John Silvia, Corrected Version Dec 0704
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John Silvia – Chief Economist October 2, 2003 The Economic Outlook in the Post 9/11 World Presentation to: Global Interdependence Center 22 nd Annual International Monetary & Trade Conference
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John Silvia – Chief Economist October 2, 2003 Presentation to: Global Interdependence Center 22 nd Annual International Monetary & Trade Conference •Open Capital Account •1997 Thailand •1999 Brazil, Ecuador •2001 Argentina Post 9/11 •Containment to Pre-emption Containment to Pre-Emption More Insular World 30% 25% 20% 15% 10% 30% 25% 20% 5% 5% U.S. Recession 8% 6% 4% 2% 0% 8% 6% 4% -2% -2% Quarter/Quarter Percent Change, Seasonally Adusted Annual Rate
Transcript of John Silvia, Corrected Version Dec 0704
John Silvia – Chief EconomistOctober 2, 2003
The Economic Outlook in the Post 9/11 World
Presentation to: Global Interdependence Center22nd Annual International Monetary & Trade Conference
Post 9/11• Containment to Pre-emption
Pre 9/11 BreakdownValue of Washington Consensus
• Open Capital Account• 1997 Thailand• 1999 Brazil, Ecuador• 2001 Argentina
Containment to Pre-Emption
More Insular World
0096928884807672686460
30%
25%
20%
15%
10%
5%
30%
25%
20%
15%
10%
5%
Exports + Imports as a Percent of Real GDP
U.S. Recession
20032002200120001999
8%
6%
4%
2%
0%
-2%
8%
6%
4%
2%
0%
-2%
REAL GDP GROWTHQuarter/Quarter Percent Change, Seasonally Adusted Annual Rate
2nd Quarter 2003@ 3.3%
03020100999897
15%
10%
5%
0%
-5%
-10%
15%
10%
5%
0%
-5%
-10%
FINAL DOMESTIC DEMAND COMPONENTS(Year-on-Year Growth)
Blue Line = Consumer Spending @ 2.9%
Red Line = Government Spending @ 4.1%
Green Line = Business Fixed Investment @ 2.7%
2Q 2003
030199979593918987
6%
5%
4%
3%
2%
1%
0%
-1%
6%
5%
4%
3%
2%
1%
0%
-1%
INCOME & SPENDING GROWTHYear to Year Percent Change, 12 Month Moving Average
AugustReal Spending (Green Line) @ 2.9%Real, Disposable Income (Blue Line) @ 3.1%
0302010099989796959493
20%
10%
0%
-10%
-20%
-30%
20%
10%
0%
-10%
-20%
-30%
MANUFACTURERS' NEW CAPITAL GOODS ORDERSNON-DEFENSE, EXCLUDING AIRCRAFT
August
Year-to-Year Percent Change @ 5.6%
Series is a 3-Month Moving Average
200320022001
10%
5%
0%
-5%
-10%
-15%
-20%
10%
5%
0%
-5%
-10%
-15%
-20%
REAL BUSINESS EQUIPMENT & SOFTWARE SPENDINGSeasonally Adusted Annual Rate
2nd Quarter 2003@ 8.3%
Drop in Productivity?
030201009998
6%
4%
2%
0%
-2%
-4%
6%
4%
2%
0%
-2%
-4%
PRODUCTIVITY AND UNIT LABOR COSTS (TOTAL NON-FARM)Yr-to-Yr Percent Change (4 Qtr. Moving Average)
2nd Qtr.
Productivity @ 4.3%
Unit Labor Cost @ -1.4%
(Blue Line)
(Green Line)
Q4Q3Q2Q1Q4Q3Q2Q1Q4Q3Q2
7%
6%
5%
4%
3%
2%
1%
0%
-1%
7%
6%
5%
4%
3%
2%
1%
0%
-1%
NON-FARM PRODUCTIVITY and REAL GDPYear-over-Year Percent Change
Bars = Non-Farm Productivity, 2Q @ 4.1%
Line = Real GDP, 2Q @ 2.5%
2001 2002 2003
Higher Interest Rates, Less Risk Taking.
03020100999897
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
1.80
1.70
1.60
1.50
1.40
1.30
1.20
1.10
AA CORPORATE BOND YIELD/10-YEAR TREASURY
2003200220012000
2.00
1.80
1.60
1.40
1.20
2.00
1.80
1.60
1.40
1.20
BAA CORPORATE BOND YIELD/10-YEAR TREASURY YIELD
2003200220012000199919981997
7%
6%
5%
4%
3%
2%
1%
7%
6%
5%
4%
3%
2%
1%
BB Corporate Bond Yield Spread(O ver 10-Year Treasury)
Lines = Russia and Worldcom
Weaker Dollar
Easy Strong Dollar Rhetoric 1990s
• Economy Strong• Relative Return on Assets Large• Was There Deliberate Policy?
