What Is Next for US Economy presented by Rodney Johnson Dent Research Boom & Bust Survive and Prosper.

What Is Next for US Economy

presented by

Rodney Johnson

Dent Research

Boom & Bust

Survive and Prosper

Data Source: Bureau of Economic Analysis, 2012

Real Personal Consumption Expenditures 1995-2012

Bil

lio

ns

of

Ch

ain

ed

200

5 D

oll

ars

Missing Growth

18-22

Single

22-30

Young

Married

31-42

Young

Family

46-50

Family,

College

Kids

50+

Empty

Nesters 60+

Retired

Changes in Spending at each Age & Stage of Life

Spending By Age

2,500,000

3,000,000

3,500,000

4,000,000

4,500,000

5,000,000

5,500,000

1930 1950 1970 1990 2010

Immigration Adjusted Birth IndexIm

mig

rati

on

Ad

just

ed B

irth

s

1940 1950 1960 1970 1980 1990 2000 2010 2020 2030

Spring Summer Fall Winter

Stocks/ Economy

Generation Spending Boom

Consumer Prices/ Inflation

Simple Four Season Economic Cycle Eighty Years in Modern Times

Source: HS Dent

Daily Consumer Spending2008-2012

Data Source: Gallup.com, 2012

Not Soup Lines Like This

Instead, In the Mail

Americans on Disability

Tough Road Ahead for Jobs

Fall in Real Median Household Income Since 2000

Ind

ex 1

00=

200

0

Data Source: U.S. Census Bureau, 2012

Drop in Pay for Re-Employed%

of

Re-

Em

plo

yed

Th

at L

ost

Pay

Amount of Pay Reduction

Data Source: “Out of Work and Losing Hope: The Misery and Bleak Expectations of American Workers,” Cliff Zukin, Carl Van Horn, Charley Stone. 9/2011

Drop in Pay for Re-Employed by Age

% o

f R

e-E

mp

loye

d

Amount of Pay Reduction

Data Source: “Out of Work and Losing Hope: The Misery and Bleak Expectations of American Workers,” Cliff Zukin, Carl Van Horn, Charley Stone. 9/2011

Comparing Jobs Lost to Jobs Gained

Use a matrix of three levels of pay to compare jobs lost to those gained (each a third of 2008 employment) -

Lower wage - $7.69/hr. to $13.83/hr

($16,049 to $28,863)

Median wage - $13.84/hr to $21.13/hr

($28,884 to $44,098)

Upper wage - $21.14/hr to $54.55/hr

($44,119 to $113,845)

Comparing Jobs Lostto Jobs Gained

Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth.

Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth.

Higher-wage occupations were 19 percent of recession job losses, and 20 percent of recovery growth.

Comparing Jobs Lostto Jobs Gained

Comparing Jobs Lostto Jobs Gained

Comparing Jobs Lostto Jobs Gained

Comparing Jobs Lostto Jobs Gained

Comparing Jobs Lostto Jobs Gained

`

`

Home Purchase Applications1990-2013

Ind

ex 1

00=

199

0

Data Source: Bloomberg, 2013

New Home Completions 1990-2012

Data Source: St. Louis Federal Reserve, 2013

New Home Sales 1963 – September 2012

Data Source: Calculated Risk, US Census Bureau, 2012

Sea

son

ally

Ad

just

ed In

Th

ou

san

ds

U.S. Spending on Construction 1990-2012

Data Source: St. Louis Federal Reserve, 2013

Bill

ion

s

Construction as Percent of GDP 1990-2012

Data Source: St. Louis Federal Reserve, 2013

Total Construction Workers 1990-2013

Data Source: St. Louis Federal Reserve, 2013

Construction Workers, Share of All Employees, 1990-2013

Data Source: St. Louis Federal Reserve, 2013

The Face of the Recovery

Share of Job Gains and Losses Since June 2009

Data Source: Bureau of Labor Statistics, 2012

+3.8 Million

+781 Thousand

-479 Thousand

-842 Thousand

Percent of Part Time Workers1968-2012

Data Source: Bureau of Labor Statistics, 2012

The Blunt Instruments of Government

US Government

deficit spending, targeted stimulus

Federal Reserve

interest rates, bond purchases, printing dollars

The Fed Is Here to Help!

