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					  Economic and Investment Outlook


           Dr. Rajeev Dhawan
                         Director


ECONOMIC                       Presented at the
                   Economic Outlook Conference
FORECASTING
                             Monroe, Louisiana
CENTER                        March 31st, 2006
            Office: 404-651-3291
            email: forecast@gsu.edu
            http://www.robinson.gsu.edu/efc
                 It’s the economy, stupid!




It’s housing, folks!
                          U.S. Housing Starts
                      vs. Average Mortgage Rate
(Mil. Units)                                                        (%)
2.2                                                                 9.0

2.0
                                                                    8.0
1.8

1.6                                                                 7.0

1.4
                                                                    6.0
1.2

1.0                                                                 5.0
      1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

               Total Housing Starts (L)   Single Family (L)
               Mortgage Rate (R)
     Withdrawals From the Home ATM are Getting Expensive!
(% Ch.)                                                        (%)
50                                                             7.5

                                                               7.0
40
                                                               6.5
30
                                                               6.0

20                                                             5.5

                                                               5.0
10
                                                               4.5
 0
                                                               4.0

-10                                                            3.5
   JAN APR JUL OCT JAN APR JUL        OCT JAN APR JUL   OCT JAN
  2003             2004                   2005              2006

          Home Equity (Left)   Prime Rate (Right)
Bernanke’s Headaches


Higher energy prices may pass
through into the prices of non-energy goods and
services….inflation expectations.
Another factor bearing on the inflation outlook is that
the economy now appears to be operating at a relatively
high level of resource utilization…..with aggregate
demand exhibiting considerable momentum, output
could overshoot its sustainable path, leading ultimately--
in the absence of countervailing monetary policy
action--to further upward pressure on inflation.

             Source: Testimony of Chairman Ben Bernanke on February 15th, 2006
         Breakdown of Consumer Prices
                                          Year-over-Year
     Category (Weight)          Feb’06   Jan’06   Dec’05   05Q4
1.   Core (79%)                  2.1      2.1       2.2    2.1
2.   Non Durables (29%)          4.5      5.5       3.8    4.8
3.   Durables (11%)              -0.7     -0.7      -0.5   -0.2
4.   Services (60%)              4.0      4.1       3.8    3.8
5.   Housing (40%)               4.0      4.3       4.0    4.0
6.   Commodities (40%)           3.2      3.8       2.7    3.6
7.   Food (15%)                  2.7      2.6       2.3    2.2
8.   Gasoline (3%)               20.6     27.4      15.9   23.0
9.   New Cars (5%)               -0.4     -0.4      -0.4   0.2
10. Medical (6%)                 4.1      4.0       4.3    4.3
                      Overall    3.6      4.0       3.4    3.7
                Two Gloomy Forecasts from
                George Soros and Bill Gross

    As the housing boom cools off, the savings rate is
        likely to rise, and that will lead to a shortfall in
   demand that I think will bring a global slowdown…
I expect a slowdown in 2007, which will probably cast
                   its shadow over the markets in 2006.




                     …Yields have peaked in the bond market and will
                     soon peak in Fed Funds producing an economic
                     slowdown in 2006. If the Fed goes beyond 4.5% and
                     inverts the yield curve, the possibility of recession
                     will increase.
Thou Shalt Not Take
   The “R” Word
      in Vain
               UK Retail Sales and Short-Term Rates
(Y/Y %)                                                            (%)
10                                                                 6.5


 8                                                                 6.0

                                                                   5.5
 6
                                                                   5.0
 4
                                                                   4.5
 2
                                                                   4.0

 0
                                                                   3.5

-2                                                                 3.0
     FEB JUL DEC MAY OCT MAR AUG JAN JUN NOV APR SEP FEB JUL DEC
      00          01      02      03          04      05
          Retail Sales    3-Month T-Bill (Right)
             Breakdown of Retail Sales
                                        Year-over-Year
     Category (Weight)         Feb’06   Jan’06   Dec’05   05 Q4
1.   Motor Veh. (26%)           -0.9     5.6      -1.9    -2.8
2.   Furnishings (6%)           6.7      11.3     5.2      6.2
3.   Build. Mat. (10%)          20.5     17.6     9.8     12.0
4.   Food (15%)                 5.4      4.5      5.1      5.1
5.   Health (6%)                7.1      7.3      7.6      7.1
6.   Gasoline (8%)              17.7     22.1     16.5    20.1
7.   Clothing (5%)              1.6      8.1      6.5      6.8
8.   Gen. Merch. (14%)          5.3      7.1      5.3      6.2
9.   Non-store (5%)             13.3     9.4      13.4    12.6
                     Overall    6.7      9.4      5.7      6.2
               Excl. Autos      8.9      10.4     8.0      8.8
EFC@GSU Forecast vs. Blue Chip Consensus
                                 GDP
      5.5
      5.0
      4.5
      4.0
      3.5
(%)
      3.0
      2.5
      2.0
      1.5
      1.0
            06q1   06q2   06q3   06q4    07q1       07q2   07q3   07q4

