State of the Economy May 27, 2008 Jose Sanchez Maria Rodarte Mandi Tom Emerson Figueroa Omar Barragan.
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State of the EconomyState of the Economy
May 27, 2008May 27, 2008
Jose SanchezJose Sanchez
Maria RodarteMaria Rodarte
Mandi TomMandi Tom
Emerson FigueroaEmerson Figueroa
Omar BarraganOmar Barragan
HOUSING SECTORHOUSING SECTOR
New Permits-New Permits- Housing StartsHousing Starts New Home SalesNew Home Sales Existing Home SalesExisting Home Sales 10 Year U.S. Treasury Interest Rates10 Year U.S. Treasury Interest Rates
Issued PermitsIssued Permits
0
500
1,000
1,500
2,000
2,500
Series1
Housing StartsHousing Starts
0.0
500.0
1,000.0
1,500.0
2,000.0
2,500.0
Series1
New Home SalesNew Home Sales
877908973
1,086
1,2031,283
1,185
1,0841,1261,0971,0871,073
9691,0091,004
9529871,019
890840830
907861
797796
701693725
634604601575526
0
200
400
600
800
1000
1200
1400
Series1
Existing Home SalesExisting Home Sales
0
1,000,000
2,000,000
3,000,000
4,000,000
5,000,000
6,000,000
7,000,000
2005 2006 2007 Mar-07 Apr-07 May-07 J un-07 J ul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 J an-08 Feb-08 Mar-08
Series1
10 Year Treasury 10 Year Treasury Interest RatesInterest Rates
GDPGDP In 2001In 2001 Real GDP increased 0.3%. Real GDP increased 0.3%. Real GDP in private services-Real GDP in private services-
producing industries producing industries increased 1.7%increased 1.7%
Real GDP in private goods-Real GDP in private goods-producing industries producing industries decreased 4.2%.decreased 4.2%.
Manufacturing was the Manufacturing was the hardest hit by the 2001 hardest hit by the 2001 recession. recession. Its real GDP decreased 6.0%.Its real GDP decreased 6.0%. Durable-goods manufacturing Durable-goods manufacturing
decreased 5.2 %.decreased 5.2 %. nondurable-goods nondurable-goods
manufacturing decreased manufacturing decreased 7.1%7.1%
In First Quarter 2008In First Quarter 2008 Real GDP increased 0.6%Real GDP increased 0.6% Price Index increased Price Index increased
3.5%3.5% Personal Consumption Personal Consumption
Expenditures increased Expenditures increased 1%1%
In ManufacturingIn Manufacturing Durable goods decreased Durable goods decreased
6.1%6.1% Nondurable goods Nondurable goods
decreased 1.3%decreased 1.3%
GDPGDP 2001 2001 2001 2001 2007 2007 2007 2007 2008
I I I I I I I V I I I I I I I V I
1 Gross domestic product
-0.5 1.2 -1.4 1.6 0.6 3.8 4.9 0.6 0.6
2 Personal consumption expenditures
1.7 1 1.8 7 3.7 1.4 2.8 2.3 1
3 Durable goods
6.7 -0.3 3.1 37.4 8.8 1.7 4.5 2 -6.1
4 Nondurable goods
0.5 -0.1 2.4 4.9 3 -0.5 2.2 1.2 -1.3
5 Services 1.1 1.8 1.2 2.3 3.1 2.3 2.8 2.8 3.4
6 Gross private domestic investment
-13.6 -7.6 -10.5 -22.7 -8.2 4.6 5 -14.6 -4.7
7 Fixed investment
-2.6 -8.7 -4.5 -10.6 -4.4 3.2 -0.7 -4 -9.7
8 Nonresidential
-4.2 -13.6 -6.8 -13.3 2.1 11 9.3 6 -2.5
9 Structures
-8.3 -4 6 -33.2 6.4 26.2 16.4 12.4 -6.2
10 Equipment and software
-2.8 -16.9 -11.4 -4.2 0.3 4.7 6.2 3.1 -0.7
11 Residential
