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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
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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
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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
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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
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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
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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
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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
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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?
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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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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
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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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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
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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
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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
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Wall Street
Fannie and Freddie
Bear Sterns
Lehman AIG
Too big to fail
Need new set of regulations for WallStreet
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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
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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