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James Glassman, JPMorgan Chase & Co. o 212-834-5093; o 212–270–0778; m Economic Outlook Issues, Maine.

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Presentation on theme: "James Glassman, JPMorgan Chase & Co. o 212-834-5093; o 212–270–0778; m Economic Outlook Issues, Maine."— Presentation transcript:

1 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 America’s on the Mend

2 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, The global economy... beyond the mist... Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.

3 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, a Great Awakening Real GDP per capita (2004 dollars, PPP basis) Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.

4 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, Europe matters but so do others Destination of real US exports (billions of dollars over the most recent 12 months) Source: US Department of Commerce. Updated through October 2011.

5 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 US potential and real GDP (chained 2005 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November We’re back, bigger than ever, but still far from home... 5

6 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 US unemployment rate (percent of the labor force) Source: US Department of Labor. Updated through December home being unemployment around 4-6% 6

7 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The US gradually will speed up to a trend-plus pace... why? US real GDP (annualized percent change) Source: US Department of Commerce. Updated through 2011 Q3. 7

8 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Home building boost (contribution in pct. pts. to US real GDP growth over the most recent four quarters) Source: US Department of Commerce. Updated through 2011 Q3. 1) Housing is coming back... 8

9 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Household income and house prices (ratio to 1970) Sources: US Department of Commerce; CoreLogic. Updated through 2011 Q3.... with speculative real estate values corrected... 9

10 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 New housing starts (thousands at an annual rate) Source: US Department of Commerce. Updated through November the housing glut working off... 10

11 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, and hiring stirring for the household-forming demographic Employment-to-population ratios by age cohort (normalized to December 2007) Source: US Department of Labor. Updated through December

12 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income) Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3. 2) The “business” in the business cycle has a ‘green light’... 12

13 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Business investment in capital goods and software (percent change from four quarters earlier) Source: US Department of Commerce. Updated through 2011 Q3.... and once again is on the offensive 13

14 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nominal consumer durable goods purchases (billions of dollars annually) Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3. Pent-up “investment” demand will be a theme... 14

15 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Ratio of nominal consumer durable goods “investment” to nominal outlays for consumer durable goods Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.... because it drives investment... by consumers too 15

16 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Average age of selected types of motor vehicles on the road (years) Source: Bureau of Transportation. Updated through It’ll be driving the motor vehicle industry 16

17 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Selected trade weighted US dollar indexes (March 1973 = 100) Source: Federal Reserve Board. Updated through November ) US manufacturing is back... here’s one reason why 17

18 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) Source: Oil & Gas Journal. Updated through January 6, ) Big discoveries breath new energy into the economy 18

19 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Federal funds rate and 10-year Treasury yield (percent) Source: Federal Reserve Board. Updated through January 6, ) Powerful “monetary” help... the traditional response... 19

20 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Assets held by the Federal Reserve (billions of dollars) Source: Federal Reserve Board. Updated through December 21, and unconventional... 20

21 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The Federal Reserve’s Treasury holdings by maturity (millions of dollars) Source: Federal Reserve Board. Updated through January 2, and the “twist” on that 21

22 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Weekly applications for unemployment insurance (ratio to 2007 Q4 level of claims) Source: US Department of Labor. Updated through January 7, Maine’s layoffs are a bit on the high side 22

23 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (percent change from 12 months earlier) Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (Maine). Hiring lags the national pace... 23

24 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (ratio to 2000 Q4 level) Source: US Department of Labor. Updated through 2011 Q4.... with the recovery tepid so far... 24

25 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Unemployment rate (percent of the labor force) Source: US Department of Labor. Updated through December 2011 (US) and December 2011 (Maine).... but unemployment is edging down 25

26 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (ratio to 2000 Q4 level) Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (state and communities). Bangor, not bad 26

27 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 New housing starts (ratio to July 1990 level) Source: US Census Department. Updated through December 2011 (US) and December 2011 (Maine). Working off the glut 27

28 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Real GDP gap, actual less potential GDP (percent of potential GDP) Sources: US Department of Commerce; JPMorgan Chase & Co.; various academic sources. Updated through 2011 Q3. 28 Recovery has a history, “new normal” doesn’t Forecast

29 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 US potential and real GDP (chained 2005 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November We’re back, bigger than ever, but still far from home... 29

30 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 America’s on the Mend

31 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 A Decade of Cyclical Recovery In Store 31

32 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, The global economy... beyond the mist... Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.

33 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, a Great Awakening Real GDP per capita (2004 dollars, PPP basis) Sources: US Department of Commerce; JPMorgan Chase & Co. Updated through 2011 Q3.

