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Over The (First) Cliff?

Over The (First) Cliff?. OSIA Wilsonville, Oregon January 25, 2013 John W. Mitchell. Late January, 2013. Brush with Disaster Year Four of Upturn-Modest or Moderate 12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough QE4 Underway Weakness in Europe and Japan

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Over The (First) Cliff?

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  1. Over The (First) Cliff? OSIA Wilsonville, Oregon January 25, 2013 John W. Mitchell

  2. Late January, 2013 • Brush with Disaster • Year Four of Upturn-Modest or Moderate • 12/2012 Employment 4 Million below 1/2008 but 4.78 million above 2/2010 Trough • QE4 Underway • Weakness in Europe and Japan • Net Worth Rising • Largest Increase in Domestic Oil Production in History of Industry in 2012 • Less then Year to Next Stage of the Patient Protection and Affordable Care Act • Lone Ranger Returning-Twinkies GONE!

  3. Real GDP (SAAR) Commerce Department2012

  4. Contributions to GDP GrowthQ3 2012

  5. 2011-12 Nonfarm Payroll Employment Change(,000 SA) Average 153,000 Per Month in 2012 same as 2011

  6. Annual Job Change December, 2011-December, 2012 (1.4%)

  7. Consumer Price Index Monthly Changes 2011-121.7% in DecemberCore 1.9%, Annual Average 3.2% in 2011

  8. Inflation • Beige Book January 16, 2013 Stable Price Pressures • Energy Commodities 8.6% in Aug, 6.7% in Sept. -.5% in October and -6.9% in November and -2.2 in December • Non-Farm Business Year over Year 1.8% Compensation and 1.7% Productivity-Unit Labor Costs .1% Q3

  9. Interest Rates Source: US Treasury

  10. Rates • Seven Years of Zero Short Term Rates ? • 30 Year Mortgage 3.4% on Week Ending 1/11/13 • 10 Year 1.9% on Week Ending 1/11/13 • Fed will tolerate 2.5% Inflation • All Treasuries Under 5 Years Yield Less than 1% • Personal Interest Income Q4 2007 $1.32 Trillion by Q3 2012 $975.3 Billion • Pension Obligations? • Earnings on Reserves?

  11. Prospects • GDP Growth Fed Central Tendency 2012 1.7-1.8% and 2013 2.3-3%, 3-3.5% in 2014 • Consensus Moving from 2% in 2013 to 2.6% in 2014 • Drag from Recent Policy Actions ? • Inflation Staying Near 2% Through 2014 • Fed on Hold Until at Least Mid 2015

  12. Known Unknowns • What happens Overseas ? • Dealing with the debt ceiling and sequesters in the next few months? • How will the actors behave ? Taxes, Healthcare, Uncertainty

  13. Residential Permits (SAAR) Census Bureau December 2012 Up 30.3% For the Year

  14. FHFA House Price Index Q3 2012

  15. FHFA Purchase Only Index for Oregon

  16. Residential Permits 2004 to 2012 Oregon (Up 48.9% to November 2012) Source: Census

  17. Total State Tax Collections Above Previous Year for 11 Quarters

  18. Policy Cauldron • The First Cliff • Payroll Tax Holiday Ends • Bush Tax Cuts Expire for Over $450,000 • Sequester Process Delayed 2 Months • New Medicare Taxes Start • Phase Outs and Deduction Limitations Back • Estate Tax Rate Bumped • AMT Fix, Doc Fix • Long Term Spending Issues-Not Addressed • Debt Ceiling Unresolved • Short Term Problem-Long Term Problem • Geithner-”And you can’t count indefinitely on the world having more confidence in our political system than is justified”

  19. Monetary Policy • Different Tools • Twist to the End of December-Then Buy $45 Billion of Treasuries with maturities from 4 Years to 30 Years • Continue to Buy $40 Billion Mortgage-Backed Securities Per Month • Total $85 Billion Per Month • Exceptionally low rates as long as unemployment remains above 6.5% and inflation is no more than .5 point above 2% longer run goal (12/12/12) • Will it make any difference? • How and When does one unwind it? Federal Debt Costs when rates increase?

  20. North Dakota 1 Utah 2 Hawaii 3 Texas 4 Arizona 5 Oklahoma 6 Colorado 7 Idaho 8 Indiana 9 Montana 10 Minnesota 11 Louisiana 12 Kentucky 13 Ohio 14 California 15 South Carolina 16 Washington 17 Georgia 18 Massachusetts 19 Job Growth UpdateNovember 2012 Data-Year over Year Change-44 States Up Oregon 21 Florida 22 Nevada 23 Arkansas 30 Michigan 33 Alabama 34 New Jersey 38 Illinois 35 South Dakota 36 New Jersey 38 Maine 43 Connecticut 44 Mississippi 45 Alaska 46 New Hampshire 47 Rhode Island 48 New Mexico 49 West Virginia 50

  21. Oregon Wage and Salary Employment ( ,000-SAAR) Employment Department

  22. Oregon Job Change Year to December, 2012 (1.3%) Employment Department

  23. Portland Job Change Year to November, 2012 (1.5%) Employment Department

  24. