Mr. James E. Glassman is a Managing Director and Senior Economist with JP Morgan Chase & Co. This is his presentation at the Northwest Growth Financing Conference in 2010
2. The rhythm of the economy … it’s a familiar story … GDP gap (deviation of real GDP from potential as a percent of potential real GDP) Source: NBER Macroeconomics Database
3. … and it seems the economic tide is coming back in US real GDP (chained 2000 dollars) Sources: US Department of Commerce; Macroeconomic Advisers LLC
6. Caveat … financial shocks may be more challenging Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
7. It’s the “dust off the projects” that drives the accelerators Business investment (ratio to GDP) Source: US Department of Commerce
8. Demographics have something to say too Employment status by age (ratio of employment to population of selected age cohorts) Source: US Department of Labor 55+ 45-54 35-44 25-34 20-24 18-19 16-17
9. An industry where “pent-up” has a lot of room to run US light vehicle sales and domestic production (millions of units annualized) Sources: US Department of Commerce; Federal Reserve Board
11. Over there … Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co.
12. … and over here US real GDP (annualized percent change from the previous quarter) Source: US Department of Commerce
13. Layoffs are ending … Real GDP (% ch from four quarters earlier) Initial claims for unemployment benefits (thousands weekly) Sources: US Department of Labor; US Department of Commerce
14. … they’re normal … it’s now up to hiring Layoffs and new hires (percent of private employment) Source: US Department of Labor
15. Jobs are coming back … Real GDP and nonfarm payrolls (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
16. … but jobs are only part of the picture … Real GDP, nonfarm payrolls and total private hours worked (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
17. … in fact, it’s what’s in the paycheck that counts … Real GDP, payrolls total private hours, and compensation (% ch from 3 months earlier, annual rate*) * Based on the 3-month average of the most recent three months. Sources: US Department of Labor; US Department of Commerce
18. … for consumers Real consumer spending, disposable income, and wages and salaries (% change from 12 months earlier) Source: US Department of Commerce
19. Profits have lots of stories to tell … After-tax GDP profits (percent of nominal Gross Domestic Income) Source: US Department of Commerce
20. … and one of them is about the world … Global and US real GDP (2000 dollars) Sources: US Department of Commerce; JPMorgan Chase & Co.
21. … cap X is another Business investment for capital goods and software (percent change from a year earlier) Sources: US Department of Commerce; Federal Reserve Board
23. The Fed will have little reason to let off the gas for a while Federal funds rate and the 10-year Treasury yield (percent) Source: Federal Reserve Board
24. Unemployment is too high … US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board
25. … inflation’s tame … Selected consumer price indexes (percent change from 12 months earlier) Sources: NBER recession bars; US Department of Commerce; US Department of Labor
26. … too low … Selected core consumer price indexes (percent change from 12 months earlier) Sources: NBER recession bars; US Department of Commerce; US Department of Labor
27. Two added and unprecedented challenges … (1) Weaning from fiscal stimulus (2) Regulatory reform and the cost of credit
28. Have demand, will create jobs … The private sector, not economists, knows where they will be …
30. Construction won’t be what she used to be … Real construction outlays (ratio to 2006 Q1) Source: US Department of Commerce Public construction Nonresidential construction Residential construction
31. Home building will be a little subdued for a while … Starts of new houses (millions annualized) Months supply of unsold new homes Source: US Department of Commerce
32. This won’t be the employer it was for a while Nominal residential construction (billions of dollars) Housing-related employment (thousands) Source: US Department of Commerce
34. An un-flat world feeds the drive to develop … US real GDP per capita (ratio to 2009 level) (chained 2000 dollars) Sources: US Department of Commerce; NBER
35. … that will remap global GDP … Real GDP in selected regions (percent change from four quarters earlier) Sources: US Department of Commerce; JPMorgan Chase & Co.