2.2 5.6 1.8 -3.7 -16.3 -11.8 -20.5 -25.2 -26.7
12 Change in private inventories
--- --- --- --- --- --- --- --- ---
13 Net exports of goods and services
--- --- --- --- --- --- --- --- ---
14 Exports -5.3 -12.7 -18.2 -10.8 1.1 7.5 19.1 6.5 5.5
15 Goods -5.4 -17.1 -20 -8.8 0.9 6.6 26.2 3.9 5.2
16 Services
-5 -0.7 -13.7 -15.3 1.6 9.6 4 13.2 6.1
17 Imports -3.7 -12.6 -10.3 -3.4 3.9 -2.7 4.4 -1.4 2.5
18 Goods -3.4 -16.9 -8.6 -2 4.2 -2.9 4.8 -2.6 2.4
19 Services
-5 12.8 -18.3 -10.4 2.3 -1.7 1.7 5.5 3.5
Government consumption expenditures
and gross investment
21 Federal 8.1 9.1 0 8.8 -6.3 6 7.1 0.5 4.6
22 National defense
7 4.3 2.4 12.5 -10.8 8.5 10.1 -0.5 6
23 Nondefense
10.1 18 -3.9 2.3 3.8 0.9 1.1 2.8 1.8
24 State and local
4 7.2 -2.3 8.4 3 3 1.9 2.8 0.5
4.1 3.8 2 27.9 -1.5 8.5 -0.5
Line
20 5.3
GDPGDP
3.7
.8
1.6
2.5
3.0
3.5 3.6
2.5
3.12.8
4.5
1.2
4.8
2.4
1.1
2.1
.6
3.8
4.9
.6 .6
.0
1.0
2.0
3.0
4.0
5.0
6.0
Series1
Consumer Price IndexConsumer Price Index
CPI is up 3.9% from a year earlierCPI is up 3.9% from a year earlier
Core CPI is still increasing at a 2.3% Core CPI is still increasing at a 2.3% annual rate annual rate
For the past three months, core For the past three months, core prices rose at a 1.2% seasonally prices rose at a 1.2% seasonally adjusted rate.adjusted rate.
Consumer Price IndexConsumer Price Index
Measure of Prices Measure of Prices
Increase 0.3% in MarchIncrease 0.3% in March
increase 0.2% in Aprilincrease 0.2% in April Gasoline Costs Gasoline Costs
rose 5.8% government’s formula rose 5.8% government’s formula adjusted gain to a 0.2% dropadjusted gain to a 0.2% drop
Consumer Price IndexConsumer Price Index
Food Prices up 5% in the past 12 Food Prices up 5% in the past 12 monthsmonths BreadBread FruitFruit CoffeeCoffee Other consumer staplesOther consumer staples
Health care costs increased 4.3% in Health care costs increased 4.3% in the past 12 months the past 12 months Up 0.2% in AprilUp 0.2% in April
Consumer Price IndexConsumer Price Index
Areas where prices decreasedAreas where prices decreased Loading costs 1.9%Loading costs 1.9% Vehicles 0.2%Vehicles 0.2% Recreation 0.1%Recreation 0.1%
Consumer Price IndexConsumer Price Index
Slightly increasing trend during 2007 Slightly increasing trend during 2007 and 2008and 2008
2001 Growing at a faster pace2001 Growing at a faster pace Inflation Risks:Inflation Risks:
Rising Fuel CostsRising Fuel Costs Loosening of Monetary PolicyLoosening of Monetary Policy
Personal Income and Personal Income and OutlaysOutlays
Nov. 2007 Dec. 2007 Jan.2008 Feb. 2008 Mar. 2008 (percent change from preceding month)
Personal income, current dollar 0.3 0.4 0.3 0.5 0.3Disposible personal income: Current dollars 0.3 0.4 0.4 0.5 0.3 Chained (2000) dollars -0.3 0.2 0.1 0.3 0.0Personal consumption expenditures: Current dollars 1.0 0.2 0.4 0.1 0.4 Chained (2000) dollars 0.3 -0.1 0.1 0.0 0.1
Savings and InvestmentsSavings and InvestmentsLine 2000 2001 2002 2003 2004 2005 2006 2007