34 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, Europe matters but so do others Destination of real US exports (billions of dollars over the most recent 12 months) Source: US Department of Commerce. Updated through October 2011.

35 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 US potential and real GDP (chained 2005 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC. Updated through November We’re back, bigger than ever, but still far from home... 35

36 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 US unemployment rate (percent of the labor force) Source: US Department of Labor. Updated through December home is unemployment around 4-6% 36

37 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, and where the invisible unemployment vanishes The working population (percentage of the population) Source: US Department of Labor. Updated through December

38 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 P.S. You could say that hidden unemployment is... Those actively in the job market or looking and the dropouts (percentage of the population) Source: US Department of Labor. Updated through December

39 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, as much as the official figures Those actively in the job market or looking and the dropouts (percentage of the population) Source: US Department of Labor. Updated through December

40 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, and jobs for the household-forming demographic Employment-to-population ratios by age cohort (normalized to December 2007) Source: US Department of Labor. Updated through December

41 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Key Drivers 41

42 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The US gradually will speed up to a trend-plus pace... why? US real GDP (annualized percent change) Source: US Department of Commerce. Updated through 2011 Q3. 42

43 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Home building boost (contribution in pct. pts. to US real GDP growth over the most recent four quarters) Source: US Department of Commerce. Updated through 2011 Q3. 1) Housing is coming back... 43

44 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Household income and house prices (ratio to 1970) Sources: US Department of Commerce; CoreLogic. Updated through 2011 Q3.... with speculative real estate values corrected... 44

45 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Debt service (percent of income) Household debt (ratio to disposable personal income) Source: Federal Reserve Board. Updated through 2011 Q3. 45 [P.S. Don’t worry about household leverage]

46 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 New housing starts (thousands at an annual rate) Source: US Department of Commerce. Updated through November the housing glut working off... 46

47 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, and hiring stirring for the household-forming demographic Employment-to-population ratios by age cohort (normalized to December 2007) Source: US Department of Labor. Updated through December

48 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 After-tax GDP profits of all US businesses (percent of nominal Gross Domestic Income) Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3. 2) The “business” in the business cycle has a ‘green light’... 48

49 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Business investment in capital goods and software (percent change from four quarters earlier) Source: US Department of Commerce. Updated through 2011 Q3.... and is in expansion mode 49

50 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Business investment in capital goods and software (percent or nominal GDP) Source: US Department of Commerce. Updated through 2011 Q3.... and has reason to do more 50

51 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nominal consumer durable goods purchases (billions of dollars annually) Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3. Pent-up “investment” demand will be a theme... 51

52 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Ratio of nominal consumer durable goods “investment” to nominal outlays for consumer durable goods Sources: Federal Reserve Board; US Department of Commerce. Updated through 2011 Q3.... because it drives investment... by consumers too 52

53 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Average age of selected types of motor vehicles on the road (years) Source: Bureau of Transportation. Updated through It’ll be driving the motor vehicle industry 53

54 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Selected trade weighted US dollar indexes (March 1973 = 100) Source: Federal Reserve Board. Updated through November #3. US manufacturing is back... here’s one reason why 54

55 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) Source: Oil & Gas Journal. Updated through January 6, ) Big finds breathing new energy into the economy 55

56 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Federal funds rate and 10-year Treasury yield (percent) Source: Federal Reserve Board. Updated through January 6, #5. Powerful “monetary” help... the traditional response... 56

57 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Assets held by the Federal Reserve (billions of dollars) Source: Federal Reserve Board. Updated through December 21, and unconventional... 57

58 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The Federal Reserve’s Treasury holdings by maturity (millions of dollars) Source: Federal Reserve Board. Updated through January 2, and a “twist” on that 58

59 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Maine 59

60 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Weekly applications for unemployment insurance (ratio to 2007 Q4 level of claims) Source: US Department of Labor. Updated through January 7, Maine’s layoffs are a bit on the high side 60

61 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (percent change from 12 months earlier) Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (Maine). Hiring lags the national pace... 61

62 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (ratio to 2000 Q4 level) Source: US Department of Labor. Updated through 2011 Q4.... with the recovery tepid so far... 62

63 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Unemployment rate (percent of the labor force) Source: US Department of Labor. Updated through December 2011 (US) and December 2011 (Maine).... but unemployment is edging down 63

64 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm payroll employment (ratio to 2000 Q4 level) Source: US Department of Labor. Updated through December 2011 (US) and November 2011 (state and communities). Bangor, not bad 64

65 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 New housing starts (ratio to July 1990 level) Source: US Census Department. Updated through December 2011 (US) and December 2011 (Maine). Working off the glut 65

