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March 5, 2008
Economic OutlookCCIM
Wachovia Economics Group 2
Economic Growth
While Risks to the Economic Expansion Have Increased Considerably, We Continue To Believe We Will Avoid A Recession
Growth will be slower during the first half of the year but Real GDP should remain positive
Real GDP Bars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1998 2000 2002 2004 2006 2008
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
GDPR - CAGR: Q4 @ 0.6%GDPR - Yr/Yr Percent Change: Q4 @ 2.5%
Forecast
Wachovia
Wachovia Economics Group 3
Employment Growth
Preliminary Figures Show Job Growth Fell Slightly In January. Declines Would be Much Larger In An Actual Recession
Employment growth has
weakened but is nowhere near
recession levels
Nonfarm Employment ChangeTotal Employed in Thousands
-400
-300
-200
-100
0
100
200
300
400
500
2000 2001 2002 2003 2004 2005 2006 2007 2008
-400
-300
-200
-100
0
100
200
300
400
500
Nonfarm Employment Change: Jan @ -17,000
Wachovia
Wachovia Economics Group 4
Labor Markets
The Unemployment Rate Has Risen But Remains Relatively Low. Past Gains Of This Magnitude Have Coincided With Recessions Or Sharp Slowdowns
The unemployment rate remains slightly below
“full employment”
Unemployment and Wage RatesSeasonally Adjusted
3%
4%
5%
6%
7%
8%
86 88 90 92 94 96 98 00 02 04 06 08
1%
2%
3%
4%
5%
Unemployment Rate: Jan @ 4.9% (Left Axis)
Hourly Earnings: Jan @ 3.7% (Right Axis)
Wachovia
Wachovia Economics Group 5
Consumer Spending
Consumer Spending Is Primarily Driven By Income Growth, Which Remains Solidly Positive. However, The Housing Slump Will Slow Spending Growth
Concerns about the wealth effect are overblown
Retail Sales Ex. Auto and Gas vs. Income Growth3 Month Moving Averages
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
96 97 98 99 00 01 02 03 04 05 06 07 08
-2.5%
0.0%
2.5%
5.0%
7.5%
10.0%
12.5%
15.0%
Disposable Personal Income Yr/Yr % Change: Dec @ 5.8%3 Month Annual Rate: Jan @ 1.9%
Stock Market Bubble
Tax Cut 1
Tax Cut 2 Housing Refi Boom
Wachovia
Wachovia Economics Group 6
ISM Manufacturing
Manufacturing activity is
consistent with a slowdown not a
recession
ISM Manufacturing Composite IndexDiffusion Index
35
40
45
50
55
60
65
87 89 91 93 95 97 99 01 03 05 07
35
40
45
50
55
60
65
ISM Composite Index: Feb @ 48.312 Month Moving Average: Feb @ 51.0
Wachovia
Wachovia Economics Group 7
Housing
The Bulk Of The Declines In Homebuilding Are Behind Us
Permits in many of the most challenged markets are
approaching zero
Real Residential InvestmentBars = Compound Annual Growth Rate Line = Yr/Yr Percent Change
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
1998 2000 2002 2004 2006 2008
-30.0%
-20.0%
-10.0%
0.0%
10.0%
20.0%
30.0%
Res. Investment - CAGR: Q4 @ -23.9%Res. Construction - Yr/Yr Percent Change: Q4 @ -18.3%
Forecast
Wachovia
Wachovia Economics Group 8
Housing
We Overbuilt Homes for Five Straight Years & We Will Need to Under-Build For A Few Years Before the Excess Inventory is Corrected
Housing will not meaningfully rebound before the end of the
decade
Housing StartsMillions of Units
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1Dashed Line is Underlying Demographic Trend
Wachovia
Wachovia Economics Group 9
OFHEO Home Price Index
Over Sixty Percent of the U.S. Population Live in Cities With Positive Home Price Growth
OFHEO
Source: OFHEO and Wachovia Corp.
Wachovia
OFHEO Home Price IndexQ4-2007 vs. Q4-2006
Greater than 4.9%3.1% to 4.9%1.5% to 3.1%
-2.0% to 1.5%Less than -2.0%
Wachovia Economics Group 10
Non-Owner Occupied Purchase Loans: 2006
Investors Were Responsible For More than Half of the Purchases in Some Markets in 2006
Investor & Second-Home Mortgages
Non-Owner Occupied Purchase LoansPercent of Total Value of Purchase Loans
Greater than 25%15.0% to 25.0%10.0% to 15.0%
7.5% to 10.0%Less than 7.5%
Source: HMDA and Wachovia Corp.
