When Will It End? Presented by: Augustine Faucher, Director of Macroeconomics Presented by: Augustine Faucher, Director of Macroeconomics January 12, 2009

2 How Bad Is It?

3 The Recession Is Intensifying… Cumulative job loss, ths

4 Expansion Recovery At Risk In Recession …Across Most States… Based on employment and industrial production, November 2008

5 Expansion Recovery At Risk In Recession Based on employment and industrial production, November 2008 …And Metro Areas

6 Household debt in delinquency or default, $ bil, annualized Sources: Equifax, Moody’s Economy.com …As Households Buckle Under The Stress

ImprovingExpanding SlippingContracting Annualized 3-mo. % change NOTE: Size reflects relative total employment Chart 7: One-year vs. 3-month performance (3-mo. MA) % change year ago November 2008 [-3.07,-4.52] Middle Atlantic New England South Atlantic May 2008 Northeast States Northeast States—Payroll Employment New York Pennsylvania New Jersey Massachusetts Connecticut New Hampshire Maine Rhode Island Vermont Maryland District Of Columbia Delaware U.S. [1.67,1.06] [-2.01,-4.05]

ImprovingExpanding SlippingContracting Annualized 3-mo. % change NOTE: Size reflects relative total employment Chart 8: One-year vs. 3-month performance (3-mo. MA) % change year ago Middle Atlantic New England South Atlantic Northeast States November 2008 Northeast States—Payroll Employment New York Pennsylvania New Jersey Massachusetts Connecticut New Hampshire Maine Rhode Island Vermont Maryland District Of Columbia Delaware U.S. [-3.07,-4.52]

ImprovingExpanding SlippingContracting Annualized 3-mo. % change NOTE: Size reflects relative total employment Chart 9: One-year vs. 3-month performance (3-mo. MA) % change year ago November 2008 Middle Atlantic New England South Atlantic May 2008 Northeast Metro Areas Northeast Metro Areas—Payroll Employment New York Philadelphia Nassau Pittsburgh Edison Newark Buffalo Camden Rochester Albany Harrisburg Syracuse Trenton Boston Providence Hartford Bridgeport New Haven Springfield Portland Manchester Washington Baltimore Bethesda Wilmington U.S. [1.08,2.13] [-1.82,-4.19] [-2.6,-3.88]

ImprovingExpanding SlippingContracting Annualized 3-mo. % change NOTE: Size reflects relative total employment Chart 10: One-year vs. 3-month performance (3-mo. MA) % change year ago Middle Atlantic New England South Atlantic Northeast Metro Areas November 2008 Northeast Metro Areas—Payroll Employment New York Philadelphia Nassau Pittsburgh Edison Newark Buffalo Camden Rochester Albany Harrisburg Syracuse Trenton Boston Providence Hartford Bridgeport New Haven Springfield Portland Manchester Washington Baltimore Bethesda Wilmington U.S. [-2.6,-3.88]

11 Estimated industrial production, 2002=100 (R) Source: Moody's Economy.com Connecticut Falls Into Recession Employment, % change year ago

12 Unemployment rate, % (L) Rapid Weakening in Connecticut Labor Market Initial unemployment insurance claims, ths (R) 3 mo. MA

13 How Did We Get Into This Mess?

14 The Bursting Housing Bubble… Fiserv Case Shiller National House Price Index, 2000Q1= % -6% U.S. CT

15 Sources: Equifax, Moody's Economy.com First mortgage loan defaults, ths, SAAR …Ignites a Mortgage Crisis…

16 Projected losses on assets originated 2004Q1-2007Q4, $ bil At risk mortgages20,000,000 Foreclosure rate40% Foreclosed mortgages8,000,000 Loss rate50% Mortgage loss$800 bil Residential mortgages Consumer loans Commercial mortgages Corporate …Undermining the Financial System…

17 Difference between 3 month Libor and Treasury bill yields …And Pushing It to the Precipice of Collapse S&L crisis Subprime financial shock Peso crisis LTCM Tech bust Orange County Thai baht Y2K

