The Economic Roller Coaster: Where Have We Been? And Where Are We Going? Thomas F. Siems, Ph.D. Senior Economist and Director of Economic Outreach Federal Reserve Bank of Dallas Economic Summit Dallas Fed June 12, 2012 The views expressed are those of the speaker and should not necessarily be attributed to the Federal Reserve Bank of Dallas or the Federal Reserve System.
The US Economic Roller Coaster Where have we been? What s different about the most recent recession and recovery? How does our region compare? What s different regionally vs. nationally? Where are we going? What are the risks to the recovery?
The US Economic Roller Coaster Where have we been? What s different about the most recent recession and recovery? How does our region compare? What s different regionally vs. nationally? Where are we going? What are the risks to the recovery?
Anatomy of the Business Cycle The Business Cycle: An economic roller coaster of fluctuations ti in aggregate economic activity Recessions: Peak to Trough Expansions: Trough to Peak Long-run GDP growth rate: ~3% per year
A Economic Roller Coaster Bar Code? 1855 1858 1862 1866 1870 1874 1878 1882 1886 1890 1894 1898 1902 1905 1909 1913 1917 1921 1925 1929 1933 1937 1941 1945 1949 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 1999 2003 2007 2011
U.S. Business Cycle Black = Months in Contraction (Recession) 1855 1858 1862 1866 1870 1874 1878 1882 1886 1890 1894 1898 1902 1905 1909 1913 1917 1921 1925 1929 1933 1937 1941 1945 1949 1952 1956 1960 1964 1968 1972 1976 1980 1984 1988 1992 1996 1999 2003 2007 2011
Winston s Wisdom #1 Winston Churchill It has been said that democracy is the worst form of government except all the others that have been tried.
Length of Recessions 2007-09 18 2001 1990-91 8 8 1981-82 16 1980 6 1973-75 16 1969-70 1960-6161 10 11 1957-58 8 1953-54 1948-49 10 11 1945 8 1937-38 13 1929-33 43 0 5 10 15 20 25 30 35 40 45 50 Months
Depth of Recessions 0 1929 1937 1945 1949 1953 1957 1960 1970 1974 1980 1981 1990 2001 2008-5 -10-15 -20-25 -30
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Death of the 2008 Recession Billions, 2005 $ 13500 2011:Q3 new all-time high 13000 12500 Real GDP -5.1% 9 quarters 12000 11500 11000 10500 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
GDP Roller Coaster 111 109 107 NBER Recession Peak = 100 Range for 6 Recessions from 1953-1982 105 103 101 99 97 95 93-3 0 3 6 9 12 15 Peak Quarters from Peak
GDP Roller Coaster 111 109 107 NBER Recession Peak = 100 Range for 6 Recessions from 1953-1982 105 103 101 99 1991 Recession 97 95 93-3 0 3 6 9 12 15 Peak Quarters from Peak
GDP Roller Coaster 111 109 107 NBER Recession Peak = 100 Range for 6 Recessions from 1953-1982 105 103 101 99 2001 Recession 1991 Recession 97 95 93-3 0 3 6 9 12 15 Peak Quarters from Peak
GDP Roller Coaster 111 109 107 NBER Recession Peak = 100 Range for 6 Recessions from 1953-1982 105 103 101 99 2001 Recession 1991 Recession 97 95 2008 Recession 93-3 0 3 6 9 12 15 Peak Quarters from Peak
J b Still a Long Jobs: L Way W to t Go! G! 139000 Payroll Employment (in Thousands) 137000-3.6% 135000-6.4% 133000 131000 May 12 133 099 133,099 129000 127000 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12
Jobs Roller Coaster: Typical Cycles 109 107 105 Range for 6 Recessions from 1953-1982 103 101 99 97 95 93-3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Peak Months from Peak
Jobs Roller Coaster 109 107 105 Range for 6 Recessions from 1953-1982 103 101 1991 Recession 99 97 95 93-3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Peak Months from Peak
Jobs Roller Coaster 109 107 105 Range for 6 Recessions from 1953-1982 103 101 1991 Recession 99 97 2001 Recession 95 93-3 -1 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Peak Months from Peak
Jobs Roller Coaster 109 107 105 Range for 6 Recessions from 1953-1982 103 101 1991 Recession 99 97 2001 Recession 95 93 2008 Recession -3-1 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 Peak Months from Peak
Why Such a Sluggish Recovery? Average contribution to real GDP growth over 9 quarters 5 Three prior recoveries 4 40 4.0 3 2.6 2 1 1.0 0.5 05 0.5 0-1 Real GDP PCE Nonresidential investment Residential investment Government -0.6 Net Exports
