The State of the U.S. economy Florence Pisani December 6, 2013.

The State of the U.S. economy

Florence Pisani

December 6, 2013

22

The contrast with the euro area is striking: in the US, the recovery did not stopped in mid-2011…

Sources: Thomson Datastream, IMF, Dexia-AM

GDP(2007 = 100)

07 08 09 10 11 12 1396

98

100

102

104

106

108United States

Euro area

8% gap

Cumulative fiscal tightening since 2010 (% of region’s potential GDP)

-1

0

1

2

3

4

5

2010 2011 2012 2013

United States

Euro area

33

… as the government has adjusted the pace of fiscal consolidation to the private sector spending behavior

Sources: Thomson Datastream, Dexia-AM

Financial surplus (+) or deficit (-) by sector(% of GDP)

Private sector

Government

-15

-10

-5

0

5

10

80 83 86 89 92 95 98 01 04 07 10 13

8

10

12

14

16

00 02 04 06 08 10 12

Business sector’s saving and investment

(% of GDP)

Saving

Investment

Financial surplus (+) or deficit (-)(2 quarters moving average, % of GDP)

-6

-4

-2

0

2

4

6

8

00 02 04 06 08 10 12

Households

Business sector

Rest of the World (-)

44

US private balance sheet’s healing process is almost over

55

Households have deleveraged and non financial corporations’ financial health is good


80 84 88 92 96 00 04 08 1215

16

17

18

19

19.5

Household financial obligation ratio (% of disposable income)

Non financial corporations interest paid / cash-flows

(%)

55 60 65 70 75 80 85 90 95 00 05 100

5

10

15

20

25

30

35

Household debt(% of GDP)

80 84 88 92 96 00 04 08 1240

50

60

70

80

90

100

66

Despite the recent rise in mortgage rates, residential investment should continue to increase…


Share of young adults (18-31) living with their parents

(%)

28

30

32

34

36

38

1968 1981 2007 2013

2.4 millions adults

Inventory of homes available for sale

(thousands)

82 86 90 94 98 02 06 10100

200

300

400

500

600

1400

1800

2200

2600

3000

3400

Existing homes [R.H.S.]

New homes0

1

2

3

4

4.5

00 02 04 06 08 10 12

90+ days delinquent

Foreclosure inventory

Stock of seriously delinquent loans

(millions of homes)

Home sales(thousands, annual rate)

00 02 04 06 08 10 12200

400

600

800

1000

1200

1400

1600

3000

3500

4000

4500

5000

5500

6000

6500

Existing homes [R.H.S.]

New homes

77

… and home prices to recover (although at a more “reasonable” pace)


CS home prices by metropolitan area(January 2000 = 100)

National trend

0

50

100

150

200

250

300

87 90 93 96 99 02 05 08 11

Washington

Phoenix

Los AngelesSan DiegoSan Francisco

MiamiTampa

Las Vegas

New York

0

50

100

150

200

250

300

87 90 93 96 99 02 05 08 11

Atlanta

Chicago

Boston

Detroit

Minneapolis

Charlotte Cleveland

Portland

Seattle

“Bubble” areas

“No bubble” areas

National trend

Denver-20

-15

-10

-5

0

5

10

15

20

25

92 94 96 98 00 02 04 06 08 10 12

Home prices(Case Shiller, existing homes, % year on year)

Case Shiller home prices by metropolitan area

(% year on year)

-15

-10

-5

0

5

10

15

20

25

30

Dec. 2011

Dec. 2012 Sep. 2013

99

Less tightening… more growth!

1010

From now on, fiscal policy should weigh less on growth

Sources: CBO, Thomson Datastream, Dexia-AM

-3.0

-2.5

-2.0

-1.5

-1.0

-0.5

-0.6

-0.4

-0.2

0.0

0.2

0.4

07 09 11 13

Contribution to GDP growth

(%)

Budget balance of States and Local entities

(% of GDP)

Stable deficit

Lower deficit

0.0

0.5

80 85 90 95 00 05 10

Government employment (annual change, thousands)

Local entitiesStates

-400

-300

-200

-100

0

100

200

300

400

07 08 09 10 11 12 13

Federal*Total

(*) Corrected for the 2010 Census

stimulation

restriction

-4

-3

-2

-1

0

1

2

3

07 09 11 13

Fiscal restriction(change in structural balance,

general government, % of GDP)

08 10 12 14

1111

Disposable income will cease being affected by tax increases and help consumption grow faster


Household disposable income(contribution, %)

-2

-1

0

1

2

3

4

5

Wag

es a

nd

su

pp

lem

ents

Inco

me

on

ass

ets

So

cial

ben

efit

sle

ss c

on

trib

uti

on

Tax

es

Dis

po

sab

le

inco

me

2012

2013 20

14

Private employment (3mo3m change, monthly rate, thousands)

-800

-600

-400

-200

0

200

400

02 04 06 08 10 12 14

Average weekly hours worked

33.5

34.0

34.5

35.0

02 04 06 08 10 12 14

Hourly earnings(% 3mo3m, annual rate)

0

1

2

3

4

5

02 04 06 08 10 12 14

34.5

170

2.0%

Contribution to private wages growth (% year on year)

Hourly earnings

Employment

Hours worked

Calculated wages

-10

-8

-6

-4

-2

0

2

4

6

8

06 07 08 09 10 11 12 13 14

1313

Wealth effects should push the saving rate lower, but for this to happen, favorable financial conditions are necessary

Source: Thomson Datastream

Household borrowing and saving rates(% of disposable income)

94 97 00 03 06 09 12-6

-4

-2

0

2

4

6

8

10

12

14

-3

-2

-1

0

1

2

3

4

5

6

7

?