1 Gross saving 1,770.50 1,657.60 1,489.10 1,459.00 1,618.10 1,734.60 1,866.90 1,853.102 Net saving 582.7 376.1 197.1 122.5 182 125.1 251.7 166.53 Net private saving 343.3 324.6 479.2 515 551.1 428.2 447.2 398.84 Personal saving 168.5 132.3 184.7 174.9 181.7 44.6 38.8 42.95 Undistributed corporate profit
s with inventory valuation and capital consumption adustments
174.8 192.3 294.5 325.1 384.4 378.6 400.9 333.5
6 Undistributed profits 130.3 132.9 176.6 240.1 357.8 585.3 653 614.97 Inventory valuation adjustm
ent-14.1 11.3 -2.2 -13.6 -43.1 -36.2 -36.3 -46.2
8 Capital consumption adjustment
58.6 48.1 120.1 98.7 69.7 -170.6 -215.8 -235.3
9 Wage accruals less disbursements
0 0 0 15 -15 5 7.5 22.5
10 Net government saving 239.4 51.5 -282.1 -392.5 -369.1 -303.1 -195.4 -232.411 Federal 189.5 46.7 -247.9 -372.1 -370.6 -318.3 -220 -220.612 State and local 50 4.8 -34.2 -20.4 1.5 15.2 24.6 -11.813 Consumption of fixed capital 1,187.80 1,281.50 1,292.00 1,336.50 1,436.10 1,609.50 1,615.20 1,686.6014 Private 990.8 1,075.50 1,080.30 1,118.30 1,206.00 1,357.00 1,347.50 1,398.7015 Domestic business 836.1 903.7 893.6 916.6 970.2 1,060.40 1,081.40 1,119.1016 Households and institutios 154.8 171.7 186.8 201.7 235.8 296.6 266.1 279.6
17 Government 197 206 211.6 218.2 230.2 252.4 267.7 287.918 Federal 87.2 88.2 88.9 90.4 94 99 105.4 110.419 State and local 109.8 117.8 122.7 127.8 136.1 153.4 162.3 177.520 Gross domestic investment, ca
pital account transactions, and net lending, NIPAs
1,643.30 1,567.90 1,468.10 1,507.80 1,637.30 1,739.90 1,848.80 1,882.50
21 Gross domestic investment 2,040.00 1,938.30 1,926.40 2,020.00 2,261.40 2,475.00 2,642.90 2,593.3022 Gross private domestic investme
nt1,735.50 1,614.30 1,582.10 1,664.10 1,888.60 2,077.20 2,209.20 2,125.40
23 Gross government investment 304.5 324 344.3 356 372.8 397.8 433.8 467.9
24 Capital account transactions (ne) 0.8 1.1 1.4 3.2 2.4 4.1 3.9 1.6
25 Net lending or net borrowing (-), NIPAs
-397.4 -371.5 -459.7 -515.5 -626.5 -739.1 -798 -712.4
26 Statistical discrepancy -127.2 -89.6 -21 48.8 19.1 5.4 -18.1 29.4 Addenda:
Government Receipts and ExpendituresGovernment Receipts and Expenditures 2000 2001 2002 2003 2004 2005 2006 2007
Current receipts 3,125.90 3,113.10 2,958.70 3,035.60 3,254.10 3,589.10 3,934.80 4,180.30
Current tax receipts 2,206.80 2,168.00 2,004.50 2,050.30 2,213.40 2,518.70 2,769.80 2,949.00
Personal current taxes 1,235.70 1,237.30 1,051.80 1,001.10 1,046.30 1,209.10 1,354.30 1,482.50 Taxes on production and imports 708.9 728.6 762.8 807.2 863.8 921.6 967.3 1,008.50 Taxes on corporate income 255 194.9 182.6 233.1 293.3 376.5 435.5 444.5 Taxes from the rest of the world 7.3 7.1 7.3 8.9 10 11.5 12.6 13.4Contributions for government social insurance
702.7 731.1 750 778.6 828.8 874.8 927.6 979
Income receipts on assets 117.4 113.7 98.4 95.8 99.1 105.6 111.9 114.6 Interest and miscellaneous receipts
115.6 111.7 96.4 93.7 96.7 103.1 109.3 111.9
