Full Employment or Bust · Full Employment or Bust Global Economic Outlook Issues, 51st Annual...
Transcript of Full Employment or Bust · Full Employment or Bust Global Economic Outlook Issues, 51st Annual...
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Full Employment or Bust
Full Employment or Bust
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
2
When will the Fed’s rates go back to normal?
Nominal federal funds rate and core inflation¹ (percent per annum and % ch. from 12 months earlier)
¹ Chain price index for personal consumption expenditures excluding food and energy.
Source: Federal Reserve Board. Updated through October 31, 2014.
0
4
8
12
16
20
0
4
8
12
16
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Core PCE
chain price
inflation ( % ch. from 12 months earlier)
Nominal federal funds rate
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
3
Where are bond yields headed?
Components of the 5-year Treasury yield five years in the future (percent per annum)
Source: Federal Reserve Board. Updated through October 31, 2014.
-1
0
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2
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5
6
7
-1
0
1
2
3
4
5
6
7
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Five-year forward Treasury yield (5 x 5)
Five-year forward real Treasury yield (5 x 5 TIPS)
Five-year forward inflation expectations plus inflation risk premium (5 x 5 breakeven)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
High yield spread (basis points)
Sources: Federal Reserve Board, JPMorgan. Updated through November 7, 2014.
Can credit spreads narrow further?
4
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Ibbotson Associates J.P. Morgan Securities LLC high-yield index
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Wilshire 5000 (Dec 31, 1970 = 830.27) After-tax GDP profits (billions of dollars)
Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 2001.
Sources: US Department of Commerce; Dow Jones. Updated through 2014 Q3 (profits) and Nov. 26, 2014.
Whither stocks? Fairly valued to current earnings ...
5
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
1990 1995 2000 2005 2010 2015 2020
Line represents the Wilshire 5000 index (left scale)
Shaded area represents after-tax GDP profits (right scale)
Note: Since 1952, the Wilshire 5000 P/E climbs to 14 times earnings near cyclical peaks, excluding the unprecedented multiples during 1997 - 2001, and that would occur when the line floats at the upper boundary of earnings.
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Wilshire 5000 (Dec 31, 1970 = 830.27) After-tax GDP profits (billions of dollars)
Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 2001.
Sources: US Department of Commerce; Dow Jones. Updated through 2014 Q3 (profits) and Nov. 26, 2014.
... but what about tomorrow’s?
6
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
1990 1995 2000 2005 2010 2015 2020
Line represents the Wilshire 5000 index (left scale)
Shaded area represents after-tax GDP profits (right scale)
Note: Since 1952, the Wilshire 5000 P/E climbed to 14 times earnings near cyclical peaks, excluding the unprecedented multiples during 1997 - 2001, and that would occur when the line floated at the upper boundary of earnings.
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
7
Powering Up ... No Surprise
Real GDP, selected developed economies (ratio to 1997 Q4, 2005 US dollars, PPP basis)
Sources: US Dep. of Commerce; Haver Analytics; JPMorgan Chase & Co. Updated through 2014 Q3.
0.90
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
0.90
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
2007 2008 2009 2010 2011 2012 2013 2014
28-member European Union
Japan
United States
2014 Q3
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
8
And there’s nothing artificial about this
Labor force and selected measures of employment (thousands)
Source: US Department of Labor. Updated through October 2014.
128,000
130,000
132,000
134,000
136,000
138,000
140,000
142,000
144,000
146,000
148,000
150,000
152,000
154,000
156,000
158,000
128,000
130,000
132,000
134,000
136,000
138,000
140,000
142,000
144,000
146,000
148,000
150,000
152,000
154,000
156,000
158,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Labor force
Household employment adjusted for breaks in the population
Household employment adjusted to match the concepts and coverage of nonfarm payrolls
Nonfarm payrolls
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
9
Those who know, know
Real GDP (percent change from 4 quarters earlier) Jobless claims (thousands weekly, scale reversed)
Sources: US Deps. of Labor and Com. Updated through 2014 Q3 (GDP) and November 22, 2014 (claims).
50
100
150
200
250
300
350
400
450
500
550
600
650
700-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Real GDP growth (left)
Jobless claims (right, scale is reversed)
Real GDP
growth forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Recovery and time heals
10
0
25
50
75
100
125
150
175
200
225
0
25
50
75
100
125
150
175
200
225
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
CoreLogic measure of house prices
Scenario above assumes that
house prices rise 4%
annually in the
future.
Note: The red zone represents an estimate ($875 billion) of the aggregate amount of remaining under-water mortgages, before chargeoffs
House prices (January 2000 = 100)
Source: CoreLogic. Updated through 2014 Q2.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
11
That’s why they’re moving to the front of the line ...
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US
California
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
12
... and why you will be
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Arizona
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
13
The economy and the motion of the ocean
The economic cycle, unemployment rate (percent of the labor force)
Source: US Department of Labor. Updated through October 2014.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
0
1
2
3
4
5
6
7
8
9
10
11
12
13
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Nairu (where we want to be)
Official unemployment rate (U-3)Official unemployment plus part-timers plus job-force exits under 49 years of age (U-3 ++)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Unemployment rate (percent)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated
through October 2014 (unemployment) and September 17, 2014 (FOMC forecast). 14
The unemployment rate doesn’t know everything ...
0
1
2
3
4
5
6
7
8
9
10
11
12
0
1
2
3
4
5
6
7
8
9
10
11
12
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Horizontal bars denote the Fed's view
(central tendency) about the near-term and sustainable unemployment rate (often referred to as the Nairu, or nonincreasing
inflationary rate of unemployment)¹
Note: The red boxes identify the first step in each Fed tightening sequence.
Proved to be premature and the Fed backed down
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... but what it knows is getting better ...
Duration of unemployment spells (thousands)
Source: US Department of Labor. Updated through October 2014. 15
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Unemployed for less than 27 weeks (left scale)
Percent of the labor force unemployed for less than 27 weeks (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... that long-term unemployed are getting jobs too
Duration of unemployment spells (thousands)
Source: US Department of Labor. Updated through October 2014. 16
0%
1%
2%
3%
4%
5%
6%
7%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Unemployed for more than 27 weeks (left scale)
Percent of the labor force unemployed for more than 27 weeks (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected elderly populations (percent of the population)
Source: US Department of Labor. Updated through July 2014.
17
Demographics are in the background but are just a footnote
0.00
0.05
0.10
0.15
0.20
0.25
0.00
0.05
0.10
0.15
0.20
0.25
1947 1957 1967 1977 1987 1997 2007 2017 2027 2037 2047
The projected five percentage point rise in the fraction of the population over the age of 65 represents an increase of about 16 million people in today's terms. That represents an average increase of one million annually when spread out over the next 15 years.
The percentage of the population over the age of 69.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Involuntary part-timers are called “employed” ... not so
Involuntary part-time (thousands) (percent of the labor force)
Source: US Department of Labor. Updated through September 2014. 18
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Percent of the labor force (right scale)
Number of people (left scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Dropouts are nowhere ... but they aren’t retiring
Participation rate for selected age groups (percent of the respective population)
Source: US Department of Labor. Updated through October 2014. 19
54
55
56
57
58
59
60
61
78
79
80
81
82
83
84
85
2007 2008 2009 2010 2011 2012 2013 2014
35 to 44 year olds (left scale)
25 to 34 year olds (left scale)45 to 54 year olds (left scale)
16 to 24 year olds (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected unemployment rate measures (percent of the labor force)
Source: US Department of Labor. Updated through September 2014.
20
Thinking outside the unemployment box ... 5th inning
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
U-6 (official plus involuntarily part-time plus marginally attached)
Official unemployment plus part-timers plus job-force exits under 49 years of age (U-3 ++)
Official unemployment plus one half of above-normal number of part-timers (U-3 +)
Official unemployment rate (U-3)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
We don’t live in silos
Output gap in selected regions (actual less potential real GDP as a percent of potential real GDP)
Source: US Department of Commerce; JPMorgan. Updated through 2014 Q3. 21
-14
-12
-10
-8
-6
-4
-2
0
2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Japan
EU-28
US
Australia
Canada
Sweden
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
The proof is in the tasting ... hourly compensation ...
Hourly wage & salary rates (percent change from four quarters earlier)
Sources: US Departments of Commerce and Labor. Updated through 2014 Q2. 22
0
1
2
3
4
5
0
1
2
3
4
5
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
ECI, private-sector compensation, excluding incentive-based pay
ECI, privae-sector compensation
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Core PCE chain price index (percent change from 12 months earlier)
¹ Chain price index for personal consumption expenditures.
