The Economic Outlook

1
The Economic Outlook

• Presented by
• Mark M. Zandi,Chief Economist

May 30, 2008
2
The Economy is Contracting
Change in Payroll jobs, ths., Source BLS
3
In An Increasing Number of States
In recession
Near recession
Expansion
4
As Households Buckle Under The Stress
Household debt in delinquency or default, bil,
annualized
Sources Equifax, Moodys Economy.com
5
An Unprecedented Housing Downturn...
change from peak, Sources Fiserv Lending
Solutions, Census, Moody's Economy.com
House Price
Home Sales
Housing Starts
Forecast peak-to- trough
Peak to 07Q3
90s peak to trough
80s peak to trough
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...Most Everywhere
Projected peak-to-trough house price decline,
U.S. -24
lt -30
Sources Fiserv Lending Solutions, Moody's
Economy.com, OFHEO
-20 to -30
-10 to -20
0 to -10
No decline
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As the Market is Awash in Inventory...
Number of vacant homes for sale, Thousands
Source Census
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And Home Sales Will Be Slow To Revive
Bond issuance, bil, annualized, Source Thompson
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And the Surge in Foreclosures
First mortgage loan defaults, ths, SAAR
Sources Equifax, Moody's Economy.com
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A Dangerous Combination of Negative Equity
Number of underwater homeowners, Thousands
Sources Equifax, Moody's Economy.com
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...Across Much of the Country
of households defaulting on their first
mortgage, 08q1
Below U.S.
Near U.S.
Above U.S.
U.S. 2
Sources Equifax, Moody's Economy.com
12
Subprime Financial Shock Still Reverberates
Difference between 3 month Libor and Treasury
bill yields
Subprime financial shock
LTCM
Y2K
SL crisis
Tech bust
Thai baht
Peso crisis
Orange County
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As Financial Sector Losses Mount
Projected Losses, bil, Source Moodys Economy.com
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And There May Be Other Shoes to Fall?
Financial guarantor stock prices
Ambac
MBIA
Radian
Mar 07
Jul 07
Jan 08
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Consumers Struggle with Falling House Prices
Sources Census, Realtors
Core retail sales growth 3 mo. MA (R)
House-price growth 6 mo. lead (L)
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Tighter Credit
Net of banks tightening consumer loan standards
Carter Administration Credit Controls
Subprime Financial Shock
Source Federal Reserve
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And 4 Gasoline
WTI, per barrel (L)
Gasoline price per gallon (R)
Sources WSJ, Energy Department
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Global Economy Holds Tough
Real GDP growth, 2007Q4
Indonesia
Argentina
Europe
China
6.5, 16.8
11.5, 11.9
North America
Asia
Malaysia
South America
Russia
India
Netherlands
Brazil
Colombia
Norway
Korea
Hong Kong
Euro zone
Czech Republic
Mexico
Germany
Sweden
Australia
Belgium
Denmark
Greece
Philippines
France
Spain
U.K.
Italy
Canada
Hungary
Japan
New Zealand
Poland
U.S.
Portugal
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And Corporate Balance Sheets Are Strong
Interest Coverage Ratio for Nonfinancial
Corporations
Source BEA, Moodys Economy.com
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An Unprecedented Easing in Monetary Policy
Federal funds rate, Sources FRB, Moodys
Economy.com
Nominal
Real
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As The Fed Thinks Outside the Monetary Box
Federal Reserve balances, bil
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But Policymakers Must Get More Aggressive
Mortgage securities issuance, bil, annualized
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