                                 EFC    Blue Chip
   U.S. Short-Term Forecast
                                  2005 2006 2007 2008

Real GDP Growth                       3.5   3.2     2.5   2.7
  06q1: 5.3   06q2: 2.7   06q3: 2.6     06q4: 2.5   07q1: 2.4

Consumption Growth                    3.6   3.1     2.6   2.8
  06q1: 4.5   06q2: 3.0   06q3: 2.9     06q4: 2.6   07q1: 2.6

Bus. Investment Growth                8.5   7.6     5.9   4.7

Federal Purchases                     2.0   5.5     3.6   1.5

State & Local Purchases               1.5   1.2     1.7   1.2
                             Oil Prices
($/Barrel)
70
                       Hurricanes Katrina and Rita
68


66


64

62


60


58


56
       JUL AUG AUG   SEP   OCT OCT NOV    DEC JAN JAN   FEB MAR
       2005                                   2006
            Gas Spending Dings Discretionary Expenses
(Bil.$)                                                                                  (%)
350                                                                                     10.0


300                                                                                     8.0


250                                                                                     6.0


200                                                                                     4.0


150                                                                                     2.0


100                                                                                     0.0
        I  II   III   IV     I  II   III   IV     I  II   III   IV     I  II   III IV
      2002                 2003                 2004                 2005
          Spending on Gasoline (Left)
          Grow th in Food, Clothing & Shoe Spending (Right)
                    Anonymous Vent
In January my electric bill was $180 and my
gas bill was $338.
I purchased electric space heaters and stopped
using the gas heater. My electric bill was only
$195 in February.         Residential Natural Gas Price and Consumption
                                  ($/Thou. Cubic Feet)                                              (Bil. Cubic Feet)

Bye bye, gas!                  14.0                                                                            4500

                               12.0
                                                                                                               4300

                               10.0
                                                                                                               4100
                                8.0
                                                                                                               3900
                                6.0

                                                                                                               3700
                                4.0

                                2.0                                                                            3500
                                          2001             2002        2003         2004           2005
                                                         Consumption    Residential Price (Left)
                            Source: AJC, February 19th, 2006
       2005 Jet Orders




1031              1111                         86*




         * Projections based on 10-Q filings
Geographical Distribution of Boeing Suppliers




                Source: Boeing.com; EFC Mapping
                         Durable Goods Orders
($ Bil.)
230
                                                  Ongoing
                                                  Recovery
210
                                Tech Bust
           Roaring 90s
190



170



150
         1 6 11 4 9 2 7 12 5 10 3 8 1 6 11 4 9 2 7 12 5 10 3 8 1
       1996    1997 1998  1999 2000 2001  2002 2003  2004 2005 2006
            Residential Slowdown and "Total" Investment
(% Ch. of 4-Qtr. Mov. Avg.)
20



10



  0



-10



-20
      1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
         Total      Business Fixed     Residential
      Winners and Losers in the Job Market
Sector                        Job Gains                   Sector                    Job Gains
                                (‘000)                                                (‘000)
                              Since      In    % of ‘05                              Since      In    % of ‘05
                               2001    2005                                           2001    2005
1. Education and Health      1,681.0   362.0     18.3%    1. State Government         77.0    29.0       1.5%

2. Construction               610.0    293.0     14.8%    2. Mgmt/Companies            -1.1   14.8       0.7%

3. Admin and Support          624.4    266.7     13.5%    3. Durable manuf.        -1,033.0   10.0       0.5%

4. Leisure and Hospitality    881.0    253.0     12.8%    4. Utilities                -38.1    4.7       0.2%

5. Retail Trade               132.2    163.2      8.3%    5. I-net publishing         -11.0    -0.4     -0.0%

6. Local Government           573.0    143.0      7.2%    6. ISP, Data Providers      -97.6    -1.5     -0.1%

7. Finance and Insurance      276.2     97.9      5.0%    7. Federal Government       -50.0   -13.0     -0.7%

8. Wholesale Trade             59.1     84.1      4.3%    8. Telecom                -289.5    -18.6     -0.9%

9. Real Estate, Rent          118.7     50.8      2.6%    9. Air Transportation     -113.6    -23.4     -1.2%

10. Mgmt. Sci. & Tech         126.3     49.2      2.5%    10. Nondurable manuf.     -727.0    -91.0     -4.6%
                       GE Annual Revenue Growth
                                   1995 to 2005


