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Strength of the United States Economy
Bank and Capital Markets Tax Institute WestSan Francisco Marriott MarquisSan Francisco, CA
December 2, 2014
Rob StrandSenior EconomistAmerican Bankers Association
“The world is a mess.” Madeline Albright, July 27, 2014
Source: Council on Foreign Relations, CNN, POLITICO
The World is a Mess
• Argentinean debt crisis• Palestinian-Israeli conflict • Syrian civil war• Ukrainian – Russian conflict• Egyptian coups • Lebanese crisis• Iraqi war and ISIS• Iranian nuclear crisis• North Korean turmoil• Thai coup• Ebola in West Africa• Yemeni terrorist insurgence• Military coup in Burkina FasoSource: Council on Foreign Relations, CNN, POLITICO
Quarterly Inflation-Adjusted GDP Growth
‐9%
‐6%
‐3%
0%
3%
2008 2009 2010 2011 2012 2013 2014Source: U.S. Bureau of Economic Analysis
90
100
110
120
130
2005 2008 2011 2014
GDP by Country
Sources: U.S. Bureau of Economic Analysis and OECD
Index (1Q05=100)
United States
Germany
France
Japan
Source: National Bureau of Economic Research
-40
0
40
80
120
WWII ends
Post WW II Average
Business Cycles
MonthsExpansion
Recession
Current
0
400
800
1200
1600
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
S&P 500 Index
Source: Standard & Poor’s
Up 156%
Source: U.S. Bureau of Economic Analysis
-5%
0%
5%
2012 2013 2014
InventoriesNet ExportsGovernmentFixed InvestmentPersonal Consumption
Contrib
ution to GDP
Growth
Total GDP Growth
Consumption Drives Growth
Consumer Confidence
Source: Thomson Reuters and University of Michigan
50
60
70
80
90
100
2007 2008 2009 2010 2011 2012 2013 2014
Debt Talks
Index Value
RecessionFiscal Cliff
Debate
FederalShutdown
-900
-700
-500
-300
-100
100
300
500
2005 2007 2009 2011 2013
Source: U.S. Bureau of Labor Statistics
8.7 Million Lost
9.8 Million Recoveredin 48 months of growth
Monthly Payroll Growth
0%
4%
8%
12%
16%
1994 1998 2002 2006 2010 2014
Source: U.S. Bureau of Labor Statistics
Underemployed 11.8%
5.9%Unemployed
Unemployment Rate
0%
4%
8%
12%
1994 1998 2002 2006 2010 2014
Source: U.S. Bureau of Labor Statistics, Eurostat
U.S. 6.1%
Unemployment Rate Comparison
Euro Area 11.6%
June
Initial Claims Back to Normal Levels
0
100
200
300
400
500
600
700
1995 1997 1999 2001 2003 2005 2007 2009 2011 2013
Source: U.S. Department of Labor (4-week moving average)
Initial Unemployment Claims, 000s
400K
295K
Voluntary Quits and Layoffs Picking Up
Source: U.S. Bureau of Labor Statistics
0
1,000
2,000
3,000
2000 2002 2004 2006 2008 2010 2012
Recession
Layoffs
Voluntary Quits
0
5
10
15
1971 1976 1981 1986 1991 1996 2001 2006 2011
Less than 5 Weeks
5–14 Weeks
Millions
27+ Weeks
Duration of Unemployment
Source: U.S. Bureau of Labor Statistics
-24% -20% -16% -12% -8% -4% 0% 4% 8%
Health Services
Prof. & Bus. Services
Leisure & Hospitality
Education
Trade & Transportation
Financial Services
Government
Information
Manufacturing
Construction
Change in Employment from Pre-2011 Peak
Source: U.S. Bureau of Labor Statistics
Over 3%
2%—3%
1½%—2%
1%—1½%
¼%—1%
Employment Growth Since 2010
Source: U.S. Bureau of Labor Statistics, May 2014
6.5%
Home Prices
Source: Case-Shiller/S&P 20-City Index. Not seasonally adjusted
0
50
100
150
200
2002 2004 2006 2008 2010 2012 2014
Conventional 30-Year Mortgage Rate
0%
2%
4%
6%
8%
10%
1990 1993 1996 1999 2002 2005 2008 2011 2014
Source: Federal Reserve
Home Sales
-
3
6
9
1999 2004 2009 2014
Millions of UnitsSAAR
Sources: U.S. Census Bureau, National Association of Realtors
New Homes
Existing Homes
0
1
2
1963 1970 1977 1984 1991 1998 2005 2012