Dividends 1.9 2 2 2.2 2.4 2.4 2.6 2.7Current transfer receipts 93.7 101.8 104.9 109.2 117 105.2 139.5 152.3 From business (net) 43.7 47.5 46.6 47.9 48.1 30.7 60.6 66.2 From persons 50 54.2 58.2 61.3 68.9 74.5 78.9 86.1Current surplus of government enter
prises2
5.3 -1.4 0.9 1.7 -4.2 -15.1 -13.9 -14.5
Current expenditures 2,886.50 3,061.60 3,240.80 3,428.10 3,623.20 3,892.20 4,130.30 4,412.70Consumption expenditures 1,417.10 1,501.60 1,616.90 1,736.50 1,844.00 1,965.70 2,089.30 2,221.90Current transfer payments 1,062.40 1,160.60 1,270.40 1,343.20 1,425.30 1,521.70 1,618.30 1,742.40 Government social benefits 1,044.10 1,146.60 1,251.60 1,319.50 1,399.10 1,486.20 1,588.70 1,707.40 To persons 1,041.60 1,143.90 1,248.90 1,316.70 1,396.10 1,483.10 1,585.30 1,703.80
To the rest of the world3 2.5 2.7 2.7 2.8 3 3.1 3.3 3.6
Other current transfer payments to the
rest of the world (net)3
Interest payments1 362.8 344.1 315.1 300.6 309.3 346.2 372.9 401.3
To persons and business1 279.8 261.7 238.5 226.7 226.8 242.4 239.2 244.1
To the rest of the world 83 82.4 76.6 73.9 82.5 103.9 133.8 157.2
Subsidies2 44.3 55.3 38.4 47.9 44.6 58.5 49.7 47.1
Less: Wage accruals less disbursements
0 0 0 0 0 0 0 0
Net government saving 239.4 51.5 -282.1 -392.5 -369.1 -303.1 -195.4 -232.4Social insurance funds 114.4 89.6 50.6 42.7 63.9 60.3 21.5 -5.7Other 125.1 -38.1 -332.7 -435.2 -433 -363.4 -217 -226.7Addenda: Total receipts 3,161.60 3,148.80 2,991.50 3,063.70 3,284.50 3,619.50 3,967.50 4,211.00 Current receipts 3,125.90 3,113.10 2,958.70 3,035.60 3,254.10 3,589.10 3,934.80 4,180.30 Capital transfer receipts 35.7 35.7 32.7 28.1 30.4 30.3 32.6 30.7 Total expenditures 3,002.60 3,188.20 3,388.20 3,593.40 3,793.20 4,066.00 4,312.30 4,632.50 Current expenditures 2,886.50 3,061.60 3,240.80 3,428.10 3,623.20 3,892.20 4,130.30 4,412.70 Gross government investment 304.5 324 344.3 356 372.8 397.8 433.8 467.9 Capital transfer payments 0 0 3.8 16.9 16.8 18.3 18.1 29.2 Net purchases of nonproduced assets
8.5 8.5 10.9 10.7 10.6 10.1 -2.1 10.6
Less: Consumption of fixed capital
197 206 211.6 218.2 230.2 252.4 267.7 287.9
Net lending or net borrowing (-) 159 -39.3 -396.7 -529.7 -508.7 -446.5 -344.8 -421.5
3523.6 26.2 35.5 29.618.3 13.9 18.8
Labor SectorLabor Sector
Lagging economic indicatorLagging economic indicator The impact is after the eventThe impact is after the event Is still important because it confirms Is still important because it confirms
trendstrends Reports are released monthly, at the Reports are released monthly, at the
end of the monthend of the month
Mass LayoffsMass Layoffs
Job openings and Labor Job openings and Labor Turnovers US Private Turnovers US Private
IndustryIndustry
Job Openings and Labor Job Openings and Labor Turnover US Public Turnover US Public
IndustryIndustry
Employment – Population Employment – Population RatioRatio
Unemployment RateUnemployment Rate (Percentage) (Percentage)
TrendingTrending
Mass layoff is consistent with Mass layoff is consistent with historical past, January has highest historical past, January has highest postings.postings.