36. … to look more like the distribution of the population Distribution of real GDP (percent of global output) Sources: NBER recession bars; US Department of Commerce; various academic sources
38. Recovery puts the focus on high-tide for asset values … Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
39. … and that makes the market look cheap … Equity P-E Wilshire 5000 index Source: US Department of Labor
40. … and for bonds, the market has been too bearish … Nominal and real 10-year Treasury yield (percent) Sources: NBER recession bars; Federal Reserve Board; US Department of Labor
41. … especially when businesses have options Market value of all publicly traded stocks (Wilshire 5000 index) Source: Dow Jones
42. The retail sector faces the biggest challenge … Consumer spending share of GDP (percentage of GDP ) Source: US Department of Commerce
44. The unsustainable can’t be sustained Nominal gross income per household and house prices (ratio to 1970 Q1 level) Sources: Loan Performance Corporation; US Department of Commerce
45. The home building correction was manageable Contribution of new home building to quarterly real GDP growth (percentage points annualized) Source: US Department of Commerce
46. When the cure became the problem Selected rates in the interbank funding markets (percent) Sources: BBA; Federal Reserve Board
47. The weakest links were shut down Long-term yield on noninvestment grade debt less 10-year Treasury yield (basis points) Sources: JPMorgan Chase & Co.; Bloomberg
49. “ Low levels of resource utilization”, the big idea US unemployment rate (percent of the labor force) ¹ Range of FOMC members’ views Sources: NBER recession bars; US Department of Labor; Federal Reserve Board
50. Unemployment … but what you don’t see counts too … Ratio of selected worker status to the population Source: US Department of Labor
51. … deviations from a normal economy Status of selected people in the labor pool (thousands) Source: US Department of Labor
52. Remember how recessions work on inflation … slowly Core chain PCE inflation (annualized percent change) Source: US Department of Commerce
53. Working with the cycle, the Fed’s long-run strategy Core chain PCE inflation (annualized percent change) Actual unemployment less Nairu Source: US Department of Commerce
59. Wanted … a new conversation about fiscal issues The airwaves are full of nonsense (like global warming, it’s not about the seasonal shifts) Tedious … we don’t need you to repeat the front pages Pointless … we’re not going to cut the deficit in recession Misdirected focus … the $1.5 trillion – $1 trillion due to recession – isn’t the issue It’s the underlying (long-term) issue Left on auto pilot, spending doubles as a share of the economy (CBO) Five options: (1) Double the tax burden … not happening (2) Deficit finance … over the market’s (and economy’s) dead body (3) Defer to an outsider (the government) to continually whittle health care spending (4) Incentivize the industry to find the best solution … users need to be more involved (5) Change the conversation about economics (raise economic literacy): * Endogenize the retirement decision * Spur national saving (eliminate the tax on saving, consumption-based income tax) * Eliminate the corporate income tax (people pay taxes) * Eliminate the employer deductibility of health care expenses * Tort reform
60. Bonds to pundits: it’s not about today’s red ink … Federal budget balance (percent of GDP) 10-year Treasury yield (percent) Sources: NBER recession bars; Congressional Budget Office; Federal Reserve Board
61. The red ink, scary of course, in absolute terms … Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
62. … up close Federal budget balance (billions of dollars over the most recent 12 months) Sources: NBER recession bars; NBER Macroeconomic database
63. Scaled to the size economy … Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
64. … up close Federal budget balance (percent of GDP) Sources: NBER recession bars; NBER Macroeconomic database
65. … here’s how much … Actual budget balance and excluding the impact of the recession (percent of GDP) Sources: NBER recession bars; Congressional Budget Office; JPMorgan Chase & Co.
66. … or, if you want the numbers Cyclical (temporary) factors boosting the federal deficit (billions of dollars, fiscal year basis) Sources: Congressional Budget Office; JPMorgan Chase & Co.
69. CBO gives you the starting point … CBO’s government spending projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
70. … and they say spending will outstrip revenues* Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
71. The electorate won’t accept (1) a doubled tax burden … Long-term projections (percent of GDP) Source: Congressional Budget Office
72. The bond market won’t accept (2) a mounting debt service … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
73. The (3.5%) growth* option … Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
74. … keeps the spending share in line with revenues Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
75. The growth* option … why it’s an issue Long-term projections (billions of dollars, fiscal year basis) Source: Congressional Budget Office
78. The consumer’s footprint may shrink in coming years … Consumer spending share of GDP (percentage of GDP ) Source: US Department of Commerce
79. … as pressures build to save more … Selected measures of saving (percent of disposable personal income) Sources: US Department of Commerce; Federal Reserve Board
80. … with balance sheets down for now … Saving (% of income) Net worth (ratio to income) Sources: US Department of Commerce; Federal Reserve Board
81. … depending on how we view our wealth … Household net worth (billions of dollars) (ratio to disposable personal income) Source: Federal Reserve Board
82. … [it’s mostly about stocks, not real estate] Household net worth (ratio to disposable personal income) Source: Federal Reserve Board
83. Household leverage is reversing … Household debt (ratio to disposable personal income) Source: Federal Reserve Board
84. … in the mortgage area … Interest rates (percent) Selected household debt measures (ratio to disposable income) Source: Federal Reserve Board
85. … and mortgage debt service is kinda normal … Debt service (% of income) Household mortgage debt (ratio to income) Source: Federal Reserve Board
86. … same for servicing credit card debt … Financial obligations of folks who rent (% of income) Non-mortgage debt level (ratio to income) Source: Federal Reserve Board
87. … for homeowners and renters alike Financial obligations of folks who rent (% of income) Non-mortgage debt level (ratio to income) Source: Federal Reserve Board
89. New realities spur a quiet revolution for transportation Prices of petroleum and natural gas (dollars per barrel, thermally-equivalent basis) Sources: American Petroleum Institute; Bloomberg
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