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through October 2014 (inflation) and September 17, 2014 (FOMC forecast).
... inflation ... all of it looks and feels like the 5th inning
23
-2
0
2
4
6
8
10
12
-2
0
2
4
6
8
10
12
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
The range of FOMC's forecast
for PCE chain
price inflation, including its
longer-run goal
Overall PCE inflation¹
Core PCE inflation¹
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through 2014 Q3.
Meanwhile there’s still a lot for equity markets to digest
24
0
1
2
3
4
5
6
7
8
9
10
11
0
1
2
3
4
5
6
7
8
9
10
11
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
25
Doing Well, Despite All, ...
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
26
Powering Up
Real GDP, selected developed economies (ratio to 1997 Q4, 2005 US dollars, PPP basis)
Sources: US Dep. of Commerce; Haver Analytics; JPMorgan Chase & Co. Updated through 2014 Q3.
0.90
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
0.90
0.91
0.92
0.93
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
1.08
2007 2008 2009 2010 2011 2012 2013 2014
28-member European Union
Japan
United States
2014 Q3
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
27
There’s nothing artificial about this
Labor force and selected measures of employment (thousands)
Source: US Department of Labor. Updated through October 2014.
128,000
130,000
132,000
134,000
136,000
138,000
140,000
142,000
144,000
146,000
148,000
150,000
152,000
154,000
156,000
158,000
128,000
130,000
132,000
134,000
136,000
138,000
140,000
142,000
144,000
146,000
148,000
150,000
152,000
154,000
156,000
158,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Labor force
Household employment adjusted for breaks in the population
Household employment adjusted to match the concepts and coverage of nonfarm payrolls
Nonfarm payrolls
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
28
Those who know, know
Real GDP (percent change from 4 quarters earlier) Jobless claims (thousands weekly, scale reversed)
Sources: US Deps. of Labor and Com. Updated through 2014 Q3 (GDP) and November 22, 2014 (claims).
50
100
150
200
250
300
350
400
450
500
550
600
650
700-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Real GDP growth (left)
Jobless claims (right, scale is reversed)
Real GDP
growth forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
29
If it’s over at Ground Zero, it’s over
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
0.94
0.95
0.96
0.97
0.98
0.99
1.00
1.01
1.02
1.03
1.04
1.05
1.06
1.07
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US
California
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
30
... ditto ...
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.95
1.00
1.05
1.10
1.15
0.95
1.00
1.05
1.10
1.15
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Florida
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
31
... double ditto ...
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Arizona
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
32
... triple ditto
Nonfarm employment in selected areas (ratio to 2000 Q4 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.97
1.02
1.07
1.12
1.17
1.22
1.27
0.97
1.02
1.07
1.12
1.17
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Nevada
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
33
Shale activity is big but isn’t the whole story ...
Nonfarm employment in selected areas (ratio to December 2007 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
0.80
0.85
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US Forecast US ND UT WY TX AK MT
NV ID AZ HI AL AR CA CO
CT DE DC FL GA IL IN IA
KS KY LA ME MD MA MI MN
MS MO NE NH NJ NM NY NC
OH OK OR PA RI SC SD TN
VT VA WA Wva WI
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
34
... because just about everyone is swimming upstream
Nonfarm employment in selected areas (ratio to December 2007 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.85
0.87
0.89
0.91
0.93
0.95
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
0.85
0.87
0.89
0.91
0.93
0.95
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US Forecast US
TX DC
AK UT
CO SD
OK NY
MA NE
MN MT
LA IA
W Va WA
VA MD
KS WY
CA NH
PA TN
VT IN
HI WI
AR SC
MO DE
KY NC
OR RI
ID ME
OH GA
FL IL
CT MI
NJ MS
NM AZ
AL NV
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Household income and house prices (ratio to 1970)
Sources: US Dep. of Commerce; CoreLogic. Updated through 2014 Q2 (income) and 2014 Q2 (house prices).
All this, despite the real estate hangover
35
0
1
2
3
4
5
6
7
8
9
10
11
12
13
0
1
2
3
4
5
6
7
8
9
10
11
12
13
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
CoreLogic house price index (ratio to 1970)
Gross nominal income per household (ratio to 1970)Forecast
(assumes nominal income
grows 5% annually in the coming
decade's recovery)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Contribution of government spending (cont. to real GDP over 4-qtr spans, percentage points)
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2014 Q3.
All this, despite the unprecedented fiscal swing
36
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
37
All this, despite severe headwinds in Europe and Japan
Real GDP in selected regions (percent change from four quarters earlier)
Sources: World Bank; US Dep. of Commerce; JPMorgan Chase & Co. Updated through 2014 Q3.
-9-8-7-6-5-4-3-2-1012345678910111213
-9-8-7-6-5-4-3-2-10123456789
10111213
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
China
India
All others
US (thick line)
Japan
28-member European Union
Global (shaded grey region)
Forecasts
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
38
For us, despite Sandy’s washout
Nonfarm employment in selected areas (ratio to December 2007 level)
Source: US Department of Labor. Updated through September 2014 (US) and September 2014 (state).
0.85
0.87
0.89
0.91
0.93
0.95
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
0.85
0.87
0.89
0.91
0.93
0.95
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
US Forecast US
TX DC
AK UT
CO SD
OK NY
MA NE
MN MT
LA IA
W Va WA
VA MD
KS WY
CA NH
PA TN
VT IN
HI WI
AR SC
MO DE
KY NC
OR RI
ID ME
OH GA
FL IL
CT MI
NJ MS
NM AZ
AL NV
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
39
... And Probably Will Do Better in 2015 ...
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
40
In the US, done with the “slow” ...
Real GDP (annualized percent change)
Source: US Department of Commerce. Updated through 2014 Q3.
2.9
0.2
2.0
4.4
3.1 3.0
2.41.9
-2.8
-0.2
2.7
1.7 1.6
3.1
2.5
3.53.2 3.2 3.2
3.0
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
% change from the previous quarter
% change from four quarters earlier
% change over the four quarters of the year
Forecast (growth over the four
quarters of the year)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
High yield spread (basis points)
Sources: Federal Reserve Board, JPMorgan. Updated through November 7, 2014.
Credit conditions are all good ...
41
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Ibbotson Associates J.P. Morgan Securities LLC high-yield index
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
US vehicle sales and production (millions of units at an annualized rate)
Sources: US Department of Commerce; Federal Reserve Board. Updated through October 2014.
... and vehicle sales prove it
42
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
43
... But There’s Room to Run
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Unemployment rate (percent)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated
through October 2014 (unemployment) and September 17, 2014 (FOMC forecast). 44
The unemployment rate doesn’t know everything ...
0
1
2
3
4
5
6
7
8
9
10
11
12
0
1
2
3
4
5
6
7
8
9
10
11
12
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Horizontal bars denote the Fed's view
(central tendency) about the near-term and sustainable unemployment rate (often referred to as the Nairu, or nonincreasing
inflationary rate of unemployment)¹
Note: The red boxes identify the first step in each Fed tightening sequence.
Proved to be premature and the Fed backed down
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... but what it knows is getting better ...
Duration of unemployment spells (thousands)
Source: US Department of Labor. Updated through October 2014. 45
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Unemployed for less than 27 weeks (left scale)
Percent of the labor force unemployed for less than 27 weeks (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... that long-term unemployed are getting jobs too
Duration of unemployment spells (thousands)
Source: US Department of Labor. Updated through October 2014. 46
0%
1%
2%
3%
4%
5%
6%
7%
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Unemployed for more than 27 weeks (left scale)
Percent of the labor force unemployed for more than 27 weeks (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected elderly populations (percent of the population)
Source: US Department of Labor. Updated through July 2014.
47
Demographics are in the background but are just a footnote
0.00
0.05
0.10
0.15
0.20
0.25
0.00
0.05
0.10
0.15
0.20
0.25
1947 1957 1967 1977 1987 1997 2007 2017 2027 2037 2047
The projected five percentage point rise in the fraction of the population over the age of 65 represents an increase of about 16 million people in today's terms. That represents an average increase of one million annually when spread out over the next 15 years.
