Presented by:

Elliot F. Eisenberg, Ph.D.

President: GraphsandLaughs, LLC

June 24, 2020

THE ECONOMY IN 2020: THE AUDACITY OF SLOPE

SEGMENT 1 –

GDP GROWTH

The Economy Has Bottomed

GDP = C+I+G+(X-M)

Bloomberg Consumer Comfort Index Bottoms! Index low was 25 during the last recession

Real Retail Sales Collapse and Rebound Household spending was at its worst down by about 25%

US Light Vehicle Sales Reverse Their SlideMarch and April sales were terrible. Then improvement. Reluctance to use public transit?

Auto Sales Recover by 20Q4!A deep decline but a strong recovery

Auto Sales Recover by 20Q4!A deep decline but a strong recovery. Reluctance to use public transit

US Gasoline Consumption Driving is down 20% up from a decline of 45%

Used Car Sales Sink How much better will the last even months of the year be?

Used Car Values Sink How much better will the last even months of the year be?

Used Car Values Sink How long will this last

Percent of Balance 90+ Days Delinquent Credit card rates keep rising along with auto loans

US Restaurant Traffic; It’s Generally Improving But very very slowly

Hotel Occupancy Rates Start Recovering!Occupancy is 41.7% Y-o-Y! ADR down 33.9% ($89.09), RevPar down 62.6% ($37.15)

Annual Y-o-Y Percent Change in PCEA very solid growth rate of about 2.5%, but now a huge collapse

Economics Conditions CollapseTen daily and weekly high-frequency relevant variables

Small Business Confidence BottomsThe level remains well below the long-term average of 98 and will fall further

ISM Manufacturing Numbers Bounce BackManufacturing is less important than in decades past, but……

Rail Traffic Slows Slightly2019 was weaker than 2018 and 2020 is a disaster

2020 Corporate Profits Look Dismal Firms halt or reduce dividends

As For Industrial ProductionIt was at a new high, then fell and recently it has fallen off a cliff

Factory Utilization Rates are DecliningCombination of trade wars, weak oil prices, a strong dollar and Coronavirus

ISM Non-Manufacturing Numbers BottomAbout as bad as in the Great-Recession.

CARES Package Will Largely Protect the EconomyBut, only in the short run. We need more help!

CARES Package #2 Helps the EconomyPrevented the worst from happening

Federal Aid Packages Have Helped the EconomyWill it be enough, or will more be needed?

HEROES ACT Is A MustPrevents us from going backwards

Budget Deficit Will ExplodeThe recent CARES act and other coronavirus spending will vastly increase the deficit

The Dollar Is Surprisingly StrongApproaching highest level in a long time!

Weak

Stronger

Strong

$550 Billion Trade War Hurts US GDPThe impact peak at 0.6% of GDP and then wane

Duration of All Recorded US Recessions Since the Depression they tend to be quite short

GDP Shrinks in 20H1 Due to Coronavirus Growth returns in Q3 and beyond

SEGMENT 2 –

INFLATION…WHAT INFLATION?

Inflation?It’s MIA!

CPI: Inflationary Pressures are NonexistentThere appears to be deflationary pressure, but it is leveling

Core PCE Price IndexInflation is not rising, that is for sure

Monetary Base Is Growing FastIt does not matter. It is not meaningfully correlated with inflation

Monetary Velocity Drops Like a RockInflation is not a worry

Excess Reserves Are HugeBanks are not lending as firms do not want to invest

Federal Reserve Behavior

As For Rates:

They Can’t

Fall More!

Federal Reserve BehaviorBest Case Scenario

• Fed funds is currently 0.125%

• 12/31/20: 0.125% 10-yr Treasury @ 1.10%

12/31/21: 0.125% 10-yr Treasury @ 1.35%

• 12/31/22: 0.375% 10-yr Treasury @ 1.50%

Labor Markets: They Were Tight but Are

No Longer

The Unemployment Rate Underestimates the ProblemThis is the misclassification problem

Involuntary SeparationRecent trend is improving but still terrible

Continuing Unemployment Claims They look to be plateauing!

State and Local Gov’t Employment Government employment is collapsing. This not good

It is Now Unfortunately Crashing This will improve but by how much and how fast?

Unemployment Benefits vs. Normal SalaryIn many states, workers are better of not working!

Unemployment By EducationRates now skyrocket, especially for the less educated

Manufacturing Employment GrowthIt collapsed due to the Coronavirus but is now improving

Total Employment LevelSuppression vs. Recession

Now For Politics!

Consensus House Outcome Consensus of: Cook’s Political Report, Sabato’s Crystal Ball, Inside Elections and Politico

Consensus Senate Outcome Consensus of: Cook’s Political Report, Sabato’s Crystal Ball, Inside Elections and Politico

Consensus Presidential OutcomeBeige races are key

SEGMENT 3 –

CONSTRUCTION…IT’S BETTER

THAN WE THOUGHT

Now For Housing

Mortgage Purchase Applications Skyrocket1st time applications are up 21% Y-o-Y, at level of the late 1990s.

2020 purchase volume should be about $1.2 trillion, largely unchanged from 2019

Mortgage Purchase Applications Recover2020 purchase volume should be about $1 trillion, well down from 2019

Existing Home Sales Have Bottomed!May is the bottom, maybe June and then sales should rise strongly

Inventory Is Low and Keeps Shrinking Inventory is regularly reaching new lows

Inventory Is Low and Keeps ShrinkingInventory is disappearing!

Housing Activity Is at a Multi-Decade LowSupply of new housing is so low

Single-Family and Multifamily Starts – A big DeclineStarts will turn around quickly

New Home Sales Bounce BackThey were rising, then fell but are on the road to recovery

New Home Inventories Fell Fast, Now Are Stable and lowBuilders are being careful

Builder Misery is OverPent-up demand, low rates, demographics, Covid-19 SIP and more

Prices May Fall Slightly! Prices in ‘90 and ‘00 didn’t collapse. Y-o-Y prices are up 3.3%, 3.9% or 4.4%

New Home Prices Are High, but Falling A sign of slow sales? Prices are slightly weaker of late

Pending Home Sales Collapse, But… Low inventories, limited new building and pent up demand

Housing Improvements & Repairs Are FineHome prices rise more slowly, wealth has fallen, and existing sales slip

Construction Activity DeclinesNon-Residential, Residential & Non-Building all perform the same

Food for Thought

Hello Forbearance My Old Friend At 8.55% or 4.3 million HH, up from 8.53% a week earlier and way up from early March

US Coronavirus Cases Declined Will this continue now that we are opening?

We Are Slowly Returning to Normal It may take a while longer to get there. A vaccine would be nice

Employment Growth Could Be Slow We will all learn to do more with less

Elliot F. Eisenberg, Ph.D.

Cell: 202.306.2731

elliot@graphsandlaughs.net

www.econ70.com

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Thank YOU all very very much!

@ECON70

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