Texas Economic Outlook: Recovery in 2010 Keith Phillips Federal Reserve Bank of Dallas San Antonio Office The views expressed in this presentation are strictly those of the author and do not necessarily reflect the positions of the Federal Reserve Bank of Dallas or of the Federal Reserve System. Any secondary distribution of this material is strictly prohibited. May be quoted with appropriate attribution to the author.
National Economic Overview
Home Construction Showing Signs of a Bottom Millions, units Billions, $2000 2.00 450 1.75 1.50 1.25 1.00 0.75 0.50 Real singlefamily Single-family building permits 400 350 300 250 200 150 100 50 0.25 1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 0 Source: Bureau of Economic Analysis, U.S. Census Bureau and author s calculations.
Steep Home Price Declines Abating in Many Markets (OFHEO Price Indexes) 4-Q Percent Change 30 20 10 TX 0-10 U.S. FL NY -20 CA -30 2000 2001 2002 2003 2004 2005 2006 2007 2008
Lower Prices and Interest Rates Helping Housing Affordability (Percent of homes sold for which the median family income could qualify) 1999:Q4 2009:Q2 Low Point Date of Low Point United States 64 72 40 2006 : Q3 Los Angeles 43 42 2 2006 : Q1/Q2/Q3 New York 55 21 5 2006 : Q3/Q4 Miami 59 53 10 2007 : Q1 Austin 56 73 50 2000 : Q4 Dallas 64 72 54 2007 : Q3 Houston 66 69 47 2007 : Q3 San Antonio 64 67 47 2006 : Q3 Source: NAHB - Wells Fargo Housing Opportunity Index
TED Spread Falling to Normal Levels Percentage Points 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 '05 '06 '07 '08 '09
Asset-backed Commercial Percentage Points 4.0 Paper Spread Back to Normal SA, Bil.$ 1400 3.5 1200 3.0 1000 2.5 Asset-backed CP 800 2.0 1.5 Oct 477 600 1.0 400 0.5 Asset-backed CP less Treasury Yield Oct 0.21 200 0.0 '02 '03 '04 '05 '06 '07 '08 '09 0
Percent 6 Quality Spread Also Showing Significant Improvement Baa/Aaa Spread 5 4 3 2 1 0 19 23 27 31 35 39 43 47 51 55 59 63 67 71 75 79 83 87 91 95 99 03 07
Negative Fundamentals Weighing on Consumption Rising unemployment, job insecurity Tight credit conditions Loss of wealth, need to save ---------------------------------------------------------- Bottom line: Consumption very weak and will gradually improve in 2010
Jobs Declines Slowing From Huge to Large Thousands (SA) 600 400 200 0 October -190-200 -400-600 -800 January -741 Jan-02Jul-02Jan-03Jul-03Jan-04Jul-04Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09
U.S. Leading Index Suggesting Recovery Before End of Year Annualized % change 20 15 Sept. 2009 10 6-month 12-month 5 0-5 -10-15 -20 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005
SAAR, Percent 8.0 September Blue Chip Survey Projects Positive RGDP Growth in Q3 2009 6.0 4.0 3.5% 2.9% 2.8% 2.7% 2.0 0.0-2.0 '03 '04 '05 '06 '07 '08 '09 '10 -.7% -4.0-6.0-8.0-6.4%
This Will Be the Longest Recession Since 1933 Dec'07-present 23and counting Mar'01-Nov'01 Jul'90-Mar'91 8 8 Jul'81-Nov'82 16 Jan'80-Jul'80 6 Nov'73-Mar'75 16 Dec'69-Nov'70 11 Apr'60-Feb'61 10 Aug'57-Apr'58 8 Jul'53-May'54 10 Nov'48-Oct'49 11 Feb'45-Oct'45 8 May'37-June'38 13 Aug'29-Mar'33 43 0 5 10 15 20 25 30 35 40 45 50
Concerned About a Double- Dip? How will we Know When Next Recession is Coming?
Percentage points 5 10-yr./1-yr. yield spread turns negative prior to recessions 4 3 2 1 0-1 -2 Only false signal -3-4 '59 '62 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07
Real-time probability of recession has performed well 1.0 0.9 0.8 0.7 0.6 0.5 0.4 0.3 0.2 0.1 0.0 70 75 80 85 90 95 00 05
Probability of Recession is Updated on Dallas Fed Web Site Go to www.dallasfed.org, then click on Economic Data, then Quick Slide Show of U.S. Economy Or http://dallasfed.org/data/data/uscharts.pdf
Texas
Through Most of 2008 Texas Was Stronger Than Nation High energy prices provided a stimulus to Texas in first half of 2008 but fell sharply since then. High-tech fared better than overall manufacturing until second half of 2008 Texas Job growth in 2008 was about 0.6 percent versus -2.2 percent in nation. Texas began a recession in the second half of 2008 due to a deepening national and international financial crisis, and a decline in high-tech and energy. Texas jobs will likely decline this year about 3.0 percent (about 319,000 net job loss). Next year Texas jobs will likely grow about 1.0 percent
Texas Jobs Declining Sharply this Year Y/Y, Percent 5 4 3 U.S. Texas 3.10 2 1 0.84 0.6 0-1 -2-3 -2.2-4 -5 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 --4.0-4.2
Texas UR Has Increased Sharply Percent, SA But Remains Below the Nation s 10.5 10.0 9.5 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 10.2 9.8 8.2 U.S. Unemployment Rate Texas Unemployment Rate 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
September Marked 13 th Consecutive Decline in the TX Business Cycle Index M/M SAAR M/M SAAR 12 12 10 10 8 8 6 6 4 4 2 2 0 0-2 -2-4 -4-6 -6-8 -8 NOTE: Shaded areas represent Texas recession.