The percentage of the population over the age of 69.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
December 3, 2014
Commercial Banking
What it doesn’t know (hidden unemployment) is improving
48
Change
2009 since Steady-state
peak the peak assumptions Excess vs steady state Sep 2014 Oct 2014
Unemployment (thousands) 15,352 -6,357 8,595 8,126 7,033 400 869 1,962 9,262 8,995
% of the labor force 10.0% (5.5%) (5.2%) (4.5%) (at 5.5%) (at 5.2%) (at 4.5%) 5.9% 5.8%
Unemployed fewer than 27 weeks 9,781 -3,579 5.860 342 6,307 6,202
% of the labor force 6.4% (3.7%) 4.0% 4.0%
Unemployed 27 weeks or more 5,643 -2,727 1,172 1,744 2,954 2,916
% of the Labor force 3.7% (0.75%) 1.9% 1.9%
Part-time for economic reasons (‘000) 8,979 -1,952 4,676 3,516 2,351 3,511 7,103 7,027
% of the labor force 5.9% (3.0%) (2.25%) (at 3.0%) (at 2.25%) 4.6% 4.5%
‘Work is slow’ (thousands) 6,681 -2,467 2,186 2,028 4,162 4,214
4.4% (1.4%) 2.7% 2.7%
‘Full-time work not available’ (thousands) 2,018 429 991 1,456 2,562 2,447
1.3% (0.6%) 1.6% 1.6%
20- to 49-yr old dropouts (thousands) 2,797 -140 0 2,657 2,704 2,657
20-year olds 1,205 -42 0 1,163 1,193 1,163
30-year olds 521 -58 0 464 467 464
40-year olds 1,070 -40 0 1,031 1,044 1,031
Memo: 16- to 19-year olds 971 -59 0 913 935 913
Note: Blue-shaded area marks the components of hidden unemployment.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Involuntary part-timers are called “employed” ... not so
Involuntary part-time (thousands) (percent of the labor force)
Source: US Department of Labor. Updated through September 2014. 49
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
Percent of the labor force (right scale)
Number of people (left scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Dropouts are nowhere ... but they aren’t retiring
Participation rate for selected age groups (percent of the respective population)
Source: US Department of Labor. Updated through October 2014. 50
54
55
56
57
58
59
60
61
78
79
80
81
82
83
84
85
2007 2008 2009 2010 2011 2012 2013 2014
35 to 44 year olds (left scale)
25 to 34 year olds (left scale)45 to 54 year olds (left scale)
16 to 24 year olds (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected unemployment rate measures (percent of the labor force)
Source: US Department of Labor. Updated through September 2014.
51
Thinking outside the unemployment box ... 5th inning
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
U-6 (official plus involuntarily part-time plus marginally attached)
Official unemployment plus part-timers plus job-force exits under 49 years of age (U-3 ++)
Official unemployment plus one half of above-normal number of part-timers (U-3 +)
Official unemployment rate (U-3)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
It’s no surprise that Europe is disinflating
Output gap in selected regions (actual less potential real GDP as a percent of potential real GDP)
Source: US Department of Commerce; JPMorgan. Updated through 2014 Q2. 52
-14
-12
-10
-8
-6
-4
-2
0
2
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Japan
EU-28
US
Australia
Canada
Sweden
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Hourly pay trends don’t feel like the 9th inning ...
Hourly labor compensation (percent change from four quarters earlier)
Sources: US Departments of Commerce and Labor; Updated through 2014 Q2. 53
-2
0
2
4
6
8
10
-2
0
2
4
6
8
10
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
ECEC (unweighted
version of the Employment Cost Index)
Employment Cost Index (fixed-weighted by industry and occupation)
Nonfarm business sector (unweighted), from the Productivity & Costs report
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... incentive-based pay is behind the latest comp wiggle
Hourly labor compensation (percent change from four quarters earlier)
Sources: US Departments of Commerce and Labor; Updated through 2014 Q2. 54
0
1
2
3
4
5
0
1
2
3
4
5
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
ECI, private-sector compensation, excluding incentive-based pay
ECI, privae-sector compensation
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... incentive-based pay is behind the latest wage wiggle
Hourly wage & salary rates (percent change from four quarters earlier)
Sources: US Departments of Commerce and Labor; Updated through 2014 Q2. 55
0
1
2
3
4
5
0
1
2
3
4
5
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
ECI, private-sector compensation, excluding incentive-based pay
ECI, privae-sector compensation
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... ditto for hourly wage rates
Hourly labor compensation (percent change from four quarters earlier)
Source: US Department Labor; Updated through 2014 Q3 (ECI) and Oct. 2014 (average hourly earnings). 56
0.00.30.50.81.01.31.51.82.02.32.52.83.03.33.53.84.04.34.54.85.0
1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
0.00.30.50.81.01.31.51.82.02.32.52.83.03.33.53.84.04.34.54.85.0
Average hourly earnings, production and nonsupervisory workers (thin black line)¹Average hourly earnings, total private industries (thick black line)¹ECI for private wages (orange line)
¹ Average hourly earnings for produduction workers are shown only up until March 2006 in order to provide historical context for the newer measure of average hourly earnings for all workers. The measure for all private -sector workers is available only since March 2006.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Not all wage shifts are about wages
Hourly average wages (percent change from four quarters earlier)
Source: US Dep. of Labor; Updated through 2014 Q3 (ECI) and October 2014 (wages). 57
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
AHE, production and non-supervisory workers
AHE, all private-sector workers¹
ECI, hourly private sector wage rates
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Core PCE chain price index (percent change from 12 months earlier)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through August 2014 (inflation) and June 18, 2014 (FOMC forecast).
Inflation doesn’t look like the 9th inning, and it rules
58
-2
0
2
4
6
8
10
12
-2
0
2
4
6
8
10
12
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
The range of FOMC's forecast
for PCE chain
price inflation, including its
longer-run goal
Overall PCE inflation¹
Core PCE inflation¹
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
59
It’s Not News (Nor Interesting) that the Fed will Tighten and Rates Will Go Up
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
60
It would be news if it delayed
Forecasts of the federal funds rate (percent)
Source: Federal Reserve Board; Bloomberg. Updated through November 7, 2014.
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
3.75
4.00
4.25
4.50
4.75
5.00
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Dashes & Columns:Range of FOMC forecasts (lighter
columns)
Central tendency of FOMC
forecasts (darker columns)
Median FOMC forecast (horizontal line)
Lines:Current market forecast (solid blue line)¹
Glassman, midpoint of range rounded to the next 1/4 point
(dotted line)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
61
The outlook for long-term interest rates
Decomposition of 10-year Treasury yield (percent per annum)
Source: Federal Reserve Board. Updated through October 31, 2014.
0
1
2
3
4
5
6
7
8
0
1
2
3
4
5
6
7
819
99
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Estimated term premium embedded in a 10-year Treasury zero-coupon yield
Estimated average level of zero-coupon short-term interest rates anticipated over the subsequent 10 years
Average level of expected short-term interest rates plus an assumed term premium of 50 basis points
Average level of zero-coupon short-term interest rates anticipated over the subsequent 10 years (based on the assumed fed funds path, the dashed line)
Federal funds rate path (actual to date and assumed after that)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
62
Conclusion ... Implications of 5th Versus 8th Inning
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Actual and potential real GDP (2009 chained dollars)
Source: JPMorgan Chase & Co. Updated through 2014 Q2.
Why it matters
63
14,000
15,000
16,000
17,000
18,000
19,000
20,000
21,000
14,000
15,000
16,000
17,000
18,000
19,000
20,000
21,000
2007 2009 2011 2013 2015 2017 2019 2021
Potential real GDP = 2.1%
Actual real GDP
Potential real GDP = 2.5%
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Wilshire 5000 (Dec 31, 1970 = 830.27) After-tax GDP profits (billions of dollars)
Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 2001.
Sources: US Dep. of Commerce; Dow Jones. Updated through 2014 Q3 (profits) and Nov. 26, 2014 (stocks).
5th inning means there’s more of everything ahead
64
0
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
30,000
32,000
34,000
36,000
1990 1995 2000 2005 2010 2015 2020
Line represents the Wilshire 5000 index (left scale)
Shaded area represents after-tax GDP profits (right scale)
Note: Since 1952, the Wilshire 5000 P/E climbed to 14 times earnings near cyclical peaks, excluding the unprecedented multiples during 1997 - 2001, and that would occur when the line floated at the upper boundary of earnings.
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through 2014 Q3.
