Making Sense of the U.S. Economy and Housing Market (Credit Union Webinar Handouts)
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The document discusses the U.S. economy and housing market as of August 2012, indicating weak recovery in GDP and employment, driven largely by consumption and business investment, which are expected to face challenges in the latter half of 2012. The labor market shows signs of moderation with rising job openings but overall employment growth remains sluggish, influenced by long-term unemployment and certain sectors struggling more than others. In housing, while some positive indicators such as increased home sales and affordable prices emerge, stricter lending standards and missing household formations pose ongoing risks to a full recovery.
Making Sense of the U.S. Economy and Housing Market (Credit Union Webinar Handouts)
- 1. Making Sense of the U.S. Economy and Housing Market August 2012 ©2012 Genworth Financial, Inc. All rights reserved.
- 2. Legal Disclaimer “The materials presented in this webinar are intended solely for informational and illustrative purposes to provoke thought and discussion among the participants. Webinar participants should not rely on any of the information presented but should independently conduct their own research and analysis before making any business decisions. Genworth makes no representations or warranties as to the accuracy or suitability of any of the information contained herein.” 1
- 3. Contents Section Page U.S. Economy 03 Labor Market 08 Housing 12 Hot Topics 23 2
- 4. U.S. Economy Drought Conditions Will Pressure Food Prices Source: NDMC; NOAA 3
- 5. Recovery Has Been Weak Recovery From Trough: Real GDP Perspective On The Employment Picture 1.20 100% Percentage Of Peak Employment Prior To Recession 99% 1.15 Index, End of Recession =100 98% 1.10 97% 96% 1.05 95% 1.00 94% 0.95 93% 10 12 11 0 1 2 3 4 5 6 7 8 9 -6 -5 -4 -3 -2 -1 12 18 21 24 27 30 33 36 42 45 48 51 57 60 15 39 54 3 6 9 0 Quarters from Trough 1970 1975 1982 1991 2001 2009 Months Since Peak Employment 1957 1960 1970 1974 1980 1981 1990 2001 2008 Balance Sheet Recession = Weak Recovery Employment Following Path Of Prior “Jobless” Recoveries Source: BEA, BLS via IHS Global Insights 4
- 6. Drivers of Growth Consumption & Business Investment Lead the Recovery 7 GDP Growth During Recovery 6 60% 60% 50% 50% 5 Contribution to Growth Share of Economy 2Q2012 Inventories 40% 40% 4 Consumption 30% 30% Contribution to Growth (PP) Equip & Software 20% 20% 3 State & Loval Govt 10% 10% 2 Federal Govt 0% 0% 1 Net Trade -10% -10% Residential -20% -20% 0 NonRes Struct -30% -30% Inventories Government Non-Residential Struct Residential Struct Durable Goods Services & Non-Durables Biz Equip & Software Trade -1 Change in Real GDP Change in Final Sales -2 -3 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 1Q2012 2Q2012 1Q2011 2Q2011 3Q2011 4Q2011 Consumption And Business Investment Have Driven Growth Both Will Be Challenges in 2H2012 Source: BEA via IHS Global Insight 5