20%


                                                                Momentum
15%                                                             Carries Over
                                                                 From 2004

10%




5%




0%




-5%
      1995   1996   1997   1998   1999   2000     2001   2002   2003   2004   2005
                Consumer Sentiment and Job Growth
(Index: 1966 = 100)                                                             ('000)
160             Russian Crisis                                                    400
                    Aug’98
                                                                                 300
140                                                                       Hurricanes
                                        9-11                                  Sept’05
                                                                                 200
120
                                                  War in Iraq
                                                   March’03                      100
100
                                                                                 0
 80
                                                                                 -100

 60                                                                              -200

 40                                                                              -300
       1998     1999    2000     2001     2002     2003         2004   2005

        Consumer Confidence (L)                Jobs Added (R)
Trade Deficit vs. Fiscal Deficit
           Federal Budget, Trade Deficits and Interest Rate
(Bil. $)                                                                       (%)
 200                                                                            14


                                                                                   12
   0

                                                                                   10
-200

                                                                                   8

-400
                                                                                   6

-600
                                                                                   4


-800                                                                               2
              1977   1981      1985    1989      1993   1997     2001       2005
              Budget Deficit     Trade Deficit      10-Year Bond Rate (R)
            Anonymous Vent


With as much Chinese-made merchandise as Wal-
Mart sells, perhaps they should change their name
to Great Wall Mart.




                  Source: AJC, January 12th, 2006
High Trade Deficit Numbers
    Keep US Long Term
    Interest Rates Low!
        Global Current Account Balances
            (Billions of U.S. Dollars)
Countries                        1996        2003        Countries                           1996    2003
Industrial                         46.2      -342.3      Developing                          -87.5   205.0
United States                    -120.2      -530.7      Asia                                -40.8   148.3
Japan                              65.4       138.2                                 China      7.2    45.9
Euro Area                          88.5        24.9                           Hong Kong       -2.6    17.0
                    France         20.8         4.5                                 Korea    -23.1    11.9
                  Germany         -13.4        55.1                                Taiwan     10.9    29.3
                       Italy       39.6       -20.7                               Thailand   -14.4     8.0
                     Spain          0.4       -23.6      Latin America                       -39.1     3.8
Other                              12.5        25.3                            Argentina      -6.8     7.4
                  Australia       -15.8       -30.4                                 Brazil   -23.2     4.0
                   Canada           3.4        17.1                                Mexico     -2.5    -8.7
                Switzerland        21.3        42.2      Middle East and Africa                5.9    47.8
         United Kingdom           -10.9       -30.5      E. Europe and ex-USSR               -13.5     5.1




                          Source: Remarks by Governor Ben S. Bernanke, March 10, 2005
                Net Foreign Purchases of U.S. Financial Instruments
($. Bil)
 500
                                                                                           T-Bonds
400
                  Global Savings Glut
            Is Showing up in T-Bond Holdings
300
                                                                           Corp. Bonds

200


100


   0

                                 Stocks                                                    Agency
-100


-200
           90    91   92   93   94     95     96     97     98        99    00   01   02    03   04


                                     Source: FRB Flow of Funds Data
            Trade and Holding of US Treasuries
                     by Central Banks
               Trade in Goods and Services         U.S. Treasury Securities Holdings     Currency
                     2005*             03-05 ∆                 2005*          03-05 ∆   Appreciation
Japan
Japan
                     -80.6
                     -75.2              -11.4
                                         -9.3                   681
                                                                702            220.7
                                                                               353.7        4.3
                                                                                            4.3
China               -183.6               -69.6                 243.7           96.6         0.0
South Korea          -19.3               -7.0                   59.6           -0.6         13.4
Taiwan               -12.8                1.6                   71.3           28.3         6.7
Hong Kong             4.9                 4.8                   28.9            3.5         0.0
Singapore             7.3                 5.9                   48.2            5.2         4.1


Germany              -48.6               -9.5                   61.1           19.5         8.0
UK                   -10.0               -1.8                  145.5           93.4         7.1

           Japanese Bought
   $220+ Bil. worth of Treasuries to
Keep their Currency from Appreciating
                     * Period from July 1st’ 2004 to June 30th’ 2005
                      * All numbers are in billions of U.S. dollars
                             Source: BEA (Trade) and US Treasury Department
  10-Year Bond Rate and Trade Deficit
                  10-Year Bond Regression




