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By: Anirban BasuSage Policy Group, Inc.
December 4, 2007
It was the Best of Times, Now What?
On Behalf of
FEI
University of Michigan Consumer Sentiment SurveySeptember 2001 through November 2007
65
75
85
95
105
Ind
ex: 1966Q
1=100
Source: University of Michigan; Dismal.com
Between Aug. 2005 and Sept. 2005, the consumer sentiment index dropped 12.2 points, the largest one-month decline sinceDecember 1980.
Retail & Food Services SalesJanuary 2001 through October 2007
Source: Dismal.com
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Year
to Y
ear
% c
han
ge
15-Year Fixed Mortgage Rates, January 1995 through October 2007
4%
5%
6%
7%
8%
9%
10%
Rate
Source: Freddie Mac
700
800
900
1,000
1,100
1,200
1,300
1,400
1,500
Jan-99
Sep-99
May-00
Jan-01
Sep-01
May-02
Jan-03
Sep-03
May-04
Jan-05
Sep-05
May-06
Jan-07
Sep-07
Th
ou
san
ds, S
AA
R
U.S. New Home SalesJanuary 1999 through September 2007
Source: Economy.com, Census Bureau
1,000
1,100
1,2001,300
1,400
1,500
1,6001,700
1,800
1,900
2,0002,100
2,200
2,300
Jan-99
Aug-99
Mar-00
Oct-00
May-01
Dec-01
Jul-02
Feb-03
Sep-03
Apr-04
Nov-04
Jun-05
Jan-06
Aug-06
Mar-07
Oct-07
New
Ho
usin
g S
tart
s (th
ou
san
ds)
U.S. New Residential Construction January 1999 through October 2007
Source: Economy.com
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
Mill
ion
sU.S. Existing Home Sales
September 2001 through September 2007
Source: Economy.com
-3,000
-2,500
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
12-m
on
th n
et ch
an
ge
Change in Maryland Housing Units Sold January 2002 through October 2007
Source: Maryland Association of Realtors
2006 Residential Building Permits per 100 Households (2006 estimates) by select Regions
Region Permits per 100 Households
Las Vegas, Nevada 5.15
Raleigh-Durham, North Carolina 4.70
Loudoun County, Virginia 3.41
Phoenix-Mesa, Arizona 3.03
Richmond, Virginia 1.72
Northern Virginia 1.71
Washington, D.C.-MD-VA 1.39
Washington, D.C. without Loudoun County, VA 1.29
BW Corridor 0.96
Wilmington, Delaware 0.95
Baltimore, MD 0.80
Philadelphia, Pennsylvania 0.70
Pittsburgh, Pennsylvania 0.58
BW Corridor includes: Anne Arundel, Howard, Montgomery and Prince George’s counties
Source: U.S. Census Bureau
Current Hot Metro Housing Markets (154) Annual Existing Single-Family Home Price Appreciation
2007Q3 vs. 2006Q3
6% 10% 14%
Bismark, ND
Salt Lake City, UT
Yakime, WA
Binghamton, NY
Charlotte, NC
Beaumont, TX
San Jose, CA
San Francisco, CA
Spokane, WA
Farmington, NM
Median Sales Price Appreciation (% chng, yr ago)
Source: National Association of Realtors
Baltimore: 1.7% New York: -0.6%
Philadelphia: 2.9%
Boston: 0.6%
Washington, D.C.: 1.3%
U.S.: -2.0% in 2007Q3
Active Housing Inventory by Baltimore MSA Jurisdiction, October 2006 vs. October 2007
4,1894,484 4,627
5,977
3,701
4,632
1,197 1,298
1,8662,036
1,7732,037
621 671
70
1,070
2,070
3,070
4,070
5,070
6,070
Active In
ven
tory
AnneArundel
Balt. City Balt.County
Carroll Harford Howard QueenAnne's
Oct-06
Oct-07
Source: Maryland Association of Realtors