- 7. Orders for Durable Goods Slow Diffusion Indices Of Business Conditions Uncertainty Saps Business Investment 70 100 15% 90 10% Diffusion Index (50= No Net Change in Conditions) 60 (Positive Response + .5*No Change) 80 5% Quarterly Change Diffusion Index 70 0% 50 60 -5% 40 50 -10% 40 -15% 30 30 -20% 20 20 -25% Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06 Jan-08 Jan-10 Jan-12 May-05 May-06 May-07 May-08 May-09 May-10 May-12 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 May-11 Jan-11 Sep-05 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Diffusion Index of Current Diffusion Index of Expectations ISM Production (L) ISM New Orders (L) New Orders Durable Goods (R) New Orders Non-Defense exAir Capital (R) With Uncertainty in the U.S. and Chaos in Europe Businesses are Understandably Hesitant to Make Investments Source: Conference Board, ISM, BEA via IHS Global Insight 6
- 8. Consumer Pressured Household Asset Appreciation Important to Consumption Retail Sales vs Consumer Confidence 8% 3 6% 120 7% 3.5 4% 100 Ratio to Household Assets-to-GDP Percentage Change 3m/3m 6% 4 2% 80 5% 4.5 Savings Rate Index 4% 5 0% 60 3% 5.5 -2% 40 2% 6 -4% 20 1% 6.5 Savings Rate (L) Assets-to-GDP (R) -6% 0 0% 7 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-11 Apr-07 Jul-07 Oct-07 Apr-08 Jul-08 Oct-08 Apr-09 Jul-09 Oct-09 Apr-10 Jul-10 Oct-10 Apr-12 Jul-12 Apr-11 Oct-11 Jul-11 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Retail Sales ExGas - VPQ Consumer Confidence - Expectations Lack of Confidence Also Saps Consumption Drop in Gas Prices Will Help Mitigate But Not Overcome Weak Jobs Growth Source: Federal Reserve, Census, Conference Board via IHS Global Insight 7
- 9. Labor Market Comes Back to Earth Payrolls & Unemployment 500 12% Initial Claims 700 Four Week Moving Average 250 10% 650 600 0 8% 550 500 -250 6% 450 400 -500 4% 350 300 -750 2% 250 200 2000 2001 2003 2004 2005 2006 2007 2008 2009 2010 2002 2012 2011 -1000 0% May-07 Jan-06 May-06 May-08 May-09 May-10 May-12 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 May-11 Jan-11 Sep-06 Sep-07 Sep-08 Sep-09 Sep-10 Sep-11 Change in Payrolls, M (L) Unemployment Rate, (R) Weakness No Longer Solely Attributable to Weather Source: BLS via IHS Global Insight 8
- 10. Leading Indicators Of Labor Market Conditions Job Openings Still Trending Up Survey Employment Indices Moderating But Hiring Remains Weak 80 30 5.0% Openings Hires Seperations Quits 4.5% 70 20 Diffusion Index (50 = No Change) Net Percentage of Firms 4.0% 60 10 3.5% 50 0 3.0% 2.5% 40 -10 2.0% 30 -20 1.5% 20 -30 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jul-11 Jan-11 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-12 1.0% Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-11 ISM Manufacturing (L) ISM Non-Manufacturing (L) Consumer Confidence Jobs (L) NFIB - Increase Employment (R) While Job Openings Still Support Employment Growth, Other Survey Measures Suggest Strong Growth Will Be Hard To Achieve Source: BLS, Institute for Supply Management via IHS Global Insight 9
- 11. Labor Market Depends On GDP Growth Long-term Unemployment Divergence Between Growth & Employment is Abnormal 8.5% -3.0% 50 50 7.5% -2.5% 45 45 6.5% GDP (L) Unemployment (R) -2.0% 40 40 5.5% -1.5% YoY Percentage Change 4.5% -1.0% 35 Mean Unemployment Duration 35 3.5% -0.5% % of Unemployed % Unemployed 27 Weeks+ YoY Change 30 30 2.5% 0.0% Weeks 25 25 1.5% 0.5% 0.5% 1.0% 20 20 -0.5% 1.5% 15 15 -1.5% 2.0% -2.5% 2.5% 10 10 -3.5% 3.0% 5 5 -4.5% 3.5% 0 0 -5.5% 4.0% 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 1950 1952 1954 1956 1958 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 Long-Term Unemployment Damages Workers’ Skills and Potential GDP Weak Outlook for GDP Leads to Slow Growth in Jobs Source: BLS via IHS Global Insight 10