Why Such a Sluggish Recovery? Average contribution to real GDP growth over 9 quarters 5 4 40 4.0 Three prior recoveries This recovery (2009:Q3-2011:Q3) 2011 Q3) 3 2 2.4 1.6 2.6 1 1.0 0.5 05 0.5 0-1 Real GDP PCE Nonresidential investment Residential investment Government -0.6 Net Exports
Why Such a Sluggish Recovery? Average contribution to real GDP growth over 9 quarters 5 4 40 4.0 Three prior recoveries This recovery (2009:Q3-2011:Q3) 2011 Q3) 3 1.6 2.6 2 2.4 1.1 1 1.5 1.0 0.5 05 0.5 0 0.5 0.6 0.0-0.1-1 Real GDP PCE Nonresidential investment Residential investment Government -0.6 Net Exports
Why Such a Sluggish Recovery? Average contribution to real GDP growth over 9 quarters 5 4 40 4.0 Three prior recoveries This recovery (2009:Q3-2011:Q3) 2011 Q3) 3 1.6 2.6 2 2.4 1.1 1 1.5 1.0 1.3 +0.3 0.5 05 0.5 0-1 Real GDP PCE Nonresidential investment 0.5 Residential investment 0.0-0.1 0.6 Government -0.3 +0.3-0.6 Net Exports
As a Nation: We Overspent Log scale, bil. 2005$ 9.55 945 9.45 9.35 Real gross domestic purchases Real GDP 9.25 9.15 Potential real GDP, CBO estimate 9.05 8.95 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11
Spending Was Driven By Homebuilding, Consumption, and Percent of real GDP 107 Percent of real GDP 77 106 76 105 104 Real gross domestic purchases Real PCE and residential investment 75 74 103 73 102 72 101 71 100 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 70
Household Debt! Household Debt-to-Income Ratio 130 125 120 115 110 105 100 95 90 85 1998 2000 2002 2004 2006 2008 2010 2012
Long Run View of Household Debt Household Debt-to-Income Ratio 130 120 110 100 90 80 70 60 50 40 30
The Federal Budget Crisis 26% Federal Government Receipts and Expenditures as a Percentage of GDP 24% Expenditures 22% 20% 18% 16% Receipts 14% '52 '56 '60 '64 '68 '72 '76 '80 '84 '88 '92 '96 '00 '04 '08 '12
Where Have We Been? 2008 (Great) Recession was the deepest and longest in 60+ years Preceded by overconsumption, overbuilding, and excessive debt Recovery has finally turned to Expansion But U.S. Job growth is too slow And the Debt overhang is large
Winston s Wisdom #2 Winston Churchill The farther backward you can look, the farther forward you are likely to see.
The US Economic Roller Coaster Where have we been? What s different about the most recent recession and recovery? How does our region compare? What s different regionally vs. nationally? Where are we going? What are the risks to the recovery?
No Boom or Bust in TX Housing 260 Index, 1Q 2000=100, NSA 240 220 200 180 160 US 140 120 TX 100 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Big Housing Price Swings Elsewhere 260 Index, 1Q 2000=100, NSA 240 220 200 180 160 US CA 140 120 TX FL 100 NV 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Underwater Mortgages Remain Elevated in Many States Percent of mortgages g with balance > home value Percent 80 70 68 60 2010 Q1 2010 Q2 2010 Q3 62 2010 Q4 2011 Q1 51 2011 Q2 50 48 48 44 2011 Q3 40 2011 Q4 34 30 30 24 20 12 10 10 23 0 Nevada Arizona Florida California Texas U.S. Source: Core Logic
Personal Balance Sheets Adjusting 2.4 2.2 Personal Debt/Income 2.0 1.8 1.6 1.4 1.2 1.0 0.8 US TX 0.6 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Big Adjustments Elsewhere 2.4 2.2 Personal Debt/Income 2.0 1.8 1.6 1.4 CA NV 1.2 1.0 0.8 US FL TX 0.6 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
Regional Bank Profitability Stronger 3 2 1 ROA (%) 1.22 1.04 0-1 -2-3 -4 U.S. 11th District
Regional Banks Performing Better 12 Noncurrent Loan Rate (%) 10 8 6 U.S. 11th District 4 2 4.10 2.30 0
Where Are the Problems? Noncurrent Loan Rate (%) 6 5 4 4.10 Other Other Consumer Credit Card Commercial & Industrial Commercial RE Residential RE 3 2 2.30 1 0 U.S. Banks 11 th District Banks
Time to Rename the Texas Ratio* Percent of Banks with Texas Ratio > 100% 25 20 U.S. 11th District i t 15 10 5 0 4.22 0.81 *The Texas Ratio is defined as noncurrent loans plus other real estate owned as a percentage of tangible equity capital plus loan loss reserves.
