ 0.9% 0.4%

2011 April $13,259.8 ▲ 2.4% 0.4%

2011 May $13,266.9 ▲ 0.6% 0.7%

2011 June $13,273.3 1.4% $13,293.1 ▲ 2.4% 1.4%

2011 July $13,308.9 ▲ 1.4% 1.5%

2011 August $13,326.8 ▲ 1.6% 1.7%

2011 September $13,331.6 1.8% $13,359.1 ▲ 3.0% 1.8%

2011 October $13,391.0 ▲ 2.9% 2.1%

2011 November $13,419.3 ▲ 2.6% 2.4%

2011 December $13,422.4 2.8% $13,456.9 ▲ 3.4% 2.8%

2012 January $13,487.6 ▲ 2.8% 2.9%

*SAAR: Seasonally Adjusted Annual Rate.

**MA3: 3-month moving average monthly GDP. End-month of quarter growth rate is the same as the annual quarterly growth rate.


16

Short-Term Outlook: US Lead

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

US leading indicator has been slowly picking up steam the last few months

0

20

40

60

80

100

120

59 63 67 71 75 79 83 87 91 95 99 03 07 11

© 2012 e-forecasting.com

e-forecasting Leading Economic Index (eLEI)

U.S. Recessions* eLEI, 2000=100


17

Short-Term Outlook: US Lead

Six month growth rate at highest level since May 2010

Currently at 5.9% Has increased last

3 months in a row-20

-10

0

10

20

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

Expansion and Recession Signals from Growth in eLEI

Six-Month Growth Rate Smoothed, Annualized, in eLEI

U.S. Long-Term Growth Rate: 3.3%


18

eLEI shows recession probability next 3-4 months at nearly zero

1%

26%

6%

15%

41%

32%

85%

62%

38%

7%

2%

1%

0% 25% 50% 75% 100%

Feb-11

Mar-11

Apr-11

May-11

Jun-11

Jul-11

Aug-11

Sep-11

Oct-11

Nov-11

Dec-11

Jan-12

Recession Probabilities


19

Short-Term Outlook: US

Looking at growth in the US economy, we see slow recovery with growth to hit 3% by 2014

-1

0

1

2

3

4

11:Q1 12:Q1 13:Q1 14:Q1

© 2012 e-forecasting.com

Economic Growth ForecastAnnual %Change From Previous Quarter

Actual Forecast


20

US Manufacturing

80

85

90

95

100

105

00:Sep 02:Sep 04:Sep 06:Sep 08:Sep 10:Sep 12:Sep

Index, 2007=100

Manufacturing Production

Manufacturing recovery will continue and near peak of 06 by 2014

80

85

90

95

100

105

01:Dec 03:Dec 05:Dec 07:Dec 09:Dec 11:Dec 13:Dec

Index, 2007=100

Manufacturing Production


21

US Consumer Prices

Look for sharp increase in inflation due to QE

160

170

180

190

200

210

220

230

240


Index, 1982-84=100 , SA

Consumer Price Index (CPI)

160

170

180

190

200

210

220

230

240

250

260


1982-84=100, SA

Consumer Price Index (CPI)


22

US Durable Goods

$700

$800

$900

$1,000

$1,100

$1,200

$1,300


In Billions, SAAR

Consumer Expenditures on Durables

Consumer expenditures on durable goods will continue to recover nearing $1,500 trillion at 2005 constant prices

$700

$800

$900

$1,000

$1,100

$1,200

$1,300

$1,400

$1,500


In Billions, SAAR

Consumer Expenditures on Durables


23

Exports Outlook

$500

$600

$700

$800

$900


In Billions, SAAR

Real Exports of Manufactures

Exports will remain on a very low growth path

$500

$600

$700

$800

$900

$1,000

$1,100


In Billions, SAAR

Real Exports of Manufactures


24

Imports Outlook

Real imports will sharply increase and reach new peak near $1,700 billion

$800

$1,000

$1,200

$1,400

$1,600


In Billions, SAAR

Real Imports of Manufactures

$700

$900

$1,100

$1,300

$1,500

$1,700


In Billions, SAAR

Real Imports of Manufactures


25

Trade Balance Outlook

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

-8

-6

-4

-2

0

2


Forecast

Percent

Percent of Trade Balance of Manufactures to GDP

-8

-6

-4

-2

0

2


Forecast

Percent

Percent of Trade Balance of Manufactures to GDP


26

Monetary Policy on the Horizon

-2

0

2

4

6

8


Percent

Monetary Policy: Federal Funds Rate

Look for the Fed Funds rate to remain near zero through forecast horizon

Bernanke’s ‘pledge’ to hold rates thru 2014

-2

0

2

4

6

8


Percent

Monetary Policy: Federal Funds Rate


27

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 are recovering…


28

World vs. US

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

While US growth is slowly picking up, world continues to decline

-30

-20

-10

0

10

20

00 01 02 03 04 05 06 07 08 09 10 11 12

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

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

World, excluding USA United States

Consecutive negative values (below x-axis) predict


29

BRIC: Showing Resilience

BRIC HAD been continually outperforming the world and USED TO move out of recession much faster