Compared to the recession in 2001-Compared to the recession in 2001-02, the economy is not in recession, 02, the economy is not in recession, but a natural economic slowdown. but a natural economic slowdown.
Economy will continue to slow down Economy will continue to slow down and I believe we will be in recession and I believe we will be in recession if unemployment claims increase.if unemployment claims increase.
Manufacturing SectorManufacturing Sector
ISM IndexISM Index Manufacturing & Trade Inventories & Manufacturing & Trade Inventories &
SalesSales Manufacturing Shipments, Inventories Manufacturing Shipments, Inventories
& Orders& Orders Advanced Reports on Durable GoodsAdvanced Reports on Durable Goods Kansas City Fed Manufacturing SurveyKansas City Fed Manufacturing Survey Richmond Fed Manufacturing SurveyRichmond Fed Manufacturing Survey
ISM IndexISM Index
Manufacturing & Trade Manufacturing & Trade Inventories & SalesInventories & Sales
Manufacturing Manufacturing Shipments, Inventories & Shipments, Inventories &
OrdersOrders
ManufacturingManufacturing
ManufacturingManufacturing
Advanced Report on Durable GoodsAdvanced Report on Durable Goods
1.4% Decrease for March, following 1.4% Decrease for March, following 0.9% decrease for the previous 0.9% decrease for the previous month.month.
ManufacturingManufacturing
Kansas City Fed Manufacturing Kansas City Fed Manufacturing Survey Survey
Production , Shipments 0, New Production , Shipments 0, New Orders , Export Orders , Inventory Orders , Export Orders , Inventory , Employment (3, Employment (3rdrd Month in a row) Month in a row)
ManufacturingManufacturing
Richmond Fed SurveyRichmond Fed Survey
ShipmentsShipments
New OrdersNew Orders
Job Index (still negative)Job Index (still negative)
Inventory 0Inventory 0
Overall Manufacturing IndexOverall Manufacturing Index
PricesPrices
Consumer Price Index (CPI)Consumer Price Index (CPI) Producer Price Index (PPI)Producer Price Index (PPI) Productivity and CostsProductivity and Costs Employment Cost Index (ECI)Employment Cost Index (ECI) Federal Open Market Committee Federal Open Market Committee
(FOMC) (FOMC)
INFLATION INFLATION
InflationInflation: An : An increase in the price increase in the price level of goods and level of goods and services. A rise in services. A rise in the prices of goods the prices of goods and services, as and services, as happens when happens when spending increases spending increases relative to the relative to the supply of goods on supply of goods on the market.the market.
Core InflationCore Inflation: The : The rate of inflation rate of inflation excluding certain excluding certain sectors whose prices sectors whose prices are most volatile, are most volatile, specifically food and specifically food and energy. Core inflation energy. Core inflation is a measure of is a measure of inflation which inflation which excludes certain items excludes certain items that face volatile price that face volatile price movements.movements.
Consumer Price Index Consumer Price Index (CPI)(CPI)
It’s the most popular measure of It’s the most popular measure of price inflation in retail goods and price inflation in retail goods and services. It determines how much services. It determines how much consumers pay for goods and consumers pay for goods and services. It affects the cost of doing services. It affects the cost of doing business, and causes chaos with business, and causes chaos with personal and corporate investmentspersonal and corporate investments
Frequency: MonthlyFrequency: Monthly Market Sensitivity: Very HighMarket Sensitivity: Very High
CPICPI
CPICPI MinimumMinimum 0.7 IN 0.7 IN
YEAR 1959 YEAR 1959 MaximumMaximum 13.5 IN 13.5 IN
YEAR 198YEAR 198 NUMBERS FROM NUMBERS FROM
THE PAST FOUR THE PAST FOUR MONTHS: 4.3, 4, MONTHS: 4.3, 4, 4, 3.9. 4, 3.9.