- 12. Bifurcated Labor Market Unemployed per Vacancy 8 7 Where are the Jobs? * 6 Total Change -77 85 1,815 -499 -378 -1,391 -1,765 -2,010 106 69 -84 -391 -128 2,500 5 4 2,000 Change During Recession Change During Recovery 3 Change In Employed (In Thousands) 2 1,500 1 0 1,000 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jan-11 Jul-11 Jan-12 Jul-09 Jan-10 Jul-10 500 June 2012 Breakdown 0 Information Financial Manufacturing Federal Govt Construction Professional / Business Services Other Services Leisure & Hospitality Local Govt Mining & Logging State Govt Trade, Transportation, & Utilities Education & Health Trade -500 Construction -1,000 Manufacturing -1,500 Prof. & Biz Services -2,000 Education & Health -2,500 Leisure & Hospitality *Data Through July 0 5 10 15 Unemployed per Job Opening Structural Unemployment Will Remain High If the Current Job Creation Pattern Persists Source: BLS via IHS Global Insight 11
- 13. Average FICO Score of Originations 760 740 720 Housing 700 680 660 640 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 Total Purchase Credit Conditions Continue to Tighten Source: CoreLogic, Fair Issac 12
- 14. Housing Trends Positive Leading Indicators Rebounding Off The Bottom Permits & Starts Beginning Slow, Fragile Recovery 80 160 2,000 1.4 Existing Home Sales Ratio to 1999 Sales 1,800 1.3 70 140 1,600 1.2 60 120 SAAR, In Thousands 1,400 1.1 Diffusion Index 50 100 1,200 1 Index 40 80 1,000 0.9 800 0.8 30 60 600 0.7 20 40 400 0.6 10 20 200 0.5 0 0 0 0.4 Jul-00 Jul-01 Jul-02 Jul-03 Jul-04 Jul-05 Jul-06 Jul-07 Jul-08 Jul-09 Jul-10 Jul-11 Jul-12 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 NAHB Expected Sales (L) NAHB Home Traffic (L) Pending Sales (R) Building Permits - Single Family (L) Starts - Single Family (L) Existing Home Sales (R) Leading Indicators Point To Increased Demand Starts And Permits Beginning Slow Upward Trek Existing Home Sales Stronger Source: NAHB, BLS, Census, NAR via IHS Global Insight 13
- 15. Drivers of Demand: Affordability Skyrockets Net Percentage of Banks Reporting Stronger Demand: Housing Affordability Mortgages 250 100 80 200 60 40 150 20 0 100 -20 -40 50 -60 -80 -100 0 1Q2005 3Q2005 1Q2006 3Q2006 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 1Q2007 3Q2007 1Q2008 3Q2008 1Q2009 Jan-81 Jan-83 Jan-85 Jan-87 Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Home Affordability Index First Time Homebuyer Affordability Legacy Mortgage Measure Prime Alt-A Affordability Remains High Due To Low Rates And Home Prices Survey Demand Finally Responding Source: Federal Reserve, NAR via IHS Global Insight 14
- 16. Drivers of Demand: Home Prices Normalizing Real Home Price Index Price-to-Rent 200 200 Home Price-to-Rent (Index Jan 1991=100) 180 180 160 160 140 140 120 120 100 100 80 80 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-12 Jan-11 60 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 Source: Robert Shiller's Research Case-Shiller 10 FHFA Purchase-Only Home Prices Are Closing In On Long-Term Averages When Compared To Rental Rates And Inflation Source: Case-Shiller, FHFA via IHS Global Insight; Robert Shiller 15