Maryland = October 2006: 40,083; October 2007: 49,136
Active Housing Inventory by Suburban MD Jurisdiction, October 2006 vs. October 2007
926 1,0211,308
1,6611,989
2,297
5,332
6,151
4,349
6,928
50
1,050
2,050
3,050
4,050
5,050
6,050
7,050
Active In
ven
tory
Calvert Charles Frederick Montgomery Prince George's
Oct-06
Oct-07
Source: Maryland Association of Realtors
Maryland = October 2006: 40,083; October 2007: 49,136
Mortgage Banker’s Association Delinquency Rates, Prime Mortgage Loans, 2005Q1 – 2007Q2
1.7%
2.2%
2.7%
3.2%
3.7%
4.2%
4.7%
Delin
qu
en
cy R
ate
Fixed Rate Mortgages
Adjustable Rate Mortgages
Source: Economy.com
Mortgage Banker’s Association Delinquency Rates, Subprime Mortgage Loans, 2005Q1 – 2007Q2
7.6%
9.6%
11.6%
13.6%
15.6%
17.6%
Delin
qu
en
cy R
ate
Fixed Rate Mortgages
Adjustable Rate Mortgages
Source: Economy.com
NYMEX Crude Oil Future Prices in U.S. DollarsJanuary 1995 through November 20, 2007
$10
$20
$30
$40
$50
$60
$70
$80
$90
$100Jan
-95
Jan
-96
Jan
-97
Jan
-98
Jan
-99
Jan
-00
Jan
-01
Jan
-02
Jan
-03
Jan
-04
Jan
-05
Jan
-06
Jan
-07
Do
llars
per
Barr
el
Source: Energy Information Administration
U.S. Personal Savings Rate vs. NYMEX Crude Oil Prices, 2002 through 2006
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
5%
Pers
on
al S
avin
gs a
s %
of In
co
me
0
10
20
30
40
50
60
70
80
$ p
er b
arre
l
Savings Rate Crude Oil Prices
Source: Bureau of Economic Analysis; Energy Information Administration
0% 5% 10% 15%
Energy
Transportation
Medical Care
Food & Beverages
Other Goods & Services
All Items
Housing
Education & Communication
Recreation
CPI for all Urban Consumers, 12-Month % Change
CPIOctober 2007
Source: Bureau of Labor Statistics
CPI : +3.5%
Core CPI*: +2.1%
*Core CPI: All items less food and energy
U.S. Trade Deficit, January 2001 through September 2007
-$80
-$70
-$60
-$50
-$40
-$30
-$20
-$10
$0
Valu
e ($b
illio
ns)
Source: Dismal.com
Value of the Dollar (Broad Dollar Index) January 1999 through October 2007
95
100
105
110
115
120
125
130
Bro
ad
Do
llar
Ind
ex (Jan
. 1997=100)
Broad Dollar Index: a weighted average of the foreign exchange value of the U.S. dollar against the currencies of a broad group of major U.S. trading partners.
Source: Federal Reserve Board
U.S. Federal Budget Deficit, 1995-2010*
-$500
-$400
-$300
-$200
-$100
$0
$100
$200
$300
Valu
e ($b
illio
ns)
1995 1997 1999 2001 2003 2005 2007 2009
*2007-2010 data are projections
Source: Congressional Budget Office
Mr. Greenspan says….
• “When you get this far away from a recession, invariably forces build up for the next recession, and indeed we are beginning to see that sign, for example in the U.S., profit margins…have begun to stabilize, which is an early sign we are in the later stages of a cycle”;
• “While, yes, it is possible we can get a recession in the latter months of 2007, most forecasters are not making that judgment and indeed are projecting forward into 2008…with some slowdown”.
Speech made February 26, 2007 at the VeryGC Global Business Insight Conference via satellite.