Housing Starts
Source: U.S. Census Bureau
Millions of Units
1959‐2010 Average
Retail Sales
Inflation & Seasonally‐Adjusted Semi‐Annual Growth Rate on Quarter Average
‐15%
‐10%
‐5%
0%
5%
1994 1999 2004 2009 2014Source: U.S. Bureau of Economic Analysis
Retail Sales without Gas
Source: U.S. Department of the Census
$100
$110
$120
$130
$140
2007 2008 2009 2010 2011 2012 2013 2014
Thou
sand
s
$Billions, Seasonally Adjusted
Price of a Gallon of Gas vs. Milk
$3.00
$3.50
$4.00
2012 2013 2014
Premium Gas
Whole Milk
Source: BLS and US Energy Information Administration
Crude Oil Exports
0
100
200
300
400
2002 2004 2006 2008 2010 2012 2014
Source: U.S. Energy Information Administration
Thousands of Barrels per Day
$0
$5
$10
$15
1960 1970 1980 1990 2000 20100%
8%
16%
24%
Debt / Assets
Trillions
Household Liabilities
Source: Federal Reserve Flow of Funds
Household Financial Obligation Ratio
10%
12%
14%
16%
18%
1980 1985 1990 1995 2000 2005 2010Source: Federal Reserve
Overhang of Student Debt
$0
$5,000
$10,000
$15,000
$20,000
$25,000
0%
10%
20%
30%
40%
50%
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Proportion with Student Loans at age 25
Source: Federal Reserve Bank of New York
Balance of those with Student Loans
Corporate Profits
Source: U.S. Bureau of Economic Analysis
$0
$5
$10
$15
2002 2004 2006 2008 2010 2012 2014
With inventory valuation and capital consumption adjustments, SAAR, $Billions
Business Indexes
80
90
100
30
40
50
60
2006 2007 2008 2009 2010 2011 2012 2013 2014
Industrial ProductionISM Non-
Manufacturing
Contraction Expa
nsion
ISM Manufacturing
Sources: Federal Reserve, Institute for Supply Management
Small Business Optimism
Source: National Federation of Independent Business
Index Values (2
005=10
0)
50
60
70
80
90
100
2006 2008 2010 2012 2014
-2%
0%
2%
4%
6%
2007 2010 2013
Target
Source: U.S. Bureau of Labor Statistics (CPI), ECB
U.S. and Euro Inflation
United States
Euro Zone
Source: FOMC (September 2014)
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
2014 2015 2016 Long Run
FOMC Federal Funds Rate Forecast
FOMC Fed Funds Forecast for 2015
0%
1%
2%
3%
March 2014 FOMC Meeting
September 2014 FOMC Meeting
Source: Federal Reserve Federal Open Market Committee
Federal Reserve Timeline
$25
$15
$0Sep Dec Mar Jun Sep Dec Mar Jun Sep Dec
Asset Purchases ($B)Fed Funds Rate
0.125%
2.75%
6 Months
20152014
Federal Funds Rate Outlook
1.25%
2016Source: Federal Reserve Federal Open Market Committee
Periods of Federal Reserve Tightening
0%
1%
2%
3%
4%
5%
6%
7%
-1 1 3 5 7 9 11 13 15 17 19 21 23 25
Fed
Fund
s Ta
rget
Rat
e
Months Since Tightening Began
19942004
2000
Long Term Forecast
Source: Federal Reserve
$0
$1
$2
$3
$4
2008 2009 2010 2011 2012 2013 2014
Federal Reserve Balance Sheet Growth
Source: Federal Reserve
$Trillion
MBS & Agency Debt U.S. Treasury
Securities
LiquidityPrograms
$1.8 Trillion
$2.5 Trillion
Yield Spreads Shrink when the Fed Tightens
0%
2%
4%
6%
8%
10%
1990 1994 1998 2002 2006 2010 2014
Tightening Begins
Source: Federal Reserve
10-Year Bonds
3-Month Bills
Economic Uncertainties
• Interest Rates
• Consumer and Business Confidence
• Housing Recovery
• Income and Wealth Inequality
• Government Finances
• International Turmoil
U.S. Traditional Advantages
• Strong global competitor
• Robust entrepreneurial culture
• Flexible capital and labor markets
• Technological leader
• Highly diverse mix of industries
Patent Applications
0
200,000
400,000
600,00019
6319
6619
6919
7219
7519
7819
8119
8419
8719
9019
9319
9619
9920
0220
0520
0820
11
Source: United States Patent and Trademark Office