- 17. Drivers of Demand: Pent Up Formations •Missing 2.5 mm households over the last four years Sharp Increase In Owner Formation Share Ahead of Crisis Household Growth Has Been Well Below Trend 200% 3.0% 125 Annualized Growth Rate in Households 150% 2.5% Share of Change in Households 120 100% 2.0% Households (MM) 115 2.5 Million Below Trend 50% 1.5% 110 0% 1.0% 105 -50% 0.5% 100 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 -100% 0.0% '71-'75 '76-'80 '81-'85 '86-'90 '91-'95 '96-2000 '01-'05 '06-'10 '11-2Q12 Actual Households Households Based on 2000-2007 Rate Owner Rent Annual Growth Rate in Households Household Formation Starting to Rebound; Labor Market Woes Could Pose Risk Source: Census via IHS Global Insight 16
- 18. Demand Met With Higher Standards Net Percentage of Banks Tightening Lending Standards: Purchase Applications Mortgages 700 100 600 80 500 60 400 40 300 20 200 0 Even Without Adjusting for Population, -20 100 Apps Back to Late 1990s Levels 1Q2005 3Q2005 1Q2006 3Q2006 1Q2007 3Q2007 1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 3Q2012 0 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 Legacy Measure Prime Alt-A Banks Tighten Standards As Borrower Interest Begins To Rebound Purchase Applications Remain Near Same Level As Late 1990s Source: Federal Reserve, MBA via IHS Global Insight 17
- 19. Housing Prices and Shadow Inventory Home Prices Stabilizing Normal Inventory Nearing Stability Units MM Months 2Q12 Supply (MM units) Home Prices Recovering Normal + Shadow 9 25 20% Normal “Shadow Inventory” 15% 8 Shadow 10% 7 20 5% 6 HPI VPY 0% 15 1.4 90-day Delqs 6.5 MM 5 16Mos -5% 1.8 Foreclosure Inventory -10% 4 10 5.1 MM 13Mos -15% 3 0.8 Housing Starts 0.1 New, For Sale -20% 2 2.5 MM 5 0.3 Condos/Townhomes 6Mos -25% 2.1 Existing Single 1 1Q2005 3Q2005 1Q2006 3Q2006 1Q2007 3Q2007 1Q2008 3Q2008 1Q2009 3Q2009 1Q2010 3Q2010 1Q2011 3Q2011 1Q2012 Family 0 0 1Q00 1Q01 1Q02 1Q03 1Q04 1Q05 1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 FHFA PO CS National Corelogic Corelogic exDistressed Source: FHFA Case-Shiller via IHS Global Insight; Corelogic Source: Census, NAR, MBA via IHS Global Insight Shadow Inventory Continues To Weigh On Home Prices Home Prices, However, Look To Be Stabilizing 18
- 20. Homeownership Hit By Competing Forces Household Formations vs New Homes Started Homeownership Rate 70% 2,500 2,000 68% 2,000 1,500 66% 1,500 1965-1999 Average Formations 1,000 64% 1,000 62% 500 500 60% 0 0 58% Homeownership Rate Homeownership Rate ex Delq -500 -500 56% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2012 2011 Rolling 12mon Household Formations Multi-Family Starts Single-Family Starts While Household Formations Have Started To Trend Up, Shadow Inventory Exerts A Substantial Downward Pull On Homeownership Source: Census, MBA via IHS Global Insight 19
- 21. Ownership By Age Housing Characteristics By Age 90% 85% Ownership Rate by Cohort Headship Rate by Cohort 80% 75% 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2001 2003 2005 2007 2009 2011 2011 2011 2011 2011 2011 2011 2011 Less than 25 25 to 29 years 30 to 34 years 35 to 39 years 40 to 44 years 45 to 49 years 50 to 54 years 55 to 59 years years Impact on Home Ownership Concentrated in 25 to 39 Cohort Headship Rates Relatively Stable Source: BEA, BLS 20
- 22. Foreclosure Processing is Slowly Improving United States: Seriously Delinquent Shadow Inventory by State 12% 30 20% Judicial Non-Judicial Foreclosure Break Foreclosure + Seriously Delinquent (as a % of loans) 18% Reading the Columns % of Loans 90+ Delq/Foreclosure 10% 25 Months of Shadow Inventory Foreclosure 90+ Delq 16% 8% 20 14% 12% 6% 15 10% 4% 10 8% 6% 2% 5 4% 0% 0 2% 1Q1991 1Q1992 1Q1993 1Q1994 1Q1995 1Q1996 1Q1997 1Q1998 1Q1999 1Q2000 1Q2001 1Q2002 1Q2003 1Q2004 1Q2005 1Q2006 1Q2007 1Q2008 1Q2009 1Q2010 1Q2012 1Q2011 0% ME MS MA LA TN IA FL NV NY US DE CA MO NE OH OR NJ MT TX SC AR WI CO SD MD CT GA OK AL UT MN MI IN WA ID WV WY PA KY KS VA AK DC NC NH ND IL RI HI NM AZ VT Seriously Delq (R) Months To Work Off 90+ Inventory (L) Major Bifurcation in Time to REO Between Judicial and Non-Judicial States Source: MBA, NAR, Census via IHS Global Insight 21
