Leadership 08

8/14/2019 Leadership 08

1/22

Is This a Recession or a Slowdown?

Presented to

Watauga Leadership ChallengeBoone Area Chamber of Commerce

Boone, North Carolina

Harry M. Davis, Ph.DNCBA Professor of Banking & Economist

Appalachian State UniversitySeptember 24, 2008

[email protected]


2/22

What is a Recession?

Most Anticipated Recession in History National Bureau of Economic Research

Decides

Based on employment, industrial production,real personal income, sales activity, GDPgrowth

Two consecutive negative quarters of GDPgrowth is not definition

In 2001 recession we did not have two

consecutive quarters of negative growth in


3/22

Recessions

The last two recessions lasted 8 months each

GDP declined .4% in 2001 and 1.3% in 1991,

the average for the post WWII period is 1.9% Several states already in recession: Florida,California, Michigan, Nevada, Arizona, SouthCarolina, Ohio, Michigan, Georgia, NorthCarolina, New York

GDP grew 3.3% in 2006, 2.5% in 2007, .9% 1stQ, 2008 and 3.3% in second quarter 2008


4/22


5/22

U.S. Economy

The Global Economy has been robust, Canada,

Brazil, China, India, Australia, but is nowslowing

Exclude financial sector profit growth has been

strong until just the last two quarters Real exports grew about 15% last year, biggest

increase in 9 years, 2006 was strong year

Foreign trade accounted for over 90% of first-half years growth in GDP

June trade deficit of $56.8b the lowest in 9

months


6/22

U.S. Economy

Value of the dollar has risen 9% againstthe Euro in the last 30 days but remains30% lower in value than 6 years ago

Import prices fell (3.7%) the most inAugust ever recorded for the series

Nonfarm business productivity increased3.2% over last 12 months thats large


7/22

Employment Picture

The unemployment rate has averaged 5.5% forthe past 20 years ( August 6.1%)

Job losses for the year through August equal605,000 or about 76,000 per month

Job loses generally average 6 digits in

recession


8/22

Housing Problem: Home ownership rate was pushed too high

reached a high of 69.3% in 2004, is now falling andis about 67%

Problem: During most of the 90s, incomes grew

faster than home prices, that changed after 2001 California, Florida, Nevada, and Arizona are biggest

problem areas with unoccupied units that are indefault

39% of all defaults (2nd quarter, 08) in Florida andCalifornia

Inventory of unsold homes has stabilized as starts and

prices have dropped, but still near record


9/22


10/22

Housing/Autos

Median home prices down 16% from high inSpring 2006

Foreclosure rate is 1.19% of all mortgages highest ever, usually about .3-.4%

Household net worth fell about $1 trillion in 4thquarter of 07 and again in first quarter 2008

Auto output down 26% and 12% in the last twoquarters

Will auto companies be next to ask for about$50 billion in loan guarantees?


11/22

Consumers

Immigrants represent 55% of the increase ofthe uninsured from 1994-2006

Since 1990, Hispanics numerically account for

all of the increase in the number of officiallypoor poverty rate

Census bureau does not count fringe benefits

for poverty rate From 2000-2007, almost 50% of compensation

increase was fringe, 21% health insurance,

19% pension contributions, 6% payroll taxes


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13/22

Energy Policy

Is energy independence important? Why do Europeans and Japanese drive small

cars?

Increase CAF requirements from 25mpg to35mpg by 2020 what concerns auto companyCEOs?

Mandate increase in ethanol use and bio fuels Takes four gallons of water to progress a gallon

of ethanol, rising food prices, destroying forest

Just raise the national gas tax


14/22

1966 1986 2006

Defense Social Security

Net interest

Medicare & Medicaid

All other spending

Source: Office of Management and Budget.

Note: Numbers may not add to 100 percent due to rounding.

Composition of Federal

Spending


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17/22

North Carolina

Tremendous job growth to match populationgrowth

States unemployment rate for July was 6.6%,

the 7th

consecutive monthly increase 10th largest foreign owned workforce in U.S.,they employ over 200,000 and have over$25billion invested in NC

N.C. in top 10 states ranked by number ofworkers employed in manufacturing goods forexport


18/22

North Carolina

8.86 million population, 2006, ranked 10th

Very high rate of in-migration Between 1990 and 205, 1.4 million people

moved to N.C. From New York, Florida,California States population growth is 9th highest in U.S. 65+ years old in 2001 - 982,445 or 12% of

population Projected for 2030, 2,221,000 or 17.8% of

population


19/22

Banking Problems

Eleven bank failures so far this year Bank stocks crashed in 1990-1991 Ben Bernanke inflation fighter

Banks restricting credit due to capital issues Fannie and Freddie have combined liabilities of$5 trillion Government takeover may costtaxpayers $200 billion

Total U.S. debt is $9.5 trillion U.S. GDP is $14 trillion


20/22

Wall Street

Fannie and Freddie

Bear Sterns

Lehman AIG

Too big to fail

Need new set of regulations for WallStreet


21/22

The Outlook

GDP will grow about 1.5-2.0% for the year If not in recession, risk of one continues

Export growth will slow as economies around

the world slow Recovery (U shaped) will be very low by post

WWII standards

Fed will not raise rates this year Inflation will crest at about 4% - strengthening

dollar will help


22/22

The Outlook

U.S. unemployment rate will rise to 6.5-7.0% ultimately

Housing will not recover till second half of

2009 Energy dependence, entitlement

programs are major problems

NCs unemployment rate July 6.6%, sevenstraight monthly increases

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Leadership 08