Meanwhile there’s still a lot for equity markets to digest
65
0
1
2
3
4
5
6
7
8
9
10
11
0
1
2
3
4
5
6
7
8
9
10
11
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
66
Post Scripts
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
67
How Speculative Excesses Were Addressed
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
New housing starts (thousands at an annual rate) Unsold homes (months’ worth of sales)
Source: US Department of Commerce. Updated through August 2014
.
Builders had to under build ...
68
0
2
4
6
8
10
12
14
16
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Total housing starts (left)
Unsold single family houses (right)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Housing sales and starts (ratio to June 2005)
Source: US Department of Commerce. Updated through August 2014
.
... new and existing
69
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Sales of existing houses
Housing startsSales of new houses
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Household income and house prices (ratio to 1970)
Sources: US Dep. of Commerce; CoreLogic. Updated through 2014 Q2 (income) and 2014 Q2 (house prices).
Economic recovery and time
70
0
1
2
3
4
5
6
7
8
9
10
11
12
13
0
1
2
3
4
5
6
7
8
9
10
11
12
13
70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
CoreLogic house price index (ratio to 1970)
Gross nominal income per household (ratio to 1970)Forecast
(assumes nominal income
grows 5% annually in the coming
decade's recovery)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Rising prices are draining underwater mortgages
71
0
25
50
75
100
125
150
175
200
225
0
25
50
75
100
125
150
175
200
225
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
CoreLogic measure of house prices
Scenario above assumes that
house prices rise 4% annually in
the future.
Note: The red zone represents an estimate of the aggregate amount of under-water mortgages (see the note below)
House prices (January 2000 = 100)
Source: CoreLogic. Updated through 2014 Q2.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Loan charge-offs (billions of dollars quarterly) Cumulative charge-offs since 2006 (billions of dollars)
Source: Federal Deposit Insurance Corporation. Updated through 2014 Q2.
Mark-to-market discipline
72
0
100
200
300
400
500
600
700
0
10
20
30
40
50
60
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Net chargeoffs by all FDIC institutions (left scale)
Cumulative "excess" net chargeoffs of all FDIC institutions since 2007 (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
That’s how leverage got reduced
Debt service (percent of monthly income) Household debt (ratio to income)
Source: Federal Reserve Board. Updated through 2013 Q3. 73
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
0
5
10
15
20
25
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Financial obligations (left)
Debt service (left)
Household debt (right)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... and household net worth is back in record territory
Personal saving (percent of disposable income) Household net worth (ratio to income)
‘Sources: US Dep. of Com.; FRB. Updated through August 2013 (saving) and 2013 Q4 (net worth). 74
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.81
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Ratio of household net worth to income (right scale, reversed).
Household saving rate (left)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Which left little market on the consumer industry
Nominal consumer spending (percentage of nominal GDP)
Source: US Department of Commerce. Updated through 2014 Q2. 75
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
0.57
0.58
0.59
0.60
0.61
0.62
0.63
0.64
0.65
0.66
0.67
0.68
0.69
0.70
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
REITs stepping in as GSEs exit
Credit provided by selected (percent of all credit provided)
‘Source: Federal Reserve Board. Updated through 2013 Q3. 76
0
10
20
30
40
50
60
70
80
90
100
1949 1954 1959 1964 1969 1974 1979 1984 1989 1994 1999 2004 2009 2014
Federal Reserve System
Life Insurance and Property Casualty Companies
Private and Public Pension Funds
Securities Brokers and Dealers, Finance Companies, Funding Corporations, and Holding Companies
Money Market Mutual Funds
Mutual Funds, Closed-End Funds, Exchange-Traded Funds, and REITs
GSEs, Mortgage Pools, and Issuers of Asset-Backed Securities
Private Depository Institutions
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
77
The stagnant “secular stagnation” theory
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
78
Why the “secular stagnation” idea isn’t interesting
The economic cycle, unemployment rate (percent of the labor force)
Source: US Department of Labor. Updated through October 2014.
0
1
2
3
4
5
6
7
8
9
10
11
12
13
0
1
2
3
4
5
6
7
8
9
10
11
12
13
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Nairu (where we want to be)
Official unemployment rate (U-3)Official unemployment plus part-timers plus job-force exits under 49 years of age (U-3 ++)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
79
The US Structural Fiscal Challenge Is About Healthcare
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
What we see isn’t what matters
Federal deficit over the most recent 12 months (percent of nominal GDP)
Note: Black boxes denote the fiscal year end.
Sources: Vertical bars denote NBER-designated recessions; US Treasury. Updated through July 2014. 80
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
-11
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
It’s what is in our (the CBO’s) mind’s eye that’s key
Long-term revenue and spending projections (percent of GDP)
Source: Congressional Budget Office. Updated through October 2012. 81
0
5
10
15
20
25
30
0
5
10
15
20
25
30
1960 1970 1980 1990 2000 2010 2020 2030 2040 2050 2060 2070 2080
Debt service
Other
Medicare and Medicaid
Social Security
Revenues (shown holding at the historical average of 18.1% of nominal GDP)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
The fiscal issue is a healthcare issue, not a fiscal issue
Federal healthcare spending (percentage of GDP)
Source: Congressional Budget Office. Updated through 2012. 82
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.00
0.01
0.02
0.03
0.04
0.05
0.06
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
83
The Industrial Sector
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected trade weighted US dollar indexes (March 1973 = 100)
Source: Federal Reserve Board. Updated through July 2014.
The industrial sector has the wind at its back ...
84
75
85
95
105
115
125
135
75
85
95
105
115
125
135
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2008 2013
Nominal trade-weighted dollar
index versus G10 countries (1972-76
= 100)
Broad real trade-
weighted dollar index
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Real GDP and industrial output (percent change from 12 months earlier)
Sources: FRB; Macroeconomic Advisers. Updated through June 2014 (IP) and May 2014 (GDP).
Industrial activity is plodding along
85
-6
-4
-2
0
2
4
6
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
12
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Manufacturing output, line (left)Industrial Output, line (left)
Real GDP, grey shaded area (right)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
ISM indexes (50+ = increasing) Real GDP (percent change from 12 months earlier)
Source: Federal Reserve Board. Updated through July 2014 (ISM) and May 2014 (GDP).
ISM sentiment surveys and the economy
86
-6
-4
-2
0
2
4
6
15
20
25
30
35
40
45
50
55
60
65
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Manufacturing ISM, line (left)Nonmanufacturing ISM, line (left)
Real GDP, grey shaded area (right)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
ISM indexes (50+ = inc) Manufacturing output (annualized percent change from 3 months earlier)
Sources: Federal Reserve Board; ISM. Updated through June 2014 (IP) and July 2014 (ISM).
ISM sentiment surveys and factory output
87
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
35
40
45
50
55
60
65
70
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Manufacturing ISM, line (left)Nonmanufacturing ISM, line (left)
Manufacturing output, grey shaded area (right)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected sectors (2007 =100)
Source: Federal Reserve Board. Updated through January 2014.
The business equipment sector
88
-20
-15
-10
-5
0
5
10
15
20
25
30
-20
-15
-10
-5
0
5
10
15
20
25
30
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Energy
High-tech equipment
Nonenergy, non-tech output Manufacturing output (shaded area)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected sectors (2007 =100)
Source: Federal Reserve Board. Updated through June 2014.
The energy sector is driving much now
89
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Crude oil extraction
Natural gas liquid extraction
Natural gas extraction
Oil and gas well drillingMetal ore mining
Petroleum and coal products
Chemicals
Coal miningNonmetalic mineral mining
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected sectors (2007 =100)
Source: Federal Reserve Board. Updated through August 2014 (output) and August 2014 (sales).
So is the motor vehicle sector
90
4
6
8
10
12
14
16
18
20
22
4
6
8
10
12
14
16
18
20
22
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Vehicle sales
Domestic vehicle output
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Capital goods orders and shipments (billions of dollars)
Source: US Department of Commerce. Updated through August 2014.
Capital goods activity
91
45
50
55
60
65
70
75
80
45
50
55
60
65
70
75
80
2007 2008 2009 2010 2011 2012 2013 2014
Orders of nondefense capital equipment excluding nondefense aircraft (line)
Shipments of nondefense aircraft
Shipments of nondefense capital equipment excluding aircraft
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Backlogs of unfilled orders (billions of dollars)
Source: US Department of Commerce. Updated through August 2014.
Backlogs of unfilled orders for capital goods
92
0
50
100
150
200
250
300
350
400
450
500
550
600
650
0
50
100
150
200
250
300
350
400
450
500
550
600
650
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Backlogs of (military and nondefense) aircraft orders
Backlogs of nondefense capital goods other than aircraft
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Backlogs of unfilled orders (months’ supply)
Source: US Department of Commerce. Updated through August 2014.
