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