Thornberg 2010 OC Forecast

8/9/2019 Thornberg 2010 OC Forecast

1/19

12/16/20

The A li c e The A li c e

EconomyEconomy

ChristopherThornbergChristopherThornberg

Principal,BeaconEconomicsPrincipal,BeaconEconomics

Will the real economy stand up?Will the real economy stand up?Thegreatdownturnof08Thegreatdownturnof080909 Thecauses:thebigthreeimbalances:housing,finance,andthe

consumer

Wherearewenow?Wherearewenow? Thegoodnews:Therecessionisover

Thebadnews:wehaventactuallyfixedtheproblems,insteadthe

economyisbeingdrivenbygovernmentpolicy

Theworsenews:governmentpolicyiscausingitsownsetofproblems:

publicdebtandthepotentialforinflation

Whatnext?Whatnext?

Fundamentalssayweakrecoveryandadoubledipin2011

Policychoicesandfinancialmarketscanalterthissubstantially

Thebestadvice:enjoythestability,butbecautiousaboutthefuture


2/19

12/16/20

08-II 09-II Ch Cont.GDP 13415 12901 -3.8%

Personal consumption 9351 9189 -1.7% -1.2%

Worst 4 QuarterContractions

urable goo s 1175 1071 -8.8 -0.8

Nondurable goods 2081 2025 -2.7% -0.4%

Services 6092 6078 -0.2% -0.1%

Gross investment 2026 1456 -28.1% -4.2%Structures 493 400 -18.9% -0.7%

Equipment software 1097 876 -20.2% -1.6%

Residential 462 344 -25.6% -0.9%

Net exports -476 -330 1.1%Exports 1670 1419 -15.0% -1.9%

2009II 3.8%

1958I 3.0%

1982III 2.7%

1954II 2.5%

1975I 2.3%

1980III 1.6%Imports 2146 1749 -18.5% -3.0%

Government 2506 2568 2.5% 0.5%

National defense 645 695 7.7% 0.4% Nondefense 315 328 3.9% 0.1%

State and local 1546 1548 0.1% 0.0%

Total Inventories 1835.5 1750.2 -4.6%

1961I 1.0%

1991

I

1.0%1970IV 0.2%

RealConsumerSpending(YoY

%toAug) CALIFORNIA -22.9%LOS ANGELES -22.6%

Taxable Sales Q2 from Peak

2%

4%

6%

- .