The Almost-Anywhere-But-Texas Ratio Percent of Banks with Texas Ratio > 100%, 3/31/2012 White: 0-5% Lightest Blue: 5-10% Blue: 10-15% Darkest Blue: >15%
The Texas Ratio by District 14 12 10 Percent of Banks with Texas Ratio > 100%, 3/31/2012 12.2 8 7.8 6 4 2 0 Nationwide = 4.2 5.5
Texas Cattle Population Very Low Percent Thousands 16 17000 Cattle in Texas 15 Percent in Texas 16000 14 13 12 15000 14000 11 10 13000 9 8 7 6 1975 1980 1985 1990 1995 2000 2005 2010 12000 11000 10000
Texas Exports: #1 in Nation 20% Percent of US 18% TX Total Exports #1 16% 14% 12% 10% CA #2 8% 6% 4% NY #3 2% 0% 19 95 19 96 19 97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11
Rig Count Moves with Oil Prices 160 $US, WTI Crude Texas Rigs 1000 140 Rig Count 900 120 800 100 700 80 600 60 40 Oil Price 500 400 20 300 0 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 200
Texas Employment Growth 5 TX and US Employment Growth, Year over Year, 2012 YTD 4 Percent TX (2.67%) US (1.72%) 3 2 1 0 1 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 YTD 2 3 4 5
12 10 8 6 4 2 0 Unemployment Rate, Percent The Unemployment Twist Most Recent: US (8.2%) TX (6.9%) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
More Jobs Created Regionally 150 140 130 120 110 100 Job Growth Index, 100 = January 1990 Dallas Kansas City Minneapolis Atlanta San Francisco Richmond US U.S. St. Louis Philadelphia Chicago Cleveland Boston New York 90 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Job Growth Around the Globe 150 140 Job Growth Index, 100 = January 1990 (except Euro Area, where 100 = July 1990) Texas Australia 130 Canada 120 110 U.S. Euro Area France Germany U.K. 100 Japan 90 A t li
Jobs in The Great Recession: Dallas District Slower Going In, Quicker Coming Out 103 Job Growth Index, 100 = December 2007 Dallas 101 99 97 95 93 U.S. New York Minneapolis Kansas City Richmond Philadelphia Boston Cleveland St. Louis Chicago Atlanta San Francisco 91 2008 2009 2010 2011 2012
How Does Our Region Compare? Texas is the place to be! No boom or bust in housing Personal balance sheets stronger Banks healthier Jobs have completely recovered and growing faster than the nation More new businesses created and more corporate relocations
Winston s Wisdom #3 Winston Churchill The inherent vice of capitalism is the unequal sharing of blessings; the inherent virtue of socialism is the equal sharing of miseries.
The US Economic Roller Coaster Where have we been? What s different about the most recent recession and recovery? How does our region compare? What s different regionally vs. nationally? Where are we going? What are the risks to the recovery?
Where s Inflation Headed? Percent, yr/yr 6.0 Headline CPI 5.0 4.0 3.0 2.0 2.3 1.0 00 0.0-1.0-2.0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12
Is Core Inflation Rising? Percent, yr/yr 6.0 5.0 4.0 3.0 1.0 00 0.0 Trimmed Mean PCE Core CPI 2.31 2.0 1.89 1.84-1.0-2.0 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Core PCE
Leading Index Signals Slower Growth 20 15 Annualized % change 10 5 0-5 -10-15 -20 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010
Prettiest Horse in the Glue Factory? 35 30 10-year Government Bond Yields, as June 11, 2012 28.73 25 20 15 10 10.68 5 1.65 1.30 1.64 2.56 6.52 6.04 0 US Germany UK France Spain Italy Portugal Greece
European Sovereign Debt Concerns 45 Spread over 10-year 40 German bond 35 30 25 Greece 20 15 10 5 0 2008 2009 2010 2011 2012 Portugal Spain Italy France U.K.
Where Are We Going? U.S. 2012 economic growth likely l tepid Inflation is currently under control Significant headwinds (risks): European debt crisis and recession Extended joblessness Uneven housing recovery Oil price shock U.S. national debt and government spending Monetary policy has largely done its job
Winston s Wisdom #4 Winston Churchill You can always count on Americans to do the right thing---after they ve tried everything else.
Thank You! (www.dallasfed.org) Rosenblum, Harvey, 2012 Economic Outlook, Dallas, TX (January 2012) Koenig, Evan, 2012 Economic Outlook, Dallas, TX (January 2012) Financial Industry Studies, Quarterly Banking Update, Dallas Fed (February 2012) Saving, Jason, Regional Update, Dallas Fed (March 2012)