P B C T 1 Economic Environment: Economic Environment: Has Connecticut Joined the Has Connecticut Joined the Recovery? Recovery? Southern New England Southern New England Economic Summit & Outlook 2004 Economic Summit & Outlook 2004 May 14, 2004 Todd P. Martin Economic Advisor People’s Bank 203.218-9825 [email protected]
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PBCTPBCT 1 Economic Environment: Has Connecticut Joined the Recovery? Southern New England Economic Summit & Outlook 2004 May 14, 2004 Todd P. Martin Economic.
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Economic Environment: Economic Environment:
Has Connecticut Joined the Recovery?Has Connecticut Joined the Recovery?
Southern New England Southern New England Economic Summit & Outlook 2004Economic Summit & Outlook 2004
May 14, 2004
Todd P. MartinEconomic AdvisorPeople’s Bank203.218-9825 [email protected]
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The Fed is on hold … For Now
"As I have noted previously, the federal funds rate must rise at some point to prevent pressures on price inflation from eventually emerging. As yet, the protracted period of monetary accommodation has not fostered an environment in which broad-based inflation pressures appear to be building. But the Federal Reserve recognizes that sustained prosperity requires the maintenance of price stability and will act, as necessary, to ensure
that outcome. ”
Testimony of Chairman Alan Greenspan
Before the Joint Economic Committee, U.S. Senate April 21, 2004
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US Economic Backdrop US Economic Backdrop
• The economic momentum that began in the second half of 2003 is carrying through into 2004. The combination of low interest rates, stimulative fiscal policy, outstanding productivity, and stronger corporate profits should result in real GDP growth of approximately 4%+ this year.
• The Fed has begun to set the stage for higher rates. The fed funds rate should remain at a 46-year low of 1.0% until at least the June or August 2004 FOMC meeting and move towards 1.5% by year-end. 10-year T-note yields should trend slightly higher (5%) by the end of 2004.
• Inflation is well contained, but concerns about the future are increasing.
Major discrepancies between labor surveysMajor discrepancies between labor surveys
Source: The Conference Board, BLS, People’s Bank
Household vs. Establishment Survey Change (000's) since 11/01 (SA)
(1,500)
(1,000)
(500)
-
500
1,000
1,500
2,000
2,500
3,000
Household Survey
Establishment Survey
- 323,000
+ 2.1million
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Jobless Claims at the lowest level since Jan. 2001Jobless Claims at the lowest level since Jan. 2001
Source: Bloomberg, BLS, People’s Bank
US Weekly Initial Jobless Claims - 4 week MA
200.0
250.0
300.0
350.0
400.0
450.0
500.0
550.0Ja
n-89
Jul-8
9Ja
n-90
Jul-9
0Ja
n-91
Jul-9
1Ja
n-92
Jul-9
2Ja
n-93
Jul-9
3Ja
n-94
Jul-9
4Ja
n-95
Jul-9
5Ja
n-96
Jul-9
6Ja
n-97
Jul-9
7Ja
n-98
Jul-9
8Ja
n-99
Jul-9
9De
c-99
Jun-
00De
c-00
Jun-
01De
c-01
Jun-
02De
c-02
Jun-
03De
c-03
Below 400,000 for 5-months
Similar Pattern to early 1990s?
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The US creates - and destroys - more jobsThe US creates - and destroys - more jobs
Source: Tom Peters “Re-Imagine”
Total jobs lost & created – 1980 – 1998 – US vs. Europe (millions)
-44
73
29
04 4
-60
-40
-20
0
20
40
60
80
Job Losses Job Gains Net Gain
US Europe
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Outsourcing will continue Outsourcing will continue
Quotes:
“We will never again be as dominant as we are today. But we can remain in the top spot as long as we obsess on five things: Research-Innovation, Entrepreneurship, Education, Free Trade-Open Society, Self-Reliance”
[Tom Peters: Off-shoring" Manifesto/Rant: Twenty Hard Truths about Inevitabilities, Pitfalls, and Matchless Opportunities ]
“The Americans’ self-image that this tech thing was their private preserve is over. This is a wake-up call to U.S. workers to redouble their efforts at education and research. If they do that it will spur a whole new cycle of innovation, and we’ll both win. If we each pull down our shutters, we will both lose."
[Indian software exec to Tom Friedman/New York Times]
"The notion that God intended Americans to be permanently wealthier than the rest of the world, that gets less and less likely as time goes on."
[Robert Solow, Nobel Laureate in Economics]
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Productivity is remarkably strongProductivity is remarkably strong
Source: Conference Board,BLS, People’s Bank
Index, Nonfarm Business Sector, Output per Hour, All Persons
Transformation: %Chg, YA Source: Bureau of Labor Statistics
-2
0
2
4
6
8
89 90 91 92 93 94 95 96 97 98 99 00 01 02 03
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Consumers are worried about jobs & IraqConsumers are worried about jobs & Iraq
Source: The 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 03 04
1985=100
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Capital Spending has rebounded nicelyCapital Spending has rebounded nicely
Source: Conference Board,BEA, People’s Bank
Investment, Equipment and Software (CW$)
Transformation: %Chg, YA Source: Bureau of Economic Analysis
SummarySummary• Economic growth continues to improve in 2004 due to: low rates - fiscal stimulus -
productivity - corporate profits - capital spending - weaker dollar
• Fed’s “Patience” is coming to and end – tightening of monetary policy should begin by August 2004.
• Connecticut economic growth has lagged the US - meaningful job growth not likely until 2005 - Higher taxes, higher costs, impeachment hearings are not helping recovery
• Watch: Jobless Claims - employment - purchasing managers’ index - oil prices - home prices - consumer confidence
• Risks: Companies don’t hire - Iraq & Middle East - nasty election year - more terrorist attacks - higher oil prices - stock correction - deficits