SAN DIEGO -20.2%

RIVERSIDE -30.6%

SAN BERNARDINO -28.2%

ALAMEDA -26.3%

CONTRA COSTA -21.9%

SAN FRANCISCO -21.1%

SAN MATEO -24.5%

MARIN -21.9%

SANTA CLARA -27.0%

2%

1960

Jan

1963

Jan

1966

Jan

1969

Jan

1972

Jan

1975

Jan

1978

Jan

1981

Jan

1984

Jan

1987

Jan

1990

Jan

1993

Jan

1996

Jan

1999

Jan

2002

Jan

2005

Jan

2008

Jan

SAN BENITO -29.0%

SONOMA -26.9%

SACRAMENTO -26.8%

EL DORADO -22.5%

PLACER -27.9%

YOLO -20.0%


3/19

12/16/20

8.0%

RealIncome

Growth

(PerCapita,YoY)00

PayrollJob

Losses

0.0%

2.0%

4.0%

6.0%

1000

800

600

400

200

6000

5000

4000

3000

2000

4.0%

2.0%

1960

I

1964

I

1968

I

1972

I

1976

I

1980

I

1984

I

1988

I

1992

I

1996

I

2000

I

2004

I

2008

I

12008000

7000

Jul07

Nov

07

Mar08

Jul08

Nov

08

Mar09

Jul09

US CA

Jan-08 Sep-09

Riverside-San Bernardino-Ontario MSA 1,256,600 1,139,700 -9.3% -116,900

Santa Rosa-Petaluma MSA 190 300 176 400 -7 3% -13 900 , , . ,

Oxnard-Thousand Oaks-Ventura MSA 294,700 274,500 -6.9% -20,200

Santa Ana-Anaheim-Irvine Metro Div 1,513,000 1,417,500 -6.3% -95,500

Oakland-Fremont-Hayward Metro Div 1,046,400 981,500 -6.2% -64,900

San Francisco-San Mateo-Redwood City Metro Div 998,300 945,100 -5.3% -53,200

San Jose-Sunnyvale-Santa Clara MSA 919,900 870,900 -5.3% -49,000

Los Angeles-Long Beach-Glendale Metro Div 4,095,800 3,879,600 -5.3% -216,200

Stockton MSA 208,500 197,700 -5.2% -10,800

San Diego-Carlsbad-San Marcos MSA 1,308,400 1,240,900 -5.2% -67,500

Modesto MSA 159,000 150,800 -5.2% -8,200

Salinas MSA 128,800 123,000 -4.5% -5,800

Santa Barbara-Santa Maria-Goleta MSA 174,100 168,400 -3.3% -5,700

Bakersfield MSA 238,000 231,300 -2.8% -6,700


4/19

12/16/20

HousingHousing

170

CATaxable

Sales

Index

decrease

Subprimecentral

ExportsExports

Goods/tourism/ 110120

130

140

150

BusinessSpendingBusinessSpending

TheITindustry80

90

Q1

98

Q2

99

Q3

00

Q4

01

Q1

03

Q2

04

Q3

05

Q4

06

Q1

08

Q2

09

6

GDPGrowth2009III Avg

Grossdomesticproduct 2.80 2.75

4

2

0

2

4 . .

Durablegoods 1.34 0.44

Nondurablegoods 0.26 0.38

Services 0.47 1.23

Grossprivatedomesticinvestment 0.91 0.33

Structures 0.55 0.01

Equipmentandsoftware 0.15 0.38

Residential 0.45 0.01

Changeinprivateinventories 0.87 0.05

86

e expor so goo san serv ces . .

Exports 1.71 0.55

Imports 2.53 0.60

Governmentconsumption 0.63 0.42

Nationaldefense 0.48 0.07

Nondefense 0.17 0.06

Stateandlocal 0.02 0.29


5/19

12/16/20

95

CapacityUtilization

to

Oct

600

ManufacturingOrders

and

InventoriestoOctober

75

80

85

90

400

450

500

550

65

70

Jan

67

Jan

71

Jan

75

Jan

79

Jan

83

Jan

87

Jan

91

Jan

95

Jan

99

Jan

03

Jan

07

300

350

Jan

05

Jul05

Jan

06

Jul06

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

Orders Inventories

17

AutoSalesSAARtoNov

315

RetailSalesxAutotoOct

10

11

12

13

14

15

280

285

290

295

300

305

8

9

Jan

07

May

07

Sep

07

Jan

08

May

08

Sep

08

Jan

09

May

09

Sep

09

270

275

Jan

07

May

07

Sep

07

Jan

08

May

08

Sep

08

Jan

09

May

09

Sep

09


6/19

12/16/20

700

InitialClaims

and

Recession

EndingPoints 11

Unemploymentto

Nov

300

350

400

450

500

550

600

650

5

6

7

8

9

200

250

1/6/1979

1/6/1983

1/6/1987

1/6/1991

1/6/1995

1/6/1999

1/6/2003

1/6/2007

4

Jan

04

Aug

04

Mar

05

Oct

05

May

06

Dec

06

Jul

07

Feb

08

Sep

08

Apr

09

Nov

09

US SumStates

400

MonthlyChange

Oct to Nov Prev Year Diff

Administrative and waste services 87.0 -49.7 136.7

By Sector

400

200

0

200 Manufacturing -41.0 -126.2 85.2Construction -27 .0 -89 .9 62.9

Retail trade -14 .5 -47 .9 33.4

Financial Activities -10 .0 -32 .9 22.9

Professional and technical services 1.2 -21.5 22.7

Transportation and Utilities -7.7 -23.6 15.9

Wholesale trade -11 .7 -22 .4 10.7

Other Services -3.0 -12.9 9.9

Government - Local government 1.0 -8.7 9.7

Educational services 11.1 2.8 8.3

- -

800

600

Jan

07

May

07

Sep

07

Jan

08

May

08

Sep

08

Jan

09

May

09

Sep

09

. . .

Government - State government 5.0 -0.8 5.8

Management of companies -1.9 -6.4 4.5

Arts; entertainment; and recreation -1.6 -4.1 2.5

Health care and social assistance 28.1 31.1 -3.0

Information -17.0 -12.9 -4.1

Government - Federal 1.0 5.8 -4.8


7/19

12/16/20

1320

Payrolls11

Unemployment

1260

1270

1280

1290

1300

6

7

8

9

10

1230

1240

1250

Jan

05

Jul05

Jan

06

Jul06

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

3

4

Jan

05

Jul05

Jan

06

Jul06

Jan

07

Jul07

Jan

08

Jul08

Jan

09

Jul09

220

CaseShiller20CityIndex

$600,000

SanDiegoMedianPrices

140

160

180

200

$300,000

$350,000

$400,000

$450,000

$500,000

$550,000

100

120

Jan

01

Dec

01

Nov

02

Oct03

Sep

04

Aug

05

Jul06

Jun

07

May

08

Apr09 $150,000

$200,000

$250,000

Q1

98

Q2

99

Q3

00

Q4

01

Q1

03

Q2

04

Q3

05

Q4

06

Q1

08

Q2

09


8/19

12/16/20

A ?