Source: The Wall Street Journal
Dow Jones Industrial Average January 2003 through November 23, 2007
$7,000
$8,000
$9,000
$10,000
$11,000
$12,000
$13,000
$14,000Jan
-03
Ap
r-03
Ju
l-03
Oct-
03
Jan
-04
Ap
r-04
Ju
l-04
Oct-
04
Jan
-05
Ap
r-05
Ju
l-05
Oct-
05
Jan
-06
Ap
r-06
Ju
l-06
Oct-
06
Jan
-07
Ap
r-07
Ju
l-07
Oct-
07
Do
w J
on
es In
dex V
alu
e
Source: Dow Jones
Gross Domestic Product1990Q1 through 2007Q3
-4%
-2%
0%
2%
4%
6%
8%
10%
1990Q1 1992Q1 1994Q1 1996Q1 1998Q1 2000Q1 2002Q1 2004Q1 2006Q1
An
nu
aliz
ed
% C
ha
ng
e f
rom
P
rec
ed
ing
Pe
rio
d
Source: Bureau of Economic Analysis
2007Q3: 4.92%
Contributions to GDP Growth by Component, 2007Q3
1.9%
1.4%
0.9%0.8%
0.0%
0.5%
1.0%
1.5%
2.0%
% c
ha
ng
e a
t a
nn
ua
l ra
tes
PersonalConsumption
Net Exports Gross Investment GovernmentSpending
Source: Bureau of Economic Analysis
Contributions to Gross Investment Growth by Component, 2007Q3
0.98%
-1.03%
0.51%
0.46%
0.97%
-0.06%
-1.4% -0.9% -0.4% 0.1% 0.6% 1.1%
Inventories
Residential
Equipment/software
Structures
Nonresidential
Fixed investment
% change at annual rates
Source: Bureau of Economic Analysis
Growth in Value of Private, Nonresidential Construction Put in Place, September 1994 through September 2007
-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
yr-
over-
yr
% c
han
ge, S
AA
R
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
Source: U.S. Census Bureau
Corporate Profits* (SAAR)2001Q1 through 2007Q3
$500
$700
$900
$1,100
$1,300
$1,500
$1,700
Co
rpo
rate
Pro
fits
($
bill
ion
s)
2001Q1 2001Q4 2002Q3 2003Q2 2004Q1 2004Q4 2005Q3 2006Q2 2007Q1
*With inventory valuation and capital consumption adjustments
Source: BEA
-400
-300
-200
-100
0
100
200
300
400
500Ja
n-0
0A
pr-
00
Jul-0
0O
ct-0
0Ja
n-0
1A
pr-
01
Jul-0
1O
ct-0
1Ja
n-0
2A
pr-
02
Jul-0
2O
ct-0
2Ja
n-0
3A
pr-
03
Jul-0
3O
ct-0
3Ja
n-0
4A
pr-
04
Jul-0
4O
ct-0
4Ja
n-0
5A
pr-
05
Jul-0
5O
ct-0
5Ja
n-0
6A
pr-
06
Jul-0
6O
ct-0
6Ja
n-0
7A
pr-
07
Jul-0
7O
ct-0
7
Th
ou
san
ds, S
A
Between March 2001 and July 2002, the nation lost nearly 2.4
million jobs.
Source: Economy.com, Bureau of Labor Statistics
Net Change in U.S. JobsJanuary 2000 through October 2007
10/07: 166,000
Over the last 12 months(Oct. to Oct.) the U.S. added 1.676 million jobs
National Nonfarm Employmentby Industry Sector Groups
October 2007 v. October 2006Absolute Change
-203
-106
25
30
37
38
232
237
368
438
580
-300 -100 100 300 500 700
Manufacturing
Construction
Other Services
Natural Resources & Mining
Financial Activities
Information
Government
Trade, Transportation & Utilities
Professional & Business Services
Leisure & Hospitality
Education & Health Services
Thousands, SASource: Economy.com, Bureau of Labor Statistics
+1,676k All Told
Bush ScorecardPrivate Sector: +4,453,000 Public Sector: +1,497,000Total: +5,950,000
Maryland Nonfarm Employmentby Industry Sector Groups
October 2007 v. October 2006Absolute Change
-2,000
-400
800
800
1,100
3,000
3,700
5,900
6,900
9,200
-4,000 0 4,000 8,000 12,000
Manufacturing
Government
Information
Financial Activities
Other Services
Trade, Transportation & Utilities
Construction
Leisure & Hospitality
Educational & Health Services
Professional & Business Services
MD Total: +29.0K; +1.1%
US Total: +1,676K; +1.2%
Source: Bureau of Labor Statistics
Baltimore MSA Nonfarm Employmentby Industry Sector Groups (NSA)
October 2007 v. October 2006Absolute Change
-1,900
-100
300
400
1,100
1,200
2,600
2,900
3,100
3,300
-3,000 -1,000 1,000 3,000 5,000 7,000
Manufacturing
Information
Trade, Transportation & Utilities
Other Services
Construction
Financial Activities
Leisure & Hospitality
Professional & Business Services
