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Presentation on theme: "Making the Transition From Recovery to Expansion AUGUSTINE FAUCHER, DIRECTOR OF MACROECONOMICS FROM MOODY’S ECONOMY.COM."— Presentation transcript:


2 2 The Great Recession Is Over… Recessions since World War II Sources: NBER, BEA, FRB, BLS, Moody’s Duration in MonthsPeak-to-Trough % ChangeJobless Rate PeakTrough Recession Peak to Trough Expansion Trough to Peak Real GDP Industrial Production Nonfarm EmploymentLowHighChange Dec-07Aug-092073-3.9%-19.2%-6.2%4.4%10.6%6.2% Mar-01Nov-018120-0.4%-6.3%-2.0%3.8%6.3%2.5% Jul-90Mar-91892-1.3%-4.3%-1.5%5.0%7.8%2.8% Jul-81Nov-821612-2.9%-9.5%-3.1%7.2%10.8%3.6% Jan-80Jul-80658-2.2%-6.2%-1.3%5.6%7.8%2.2% Nov-73Mar-751636-3.1%-14.8%-2.7%4.6%9.0%4.4% Dec-69Nov-7011106-1.0%-5.8%-1.4%3.4%6.1%2.7% Apr-60Feb-611024-1.3%-6.2%-2.3%4.8%7.1%2.3% Aug-57Apr-58839-3.8%-12.7%-4.4%3.7%7.5%3.8% Jul-53May-541045-2.7%-9.0%-3.3%2.5%6.1%3.6% Nov-48Oct-491137-1.7%-8.6%-5.1%3.4%7.9%4.5% Average1057-2.0%-8.3%-2.7%4.4%7.6%3.2%

3 FROM MOODY’S ECONOMY.COM3 …With Some Areas Expanding As of October 2009 Expansion At Risk Recovery In Recession Moderating Recession

4 FROM MOODY’S ECONOMY.COM4 Policymakers Stabilize the Banking System… Bear hedge funds liquidate Bank funding problems Difference between 3-mo Libor and Treasury bill yields Bear Stearns collapse Lehman failure Fannie/Freddie takeover TARP fails to pass Congress No asset purchases Stress tests

5 FROM MOODY’S ECONOMY.COM5 …And Fiscal Stimulus Provides a Vital Boost Source: Moody’s Contribution to real GDP growth, %

6 FROM MOODY’S ECONOMY.COM6 Job Creation Craters… Rate of job creation and destruction, % Job Creation Source: BLS Job Destruction

7 FROM MOODY’S ECONOMY.COM7 Source: BLS y = -0.48x + 3.40 R2 = 0.32 2009Q3 Unemployment rate=9.6% Natural rate=5.4% Compensation growth=1.5% …Threatening to Undermine Compensation… 1985Q1-2009Q3

8 FROM MOODY’S ECONOMY.COM8 …But Fiscal Policymakers Are Responding »Recently passed: $45 billion in more aid to unemployed workers, extension and expansion of homebuyer tax credit, extended higher conforming loans limits, and NOL. »High odds of passage: $100 billion in aid for workers losing jobs in 2010. »Better than even odds of passage: $50 billion in more SBA lending, job tax credit, weatherization program. »Even odds of passage: $50 billion in another round of help to financially stressed state and local government for FMAP.

9 FROM MOODY’S ECONOMY.COM9 More House Price Declines Are Coming… Case Shiller ® Home Price Index: 2000Q1 = 100 Sources: Equifax, Moody’s -38% U.S. Vermont

10 FROM MOODY’S ECONOMY.COM10 …In Much of the Country Projected home price correction from current (2009Q2) to trough, % Sources: Fiserv, FHFA, Moody’s > 0% 0% to -10% -10% to -15% < -15% U.S. = -11%

11 FROM MOODY’S ECONOMY.COM11 Foreclosures Are Key to Pricing… Sources: Fiserv, Equifax, Moody’s House price growth, % change (R) Foreclosure share of sales, % (L)

12 FROM MOODY’S ECONOMY.COM12 Sources: Equifax, Moody's …And Foreclosures Continues to Mount… Ths of loans

13 FROM MOODY’S ECONOMY.COM13...Especially on the Coasts First mortgage delinquency rate, change 2006Q3 to 2009Q3, ppt Sources: Equifax, Moody’s <2.00 2.00 to 3.25 3.25 to 7.00 >7.00

14 FROM MOODY’S ECONOMY.COM14 Millions of Homeowners Sink Underwater… Number of underwater homeowners, ths Sources: Equifax, Moody’s