160003000

USEquityMarkets

600

30DayA2/P2 DailyAA(BPs)

6000

8000

10000

12000

14000

1000

1500

2000

2500

100

200

300

400

500

4000500

3Jan06

3Jun06

3Nov06

3Apr07

3Sep07

3Feb08

3Jul08

3Dec08

3May09

3Oct09

Nasdaq S&P500 DJIA

0

2005

01

03

2005

04

20

2005

08

05

2005

11

22

2006

03

09

2006

06

26

2006

10

11

2007

01

26

2007

05

15

2007

08

30

2007

12

17

2008

04

02

2008

07

18

2008

11

04

2009

02

19

2009

06

09


9/19

12/16/20

Log Changes, Source: Dataquick / Bureau LaborStatistics / Beacon Economics

1997 to PeakPeak toTroughCurrent Rally Sum

California 95.6% -89.4% 6.4% 12.6%

Contra Costa 95.6% -105.7% 10.6% 0.4%

San Bernardino 114.5% -107.0% 2.0% 9.5%

Riverside 112.9% -93.3% 2.7% 22.4%

Sac (MSA) 93.9% -75.9% 5.9% 23.9%

Sonoma 89.1% -69.2% 8.3% 28.2%

Alameda 92.6% -76.3% 13.3% 29.6%

San Jose 80.2% -60.2% 15.8% 35.8%

Los Angeles 102.7% -69.3% 5.2% 38.6%

San Mateo 78.5% -42.6% 8.0% 43.9%

Marin 72.5% -37.5% 9.2% 44.2%

San Diego 98.5% -61.5% 7.8% 44.8%

Orange County 97.5% -51.1% 9.7% 56.2%

San Fran. (County) 89.2% -32.6% 5.6% 62.2%

9

InterestRates

n eres a esn eres a es

TheFHATheFHA

HopeforHopeforHomeownersHomeowners

4

5

6

7

8

2

Jan

97

Jan

98

Jan

99

Jan

00

Jan

01

Jan

02

Jan

03

Jan

04

Jan

05

Jan

06

Jan

07

Jan

08

Jan

09

Mortgage USTreasury


10/19

12/16/20

50.0%

60.0%%purchaseloansFHAinsuredbycounty

20.0%

30.0%

40.0%Riverside

Sacramento

ContraCosta

LosAngeles

SanDiego

0.0%

10.0%

Jan

06

Apr06

Jul06

Oct06

Jan

07

Apr07

Jul07

Oct07

Jan

08

Apr08

Jul08

Oct08

Jan

09

Apr09

Jul09

12

14

30

60+byType

4

6

8

10

OngoingForeclosure

NewForeclosure

60to90Days

5

10

15

20

25

0

2

Q1

79

Q3

81

Q1

84

Q3

86

Q1

89

Q3

91

Q1

94

Q3

96

Q1

99

Q3

01

Q1

04

Q3

06

Q1

09

0

Q1

98

Q1

99

Q1

00

Q1

01

Q1

02

Q1

03

Q1

04

Q1

05

Q1

06

Q1

07

Q1

08

Q1

09

Prime FHAVA Subprime


11/19

12/16/20

16

MBAfor

California

10000

SanDiego

Defaults

and

Foreclosures

2

4

6

8

10

12

3000

4000

5000

6000

7000

8000

9000

0

Q1

79

Q2

81

Q3

83

Q4

85

Q1

88

Q2

90

Q3

92

Q4

94

Q1

97

Q2

99

Q3

01

Q4

03

Q1

06

Q2

08

60+Delinquent NewForeclosure

ExistingForeclosure

0

1000

2000

Q1

02

Q4

02

Q3

03

Q2

04

Q1

05

Q4

05

Q3

06

Q2

07

Q1

08

Q4

08

Q3

09

NOD TD

2500

HousingStartstoOct

1000

SFPermits:SanDiego

County

1000

1500

2000

200

300

400

500

600

700

800

900

0

Jan

03

Oct03

Jul04

Apr05

Jan

06

Oct06

Jul07

Apr08

Jan

09

Oct09

0

100

Jan

02

Dec

02

Nov

03

Oct04

Sep

05

Aug

06

Jul07

Jun

08

May

09


12/19

12/16/20

22%Office

Vacancies

12

13

Price/Asking

Rent

(PSF)