18 What Is the Economic Fallout?

19 The Worst Downturn Since the Great Depression Recessions since World War II

20 Bond issuance, $ bil, annualized, Source: Thomson The Credit Spigot Closes…

21 Net % tightening standards, Source: Federal Reserve …And Banks Are In Survival Mode

22 The Collective Psyche Has Been Shattered… Consumer confidence, 1985 = 100 Source: Conference Board

23 Net % of businesses responding positively to Dismal survey Source: Moody’s Economy.com …Completely Shattered

24 Nest Eggs Crack… Household net worth, $ tri Stocks -9 Housing -4 Other +1

25 Median sale price, existing single-family home, 6 mo. lead (L) Source: NAR Core retail sales, 3 mo. MA (R) …Forcing Consumers to Batten Down the Hatches… % change year ago

26 Personal saving rate, % Source: Moody's Economy.com...Particularly Profligate Homeowners

RecoveryExpansion StrugglingRecession Annualized % change NOTE: Size reflects relative GDP % change year ago Europe North America South America Asia France Greece Germany Italy Spain United Kingdom U.S. Chile China [9.12,7.45] Hong Kong Indonesia Japan Korea Singapore [-0.64,4.94] Taiwan [-0.99,-8.7] Thailand Vietnam [6.52,9.04] A Global Recession Is Underway Real GDP growth, 2008Q3

28 When Will It End?

29 House Prices Hit Bottom In Fall ‘09… % change from peak Sources: Fiserv Case Shiller, Census Early 1990s House price Home salesHousing starts Current downturn to date Early 1980s Real House price Forecast

30...With Big Differences Across the Country Projected peak-to-trough house price decline Sources: Fiserv Lending Solutions, Moody's Economy.com, OFHEO 0 to -15% No decline -15 to -30% < -30%

31 Housing Is Becoming More Affordable… Sources: BEA, Census, PPR, Realtors Price-income ratio (R) Price-rent ratio (L)

32 …In An Increasing Number of Markets Based on house price to income and rent ratios Over-valued Correctly valued Under valued Source: PPR, NAR, Moody's Economy.com Significantly over-valued

33 Number of vacant homes for sale, ths Inventories Are Peaking… Housing supply900,000 Single525,000 Multi300,000 Manufactured75,000 Housing demand1,400,000 Households875,000 Obsolescence400,000 Second homes125,000

34 FHA share of purchase mortgage loans, % …And More Credit Is On the Way

35 A Ray of Economic Sunshine Oil, $ per barrel (R) Consumer spending, energy goods and services, $ bil (L)

36 Policymakers Work To Quell the Panic… Equity Investments in Financial Institutions Zero Effective Federal Funds Rate Quantitative Easing – CP, GSE Debt and MBS Lending Facilities and Credit Protection Insurance for Money Funds, Deposits, Bank Debt Mortgage Loan Modification Plans

37 Policymakers Work To Quell the Panic…

38 Light vehicle sales, SAAR, mil …With An Auto Bailout… Source: Moody’s Economy.com Baseline Auto bankruptcy scenario

39 Unemployment rate …A Massive Economic Recovery Package…

40 Number of underwater homeowners, ths Sources: Equifax, Moody's Economy.com …And a Bigger Foreclosure Mitigation Plan…

41 Homeowners by % of equity, Sep 08, ths …As More Homeowners Will Soon Be Underwater… Source: Equifax, Case Shiller, Moody’s Economy.com

42 Ths …And Millions Will Lose Their Homes Sources: Equifax, Moody’s Economy.com

43 Employment, % change year ago Connecticut, U.S. Recessions Look Similar Source: Moody’s Economy.com forecastU.S. CT

44 A Timeline to Recovery ’08q1’08q2 ’08q3’08q4’09q1’09q2 ’09q3’09q4 ’10q1’10q2 ’10q3’10q4 Stock Market Bottoms Oil Prices Peak Home Sales Bottom Housing Starts Bottom Employment Bottoms House Prices Bottoms Foreclosures Peak Jobless Rate Peaks House Prices Resume Rising Financial Failures Abate Extraordinary Writedowns End Fed Tightens $ Rises

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