66 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Europe... Several Degrees of Separation 66

67 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, Europe’s fiscal problems are cyclical (temporary), like ours Central government fiscal balance (percent of GDP) Sources: Congressional Budget Office; Eurostat

68 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, Deficits come with the recession territory Central government fiscal balance (percent of GDP) Sources: Congressional Budget Office; Eurostat

69 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, … in the US, for example … Actual and cyclically-adjusted fiscal balance (percent of GDP) Sources: Congressional Budget Office; Eurostat

70 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, … and in Europe Actual and cyclically-adjusted fiscal balance, euro area 16 (percent of GDP) Sources: Congressional Budget Office; Eurostat

71 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, The bank funding channel, nothing like 2008 Interest rates in the funding markets (percent per annum) Source: Federal Reserve Board. Updated through January 6, 2012.

72 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, The credit channel, nothing like 2008/09 Borrowing rates for noninvestment grade debt less 10-year Treasury yield (basis points) Sources: Federal Reserve Board; J.P. Morgan LLC; Updated through December 30, 2011.

73 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, The stock market channel, a dichotomy Selected equity indexes (ratio to October 9, 2007 peak) Source: Dow Jones. Updated through November 4, 2011.

74 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, International trade linkages... diversification is good Real US exports (billions of dollars over the most recent 12 months) Source: US Department of Commerce. Updated through October 2011.

75 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, China bashing is so “dark ages” Real GDP per capita (chained 2005 dollars) Source: US Department of Commerce. Updated through 2011 Q3.

76 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Confusion About Macro-policy Tools  Monetary policy  Fiscal Policy  Regulatory Policy 76

77 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Monetary base (billions of dollars) M2 (billions of dollars) Source: Federal Reserve Board. Updated through November Nothing treasonous (inflationary) about the Fed’s response 77

78 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 PCE inflation (percent change from 12 months earlier) Source: US Department of Commerce. Updated through November With inflation settling below the Fed’s 2% goal 78

79 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The structural deficit is the issue, not the cyclical deficit Cyclical and structural federal budget projections (percent of GDP) Sources: Congressional Budget Office. Updated through August

80 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 We need a rethink (reform), not usual suspects (more taxes) Long-term projections (percent of GDP) Source: Congressional Budget Office. Updated through August

81 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Securitized Finance Under Siege 81

82 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 The financial crisis and the rise of securitized finance Long-term projections (percent of GDP) Source: Congressional Budget Office. Updated through 2011 Q3. 82

83 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Regulatory policy needs to get countercyclical Tier 1 regulatory capital of domestic banks (percent of risk weighted assets) Source: Congressional Budget Office. Updated through August

84 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Globalization and Social Stress 84

85 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 First, get the facts straight Real labor pay (1982 – 84 dollars per hour) Real median income (2005 dollars) Sources: US Depts. of Labor and Commerce. Updated through Nov (comp. and wages) and 2010 (med. Inc.). 85

86 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Nonfarm business labor productivity growth (percent change from four quarters earlier) Sources: US Depts. of Labor and Commerce. Updated through Nov (comp. and wages) and 2010 (med. inc.). First, get the facts straight 86

87 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Pay versus productivity decouples Labor productivity and real hourly compensation, nonfarm business sector (1985 = 1.0) Sources: US Department of Labor; US Department of Commerce. Updated through 2011 Q3. 87

88 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 After-tax business profits, GDP basis (percent of nominal GDP) Sources: NBER recession bars; US Department of Commerce. Updated through 2011 Q3. Those on the front lines see it first 88

89 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Conclusion: Bet an the Old Normal... Recovery 89

90 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 Real GDP gap, actual less potential GDP (percent of potential GDP) Sources: US Department of Commerce; JPMorgan Chase & Co.; various academic sources. Updated through 2011 Q3. 90 Recovery has a history, “new normal” doesn’t Forecast

91 James Glassman, JPMorgan Chase & Co. o ; o 212–270–0778; m Economic Outlook Issues, Maine Bankers Association, Freeport, Maine, February 2, 2012 A The material contained herein is intended as a general market commentary. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness. To the extent indices have been used in this presentation, please note that it is not possible to invest directly in an index. Projections or forecasts are shown for illustrative purposes only. Past performance is not a guarantee of future results. Not all investment ideas referenced are suitable for all investors. These recommendations may not be suitable for all investors. Speak with your J.P. Morgan representative concerning your personal situation. This material is not intended as an offer or solicitation for the purchase or sale of any financial instrument. © JP Morgan Chase & Co. All rights reserved. 91


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