Wachovia
Wachovia Economics Group 11
Office Vacancies
The office market is
essentially in equilibrium
Office Vacancy RatesPercent Vacant
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
1990 1994 1998 2002 20060.0%
5.0%
10.0%
15.0%
20.0%
25.0%Metropolitan Office Vacancy Rate: Q4 @ 12.8%Suburban Office Vacancy Rate: Q4 @ 14.2%Downtown Office Vacancy Rate: Q4 @ 10.3%
Wachovia
Wachovia Economics Group 12
Industrial Vacancies
Industrial markets are stronger than
the vacancy data suggest
Industrial Vacancy RatesPercent Vacant
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
1980 1984 1988 1992 1996 2000 20040.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Industrial Vacancy Rate: Q4 @ 10.2%
Wachovia
Wachovia Economics Group 13
Greensboro
Unemployment remains near the national average
Greensboro MSA Unemployment RateSeasonally Adjusted
1%
2%
3%
4%
5%
6%
7%
90 92 94 96 98 00 02 04 06 08
1%
2%
3%
4%
5%
6%
7%
Unemployment Rate: Dec @ 4.8%
12-Month Moving Average: Dec @ 4.9%
Wachovia
Wachovia Economics Group 14
Greensboro
Home price growth remains
steady
Greensboro MSA Home PricesOFHEO Home Price Index
-6%
-3%
0%
3%
6%
9%
12%
15%
90 92 94 96 98 00 02 04 06
-6%
-3%
0%
3%
6%
9%
12%
15%Quarterly Change, Annual Rate: Q4 @ 6.7%Year-Over-Year Percent Change: Q4 @ 3.9%
Wachovia
Wachovia Economics Group 15
Greensboro
Population growth has been a great strength of many North Carolina cities
Greensboro MSA Population GrowthIn Thousands
0
3
6
9
12
15
80 82 84 86 88 90 92 94 96 98 00 02 04 06
0
3
6
9
12
15
Wachovia
Wachovia Economics Group 16
Appendix
Wachovia Economics Group 17
Monthly Outlook
Weekly Economic & Financial Commentary
Special Reports
Economic Indicators
Global Commentary
Regional Commentary
Chief Economist List
To join any of our research distribution lists please email us: wachovia.economics@wachovi
a.com
Date Title Authors
February-22 Will U.S. Export Growth Buckle? BrysonFebruary-14 The Outlook for Bank of England Monetary Policy BrysonFebruary-11 (When) Will the ECB Cut Rates? BrysonFebruary-11 Global Chartbook - February 2008 Bryson
January-30 Fed Lowers Target Funds Rate by 50 Basis Points SilviaJanuary-28 It Would Be So Much Easier To Be a Pessimist VitnerJanuary-28 U.S. Recession? Who Would be Next? BrysonJanuary-22 Fed Slashes the Funds Rate 75 Basis Points VitnerJanuary-22 Recession: The Measure of Economic Weakness Silvia & IqbalJanuary-16 2007 Holiday Sales Wrapped-Up KhanJanuary-16 Housing Outlook 2008 Vitner & YorkJanuary-09 Credit & The Real Economy: Part II SilviaJanuary-09 Global Chartbook - January 2008 BrysonJanuary-03 Credit & The Real Economy: Part I Silvia
December-19 State Personal Income - Third Quarter 2007 Vitner & YorkDecember-17 2008 Annual Outlook - What's to Come in the Year Ahead?December-12 Central Banks Take Step to Combat Credit Crunch BrysonDecember-11 FOMC Meeting - December 11, 2007 SilviaDecember-11 Housing Chartbook - December 2007 Vitner & YorkDecember-07 Holiday Sales Forecast Update Vitner & KhanDecember-04 Texas Feels Heat from the Housing Slump Vitner & YorkDecember-04 OFHEO House Price Index Vitner & YorkDecember-03 Recession Forecasting: A Statistical Approach Silvia & Lai
November-30 Is a Lasting Improvement in the Trade Deficit in the Cards? BrysonNovember-29 Impact of the Credit Crisis on Banks Silvia
Distribution Lists Recent Special Commentary
A Sampling of Our Recent Special, Regional & Industry Commentary
Economics Group Publications Appendix
Wachovia Economics Group 18
U.S. Macro Economy
Comprehensive Coverage of the U.S. Economy Monthly Economic Forecast Weekly Analysis & Outlook Timely Commentary on Daily Economic Data
Releases
Global Economies
Macro Level Coverage of Major Foreign Economies Macro Forecasts of 11 Economies Monthly Forecasts of 19 Dollar Exchange Rates Weekly Analysis & Outlook
U.S. RegionalEconomics
Regional and MSA Level Expertise Extensive Coverage Across the Wachovia
Footprint Ground level Analysis & Commentary of Local
Markets
Industry
Coverage Across CIB Industry Groups Regular Commentary on Economic
Developments by Industries
Econ
om
ics G
rou
p C
overa
ge
Real Estate
IndustrialGrowth
Consumer
&Retail
Energy& Power
Financial
Services
MediaHealthcare
Tech
Economics Group Appendix
Wachovia Economics Group 19
John E. Silvia, Ph.D.Chief Economist
704.374. 7034 [email protected]
U.S. Macro EconomyInterest Rates Monetary Policy
704.383.5635 [email protected]
U.S. Macro EconomyReal EstateRegional Economics: State & MSA Level
704.383.3518 [email protected]
Global EconomiesForeign Exchange
Mark VitnerSenior Economist
Jay H. Bryson, Ph.D. Global Economist
Sam BullardEconomist
704.383.7372 [email protected]
Desk OperationsFinancial Services
704.715.7415 [email protected]
Quantitative Macro-Economic Modeling
704.715.0575 [email protected]
U.S. Macro Economy Consumer & RetailNon-residential Real Estate
Huiwen Lai, Ph.D.Quantitative Analyst
Anika KhanEconomist
Azhar IqbalQuantitative Analyst
704.383.6805 [email protected]
Quantitative Macro-Economic Modeling
704.715.9660 [email protected]
U.S. Macro EconomyReal EstateIndustrial Growth & Services
704.383.9613 [email protected]
U.S. Macro Economy
Adam G. YorkEconomic Analyst
Tim QuinlanEconomic Analyst
Wachovia Corporation Economics Group publications are distributed by Wachovia Corporation directly and through subsidiaries including, but not limited to, Wachovia Capital Markets, LLC, Wachovia Securities, LLC and Wachovia Securities International Limited.
The information and opinions herein are for general information use only. Wachovia does not guarantee their accuracy or completeness, nor does Wachovia assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. © 2008 Wachovia Corp.
Economics Group Appendix
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