The Economic OutlookJames Marple, Senior Economist
TD Economics
March 20, 2013
This time is different
7.8
4.2
5.8
5.2
4.5
2.4
5.8
3.22.9
2.2
4.0
0
1
2
3
4
5
6
7
8
9
1949-52
1954-57
1958-61*
1961-64
1970-73
1975-78
1980-83*
1982-85
1991-94
2001-04
2009-12
Average real GDP growth three years after recession trough (annual rate)
*Recessions contained within period. Source: Bureau of Economic Analysis
Average recovery growth = 4.4%
What’s in store for the economy?
Lots of upside potential:
Housing
Consumer spending
Investment & job creation
Weighing on growth:
Fiscal drag – tax hikes, sequestration…
Global prospects & risks
Global slowdown a near-term headwind
-25
-20
-15
-10
-5
0
5
10
15
20
25
2000 2002 2004 2006 2008 2010 2012
25
30
35
40
45
50
55
60
65
70
75
Global PMI* (rhs)
Global Trade Volume (lhs)
Global PMI*, below 50 indicates contractionGlobal trade volume (y/y %change)
*Purchasing managers index. Source: TD Economics, Bloomberg, Haver Analytics. Grey area marks U.S. recession.
U.S. exporting more to the Americas, less to Europe
0
5
10
15
20
25
30
35
40
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
North America Pacific Rim
Europe South/Central America
Share of U.S. goods exports; %,12-month moving average
Source: BEA, U.S. Census Bureau
Faster economic growth is on the horizon…
-10
-8
-6
-4
-2
0
2
4
6
2008 2009 2010 2011 2012 2013F 2014F
Forecast by TD Economics as of March 2013Source: Bureau of Economic Analysis
Real GDP, annualized quarter/quarter % change
Recession
Forecast Y/Y % Chg.(Q4/Q4 % growth)
2013F 1.9% (2.3%)2014F 2.8% (3.1%)
Forecast
…In Pennsylvania too
-5
-4
-3
-2
-1
0
1
2
3
4
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Pennsylvania
United States
Real gross domestic product; annual % change
Source: Bureau of Economic Analysis. Forecasts by TD Economics
Forecast
Private “deleveraging” giving way to public
-14
-12
-10
-8
-6
-4
-2
0
2
4
6
8
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Foreigners
Business
Households & nonprofits
Government
Net Borrowing
Net Saving
Source: Federal Reserve Flow of Funds
U.S. net saving/borrowing by sector; % of GDP
-12
-10
-8
-6
-4
-2
0
2
4
2000 2002 2004 2006 2008 2010 2012 2014
Forecast
Total federal deficit (% of GDP)
Source: Congressional Budget Office, February 2013 Baseline Forecast
Federal deficits are getting smaller…
…At least for now…
11.4%
5.5%
0
2
4
6
8
10
12
14
16
2000 2010 2020 2030 2040 2050
Healthcare
Social Security
Everything else (except interest)
Federal government spending, % of GDP
Source: Congressional Budget Office, Long Term Forecast, June 2012
Housing headwind becoming a tailwind
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Housing Wealth
Residential Investment
Contribution to real GDP growth, percentage points
Housing wealth estimates by TD Economics. Source: Bureau of Economic Analysis
Forecast
Construction to catch up to household growth
0
500
1,000
1,500
2,000
2,500
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Demographic adjusted households + depreciation
Housing starts
Housing starts (units, 000s); change in households (000s)
Source: U.S. Census Bureau, TD Economics
Fcst.
Market is clearing and house prices are growing
-20
-15
-10
-5
0
5
10
15
20
2002 2004 2006 2008 2010 2012
S&P Case-Shiller HPI*
CoreLogic HPI
U.S. home prices; year-over-year % change
Source: CoreLogic, S&P Case-Shiller, Haver Analytics. As of February 2013.*Twenty city composite.
Auto sales still have room to grow
30
40
50
60
70
80
90
100
110
1967 1971 1975 1979 1983 1987 1991 1995 1999 2003 2007 2011
U.S. light vehicle sales per 1,000 persons 16 years of age or older
18% below
average
Source: Bureau of Economic Analysis, TD Economics
Credit conditions are improving
-80
-60
-40
-20
0
20
40
60
80
100
120
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Qualifying standards
Spreads
*Small firms are classifed as having annual sales of less than $50 million.Source: Federal Reserve Senior Loan Officer Survey. As of March 1st 2013.
Net-percentage of banks tightening C&I loans to small firms*
Tightening
Easing
Uncertainty keeping firms on sidelines
50
100
150
200
250
300
1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Index of Economic Policy Uncertainty (1995-2009 average = 100)
Balanced Budget Act
Black Monday
1st Gulf War Clinton Election
Russian Crisis/LTCM
Bush Election
Sept. 11
2nd Gulf War
Lehman and TARP
Stimulus Debate
Debt Ceiling, Euro Crisis
Source: "Measuring Economic Policy Uncertainty", (2012), Scott R. Baker, Nicholas Bloom and Steve Davis, Stanford mimeo.
Layoffs down, but need more hiring
1
2
3
4
5
6
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Separation rate Hiring rate
Quit rate Firing rate
Percent of total employment
Source: BLS - Job Openings and Labor Turnover Survey
Fed will continue to prime the pumps
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2006 2007 2008 2009 2010 2011 2012 2013
QE
Monetary Base = Currency + Bank Reserves
Monetary Base
Currency
Bank Reserves
Monetary Base, US$ Trillions
Source: Federal Reserve Board
America still has a jobs deficit
90
92
94
96
98
100
102
2008 2009 2010 2011 2012 2013
US Pennsylvania
New Jersey New York
Source: BLS, TD Economics. Data to January 2013
Private Sector Jobs, Jan. 2008 =100
Employment growth is key to reducing vacancies
2%
4%
6%
8%
10%
12%
14%
16%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
-1500
-1000
-500
0
500
1000
1500
2000
Net Completions
Net Absorptions
Vacancy rate
Office vacancy rate, Philadelphia; % Completions, Absorptions; (000s SF)
Source: Property & Portfolio Research
Low interest rates likely here for a while
0
1
2
3
4
5
6
7
8
9
10
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
3-month T-Bill
10-Year government bond
U.S. interest rates; percent
Source: Federal Reserve Board; Forecast by TD Economics at September 2012
Fcst.
The bottom line
• Housing improvement a fillip to economic growth
• Tax hikes & spending cuts are a drag
• Global growth improving, but risks remain
• Fed to remain stimulative
• Real GDP growth of ~2.0% in 2013, ~3.0% in 2014
TD Economics
www.td.com/economics
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