Backlogs of unfilled orders for capital goods
93
10
20
30
40
50
60
70
80
2
3
4
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Backlogs of (military and nondefense) aircraft orders
Backlogs of nondefense capital goods other than aircraft
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Selected sectors (2007 =100) Factory utilization rate (percent)
Source: Federal Reserve Board. Updated through June 2014.
The industrial sector still has unused capacity
94
60
65
70
75
80
85
90
95
100
20
30
40
50
60
70
80
90
100
110
1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014
Manufacturing output (left scale)
Manufacturing capacity utilization (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Factory payrolls (millions)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Labor. Updated
through July 2014.
... but it will look different
95
10
11
12
13
14
15
16
17
18
19
20
1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012
10
11
12
13
14
15
16
17
18
19
20
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel)
Source: Oil & Gas Journal. Updated through May 2, 2014.
The energy revolution has more up its sleeve ...
96
0
25
50
75
100
125
150
0
25
50
75
100
125
150
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Petroleum price (WTI, $/barrel)
Natural gas price converted to thermal equivalent price of oil in terms of price per barrel (6 times the $/mmBTU)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
US current account deficit (percent of GDP)
Source: US Department of Commerce. Updated through 2013 Q4.
... beyond the current account balance
97
-6
-5
-4
-3
-2
-1
0
1
2
-6
-5
-4
-3
-2
-1
0
1
2
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Petroleum balance
Current account balance
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
98
Consumer Outlook
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Consumer trends now are powered by the cyclical recovery
Real consumer spending and real disposable income (percent change from 12 months earlier)
Source: US Department of Commerce. Updated through July 2014. 99
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
Real consumer spendingReal disposable personal income
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Income growth is the key
Real disposable income, real wages, and real consumption (percent change from 12 months earlier)
Source: US Department of Commerce. Updated through July 2014. 100
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Real consumer spending (shaded area)Real disposable personal incomeReal wages and salaries
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
FIGURE 3. THE HOUSEHOLD BALANCE SHEET LOOKS IMPRESSIVE
Seleceted assets and liabilities (billions of dollars, unless noted otherwise)
Source: Federal Reserve Board. Updated through 2013 Q3.
December 3, 2014
Weekly Insights on Markets and the Economy
Commercial Banking 101
1960 1965 1970 1975 1980 1985 1990 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 3/31 6/30 9/30 12/31 3/31¹ 6/30¹ 9/30¹ 12/31¹
Net Worth 2,066 2,788 3,849 5,792 10,318 15,285 22,009 26,793 29,233 30,975 34,472 38,313 43,189 43,885 44,336 44,026 49,426 56,515 62,538 67,331 67,753 57,180 58,920 63,354 64,763 70,863 80,664 74,088 75,434 77,710 80,664 81,206 83,100 85,068 87,063
Consisting of Real Estate 406 477 739 1,225 2,487 3,890 5,114 5,375 5,520 5,686 6,077 6,738 7,374 8,708 9,568 10,263 11,074 12,958 15,216 15,049 12,766 9,269 8,269 8,419 8,431 10,273 12,625 11,057 11,655 12,158 12,625 12,852 13,082 13,314 13,548
Consisting of Financial Assets 1,660 2,311 3,110 4,567 7,831 11,395 16,895 21,418 23,713 25,288 28,395 31,575 35,816 35,177 34,767 33,763 38,353 43,557 47,322 52,282 54,986 47,911 50,651 54,935 56,332 60,590 68,039 63,031 63,779 65,552 68,039 68,354 70,018 71,754 73,516
Memo:
Net Worth 5.5 5.4 5.1 4.8 5.1 4.9 5.1 5.1 5.3 5.3 5.6 5.8 6.3 5.9 5.7 5.4 5.8 6.3 6.7 6.7 6.4 5.2 5.4 5.6 5.5 5.8 6.5 6.0 6.1 6.2 6.4 6.4 6.5 6.6 6.7
Real Estate Net Worth 1.1 0.9 1.0 1.0 1.2 1.3 1.2 1.0 1.0 1.0 1.0 1.0 1.1 1.2 1.2 1.3 1.3 1.4 1.6 1.5 1.2 0.8 0.8 0.7 0.7 0.8 1.0 0.9 0.9 1.0 1.0 1.0 1.0 1.0 1.0
Financial Net Worth 4.4 4.5 4.1 3.7 3.9 3.7 3.9 4.1 4.3 4.3 4.6 4.8 5.2 4.8 4.5 4.2 4.5 4.8 5.0 5.2 5.2 4.4 4.6 4.9 4.8 4.9 5.5 5.1 5.1 5.2 5.4 5.4 5.5 5.5 5.6
Equity Net Worth 0.8 1.0 0.7 0.3 0.3 0.2 0.3 0.6 0.8 0.9 1.2 1.4 1.8 1.4 1.1 0.7 1.0 1.1 1.1 1.3 1.3 0.6 0.9 1.0 1.0 1.1 1.5 1.2 1.2 1.3 1.5 1.5 1.5 1.5 1.6
Household Saving Rate (% of Disposable Personal Income) 10.0 11.4 12.6 13.0 10.6 8.6 7.8 6.3 6.4 5.9 5.7 6.2 4.3 4.0 4.3 5.0 4.8 4.6 2.6 3.4 3.0 5.0 6.1 5.6 5.7 5.6 4.5 4.1 4.7 4.9 4.3 4.4 4.8 5.0 5.1
Assets 2,291 3,142 4,328 6,560 11,766 17,653 25,702 31,505 34,276 36,380 40,229 44,513 49,946 51,238 52,312 52,787 59,251 67,511 74,701 80,793 82,147 71,457 72,972 77,130 78,332 84,461 94,419 87,631 88,995 91,399 94,419 95,029 96,991 99,027 101,091
Tangible Assets 738 931 1,391 2,288 4,455 6,789 9,752 11,101 11,510 11,997 12,700 13,793 14,978 16,924 18,470 20,053 21,918 24,994 28,534 29,581 28,200 24,798 23,664 23,319 23,264 25,004 27,471 25,794 26,408 26,974 27,471 27,587 27,845 28,106 28,370
Real Estate 548 696 1,025 1,684 3,414 5,340 7,602 8,540 8,839 9,223 9,829 10,793 11,805 13,521 14,890 16,291 17,983 20,817 24,128 24,958 23,377 19,846 18,687 18,326 18,109 19,708 21,996 20,444 21,015 21,541 21,996 22,213 22,432 22,653 22,876
Equipment & Software 4 5 8 19 36 51 75 88 91 92 95 105 116 129 142 157 173 191 207 226 246 268 279 291 305 315 324 317 319 321 324 326 328 330 332
Consumer Durable Goods 185 228 354 578 991 1,377 2,039 2,424 2,529 2,628 2,718 2,834 2,991 3,202 3,364 3,527 3,679 3,899 4,108 4,301 4,476 4,579 4,588 4,587 4,726 4,848 5,011 4,898 4,937 4,974 5,011 5,048 5,086 5,123 5,161
Financial Assets 1,553 2,210 2,936 4,272 7,311 10,864 15,951 20,404 22,767 24,383 27,528 30,721 34,967 34,314 33,842 32,734 37,333 42,517 46,166 51,212 53,947 46,659 49,308 53,811 55,068 59,457 66,949 61,837 62,587 64,425 66,949 67,442 69,146 70,921 72,721
Cash (Deposits) 242 380 542 925 1,550 2,655 3,538 3,256 3,438 3,577 3,745 3,953 4,133 4,468 4,990 5,250 5,489 5,848 6,263 6,905 7,564 8,173 8,095 8,061 8,738 9,201 9,448 9,205 9,133 9,252 9,448 9,647 9,851 10,058 10,271
Bonds (Credit Market Instruments) 151 170 242 321 521 967 1,741 2,377 2,383 2,540 2,499 2,552 2,668 2,562 2,471 2,628 2,859 3,915 4,203 4,414 5,037 5,158 5,604 5,874 5,490 5,641 5,652 5,599 5,670 5,656 5,652 5,652 5,652 5,652 5,652