Net borrowing rate

Net financial saving rate [R.H.S.]

-6

-4

-2

0

2

4

6

8

10

12

14

94 97 00 03 06 09 12

Other

Consumer creditHome mortgages

Credit market borrowing

Household borrowing(% of disposable income)

1616

After a slowdown in 2013, growth should accelerate towards 2.5% in 2014


2

4

6

8

10

12

95 97 99 01 03 05 07 09 11 13

GDP growth in the United States

Unemployment rate(%)

GDP growth(%, year on year)

2009 2010 2011 2012

-1.6 2.0 2.5 2.2

-16.7 7.0 6.3 8.3

-21.2 -2.5 0.5 12.9

-14.3 9.4 9.2 5.9

-18.9 -16.4 2.1 12.7

-0.8 1.4 -0.2 0.2

3.1 0.1 -3.2 -1.0

1.0 -0.5 0.1 0.1

-9.1 11.5 7.1 3.5

-13.7 12.8 4.9 2.2

13 Q3

1.5

4.0

14.6

-1.4

12.3

0.8

0.0

0.3

4.6

1.8

2.8

12 Q4 13 Q1 13 Q2

1.7 2.3 1.8

11.5 -1.4 7.7

19.8 12.5 14.2

7.6 2.5 4.0

17.5 -25.7 17.6

-1.8 0.9 0.4

-6.5 -4.2 0.0

0.6 -0.3 -0.1

1.1 -1.3 8.0

-3.1 0.6 6.9

0.1 1.1 2.5 -2.8 2.5 1.8 2.8

2013 2014

1.9 2.7

4.5 7.4

14.1 13.5

2.4 4.8

1.8 9.9

0.0 -0.1

-2.0 -0.9

0.1 -0.2

2.6 6.1

1.7 6.1

1.7 2.6

Q/Q annual rate (%)

Consumption

Investment

- Residential

-Equipment & artistic originals

- Structures

Inventory changes (contribution)

Government

External balance(contribution)

- Exports

- Imports

GDP

-6

-4

-2

0

2

4

6

95 97 99 01 03 05 07 09 11 13

1717

Some issues still unsolved

1818

The return to a more “normal” labor market will take more time (I)

Sources: Thomson Datastream, BLS, Dexia-AM

Unemployment rate(%)

90 93 96 99 02 05 08 113

4

5

6

7

8

9

10

11

Involuntary part-time employment(% of labor force)

2

3

4

5

6

7

56 63 70 77 84 91 98 05 12

Employment rate(%)

Employment to population aged 16 & over

90 93 96 99 02 05 08 1158

59

60

61

62

63

64

65

2020

Polarization of job market creations has increased…

-6

-5

-4

-3

-2

-1

0

1

Lower earnings

Medium earnings

Higher earnings

Change in employment by earnings category and sector

(2008-10, millions)

ManufacturingConstructionRetail trade

Administrative and support and waste management and remediation services

Educational services, health care and social assistance

Other net jobs creating sectors

Other net jobs losing sectors

Employmentby earnings category

(millions)

35

37

39

41

43

45

47

05 06 07 08 09 10 11 12

Medium

Lower

Higher

Sources: Thomson Datastream, BLS, Dexia-AM

2121

… inequalities have continued rising and poverty rates are elevated

Source: Emmanuel Saez’s website at University of California, Berkeley, Census Bureau

Poverty rate (%)

Poverty thresholds in 2012 :1 adult : 11 945 $1 family with 2 children = 23 283$

10

12

14

16

18

20

22

24

59 69 79 89 99 09

Top 10% income share in the United State

(%, including capital gains, 1917-2012)

30

35

40

45

50

55

1917 1927 1937 1947 1957 1967 1977 1987 1997 2007

Top 0.1% income share (excluding capital gains, %, 1913-2012)

United States

France

United Kingdom

0

2

4

6

8

10

12

1913 1923 1933 1943 1953 1963 1973 1983 1993 2003

Poverty rate by age (%)

5

10

15

20

25

30

68 73 78 83 88 93 98 03 08

> 65 years

Under 18 years

18-65 years

2222

The Budget debate is not over yet, but the ongoing political drama is distracting attention from longer term fiscal issues

Sources: CBO, Dexia-AM

US federal Budget: CBO forecasts (% of GDP)

Budget balance

-12

-10

-8

-6

-4

-2

0

2

4

808488 92 9600 0408 12 1620 24 28

Receipts and outlays

Outlays

Receipts

14

16

18

20

22

24

26

80 8488 92 9600 04 0812 16 2024 28

Debt held by the public

0

20

40

60

80

100

120

80 88 96 04 12 20 28 36

+3%

0

1

2

3

4

5

6

7

80 88 96 04 12 20 28

Social Security

Medicare

Medicaid &exchange subsidies

Outlays

0

2

4

6

8

10

12

14

80 88 96 04 12 20 28

Other mandatory spending

Discretionary

Net interest

Social Security + health

2323

Conclusions

□ Most of the fiscal restraint has now been absorbed by the US economy: from now on, the pace of growth should pick up.

□ While a “grand fiscal bargain” seems out of reach, some compromise should be found that would fix the current budget issues (i.e. raise the debt ceiling and vote a budget for FY2014). But the weakening of both the Tea Party and President Obama is making the outcome more uncertain.

□ Should growth surprise on the upside, bond rates would be under pressure, but monetary policy should still remain accommodative.

3232

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3333

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The State of the U.S. economy Florence Pisani December 6, 2013.

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