Government
Educational & Health Services
Source: Bureau of Labor Statistics
Baltimore MSA Total:
+12.9K; +1.0%
MD Total: +29.0K; +1.1%
US Total: +1,676K; +1.2%
Washington, D.C. MSA Nonfarm Employmentby Industry Sector Groups (NSA)
October 2007 v. October 2006Absolute Change
-500
-200
1,500
2,300
2,300
2,800
3,500
4,600
5,400
20,200
-4,000 2,000 8,000 14,000 20,000 26,000
Information
Manufacturing
Educational & Health Services
Construction
Financial Activities
Government
Other Services
Leisure & Hospitality
Trade, Transportation & Utilities
Professional & Business Services
Source: Bureau of Labor Statistics
DC MSA Total: +41.9K; +1.4%
US Total: +1,676K; +1.2%
Office Space Under Construction in the Baltimore MSA, 2007Q3
648.6
554.0
515.3
505.9
354.6
30.4
0 100 200 300 400 500 600 700
Columbia
Baltimore City
BWI
Reisterstown Rd
Hunt Valley
Annapolis
Square Feet (thousands)
Total square feet under construction in the Baltimore MSA: 2,608,759
Source: CB Richard Ellis
Office Space Under Construction in the Washington, DC Metropolitan Area, 2007Q3
4,632.1
3,869.5
2,543.6
2,080.8
1,012.3
646.7
475.5
343.2
230.8
126.8
114.0
27.6
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500 5,000
Other Areas in District
Fairfax
DC Central Business District
Capitol Hill
Arlington
Loudoun
Alexandria
I-270 Corridor
Prince William
Frederick
Prince George's
Silver Spring
Square Feet (thousands)Source: CB Richard Ellis
Total square feet under construction in the Washington, DC MSA: 16,102,847
Unemployment Rates, U.S. States (SA) October 2007
Source: Bureau of Labor Statistics
Rank State Rate Rank State Rate Rank State Rate
1 Idaho 2.5 18 Iowa 3.9 33 Washington 4.8
2 Hawaii 2.7 19 Maryland 4.0 36 Rhode Island 4.9
3 Utah 2.8 20 New Jersey 4.1 37 West Virginia 5.0
4 South Dakota 2.9 20 Texas 4.1 38 Nevada 5.2
4 Wyoming 2.9 22 Florida 4.2 38 Wisconsin 5.2
6 Alabama 3.1 23 Massachusetts 4.3 40 Illinois 5.3
6 Montana 3.1 23 Vermont 4.3 41 Oregon 5.5
6 New Mexico 3.1 25 Oklahoma 4.4 42 California 5.6
6 Virginia 3.1 26 Pennsylvania 4.5 42 Kentucky 5.6
10 Nebraska 3.2 27 Indiana 4.6 42 Missouri 5.6
10 New Hampshire 3.2 27 New York 4.6 45 Arkansas 5.7
12 Louisiana 3.3 27 Tennessee 4.6 46 District of Columbia 5.8
13 Delaware 3.4 30 Connecticut 4.7 46 South Carolina 5.8
13 North Dakota 3.4 30 Georgia 4.7 48 Ohio 5.9
15 Arizona 3.5 30 Minnesota 4.7 49 Alaska 6.1
16 Colorado 3.7 33 Maine 4.8 49 Mississippi 6.1
17 Kansas 3.8 33 North Carolina 4.8 51 Michigan 7.7
* U.S. unemployment rate: October = 4.7%
Unemployment Rates (NSA), Maryland CountiesSeptember 2007
Rank County Rate
1 Howard 2.7
1 Montgomery 2.7
3 Calvert 2.8
4 Carroll 2.9
4 Frederick 2.9
6 Charles 3.0
6 St. Mary’s 3.0
6 Queen Anne’s 3.0
9 Anne Arundel 3.1
10 Talbot 3.2
11 Harford 3.5
12 Kent 3.6
Rank County Rate
12 Wicomico 3.6
Maryland 3.6
14 Baltimore 3.7
14 Worcester 3.7
16 Garrett 3.8
17 Prince George’s 3.9
18 Caroline 4.0
19 Cecil 4.2
20 Washington 4.4
21 Allegany 4.9
22 Somerset 5.2
23 Dorchester 5.8
24 Baltimore City 6.0
Source: Bureau of Labor Statistics
Conclusions
• Chance of recession in U.S. in 2008 approaching 20-40%;
• Various risks remain (oil/energy, the dollar, interest rates/subprime, and the flu);
• U.S. macroeconomic imbalances are huge and widening;
• The Federal Reserve Chairman will continue to face enormous pressure; and
• 2010 and 2011 will be huge years . . .
Thank You
• You can always reach me at [email protected]
• You’ll be hearing a lot from us the balance of the year.
• Also, if you need us in a hurry, we are at 410.522.7243 (410.522.SAGE)
• Please contact us when you require economic research & policy analysis.