Today?
0302010099
115
110
105
100
95
1.20
1.10
1.00
0.90
0.80
Inde
x Euro/$REAL FED DOLLAR INDEX VS. EURO
Blue Line = Real Fed Dollar Index, left scaleGreen Line = Euro, right scale
20032002200120001999
250
200
150
100
50
0
-50
-100
250
200
150
100
50
0
-50
-100
Basi
s Po
ints
Basis PointsU.S.-EU INTEREST RATE DIFFERENTIALS
Blue Line = 10-Yr Government BondGreen Line = BBB Corporate Bond
0302010099
115
110
105
100
95
1.65
1.60
1.55
1.50
1.45
1.40
1.35
1.30
Inde
x C$/$REAL FED DOLLAR INDEX VS. CANADIAN DOLLAR
Blue Line = Real Fed Dollar Index, left scaleGreen Line = Canadian Dollar, right scale
0302010099
115
110
105
100
95
11.5
11.0
10.5
10.0
9.5
9.0
8.5
Inde
x MXN/$
REAL FED DOLLAR INDEX VS. MEXICAN PESOBlue Line = Real Fed Dollar Index, left scaleGreen Line = Mexican Peso, right scale
0302010099989796
$500
$450
$400
$350
$300
$250
$200
$150
$500
$450
$400
$350
$300
$250
$200
$150
JAPANESE FOREIGN EXCHANGE RESERVESIn Billions of Dollars
Weaker Dollar Policy Target?
• Devaluation – But Not Too Much• Against Whom & When?
Instruments?• Foreign Central Banks Undertake Dollar Devaluation Not the Fed.
Dollar Policy• Bush I Brady 1989• Bush II Snow 2004?
Public Policy:• Monetary Policy• Fiscal Policy
030201009998979695949392
12%
10%
8%
6%
4%
2%
0%
-2%
12%
10%
8%
6%
4%
2%
0%
-2%
REAL FEDERAL FUNDS RATEVS. M2 MONEY GROWTH
Green Line = Real Fed Funds Rate*,Blue Line = M2 Growth, Yr/Yr % Change, August @ 8.1%
* Fed Funds Rate minus "Core" Consumer Price Index
August @ - 0.3%
030199979593918987
23%
22%
21%
20%
19%
18%
17%
16%
15%
23%
22%
21%
20%
19%
18%
17%
16%
15%
FEDERAL SPENDING vs. REVENUEAs Percent of GDP
August '03
16.3%
SPENDING
REVENUE
19.5%
Latest 12 months:
Spending $ 2,141 TrillionRevenue $ 1,783 Trillion
(Blue Line)
(Green Line)
Financial Face of Recovery
020098969492908886848280
15%
14%
13%
12%
11%
15%
14%
13%
12%
11%
HOUSEHOLD DEBT SERVICETotal Monthly Payments as Percent of Disposable Income
1st Qtr. '0313.99%
030199979593918987
8%
6%
4%
2%
0%
8%
6%
4%
2%
0%Source: Federal Reserve Board
DELINQUENCY RATESPercent of Average Loans, Seasonally Adjusted
Blue Line = Real Estate LoansGreen Line = Consumer Loans
2Q 2003
030201009998979695949392919089
$1100
$1000
$900
$800
$700
$600
$500
$400
$1100
$1000
$900
$800
$700
$600
$500
$400
NET CASH FLOW WITH INVENTORY &CAPITAL CONSUMPTION ADJUSTMENTS
2Q 2003@ $ 1,035.5 B
In Billions of Dollars
020100999897
$400
$300
$200
$100
$0
$400
$300
$200
$100
$0
PRIVATE CAPITAL INFLOWS INTO U.S.In Billions of Dollars
Blue Bar = FDIGreen Bar = Portfolio
Capital Flows: European Tension
• Ownership of Stocks• Pace of FDI Flows
Capital Sanctions Rather Than Trade Sanctions?
• Trade Liberalization – Agriculture & Service
OtherWesternAsiaEurope
80%
60%
40%
20%
0%
80%
60%
40%
20%
0%
PHYSICAL ASSETS OWNED BY FOREIGNERSPercent of Total
Hemisphere
OtherNetherlandsFranceGermanyU.K.
30%
25%
20%
15%
10%
5%
0%
30%
25%
20%
15%
10%
5%
0%
INFLOWS OF FOREIGN DIRECT INVESTMENTPercent of Total, 1997-2001
02010099989796959493929190
$100
$0
$-100
$-200
$-300
$-400
$-500
$-600
$100
$0
$-100
$-200
$-300
$-400
$-500
$-600
EXTERNAL INDICATORSIn Billions of Dollars
Blue Line = Current Account DeficitGreen Line = National Savings
Less Domestic Investment
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