15 FROM MOODY’S ECONOMY.COM15 …And Strategic Defaults Are on the Rise 90 Days and Over Delinquency Rate, % of #, by CLTV, 30-35% DTI Sources: Equifax, Moody’s

16 FROM MOODY’S ECONOMY.COM16 The Modification Plan May Need Modification

17 FROM MOODY’S ECONOMY.COM17 Credit Markets Remain Dysfunctional… Bond issuance, $ bil, annualized Source: Thomson Reuters

18 FROM MOODY’S ECONOMY.COM18 …But the Fed Will Remain Aggressive… Sources: Federal Reserve, Moody’s

19 FROM MOODY’S ECONOMY.COM19 …Even Committing to More Credit Easing Sources: Freddie Mac, Federal Reserve Fed holdings of Fannie and Freddie MBS, $ bil (R) Difference between Freddie mortgage rate and 10-year Treasury yield (L)

20 FROM MOODY’S ECONOMY.COM20 Can We Change This Forecast? Federal debt-to-GDP ratio under the president’s budget Source: CBO

21 ImprovingExpanding SlippingContracting Annualized 3 mo. % change on 3 mo. MA NOTE: Size reflects relative employment % change year ago, October 2009, 3 mo. MA Middle Atlantic New England South Atlantic Vermont Is Outperforming U.S. and Northeast… One-year vs. 3-month performance Northeast States New York Pennsylvania New Jersey Massachusetts Connecticut New Hampshire Maine Rhode Island Vermont Maryland District Of Columbia Delaware U.S.

22 FROM MOODY’S ECONOMY.COM22 …But Will Lag In The Recovery Sources: BLS, Moody’s Employment, % change year ago U.S. Vermont

23 FROM MOODY’S ECONOMY.COM23 Economic Timeline Source: Moody’s 09Q109Q2 09Q309Q410Q110Q2 10Q4 11Q111Q2 11Q311Q4 Stock market trough Extraordinary bank failures end Home sales bottom Housing starts bottom Employment bottoms House prices bottom Foreclosures peak Jobless rate peaks House prices resume rising Economic downturn ends Self-sustaining expansion begins Banking system stabilizes Retailing firms 10Q3 Securities markets up and running Fed raises rates Inflation accelerates Fiscal pressures intensify


25 FROM MOODY’S ECONOMY.COM25 © 2009 Moody’s Analytics, Inc. and/or its licensors and affiliates (collectively, “MOODY’S”). All rights reserved. ALL INFORMATION CONTAINED HEREIN IS PROTECTED BY COPYRIGHT LAW AND NONE OF SUCH INFORMATION MAY BE COPIED OR OTHERWISE REPRODUCED, REPACKAGED, FURTHER TRANSMITTED, TRANSFERRED, DISSEMINATED, REDISTRIBUTED OR RESOLD, OR STORED FOR SUBSEQUENT USE FOR ANY SUCH PURPOSE, IN WHOLE OR IN PART, IN ANY FORM OR MANNER OR BY ANY MEANS WHATSOEVER, BY ANY PERSON WITHOUT MOODY’S PRIOR WRITTEN CONSENT. All information contained herein is obtained by MOODY’S from sources believed by it to be accurate and reliable. Because of the possibility of human or mechanical error as well as other factors, however, all information contained herein is provided “AS IS” without warranty of any kind. Under no circumstances shall MOODY’S have any liability to any person or entity for (a) any loss or damage in whole or in part caused by, resulting from, or relating to, any error (negligent or otherwise) or other circumstance or contingency within or outside the control of MOODY’S or any of its directors, officers, employees or agents in connection with the procurement, collection, compilation, analysis, interpretation, communication, publication or delivery of any such information, or (b) any direct, indirect, special, consequential, compensatory or incidental damages whatsoever (including without limitation, lost profits), even if MOODY’S is advised in advance of the possibility of such damages, resulting from the use of or inability to use, any such information. The ratings, financial reporting analysis, projections, and other observations, if any, constituting part of the information contained herein are, and must be construed solely as, statements of opinion and not statements of fact or recommendations to purchase, sell or hold any securities. NO WARRANTY, EXPRESS OR IMPLIED, AS TO THE ACCURACY, TIMELINESS, COMPLETENESS, MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF ANY SUCH RATING OR OTHER OPINION OR INFORMATION IS GIVEN OR MADE BY MOODY’S IN ANY FORM OR MANNER WHATSOEVER. Each rating or other opinion must be weighed solely as one factor in any investment decision made by or on behalf of any user of the information contained herein, and each such user must accordingly make its own study and evaluation of each security and of each issuer and guarantor of, and each provider of credit support for, each security that it may consider purchasing, holding, or selling.

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