BRIC recently faced a slowdown but is now turning the corner again

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12


Early Warning Signals for Booms and Busts in BRIC Area

World BRIC Area

Consecutive negative values (below x-axis) predict recessions


30

Latin America’s Bumpy Ride

Latin America’s economy fluctuates much greater than rest of world

Economy is turning out of a slowdown in growth before the world resumes growth

-30

-20

-10

0

10

20

30

00 01 02 03 04 05 06 07 08 09 10


Early Warning Signals for Booms and Busts in Latin America

World Latin America


-40

-30

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07 08 09 10 11 12


Early Warning Signals for Booms and Busts in Latin America

World Latin America



31

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10


Early Warning Signals for Booms and Busts in Euro Area

World Euro Area


Euro Area

Euro area usually mirrors global economy

This changed last year and was in a free falls, looks to be bottoming out barring any more debt crises

-25

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10 11 12


Early Warning Signals for Booms and Busts in Euro Area

World Euro Area



32

-20

-15

-10

-5

0

5

10

15

20

00 01 02 03 04 05 06 07 08 09 10


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

World Non-Euro Area


Non-Euro Area

Non-Euro area continues to fare much better than Euro area

Slowdown has stalled

-40

-30

-20

-10

0

10

20

30

00 01 02 03 04 05 06 07 08 09 10 11 12


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

World Non-Euro Area



33

Africa & Middle East

Africa and Middle East moving along with world economy

Economies turning slightly quicker than world

-20

-10

0

10

20

00 01 02 03 04 05 06 07 08 09 10


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

World Africa & Middle East


-30

-20

-10

0

10

20

00 01 02 03 04 05 06 07 08 09 10 11 12


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

World Africa & Middle East



34

Asia Pacific

Asia Pacific showed a lot of strength coming out of recession

However, now growth has cooled off and at pre-precession levels

-20

-10

0

10

20

30

00 01 02 03 04 05 06 07 08 09 10


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

World Asia & Pacific Area

Consecutive negative values (below x-axis) predict recessions-20

-10

0

10

20

00 01 02 03 04 05 06 07 08 09 10 11 12


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

World Asia & Pacific Area



35

Emerging Asia once again will carry global economy

2010 2011 2012 2013 2010 2011 2012 2013

0.41 0.35 -0.11 0.16 8.1 9.3 -3.8 4.3

0.28 0.23 -0.15 0.06 5.6 6.1 -5.2 1.7

0.13 0.12 0.04 0.09 2.6 3.2 1.4 2.5

0.29 0.26 0.14 0.18 5.9 7.0 5.1 4.8

0.84 0.53 0.32 0.62 16.7 14.2 11.2 17.0

0.65 0.40 0.23 0.51 13.0 10.7 8.0 13.9

0.39 0.28 0.19 0.21 7.8 7.4 6.6 5.8

0.45 0.07 0.21 0.26 8.9 1.8 7.5 7.0

2.40 2.05 1.89 2.04 47.9 54.5 67.0 55.9

1.92 1.76 1.62 1.75 38.3 47.0 57.4 47.8

0.15 0.15 0.11 0.13 3.0 3.9 4.1 3.6

5.0 3.8 2.8 3.6 100.0 100.0 100.0 100.0

EUROPEAN UNION (EU27)

CONTRIBUTION OF REGIONS TO GLOBAL GROWTH

REGIONPercentage Points Contribution Relative Contribution, Percent

WORLD GROWTH1

1Sum of Regional Contributions Source: www.e-forecasting.com

Euro Area (euro17)

Non-Euro Members (10)

OTHER EUROPE

NORTH AMERICA

United States

SOUTH AMERICA

ASIA & PACIFIC INDUSTRIAL

EMERGING ASIA

China & India

MIDDLE EAST & AFRICA

Relative Contribution to Global GDP Growth

-10

0

10

20

30

40

50

60

70

80

2010 2011 2012 2013

EUROPEAN UNION (EU27)

OTHER EUROPE

NORTH AMERICA

SOUTH AMERICA


EMERGING ASIA



36

Market Size Measured by GDP in $PPP Billion: 2009 vs 2010

Pieces of pie remain similar, with following changes: • Emerging Asia (+2%)• North America (-1%)• Non-Euro (-1%)

16%

6%

6%

25%6%

10%

27%

4% Euro Area (16)

Non-Euro Area (11)

OTHER EUROPE

NORTH AMERICA

SOUTH AMERICA


EMERGING ASIA



37

Short term global forecast

-2

0

2

4

6

8

10

2010 2011 2012 2013

Euro Area (16)

Non-Euro Area (11)

OTHER EUROPE

NORTH AMERICA

SOUTH AMERICA

ASIA & PACIFICINDUSTRIALEMERGING ASIA



38

Long term global forecast

Economic Growth as % Change in Real GDP from Previous Year

-2

0

2

4

6

8

10

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027

Euro Area (16)

Non-Euro Area (11)

OTHER EUROPE

NORTH AMERICA

SOUTH AMERICA

ASIA & PACIFICINDUSTRIAL

EMERGING ASIA

MIDDLE EAST &AFRICA


39

Global Opportunities


40

Q&A


41

Wrap Up

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