U.S. and Michigan Economic Outlook

Passages Through a Sea of Uncertainty

Robert A. DyeChief Economist, Comerica Bank

January, 2013

2

Mare Incognitum…The Sea of Uncertainty

50

100

150

200

250

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

Economic Policy Uncertainty Index

9/11Treaty of

Accession & 2nd Gulf War

U.S. and European Fiscal Issues

Debt ceiling dispute

Lehman and TARP

Bear Stearns

3

EPUI Explains Persistent Weak Business Confidence

80

85

90

95

100

105

110

50

100

150

200

250

'00 '02 '04 '06 '08 '10 '12

Economic Policy Uncertainty Index and the NFIB Survey

Economic Policy Uncertainty index (L)

NFIB Business Optimism, (R)

Components of NFIB Survey

Employment plansCurrent job openingsCapital outlay plansInventory plansCurrent inventoryExpectations about economyExpectations about salesExpected credit conditionsGood time to expandEarnings

4

The Fiscal Cliff, Happy New Year!

• Obama era payroll tax cut has expired for everyone

• Increased income, capital gains, dividend taxes for the wealthy 1%

• Will add up to about $160 billion in additional revenue in 2013

• RDPI set to fall 3.5-4.0 percent annualized 2013Q1

• Debt ceiling debate still to come

• $110 budget sequester still unresolved

• Long-term entitlement spending still unresolved

5

Recent U.S. Data Is Mixed

• 2012Q3 real GDP 3.1%, Q4 weaker

• Dec. payroll employment +155,000

• Unemployment rate stable at 7.8%

• House sales

• Home prices

• Home construction

• Dec. auto sales 15.4 million unit rate

• Dec. ISM MF Survey 50.7 percent

200300400500600700

3,0003,5004,0004,5005,0005,500

2008 2009 2010 2011 2012

Home Sales Trending Up

Existing, ths (L)

New, ths (R)

6

2012Q4 Helped by Household Sector, Hurt by Uncertainty

• Consumer confidence improving

• Vehicle sales, Sandy

• Housing sector strengthening

• Other credit fueled purchases

• Labor markets

• Asia

• U.S. policy uncertainty

• Europe continues to melt

2030405060708090100110120

89

101112131415161718

2006 2007 2008 2009 2010 2011 2012

Auto Sales and Consumer Confidence

Auto Sales, millions SAAR (L)

Confidence Index (R)

7

Consumer Deleveraging...And Releveraging

15

16

17

18

19

-8

-4

0

4

8

12

16

'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12

Non-revolving Consumer Credit and Financial Obligations Ratio

Non-revolving cons. credit, pchya (L)

Financial Obligations Ratio, (R)

8

Job Creation Is Key to Sustaining the Economy

7.5

8.0

8.5

9.0

9.5

10.0

10.5

11.0

-300

-200

-100

0

100

200

300

J'11

F M A M J J A S O N D J'12

F M A M J J A S O N D

U.S. Payroll Job Growth, ths (L)

U.S. Unemployment Rate (R)

Monthly Job Creation, ths Unemployment Rate, percent

9

Forecast for 2013, Fiscal Tightening Trumps Monetary Easing

(9)(7)(5)(3)(1)135

2008 2009 2010 2011 2012 2013

U.S. Real GDP Growth, annualized rate

History Forecast

10

Interest Rates Face Upward Pressure As Flight to Quality and Financial Repression Eventually Unwind

0.01.02.03.04.05.06.0

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Yield, percent

Fed Funds

10-Year Treasury

11

Forecast Risks

Downside Risks• Consumer spending • Job growth• Biz investment• Federal Spending• Eurozone and Asia • More “transitory”

factors/oil prices• Housing market

languishes• Healthcare costs

Upside Risks• QE3 gains traction• Equity markets rally• Jobs! • Construction• Households unleash pent-

up demand• Low interest

rates/investment boom• Energy/manufacturing

renaissance• Technology

Most Michigan Labor Markets Cooled 2012H2

-10

-8

-6

-4

-2

0

2

4

2008 2009 2010 2011 2012

Regional Labor Market Indicators

U.S. Warren Metro Div Lan Kal GR

Payroll Employment, pchya

13

Robert A. Dye

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