Office

12%

14%

16%

18%

7

8

9

10

11

10%

2003Q1

2003Q3

2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

LasVegas Orange

5

2003Q1

2003Q3

2004Q1

2004Q3

2005Q1

2005Q3

2006Q1

2006Q3

2007Q1

2007Q3

2008Q1

2008Q3

2009Q1

LasVegas Ora nge

Apartment Office

Rents Vacancy Rents Vacancy

Q3 07 to Q3 09

Orange County 1,621.4 1,472.0 -9.2% 3.9% 7.9% 29.6 24.1 -18.6% 14.3% 21.2%

San Diego 1,494.7 1,429.4 -4.4% 3.6% 6.2% 30.1 26.4 -12.4% 12.8% 19.9%

San Francisco 1,879.5 1,812.9 -3.5% 4.4% 5.9% 35.0 30.0 -14.2% 14.1% 19.8%

San Jose 1,667.2 1,504.6 -9.8% 5.0% 7.7% 31.3 29.8 -4.8% 14.4% 23.0%

Hotels Retail

Rents Vacancy Rents Vacancy

Orange County 214.1 173.1 -19.1% 72.4% 64.0% 25.0 21.9 -12.4% 3.5% 10.9%

San Diego 224.0 175.7 -21.6% 72.4% 63.6% 24.7 22.5 -9.1% 2.9% 10.1%

San Francisco 143.2 125.1 -12.6% 74.3% 71.1% 28.1 26.8 -4.8% 4.6% 10.8%

San Jose 126.7 96.4 -23.9% 68.8% 57.0% 23.7 22.3 -5.5% 10.9% 18.4%


13/19

12/16/20

7

8

BankHealth

2650

ConsumerCredit

1

2

3

4

5

6

2300

2350

2400

2450

2500

2550

0

1985Q1

1986Q4

1988Q3

1990Q2

1992Q1

1993Q4

1995Q3

1997Q2

1999Q1

2000Q4

2002Q3

2004Q2

2006Q1

2007Q4

2009Q3

Delinquencyrateonallloans

Chargeoffrateonallloans

2200

2250

Jan

05

Sep

05

May

06

Jan

07

Sep

07

May

08

Jan

09

Sep

09

1.4

DebtasShareofGDPNationalPERatio

(Assets/GDP)

0.4

0.6

0.8

1

1.2

4

4.5

5

5.5

0

0.2

1952Q1

1956Q3

1961Q1

1965Q3

1970Q1

1974Q3

1979Q1

1983Q3

1988Q1

1992Q3

1997Q1

2001Q3

2006Q1

Financial Other

3

3.5

1952Q1

1957Q1

1962Q1

1967Q1

1972Q1

1977Q1

1982Q1

1987Q1

1992Q1

1997Q1

2002Q1

2007Q1


14/19

12/16/20

TheproblemTheproblem

isnotfattails,badmath,blackswansorevenwhite

isoneofincentives:bigbonusesforshortrunscores

ThesolutionThesolution

isnotmarketbasedsincethisreliesonefficientmarkets

isnotthecurrent acka e utforwardb the resident

iswhattheFedisproposing

Butwhat

about

financial

innovation?But

what

about

financial

innovation?

LikeLTCM,S&Lderegulation,dotbombs,junkbondsandassetbackedsecurities?

2.1

MonetaryBaseandExcess

Reserves

14.0%

16.0%

2YrGrowthtoNov

0.9

1.1

1.3

1.5

1.7

1.9

4.0%

6.0%

8.0%

10.0%

12.0%

.

Jan

06

Jun

06

Nov

06

Apr07

Sep

07

Feb

08

Jul08

Dec

08

May

09

Oct09

MonetaryBase

MonetaryBase ExcessReserves

0.0%

.