                                  Source: May 2005, Forecast of the Nation

                                   2005 2006 2007 2008
10-Year Bond Rate                    4.3 5.1 5.4 5.7
Trade Deficit (Bil. $)             -726 -780 -779 -771
CPI Inflation                        3.4 3.3 2.2 2.0
              Core                   2.2 2.3 2.2 2.1
 2004 US Balance in International Trade
     What We Buy From Them                                What They Buy From Us*
Crude Oil                   -135.7                 Airplanes                       13.2

Vehicles                    -123.2                 Chemicals (Plastic)             10.9

Clothing                      -67.9                Airplane parts                  10.5

Home Electronics              -67.8                Soybeans                         6.6

Office Electronics            -65.6                Corn                             6.0

Petroleum Preparations        -28.3                Wheat                            5.0

Furniture and Bedding         -23.7                Scientific Instruments           4.5

Natural Gas                   -21.1                Cotton                           4.2

Electrical Machinery          -20.2                Metal ores                       3.2

Toys, Sporting good           -19.1                Animal Feeds                     3.0


                              * Billions of Dollars
                         Source: US Bureau of Economic Analysis
2003 Total Vehicle Production & Sales
 Country    Production                     Sales Deficit/Surplus
 U.S.           12,116,061             16,967,442              -4,851,381
 Japan         10,286,318               5,828,178
                                                              4,458,140
 Germany         5,506,629              3,501,303
                                                              2,005,326
 China           4,443,686              4,390,806                 52,880
 France          3,620,056              2,440,692              1,179,364
 S. Korea        3,177,870              1,318,312              1,859,558
 Spain           3,031,192              1,716,204              1,314,988
 Canada          2,552,862              1,625,050                927,812
 U.K.            1,846,429              2,942,737              -1,096,308
 Brazil          1,827,038              1,314,882                512,156
 Mexico          1,577,205              1,001,040                576,165
 India           1,162,159              1,076,318                 85,841
 Sweden             323,032                295,484                27,548


              Source: Ward’s World Motor Vehicle Data 2004
GM’s Financials in the Eye of Wall Street

         Assets                                 Liabilities
Market Value      $10-30B     Debt                                   -$32B

GMAC                $25B      Current Pension Plan                      $6B

Cash                $14B      Future Pension Plan                    -$31B

“Cash Burn”          -$6B     Foreign Plans                            -$9B

Total               $63B      Health Care Costs                      -$27B

                              Delphi                                 -$12B

                              Total                                 -$105B

                      How to fill the hole?
                  Bankruptcy? Liability  43%
                       Source: The Wall Street Journal, January 14th, 2006
END OF AN ERA




        DAWN OF A NEW DAY
  But Statistically One
 Can’t Prove That There
is a Home Price Bubble!
                                                  Home Price Appreciation and Aggregate Income Growth by State
                                                                         (1991:1 - 2004:4)

                                         17
                                                                                 Median = 4.97                               DC
                                         15        Red Zone                                             CA
Annualized home price appreciation (%)




                                         13

                                                                                                                   FL                        NV
                                         11                            NY
                                                  Median = 7.74                                                     VA
                                                                                               MN
                                         9
                                                                                                                                  AZ
                                         7                                  PA
                                                                                                                             WA
                                                                                                    GA
                                         5                                                            TX
                                                                  OH                      NC
                                                                                                     TN                      Safe Zone
                                         3

                                         1
                                              3           3.5          4            4.5             5        5.5         6        6.5    7        7.5
                                                                                   Annualized aggregate income grow th (%)



                                                                            Source: EFC May 2005 Conference Presentation
Source: The 2005 National Association of Realtors,
  Profile of International Home Buyers in Florida
Source: The 2005 National Association of Realtors,
  Profile of International Home Buyers in Florida
     FED’s
Alan Greenspan
                 CHAIRMAN’S CORRECT DIAGNOSIS
                     To the American Bankers Association Annual Convention


                                                               September 26th, 2005



These estimated LTVs are highest in states…,
such as California and Massachusetts…most
people buying a home in California are probably
also selling a home in California and using at
least part of their accumulated home equity
capital gains as a down payment on their new
house. Apparently, many households are
foregoing some consumption to lower their new
mortgage balances.
        Top 5 National Predictions

1. Enjoy 2006, Expect a Soft Landing in 2007

2. Housing Market Displays Orderly Moderation

3. Long-Term Rates Will Rise Mildly

4. Bet on Manufacturing of the RIGHT Type!

5. Oil Remains Above $50/Barrel for Next Few Years
Special Thanks to the Center’s
          Executive Sponsors
          Carl R. Zwerner
          Chair of Family
         Owned Businesses

        The Usery Center
       for the Workplace
   at Georgia State University


                    Sponsors

				
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