Marketable Treasury Securities 27 25 31 44 101 202 378 691 652 701 611 546 623 394 244 77 214 270 222 126 10 -6 668 944 534 779 765 804 868 826 765 765 765 765 765
Municipal Securities 31 37 47 67 130 395 648 594 533 493 498 498 527 532 588 671 687 1,523 1,601 1,636 1,674 1,721 1,828 1,872 1,807 1,655 1,617 1,670 1,672 1,647 1,617 1,617 1,617 1,617 1,617
Corporate Bonds 11 9 30 64 59 95 237 535 612 644 638 705 602 661 861 1,234 1,167 1,263 1,345 1,511 1,961 1,949 2,312 2,294 2,427 2,641 2,793 2,600 2,606 2,665 2,793 2,793 2,793 2,793 2,793
Stocks 378 655 709 654 1,133 1,544 2,494 4,594 6,192 6,987 9,163 11,251 14,536 12,674 10,899 8,402 11,248 12,773 13,968 16,890 17,285 10,191 13,084 15,454 15,098 17,224 22,844 19,211 19,582 20,915 22,844 22,974 23,635 24,325 25,025
Direct Holdings 360 616 650 585 1,010 1,229 1,961 3,294 4,434 4,712 6,144 7,507 9,763 8,140 6,826 5,163 6,777 7,498 8,152 10,293 10,118 5,927 7,492 8,997 9,050 10,338 13,865 11,632 11,780 12,547 13,865 13,944 14,345 14,764 15,188
Indirect Holdings 18 39 59 70 123 314 533 1,300 1,757 2,275 3,019 3,745 4,773 4,534 4,073 3,239 4,471 5,274 5,816 6,597 7,167 4,264 5,592 6,457 6,048 6,886 8,980 7,579 7,803 8,368 8,980 9,031 9,290 9,562 9,837
Life Insurance Companies #N/A 0 4 9 18 33 58 200 275 373 510 665 904 883 807 692 887 1,029 1,140 1,335 1,467 957 1,220 1,421 1,396 1,556 1,855 1,671 1,696 1,761 1,855 1,866 1,919 1,975 2,032
Private Pension Funds 3 8 17 30 70 182 278 568 778 903 1,162 1,405 1,658 1,623 1,423 1,164 1,596 1,834 2,061 2,179 2,276 1,371 1,795 2,117 2,015 2,290 2,964 2,538 2,616 2,790 2,964 2,981 3,066 3,156 3,247
Federal Government Retirement Funds #N/A #N/A #N/A #N/A #N/A #N/A 0 6 11 19 30 43 57 57 49 46 79 98 111 136 146 84 117 141 134 148 208 168 174 185 208 209 215 221 227
Mutual Funds 15 30 38 30 36 99 196 527 693 980 1,316 1,632 2,154 1,971 1,794 1,337 1,908 2,314 2,504 2,948 3,279 1,852 2,460 2,779 2,503 2,892 3,953 3,201 3,316 3,633 3,953 3,976 4,090 4,209 4,331
Other 782 1,005 1,443 2,372 4,106 5,698 8,178 10,176 10,754 11,279 12,121 12,965 13,631 14,609 15,482 16,453 17,737 19,982 21,733 23,003 24,061 23,138 22,525 24,422 25,742 27,391 29,004 27,822 28,202 28,602 29,004 29,169 30,008 30,885 31,773
Liabilities 225 353 479 768 1,447 2,368 3,694 4,712 5,043 5,406 5,757 6,200 6,756 7,352 7,977 8,761 9,824 10,996 12,162 13,461 14,394 14,277 14,052 13,775 13,569 13,598 13,756 13,543 13,562 13,688 13,756 13,823 13,891 13,959 14,027
Mortgage Loans 141 219 286 459 926 1,450 2,489 3,165 3,319 3,537 3,753 4,054 4,431 4,813 5,322 6,028 6,909 7,859 8,912 9,909 10,610 10,577 10,417 9,907 9,678 9,435 9,372 9,388 9,361 9,382 9,372 9,361 9,350 9,339 9,329
Ratio to income 0.38 0.43 0.38 0.38 0.46 0.47 0.58 0.60 0.60 0.61 0.61 0.62 0.64 0.65 0.69 0.74 0.81 0.87 0.95 0.99 1.01 0.96 0.95 0.88 0.82 0.77 0.75 0.76 0.75 0.75 0.74 0.74 0.73 0.72 0.71
Memo: Estimated Under Water Mortgages 3 5 7 6 -392 -1,720 -2,185 -2,548 -2,960 -1,962 #N/A -1,851 -1,232 -911 #N/A #N/A #N/A #N/A #N/A
Gross 0 0 0 -4 -411 -1,777 -2,301 -2,712 -3,162 -2,197 -1,007 -2,091 -1,477 -1,159 -1,007 -933 -859 -784 -712
Chargeoffs of Real Estate Loans at FDIC Institutions 3 5 7 10 19 57 116 165 202 235 #N/A 240 245 248 #N/A #N/A #N/A #N/A #N/A
Portfolio Allocation 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100 100
Cash 11 12 13 14 13 15 14 10 10 10 9 9 8 9 10 10 9 9 8 9 9 11 11 10 11 11 10 11 10 10 10 10 10 10 10
Bonds 7 5 6 5 4 5 7 8 7 7 6 6 5 5 5 5 5 6 6 5 6 7 8 8 7 7 6 6 6 6 6 6 6 6 6
Stocks 51 53 50 46 45 41 42 47 49 50 53 54 56 53 50 47 49 49 48 49 50 47 49 52 52 53 55 54 54 54 55 55 55 56 56
Real Estate 32 30 32 35 38 38 38 35 34 33 32 31 30 33 35 38 37 37 38 37 34 35 32 30 30 30 29 29 30 30 29 29 29 28 28
Net Worth Allocation
Cash 12 14 14 16 15 17 16 12 12 12 11 10 10 10 11 12 11 10 10 10 11 14 14 13 13 13 12 12 12 12 12 12 12 12 12
Bonds 7 5 6 5 4 5 7 8 7 7 6 6 5 5 5 5 5 6 6 5 6 7 8 8 7 7 6 6 6 6 6 6 6 6 6
Stocks 52 55 51 47 46 41 43 49 52 53 56 58 60 56 54 50 53 52 52 54 55 52 54 57 57 57 59 58 58 58 59 59 59 59 60
Real Estate 29 26 29 32 34 35 33 30 28 27 26 25 24 28 30 32 30 30 31 29 26 25 22 21 21 22 22 22 23 23 22 22 22 22 22
Memo: Disposable Personal Income 376 513 762 1,219 2,018 3,099 4,312 5,244 5,533 5,830 6,149 6,561 6,876 7,401 7,752 8,099 8,487 9,003 9,402 10,038 10,508 10,995 10,937 11,244 11,787 12,246 12,477 12,297 12,417 12,568 12,625 12,708 12,811 12,970 13,084
Wilshire 5000 #N/A #N/A #N/A #N/A 1,405 2,165 3,101 4,541 6,057 7,198 9,298 11,318 13,813 12,176 10,708 8,343 10,800 11,971 12,518 14,258 14,820 9,087 11,562 13,360 13,190 14,995 19,706 16,598 16,992 17,982 19,706 19,818 20,388 20,984 21,587
% change 8 8 7 5 4 5 4 15 13 5 6 4 1 9 -39 27 16 -1 14 31 11 2 6 10 1 3 3 3
Dow Jones Industrial Average 616 969 839 852 964 1,547 2,634 3,834 5,117 6,448 7,908 9,181 11,497 10,787 10,022 8,342 10,454 10,783 10,718 12,463 13,265 8,776 10,428 11,578 12,218 13,104 16,577 14,579 14,910 15,130 16,577 16,671 17,150 17,651 18,159
% change 5 -1 0 1 5 11 4 3 2 2 2 2 15 10 5 5 3 0 1 11 -34 19 11 6 7 26 11 2 1 10 1 3 3 3
20142013
Ratio to Disposable Personal Income
Percent of All Assets
Percent of Net Worth
The balance sheet and record net worth ...
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... encourages less saving and more spending
Nominal disposable income and nominal wages and salaries (percent change from 12 months earlier)
Source: US Department of Commerce. Updated through February 2014. 102
3.0
3.5
4.0
4.5
5.0
5.5
6.0
6.5
7.00123456789
1011121314151617181920
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Ratio of household net worth to income (right scale is reversed), includes a 2013 Q4 estimate and 2014 forecasts, based on the Wilshire 5000 as of February 14, 2014
Household saving rate (left)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
When savings go up, saving falls and spending rises
Personal saving (percent of disposable income) Household net worth (ratio to income)
Sources: US Dep. of Com.; FRB. Updated through April 2014 (saving) and 2014 Q1 (net worth). 103
3.6
3.8
4.0
4.2
4.4
4.6
4.8
5.0
5.2
5.4
5.6
5.8
6.0
6.2
6.4
6.6
6.81
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Ratio of household net worth to income (right scale, reversed).