Federal Reserve Balance Sheet2000-2013

Data Source: St. Louis Federal Reserve, 2013

Outcomes – Desired vs.. Actual

Wanted –inflation expectations, increased borrowing and spending, falling unemployment, higher wages, asset inflation (re-inflation)

Got –split prices – deflation in services and real estate, inflation in commodities – local vs.. global

Who Gets Helped, Who Gets Hurt?

QE favors real assets, hurts dollars, so the question becomes, what is more important to your household, real dollars (dividends, interest, paycheck) or assets such as stocks, metals, commodities?

Assets Income

Who Gets Helped, Who Gets Hurt?

Wealthy households tend to hold assets, poor households tend to rely on income. While higher food/energy costs might annoy rich households, the increase in their assets more than offsets the price difference. Not so for the poor.

Affluent households own more hard assets

Modest households rely on earned income

Percent of After-Tax Income Spent on Food and Energy by Income

Source: U.S. Bureau of Labor Statistics, CEX, 2009

Inflation since 2000Through September 2012

Data Source: Bureau of Labor Statistics, HS Dent, 2012

CPI

Core CPI Categories

Dollars Spent on Essential and Non-Essentials vs.. Inflation (2000- Sept. 2012) on Those Items

Data Source: Bureau of Labor Statistics, HS Dent, Bloomberg; 2012

Young Families

Peak Spending Retirees

Growth of Consumer Credit2006-2011

Data Source: Federal Reserve Flow of Funds Report, 2012

Ind

ex 1

00=

200

6

The Term for Where We Are: Financial Repression

When interest rates are held artificially low given the rate of inflation, resulting in savers

being taxed/punished in order to provide borrowers greater incentives/benefits

Normal Yield Curve

US Treasury Yield Curve 5/1/1995(normal market)

www.treasurydirect.gov

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

7.00%

8.00%

1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr

CPI 2.8%

Real Rate of Return

Yield Curve Manipulated

While US Economy Not Shrinking, Growth Is

Anemic at Best

U.S. Federal Government Spending vs. Receipts, 1980-2011

Data Source: Bureau of Economic Analysis, 2012

In B

illio

ns

Distribution of Federal Spending

Data Source: Office of Management and Budget, 2012

Recent Tax Increases and Spending Cuts

Payroll Tax $126 billion

Unemployment 12

ACA – personal 24

Bush-era Upper 56

Sequestered Cuts 45

Total $263 billion in Tax Cuts / Spending Reductions at Federal

Level

State Budget Gaps

Source: Center on Budget and Policy Priorities, 2012

How States Closed Budget Gaps

What A Major Downturn Could Bring

• Tremendous reduction in private debt outstanding – another $5 trillion at least

• Commensurate reduction in mortgage debt, freedom of workers to move

• Continued reduction in home values so that next generation can afford them

• Wage reduction to make US more competitive with other labor markets

What A Major DownturnCould Bring

• Actually, a lot has already occurred…what an economic downturn HAS BROUGHT…– Debt reduction, lower home values, falling

wages

What we are missing is falling prices outside of homes, thanks to the Fed and other central banks. We have not given commodity prices the opportunity to reset with other areas of life.

What Lies Ahead

Anemic US growth, Euro crises, deleveraging, and more Fed action

The US as well as other economies is facing a very difficult future, but stocks are near all time highs. Are they worth it? Does it feel like we should be at historic highs, given stubborn unemployment, unbalanced books, falling real wages, and Fed intervention?

Be careful, and be cautious. Expect tough times ahead.

What About the Next Generation?

Falling Pay for College Graduates, 2000-2011

Data Source: U.S. Census Bureau, 2013

Borrowers and Balances

Young People with Student Debt

Share of Borrowers Late

Effect of Recession on Household Composition, 1989-2012

Source: US Census Bureau, 2012