LaSalle Bank ABN AMRO LaSalle Bank ABN AMRO Election-Year Economics A Look at the Pocketbook Issues of 2004 C. Tannenbaum Chief Economist.

LaSalle BankLaSalle BankABN AMROABN AMROLaSalle BankLaSalle BankABN AMROABN AMRO

Election-Year EconomicsElection-Year Economics

A Look at the Pocketbook A Look at the Pocketbook Issues of 2004Issues of 2004

C. TannenbaumC. Tannenbaum

Chief EconomistChief Economist


““It’s the economy, It’s the economy, stupid!”stupid!”

-- Bill Clinton, 1992-- Bill Clinton, 1992


Trends in U.S. GDPTrends in U.S. GDP

-2%

0%

2%

4%

6%

8%

2000 2001 2002 2003

Quarterly Change, AnnualizedQuarterly Change, Annualized

“Potential”


0%

1%

2%

3%

4%

5%

6%

7%

8%

Jan-02 Jul-02 Jan-03 Jul-03 Jan-04

Year over Year Change in Retail Year over Year Change in Retail SalesSalesExcluding Food and AutosExcluding Food and Autos


Index of Industrial Index of Industrial ProductionProduction

102

104

106

108

110

112

114

116

118

Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04


Key ConcernsKey Concerns

The Employment The Employment PuzzlePuzzle


Non-Farm PayrollsNon-Farm PayrollsYear-Over-Year ChangeYear-Over-Year Change

Source: BLSSource: BLS

-2000

-1000

0

1000

2000

3000

4000

thousa

nds

1991 1993 1995 1997 1999 2001 2003


Unemployment and Unemployment and Labor Force Labor Force ParticipationParticipation

65.5

66.0

66.5

67.0

67.5

1995 1998 2001 2004

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

Participation Rate

UnemploymentRate

Percent Rate


Consumer ConfidenceConsumer Confidence

50

70

90

110

130

150

170

January-99 January-00 January-01 January-02 January-03 January-04


Why hasn’t Why hasn’t hiring picked hiring picked up?up?

The $100 Million Question:


Cost of Health Care Benefits Cost of Health Care Benefits

As a Percent of Total Hourly As a Percent of Total Hourly CompensationCompensation

5.5%

6.0%

6.5%

7.0%

7.5%

1998 1999 2000 2001 2002 2003

Source: Source: BLSBLS


Hourly Wages for Hourly Wages for Selected Occupations, Selected Occupations, U.S. vs. IndiaU.S. vs. India

$0

$5

$10

$15

$20

$25

$30

$35

TelephoneOperator

PayrollClerk

Paralegal Accountant FinancialAnalyst

U.S. India

Source: Bardhan and Kroll, Fisher Center for Real Source: Bardhan and Kroll, Fisher Center for Real Estate and Urban Economics, UC BerkeleyEstate and Urban Economics, UC Berkeley


ProductivityProductivity

-5%

0%

5%

10%

1998 1999 2000 2001 2002 2003

Output per Hour, Q-o-Q

Source: BEA


Initial Jobless ClaimsInitial Jobless Claims

250

300

350

400

450

500

550

2000 2001 2002 2003 2004

thousa

nds

of applica

nts

Source: BLSSource: BLS




Deepening DeficitsDeepening Deficits


Deficit and Surpluses Deficit and Surpluses as Percent of GDPas Percent of GDP

-8%

-6%

-4%

-2%

0%

2%

4%

1980 1984 1988 1992 1996 2000 2004estimate

2008estimate

Source: OMB


The Boom is ComingThe Boom is Coming

10

15

20

25

30

35

2003

2005

2007

2009

2011

2015

2025

2035

2045

2055

2065

2075

(% o

f Payr

olls)

Contribution Rate Cost Rate

Source: Social Security Trustees Report

The Future of Social Security


Federal Government: Federal Government: OutlaysOutlays

National defense

InternationalAffairsHealth

Medicare

Income Security

Social Security

Interest

Other


Yield CurveYield CurveU.S. Treasury SecuritiesU.S. Treasury Securities

0%

2%

4%

6%

3 Months Two Years Ten Years

Jan-01 Feb-04

• Rates are at risk if the deficit persists


Housing: Still A Bright Housing: Still A Bright SpotSpot

— Sales and Sales and starts are starts are holding upholding up

— Mortgage Mortgage rates are still rates are still reasonablereasonable

— Carry over Carry over spending to spending to comecome

— Sales and Sales and starts are starts are holding upholding up

— Mortgage Mortgage rates are still rates are still reasonablereasonable

— Carry over Carry over spending to spending to comecome 4.0

5.0

6.0

7.0

8.0

9.0

Jan-01 Jan-02 Jan-03 Jan-04

Existing New

4.0

5.0

6.0

7.0

8.0

9.0

Jan-01 Jan-02 Jan-03 Jan-04

Existing New

U.S. Home Sales

Million

s o

f U

nit

s


S&P 500S&P 500

600

700

800

900

1000

1100

1200

1300

1400

Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04


Sustaining InvestmentSustaining Investment

Diversification is Diversification is EssentialEssential

Reinforcing the Public Reinforcing the Public TrustTrust

Maintaining a Maintaining a Balanced Tax PostureBalanced Tax Posture




Deepening DeficitsDeepening Deficits How Free is Free How Free is Free

Trade?Trade?


Our Trade Our Trade BalanceBalance


Brother, Can You Spare the Brother, Can You Spare the Dollar?Dollar?

1.0

1.1

1.2

1.3

J un-03

Aug-03

Oct-03

Dec-03

Feb-04

A weaker A weaker currency makes currency makes it easier to it easier to exportexport

One notable One notable exception: exception: ChinaChina

How long can How long can this last?this last?

Dollars per Euro


Thoughts on TradeThoughts on Trade

Weak foreign economies limit Weak foreign economies limit demand for U.S. productsdemand for U.S. products

Protectionist measures will Protectionist measures will lead to retaliationlead to retaliation

Who’s responsible for the Who’s responsible for the shift of production and jobs? shift of production and jobs? WeWe are! are!


The ScorecardThe Scorecard

2002 2003E 2004E

Real GDP Growth 2.4% 3.1% 4.7%

Inflation (CPI) 1.6% 2.3% 1.4%

Unemployment 5.9% 5.7% 5.5%

Year-End Fed Rate 1.3% 1.0% 1.5%

2002 2003E 2004E

Real GDP Growth 2.4% 3.1% 4.7%

Inflation (CPI) 1.6% 2.3% 1.4%

Unemployment 5.9% 5.7% 5.5%

Year-End Fed Rate 1.3% 1.0% 1.5%


Closing ThoughtsClosing Thoughts

• The remainder of the year The remainder of the year should see good economic should see good economic performanceperformance

• The risk of underachievement The risk of underachievement is risingis rising

• The election looks like a real The election looks like a real horse race!horse race!


““If the economy If the economy doesn’t improve, doesn’t improve, you’re fired!”you’re fired!”

-- Carl Tannenbaum’s boss, -- Carl Tannenbaum’s boss, 20042004


Election-Year EconomicsElection-Year Economics

A Look at the Pocketbook A Look at the Pocketbook Issues of 2004Issues of 2004

C. TannenbaumC. Tannenbaum

Chief EconomistChief Economist

LaSalle Bank ABN AMRO LaSalle Bank ABN AMRO Election-Year Economics A Look at the Pocketbook Issues of 2004 C. Tannenbaum Chief Economist.

Documents

deficits slide

bls slide

bea slide

omb slide

employment puzzle slide

trade balance slide

uc berkeley slide

annualized potential