- 23. Negative Equity Hits Large Swaths of Population Negative Equity to Persist for Years Months of Shadow Inventory by State 70% 90 Judicial Non-Judicial Foreclosure Break Reading the Columns 80 60% Foreclosure 90+ Delq 70 50% Percentage of Mortgages Months of Inventory 60 Near Negative Negative 40% 50 30% 40 30 20% 20 10% 10 0% 0 UT CT NM WI VA MO PA US NV FL AZ MI CA DE NE NY CO RI SC AR HI IL NJ MT GA MD WA MN AL OK IA NH NC DC KY KS AK ND TN MA ID IN OH OR TX ME MS MA LA TN IA FL MO NV NY US DE CA NE OH OR NJ MT TX SC AR WI CO SD MD CT GA OK AL UT MN MI IN WA ID WV WY PA KY KS VA AK DC NC NH ND IL RI HI NM AZ VT Negative Equity Will Be a Problem for the Housing Market for Years to Come Source: NAR, MBA, Census via IHS Global Insight 22
- 24. Topics of Conversation 23
- 25. Fiscal Cliff Fiscal Cliff = Recession Source: CBO 24
- 26. Debt Limit Debt Subject to Limit vs Statutory Limit $18 Debt Subject to Limit $16 Statutory Limit $14 $12 $, Trillions $10 $8 $6 $4 $2 $0 1/11 7/11 7/01 1/03 1/05 7/06 1/08 7/09 1/02 7/02 7/03 1/04 7/04 7/05 1/06 1/07 7/07 7/08 1/09 1/10 7/10 1/12 7/12 End of Month Back By Unpopular Demand is the Debt Limit; Last Year this Ended in a Debacle, Will a Lame Duck Congress Act? Source: U.S. Treasury Department 25
- 27. Spain Teeters •Greece will not be able to meet bailout requirements •Spain weighed down by banking system and regions Comparing Sovereign Balance Sheets Share of Outstanding Euro -Area Debt 300% -15% Belgium Austria Finland 250% -10% Portugal Spain Deficit-to-GDP 200% -5% Ireland France Debt-to-GDP Greece 150% 0% 100% 5% Italy Germany 50% 10% 0% 15% Netherlands Iceland Ireland Italy Belgium Portugal Netherlands Greece Japan Finland Austria France United States Poland EU Norway Spain United Kingdom Sweden Euro Denmark Hungary Czech Republic Germany Current: 40% at >= 400 bps spread to 10Y Bunds Others: Debt-to-GDP (L) Euro Members: Debt-to-GDP (L) Others: Deficit-to-GDP (R) Euro Members: Deficit-to-GDP (R) Europe Lacks The Political Will To Act Proactively…Acting Reactively Has And Will Continue To Make The Crisis More Costly Source: EuroStat, CIA Factbook, FRED 26
- 28. Net Percentage Tightening Standards -30 -20 -10 0 10 20 30 40 50 60 70 80 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Prior 3 Months Jan-06 Jul-06 Jan-07 Jul-07 Expectation Jan-08 Euro Area Bank Lending Standards Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 27 Unemployment Rate 0% 5% 10% 15% 20% 25% Norway Japan Austria Netherlands Germany Unemployment Problem Iceland Czech Republic EU Unemployment Belgium Finland Sweden Denmark United Kingdom United States EU Banks Have Pulled Back During Crisis Poland France EU Italy Hungary Euro Ireland Tightening Lending Standards Will Only Exacerbate Europe’s Growth and Portugal Source: ECB, Eurostat Greece Spain
- 29. Questions? Contact: Nathaniel.Struemph@Genworth.com www.nafcu.org/genworth 28
- 30. Data Source Statement Includes data supplied by IHS Global Insights (USA) Inc., an IHS company, its subsidiaries and affiliated companies; Copyright 2011 all rights reserved. 29