Household saving rate (left)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Retail trends have lost some momentum ...
Retail sales (percent change from 12 months earlier)
Source: US Department of Commerce. Updated through August 2014. 104
-20
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year-over-year percent change
Annualized change from three months earlier
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
... core sales too
Retail sales other than auto and gasoline purchases (percent change from 12 months earlier)
Source: US Department of Commerce. Updated through August 2014. 105
-20
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Year-over-year percent change
Annualized change from three months earlier
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
But FedEx and UPS are happy
Non-store retail sales (percentage of nonauto retail sales)
Sources: US Dep. of Com.; ICSC. Updated by Feb. 2013 (electronic shopping) and Feb. 2013 (eCommerce). 106
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
0.00
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
E-commerce sales
Electronic shopping and mail order purchases
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Cars have fully recovered
Sales of motor vehicles (millions at an annual rate)
Source: US Department of Commerce. Updated through August 2014. 107
8
10
12
14
16
18
20
22
8
10
12
14
16
18
20
22
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
108
Business Capital Spending
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Business fixed investment, structures and equipment (percent change from four quarters earlier)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through 2013 Q2.
... and invest in the future ...
109
-20
-15
-10
-5
0
5
10
15
20
-20
-15
-10
-5
0
5
10
15
20
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Business investment on structures, equipment, and intellectual products (% ch from 4 quarters earlier)
Sources: Vertical bars denote recessions and are designated by the NBER; US Department of Commerce.
Updated through 2013 Q2.
... capital investment ...
110
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
-25
-20
-15
-10
-5
0
5
10
15
20
25
30
60 65 70 75 80 85 90 95 00 05 10
Shaded area denotes overall business fixed investment
Nonresidential structures
Intellectual property products
Equipment and software
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Economic Forecast
OUTPUT AND EMPLOYMENT WHAT THE TABLE SHOWS:
Arizona’s GDP forecast is derived from the
national forecast by allocating output to each
of the 50 states based on employment
shares. So, forecast misses reflect surprises
in the aggregate forecast as well as
unexpected shifts in a state’s GDP share.
Arizona’s recovery is gaining traction. The
state’s recovery paced the national recovery
in 2012.
KEY MESSAGES:
The state’s economy is forecast to fare
better still in 2014 and 2015.
Note: GDP figures are based on quarterly values that are
interpolated from annual GDP estimates using quarterly
employment changes. Unbolded figures are reported
actual values and bold figures represent forecasts.
Sources: US Department of Commerce;
US Department of Labor.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 112
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
United States
Real GDP
$ billions (fourth quarter) $14,992 $14,577 $14,542 $14,939 $15,190 $15,434 $15,916 $16,314 $16,885 $17,433 $18,000
% change over the four quarters 1.9% -2.8% -0.2% 2.7% 1.7% 1.6% 3.1% 2.5% 3.5% 3.2% 3.2%
Nonfarm employment
Job count (fourth quarter) 138,246,000 135,493,667 129,877,667 130,652,000 132,642,667 134,853,667 137,247,667 139,880,000 141,861,482 143,689,481 145,541,036
% change over the four quarters 0.9% -2.0% -4.1% 0.6% 1.5% 1.7% 1.8% 1.9% 1.4% 1.3% 1.3%
Average monthly change 101,667 -229,361 -468,000 64,528 165,889 184,250 184,250 184,250 184,250 184,250 184,250
Arizona
Real GDP
$ billions (fourth quarter) $270 $257 $244 $247 $254 $260 $264 $272 $282 $292 $302
% change over the four quarters 0.6% -4.9% -4.9% 1.4% 2.8% 2.3% 1.6% 3.0% 3.7% 3.4% 3.4%
Nonfarm employment
Job count (fourth quarter) 2,684,100 2,562,600 2,387,833 2,389,967 2,429,800 2,486,200 2,534,267 2,587,738 2,627,747 2,664,657 2,702,043
% change over the four quarters 0.9% -4.5% -6.8% 0.1% 1.7% 2.3% 1.9% 2.1% 1.5% 1.4% 1.4%
Average monthly change 1,922 -10,125 -14,564 178 3,319 4,700 4,006 4,456 3,334 3,076 3,115
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
The Economy’s Structure
PERCENT OF TOTAL GDP DERIVED FROM SELECTED INDUSTRIES WHAT THE CHART SHOWS:
The figure compares the relative importance
of selected industries to the state’s economy
with the national footprint of each industry
(state and national figures reflect the value
added of each industry as a percent of
aggregate state or US nominal GDP,
respectively).
Construction, durable manufacturing, retail
trade, and real estate account for a bigger
share of Arizona’s economy, compared with
the industry composition of the national
economy.
KEY MESSAGES:
The housing bust took a toll on the state’s
economy, given its outsized presence of the
real estate sector in the economy.
Source: US Department of Commerce. Updated through
2011.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 113
0
2
4
6
8
10
12
14
16
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US industry mix Arizona's industry mix
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Bankruptcies
RATIO OF BANKRUPTCY FILINGS TO THE 2007 Q4 NUMBER WHAT THE CHART SHOWS:
The figure illustrates trends in bankruptcy
filings by businesses and persons relative to
the number of filings in 2007 Q4, prior to the
recession.
Bankruptcy filings climbed sharply as the
homebuilding industry shut down but the
number of business bankruptcies is coming
down quickly.
KEY MESSAGES:
Indicators of financial stress are a useful
coincident indicator of economic distress.
Financial stresses are receding in Arizona’s
business community, a sign that recession’s
grip is easing.
Source: Administrative Office of the U.S. Courts; Updated
through September 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 114
0
1
2
3
4
5
0
1
2
3
4
5
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Business bankruptcy filingsNonbusiness bankruptcy filings
All US bankruptcy filings (shaded area)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Oil & Gas Activity
NUMBER OF DRILLING RIGS ON LAND, INLAND WATERS, AND OFFSHORE WHAT THE CHART SHOWS:
The figure illustrates recent trends in the rig
count for petroleum drilling operations.
Oil and gas drilling activity in Arizona is
relatively modest.
KEY MESSAGES:
Arizona’s economy doesn’t draw as much
support from its small energy activity,
compared with some of its Rocky Mountain
neighbors.
Source: Baker Hughes rig count. Updated through 2014
Q3.
December 3, 2014
Regional Perspectives: Alabama Economic Outlook
Commercial Banking 115
0
1
2
0
500
1,000
1,500
2,000
2,500
3,000
1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
United States (left scale)Arizona (right scale)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Initial Jobless Claims
RATIO OF INITIAL CLAIMS FOR UNEMPLOYMENT INSURANCE TO THE 2007 Q4 LEVEL WHAT THE CHART SHOWS:
The figure tracks layoffs in Arizona and the
national level of claims.
Weekly layoffs, both the state and national
tallies, are illustrated in the figure as a ratio
to the level of layoffs in the fourth quarter of
2007, prior to the recession.
Layoffs have retreated since early 2009, in
line with the national economy, but are
tracking at a higher level than the national
level.
KEY MESSAGES:
Modest declines in Arizona’s jobless claims
trend points to a gradual strengthening of the
job market.
Source: US Department of Labor. Updated through
November 8, 2014 (state) and November 15, 2014 (US).
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 116
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2007 2008 2009 2010 2011 2012 2013 2014 2015
ArizonaUS (solid area)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Economic Growth
REAL GDP GROWTH (PERCENT CHANGE FROM FOUR QUARTERS EARLIER) WHAT THE CHART SHOWS:
Real GDP growth in Arizona (the line in the
figure) is superimposed on top of US real
GDP growth (bars in the figure).
Arizona’s economy downshifted more rapidly
than the national economy’s but now is
tracking the national economy’s recovery.
KEY MESSAGES:
Real estate drags are fading.
Arizona’s economy is forecast to continue to
speed up.
