PBCTPBCT 1 Economic Overview “ No Double-Dip?” September 2002 Todd P. Martin 1st VP & Chief Economist People’s Bank 203.338.4826 tpmarti@peoples.com.
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Economic OverviewEconomic Overview
““No Double-Dip?”No Double-Dip?”September 2002
Todd P. Martin1st VP & Chief Economist
People’s Bank203.338.4826 tpmarti@peoples.com
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US Economic Outlook US Economic Outlook
• Economy still expanding, but recovery is losing momentum. Consumers continue to spend but job growth and capital spending remain weak.
• Fed likely to leave fed funds at 40 year lows through mid-2003 -- increased risks of economic weakness due to volatile financial markets and uncertainty surrounding corporate reporting and governance.
• Current data do not suggest a “Double-Dip” - Retail sales & housing are strong, initial jobless claims trending lower.
• Risks to the downside: Collapse of stock market bubble -- falling investor, business & consumer confidence -- widening Federal & State budget deficits -- weaker dollar -- Latin America -- Middle East -- Iraq -- more terrorist attacks?
• Mild recession last year = moderate and vulnerable recovery this year
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Revisions show weaker economic growth in 2001Revisions show weaker economic growth in 2001
Source: BEA, Conference Board People’s Bank
Real Chain Weighted Gross Domestic Product Growth - % change SAR
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
Revised Previous
3rd Q 2002-4th Q 2003 are forecast
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Bubble Bursts: Lots of wealth lostBubble Bursts: Lots of wealth lost
Source: Bloomberg, People’s Bank
NASDAQ Index NASDAQ Index
Transformation: Level Source: RFA, User
0
1000
2000
3000
4000
5000
95 96 97 98 99 00 01 02
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Stocks undervalued based on “The Fed Model”Stocks undervalued based on “The Fed Model”
Source: Yardeni.com, Federal Reserve
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Fed to leave rates at 40-year lows through mid-2003?Fed to leave rates at 40-year lows through mid-2003?
Source: Conference Board, Bloomberg, People’s Bank
10 Year Treasury Note Yield vs. Targeted Fed Funds Rate %
Fed Funds vs. 10 Year T-Note
10 Year T-Note Yield Targeted Fed Funds Rate
1
3
5
7
9
90 91 92 93 94 95 96 97 98 99 00 01 02
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““Real” interest rates are historically lowReal” interest rates are historically low
Source: Conference Board, Bloomberg, People’s Bank
Targeted Fed Funds Rate less YOY% change in CPI - %
Real Fed Funds Rate
Transformation: Level Source: Bloomberg, User
-1
0
1
2
3
4
5
90 91 92 93 94 95 96 97 98 99 00 01 02
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The Yield Curve has steepened The Yield Curve has steepened
Source: Bloomberg, People’s Bank
US Treasury Yields % -- 3 month T-bills to 30 year T-bonds
1.0
2.0
3.0
4.0
5.0
6.0
7.0
12/29/2000 9/3/2002
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But has flattened since March 2002 But has flattened since March 2002
Source: Bloomberg, People’s Bank
US Treasury Yields % -- 3 month T-bills to 30 year T-bonds
1.0
2.0
3.0
4.0
5.0
6.0
7.0
3/28/2002 9/3/2002
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Confidence falling: Stocks - Scandals - War?Confidence falling: Stocks - Scandals - War?
Source: Conference Board, People’s Bank
Cons. Confid. Index, Composite
Transformation: Level Source: The Conference Board
0
50
100
150
90 91 92 93 94 95 96 97 98 99 00 01 02
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Consumer continues to spend - at a slower paceConsumer continues to spend - at a slower pace
Source: Conference Board, BEA, People’s Bank
Real Personal Consumption Expenditures - Quarterly % change AR
Consumer Spending (CW$)
Transformation: %Chg, AR Source: Bureau of Economic Analysis
-2
-4
0
2
4
6
8
89 90 91 92 93 94 95 96 97 98 99 00 01 02
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Jobless Claims starting to move higher again?Jobless Claims starting to move higher again?
Source: BEA, Stone & McCarthy Research
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Layoffs down from highs, but rising againLayoffs down from highs, but rising again
Source: Challenger Gray & Christmas, SMRA, People’s Bank
Challeger Report: Announced Layoffs
Transformation: Level Source: CG&C, User
0
50000
100000
150000
200000
250000
94 95 96 97 98 99 00 01 02
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The economy is not creating a lot of jobs yetThe economy is not creating a lot of jobs yet
Source: Conference Board, BLS, People’s Bank
Establishment Employment, Nonfarm
Transformation: Change Source: Bureau of Labor Statistics
-100
-200
-300
-400
-500
0
100
200
300
400
500
600
90 91 92 93 94 95 96 97 98 99 00 01 02
monthly change (thousands) SA
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Unemployment the highest since 1994Unemployment the highest since 1994
Source: Conference Board, BLS, People’s Bank
Unemployment Rate, Civilian
Transformation: Level Source: Bureau of Labor Statistics
3
4
5
6
7
8
90 91 92 93 94 95 96 97 98 99 00 01 02
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ISM index shows manufacturing losing steamISM index shows manufacturing losing steam
Source: Conference Board, ISM, People’s Bank
Institute of Supply Management Survey (formally NAPM)
Purchasing Managers' Index
Transformation: Level Source: NAPM
30
35
40
45
50
55
60
90 91 92 93 94 95 96 97 98 99 00 01 02
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Home Sales slowing some - but still very strongHome Sales slowing some - but still very strong
Source: Conference Board, People’s Bank
Housing Sales, New and Existing Homes
Transformation: Level Source: Bureau of the Census
3
4
5
6
7
90 91 92 93 94 95 96 97 98 99 00 01 02
(SAAR) in millions
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Mortgage refinance hits a new highMortgage refinance hits a new high
Source: MBA, People’s Bank
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State Tax Revenues are down sharplyState Tax Revenues are down sharply
Source:Stone & McCarthy Research, Rockefeller Inst. Of Gov..
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People's Bank Business Barometer stallsPeople's Bank Business Barometer stalls
Source: People’s Bank, Centerprise Advisors
People's Bank Business Barometer - 1992=100
Transformation: Level Source: Centerprise Advisors, User
50.0
57.8
65.6
73.3
81.1
88.9
96.7
104.4
112.2
120.0
69 71 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01
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PBBB YOY shows mild recession in CT last yearPBBB YOY shows mild recession in CT last year
Source: People’s Bank, Centerprise Advisors
People's Bank Business Barometer - (YOY % change)
Transformation: %Chg, YA Source: Centerprise Advisors, User
-1
-2
-3
-4
-5
0
1
2
3
4
5
89 90 91 92 93 94 95 96 97 98 99 00 01 02
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Quarterly change in PBBB - CT not out of the woods yetQuarterly change in PBBB - CT not out of the woods yet
Source: People’s Bank, Centerprise Advisors
People's Bank Business Barometer - (Quarterly % change)
Transformation: %Change Source: Centerprise Advisors, User
-0.5
-1.0
0.0
0.5
1.0
1.5
98 99 00 01 02
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SummarySummary
• No “Double-Dip”, but growth likely to be sub-par
• Fed on hold through mid-2003 - but short-term rates should rise by year-end 2003
• Economy has been remarkably resilient last 12-months - Risks are to the downside
• Watch: Jobless Claims - employment - purchasing managers’ index - LEI - consumer confidence
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