CORE CPICORE CPI MinimumMinimum 1.2 IN 1.2 IN
YEAR 1965 YEAR 1965 MaximumMaximum 12.4 IN 12.4 IN
YEAR 1980YEAR 1980 NUMBERS FROM NUMBERS FROM
THE PAST FOUR THE PAST FOUR MONTHS: 2.5, 2.3, MONTHS: 2.5, 2.3, 2.4, 2.3. 2.4, 2.3.
Producer Price Index Producer Price Index (PPI)(PPI)
Measures the changes in prices that Measures the changes in prices that manufacturers and wholesalers pay manufacturers and wholesalers pay for goods during various stages of for goods during various stages of production. Any hint of inflation here production. Any hint of inflation here could eventually be passed on to could eventually be passed on to retail level.retail level.
Frequency: MonthlyFrequency: Monthly Market Sensitivity: Very HighMarket Sensitivity: Very High
PPIPPI
PPIPPI MinimumMinimum -1.4 IN -1.4 IN
YEAR 1986 YEAR 1986 MaximumMaximum 15.4 IN 15.4 IN
YEAR 1974YEAR 1974 NUMBERS FROM NUMBERS FROM
THE PAST FOUR THE PAST FOUR MONTHS: 7.4, 6.4, MONTHS: 7.4, 6.4, 6.9, 6.5. 6.9, 6.5.
CORE PPI CORE PPI MinimumMinimum 0.1 IN 0.1 IN
YEAR 2002YEAR 2002 MaximumMaximum 11.4 IN 11.4 IN
YEAR 1974YEAR 1974 NUMBERS FROM NUMBERS FROM
THE PAST FOUR THE PAST FOUR MONTHS: 2.3, 2.4, MONTHS: 2.3, 2.4, 2.7, 3. 2.7, 3.
Productivity and CostsProductivity and Costs Productivity is the output in goods and services Productivity is the output in goods and services
employees produce for each hour of labor worked. It employees produce for each hour of labor worked. It serves as a way of measuring how well companies serves as a way of measuring how well companies are using their employees and their physical capital. are using their employees and their physical capital.
Productivity is by far the most important Productivity is by far the most important determinant in the long-term health and prosperity determinant in the long-term health and prosperity of an economy. of an economy.
Labor costs account for some 70% of all business Labor costs account for some 70% of all business expenses, so if companies are not using workers expenses, so if companies are not using workers efficiently, it’s an enormous waste of resources.efficiently, it’s an enormous waste of resources.
Frequency: QuarterlyFrequency: Quarterly Market Sensitivity: MediumMarket Sensitivity: Medium
Employment Cost Index Employment Cost Index (ECI)(ECI)
This is the most comprehensive measure of This is the most comprehensive measure of labor costs. It tracks changes in the cost of labor costs. It tracks changes in the cost of labor, the single biggest expense companies labor, the single biggest expense companies face.face.
Labor-related outlays on wages, salaries, and Labor-related outlays on wages, salaries, and the range of benefits (vacations, health the range of benefits (vacations, health insurance, and social security) account for 70% insurance, and social security) account for 70% of the cost of making the product. of the cost of making the product.
Frequency: QuarterlyFrequency: Quarterly Market Sensitivity: Medium to highMarket Sensitivity: Medium to high..
The Federal Open The Federal Open Market Committee Market Committee
(FOMC)(FOMC) This is a press release that This is a press release that
announces its decision on where the announces its decision on where the crucial federal funds rate has been crucial federal funds rate has been set.set.
Frequency: Formally the get Frequency: Formally the get together 8 times a year but in the together 8 times a year but in the most extraordinary circumstances most extraordinary circumstances they would meet sooner.they would meet sooner.
Market Sensitivity: VERY HIGHMarket Sensitivity: VERY HIGH
ConclusionConclusion
U.S. is experiencing an economic U.S. is experiencing an economic slowdownslowdown
Some inflation concerns, rising Some inflation concerns, rising energy pricesenergy prices
We decided that rates should stay We decided that rates should stay the samethe same Previous rate reductions still having Previous rate reductions still having
effecteffect Stimulus PackageStimulus Package
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