Source: US Department of Commerce. Updated through
2013 (state) and 2014 Q3 (US). Quarterly estimates for
states after 2012 are interpolated from employment
figures (through Octoer 2014), based on the historical
correlation of state and national employment changes.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 117
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
3
4
5
6
7
8
9
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Arizona
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Economic Output
REAL GDP LEVEL (RATIO TO 2000 Q4) WHAT THE CHART SHOWS:
The figure illustrates the evolution of real
GDP of the state and the overall US
economy since the fourth quarter of 2000,
the peak of the previous business cycle—
that is, at any point in time the lines trace the
ratio of real GDP to its level in 2000 Q4.
Despite Arizona’s real estate recession, the
state’s real GDP has expanded faster than
the nation’s over the past decade.
The state’s real GDP has recovered to the
pre-recession level.
KEY MESSAGES:
Arizona’s economy is progressing quite well.
Source: US Department of Commerce. Updated through
2013 (state) and 2014 Q3 (US). Quarterly estimates for
states after 2012 are interpolated from employment
figures (through Octoer 2014), based on the historical
correlation of state and national employment changes.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 118
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
1.50
1.55
1.60
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Arizona
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Employment Growth
NONFARM PAYROLL EMPLOYMENT (PERCENT CHANGE FROM 12 MONTHS EARLIER) WHAT THE CHART SHOWS:
A comparison of job growth in Arizona
versus the nation.
Arizona’s wide swings in employment are
amplified by the volatility of the real estate
sector.
Employment is expanding in line with the
national trends.
KEY MESSAGES:
Arizona’s economy is forecast to match
national economy’s pace.
Source: US Department of Labor. Updated through
October 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 119
-10
-8
-6
-4
-2
0
2
4
6
8
-10
-8
-6
-4
-2
0
2
4
6
8
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
ArizonaUS
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Employment in Relative
Terms
NONFARM PAYROLL EMPLOYMENT (RATIO TO THE 2000 Q4 LEVEL) WHAT THE CHART SHOWS:
The figure illustrates the evolution of
employment in the state compared with the
nation since 2000 Q4, the peak of the
previous business cycle. The lines trace out
the ratio of employment at the time to
employment in 2000 Q4.
Employment grew almost 20% over the
2000s, but lost almost half the decade’s
gains as the housing industry contracted.
Businesses now have recreated or replaced
almost 60 percent of the recession’s job
losses.
KEY MESSAGES:
The job market is forecast to continue to
expand at a steady pace.
Source: US Department of Labor. Updated through
October 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 120
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
1.21
0.97
0.99
1.01
1.03
1.05
1.07
1.09
1.11
1.13
1.15
1.17
1.19
1.21
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Arizona
US
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Employment in Absolute
Terms
NONFARM PAYROLL EMPLOYMENT (THOUSANDS) WHAT THE CHART SHOWS:
The figure illustrates the evolution of
employment in the state compared with the
nation since 2000 Q4, the peak of the
previous business cycle. The lines trace out
the ratio of employment at the time to
employment in 2000 Q4.
KEY MESSAGES:
The steady upward trajectory of the job
count points to continued economic strength
in the near future.
Source: US Department of Labor. Updated through
October 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 121
122,500
125,000
127,500
130,000
132,500
135,000
137,500
140,000
142,500
145,000
147,500
150,000
2,350
2,400
2,450
2,500
2,550
2,600
2,650
2,700
2,750
2,800
2,850
2,900
2,950
3,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
US (right scale)Arizona (left scale)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Intrastate Employment
NONFARM PAYROLL EMPLOYMENT IN SELECTED COMMUNITIES (RATIO TO 2000 Q4 LEVEL) WHAT THE CHART SHOWS:
Job trends in communities across the state.
Local economic conditions vary widely
across the state and conditions in many
communities are still challenging.
Arizona’s recovery is spreading across the
state.
KEY MESSAGES:
Most communities are on the mend, judging
by trends in employment.
Source: US Department of Labor. Updated through
October 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 122
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
0.90
0.95
1.00
1.05
1.10
1.15
1.20
1.25
1.30
1.35
1.40
1.45
2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
US forecast
US
Yuma
Lake Havasu City
Prescott
Phoenix
Tucson
Anniston
Arizona forecast
Arizona
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Unemployment
UNEMPLOYMENT (PERCENT OF THE LABOR FORCE) WHAT THE CHART SHOWS:
Unemployment in Arizona, compared with
the national trend.
Arizona’s unemployment rate crested around
11 percent, but has fallen back to 7 percent
most recently.
KEY MESSAGES:
The unemployment rate is the single best
indicator of the relative economic
performance of a region.
Despite the drags associated with real estate
excesses in the state, the state’s
unemployment trends have largely paralleled
the national unemployment trends.
Source: US Department of Labor. Updated through
October 2014.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 123
0
1
2
3
4
5
6
7
8
9
10
11
12
0
1
2
3
4
5
6
7
8
9
10
11
12
1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018
Arizona
US (shaded)
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Relative House Prices
RATIO OF THE STATE’S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q2 = 1.0) WHAT THE CHART SHOWS:
The figure tracks the relative price of houses
versus the nation in the state—that is, it
reflects the ratio of the state price index to
the national house price index, with that ratio
set to unity in the summer of 1995. A drop in
the line means that house prices in the state
lag the national trend. States that did not
suffer from speculative conditions saw a
decline in the relative price of houses in this
last decade.
Arizona’s house prices rose 35 percent more
than the national average in the mid-2000s,
but corrected and then some. Arizona’s
house prices have recovered some in the
recent year and are back in normal
alignment with the rest of the nation.
KEY MESSAGES:
Inflated real estate conditions have been
corrected.
Source: FHFA. Updated through 2014 Q3.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 124
0.8
0.9
1.0
1.1
1.2
1.3
1.4
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Relative House Prices
RATIO OF THE STATE’S HOUSE PRICES TO THE NATIONAL AVERAGE (1995 Q2 = 1.0) WHAT THE CHART SHOWS:
Arizona’s house price trends relative to the
national average and versus the Midwest,
the recent origin of many of the state’s new
residents.
Arizona’s markets became much more
expensive relative to Midwest markets but
those inflated conditions now have been
corrected.
KEY MESSAGES:
Arizona’s housing market is inflated no more.
Source: FHFA. Updated through 2014 Q3.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 125
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
0.6
0.7
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Versus the Midwest
Versus the national average
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Real Estate Markets
HOUSE PRICES IN SELECTED COMMUNITIES (RATIO TO THE 1995 Q2 LEVEL) WHAT THE CHART SHOWS:
The figure tracks the cumulative percentage
deviation in house prices since 1995 in
selected local markets and compares those
with the national average.
House prices are beginning to rise.
KEY MESSAGE:
Markets that saw the biggest price increases
have corrected the most and prices now are
beginning to rise.
Sources: FHFA; Standard & Poor’s. Updated through
2014 Q3.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 126
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
US
Flagstaff
Tucson
Phoenix
Yuma
Phoenix (Case-Shiller)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
New Home Building
HOUSING STARTS (RATIO TO THE JULY 1990 LEVEL) WHAT THE CHART SHOWS:
The figure illustrates homebuilding in Arizona
versus the rest of the nation.
Home building activity is beginning to
rebound.
KEY MESSAGES:
Given the huge footprint of the real estate
industry in the state, trends in home building
will offer important clues to the outlook.
The modest recovery in housing construction
implies the real estate sector is beginning to
normalize.
Source: Census Department. Updated through
September 2014 (state) and October 2014 (US).
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 127
0
1
2
3
4
5
0
1
2
3
4
5
2000 2003 2006 2009 2012 2015
USArizona
Forecast
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
Office Markets
PERCENT OF OFFICE SPACE THAT IS VACANT WHAT THE CHART SHOWS:
Office vacancy rates in Arizona, compared
with the national office vacancy rate.
Commercial real estate conditions seem to
be stabilizing in Tucson and are improving in
Phoenix.
KEY MESSAGES:
Office markets are a barometer of the state’s
economic health and at least conditions
appear to be stabilizing.
Source: CB Richard Ellis (formerly CB Commercial
Property Information Systems), Office Vacancy Index of
the United States. Updated through 2014 Q3.
December 3, 2014
Regional Perspectives: Arizona Economic Outlook
Commercial Banking 128
0
5
10
15
20
25
30
0
5
10
15
20
25
30
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
PhoenixTucson
All metropolitan areas (shaded area)
Full Employment or Bust
Global Economic Outlook Issues, 51st Annual Economic Forecast Luncheon, Chase-W. P. Carey School of Business, Arizona State University, Phoenix, Arizona, December 3, 2014.
CONTACT:
James E. Glassman
Telephone: (212) 270-0778
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