All Major Metros in Decline Business Cycle Index Jan 2000=100 150 140 Houston 130 120 Texas Ft. Worth 110 100 S.A. Austin Dallas 90 80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Texas Housing Price Changes Better OFHEO metro 4-Q Percent Change 16 14 12 10 than National Average 8 Austin 6 Houston 4 2 0-2 -4-6 Ft.Worth Dallas Texas San 2000 2001 2002 2003 2004 2005 2006 2007 2008 US
Existing Home Sales Beginning to Show Improvements in Most Markets Index, Jan'00=100, 6MMA 200 185 170 155 140 125 110 95 Ft. Worth San Antonio Houston Texas Austin Dallas U.S. 80 00 01 02 03 04 05 06 07 08 09
Months Home Inventories Relative To Sales Lower Than Nation in Texas MSAs 18 16 14 12 10 Texas Austin Dallas 7.0 6.2 6.2 Houston 6.3 San Antonio 8.1 Ft Worth 6.6 U.S. 7.8 8 6 4 2 0 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09
TX Foreclosure Rate High But Lower Percent 5.00 4.50 Than Nation U.S. Subprime Texas Subprime U.S. Prime Texas Prime Percent 1.20 4.00 3.50 3.00 Prime 1.00 0.80 2.50 0.60 2.00 1.50 0.40 1.00 0.50 Subprime 0.20 0.00 1999 2002 2005 2008 0.00
Percent 28 24 20 16 12 8 4 0 Seriously Delinquent Mortgage Share Rising More Slowly in TX Texas Subprime U.S. Subprime U.S. Prime Texas Prime 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Percent 5.8 5.5 5.2 4.9 4.6 4.3 4.0 3.7 3.4 3.1 2.8 2.5 2.2 1.9 1.6 1.3 1.0 0.7 0.4 0.1
Texas Construction Contract Values Inching Up Real $, Mil 5MMA, SA 3,500 3,000 Residential Nonresidential 2,500 2,000 1,500 1,000 500 Nonbuilding 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
What about Other Sectors of the Texas Economy?
Contracting Expanding Index, SA 100.0 Declines in Texas factory activity are moderating (Texas Manufacturing Outlook Survey) 80.0 Production Volume of New Orders Volume of Shipments Capacity Utilization 60.0 40.0 20.0 0.0-20.0-40.0-60.0-80.0-100.0 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
Index, SA 200 Exports Have Begun to Increase Texas 180 160 140 Texas 3MMA 120 U.S. ex Texas 100 80 U.S ex Texas 3MMA 2000 2001 2002 2003 2004 2005 2006 2007 2008
High-Tech Output Plunges - Weaker than 2001 Percent, Y/Y 70 50 30 Semiconductor and other electronic components Computer and peripheral equipment 10-10 -30 200 0 200 1 200 2 200 3 200 4 200 5 200 6 200 7 200 8 200 9
TX Energy Sector Has Also Fallen Off a Cliff Nominal Price, $ Rig count, weekly Weekly 1,000 Texas Rig Count 160 900 Gas price 140 800 120 700 600 500 400 300 Oil price 100 80 60 40 20 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Note: Gas price is multiplied by 10 0
TXLI Components Declined Sharply and Broadly early in 2009
Recent Movements in TXLI Components Much More Positive 3 month change (June- August) 1.92 Net Change in Texas Leading Index 0.55 Texas Value of the Dollar 0.72 U.S. Leading Index 0.44 Real Oil Price 0.40 Well Permits 0.73 New Unemployment Claims 0.52 Texas Stock Index -1.79 Help Wanted Index 0.36 Average Weekly Hours -2.00-1.50-1.00-0.50 0.00 0.50 1.00 1.50 2.00 2.50
Recent Increase in Leading Index Suggest Jobs Reaching Bottom in Fourth Quarter Millions 11.0 10.8 10.6 10.4 10.2 10.0 9.8 Texas Nonfarm Employment and TLI Forecast Index 150 145 140 135 130 125 120 9.6 9.4 9.2 Leading Index 115 110 105 9.0 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 100
Summary The U.S. recession likely over. Financial sector continuing to heal. Texas has performed better than nation, initially due to high-tech and energy housing also played an important role. Texas followed the nation into recession in second half of 2008 and is likely to flatten out over next several months. 2009 Texas job growth will likely be about -3.0 percent (about 319,000 jobs) and will likely grow about 1.0 percent in 2010.
Soaring Deficits To Continue Over the Medium $Billions Term 500 0 Jan. 2008 forecast -500-1000 Sep. 2008 forecast Jan. 2009 forecast Fiscal 2010 Budget -1500 Aug. 2009 Forecast -2000 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019