Jan

62

May

67

Sep

72

Jan

78

May

83

Sep

88

Jan

94

May

99

Sep

04

M2 Prices


15/19

12/16/20

0%71%

ShareofGDP

Consumers

9%

Savingsas

Share

DPI

5%

4%

3%

2%

1%

66%

67%

68%

69%

70%

3%

4%

5%

6%

7%

7%

6%

64%

65%

1989

I

1991

I

1993

I

1995

I

1997

I

1999

I

2001

I

2003

I

2005

I

2007

I

e ra e

0%

1%

2%

1986

I

1988

I

1990

I

1992

I

1994

I

1996

I

1998

I

2000

I

2002

I

2004

I

2006

I

$75014%

PrivateSavingsandRealHousehold

GrossWorth1.3

DebttoIncomeRatio

$400

$450

$500

$550

$600

$650

$700

4%

6%

8%

10%

12%

0.6

0.7

0.8

0.9

1

1.1

.

$300$350

0%

1970Q1

1973Q2

1976Q3

1979Q4

1983Q1

1986Q2

1989Q3

1992Q4

1996Q1

1999Q2

2002Q3

2005Q4

2009Q1

Savings HouseholdWealth

0.4

0.5

1960Q1

1964Q1

1968Q1

1972Q1

1976Q1

1980Q1

1984Q1

1988Q1

1992Q1

1996Q1

2000Q1

2004Q1

2008Q1


16/19

12/16/20

9500

RealSpending

1993II 2008I 2009III

9000

9100

9200

9300

9400 RealIncome 7069 11246 10912

Savings 386 117 333

5.5% 1.0% 3.0%

Consumption 5671 9350 9265

80% 83% 85%

8800

8900

2006

Jan

2006

May

2006

Sep

2007

Jan

2007

May

2007

Sep

2008

Jan

2008

May

2008

Sep

2009

Jan

2009

May

2009

Sep

Taxes 816.9 1418.7 979.3

11.6% 12.6% 9.0%

Consumption

PercentIncometoOct16.0%

TaxesandSavings

PercentIncome,toOct

78.0%

80.0%

82.0%

84.0%

.

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

72.0%

74.0%

.

Jan

80

Jan

83

Jan

86

Jan

89

Jan

92

Jan

95

Jan

98

Jan

01

Jan

04

Jan

07

0.0%2.0%

Jan

80

May

83

Sep

86

Jan

90

May

93

Sep

96

Jan

00

May

03

Sep

06

Taxes Savings


17/19

12/16/20

16%

Drivers(%Income)

4.0%

GDPGrowth

2%

4%

6%

8%

10%

12%

14%

4.0%

2.0%

0.0%

2.0%

0%

1995Q

1

1996Q

4

1998Q

3

2000Q

2

2002Q

1

2003Q

4

2005Q

3

2007Q

2

2009Q

1

2010Q

4

2012Q

3

2014Q

2

Savings Taxes

8.0%

6.0%

2008Q1

2008Q3

2009Q1

2009Q3

2010Q1

2010Q3

2011Q1

2011Q3

2012Q1

2012Q3

PositivePotentialChangesPositivePotentialChanges Strongexportgrowth RealValue$USOITP

rongrecovery n us nessspending

PotentialPolicyChangesPotentialPolicyChanges Extendtaxcuts/morestimulus

ANewBubble?ANewBubble? Savingsratesstallatlowerlevel Realdoubledip? 100

105

110

115

120

125

FedpolicyFedpolicy

WillweaklabormarketsforcetheFedtomaintainexcessivelyloosepolicy?

90

Jan

91

Feb

93

Mar95

Apr97

May

99

Jun

01

Jul03

Aug

05

Sep

07


18/19

12/16/20

LongrunLongrun

StatehasgrownfasterthantheUSsince1994intermsofGSP,Income,Emp oymentan Popu ation

EverysectorhasgrownfasterexceptAdminSupport,Mgmt,andLogistics

OnthebackendofthedownturnOnthebackendofthedownturnAweaker$US:goodforexportheavyCA

eaper omes

But

dont

expect

a

fast

recoveryBut

dont

expect

a

fast

recovery

It doesnt get muchmore business-

unfriendly than this!


19/19

12/16/20

SummarySummaryThe

Recession

is

Dead

Long

Live

the

Recession!The

Recession

is

Dead

Long

Live

the

Recession!

Consumerweaknesswilllikelycontinue

Businessesareawi car

Housingclosetobottom,butnobounce

Banksnotoutofthewoodsyet

Commercialtroubletocontinue

Significantchanceofadoubledip

HigherRatescomingdownthepike

ItsnotpermanentItsnotpermanent

Itsjust

going

to

take

some

timePATIENCE!!

Californiawillbestrongeratthebackend

ButisthisanothertransitionfortheUSLaborforce?

Anal sis. Answers.

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Thornberg 2010 OC Forecast

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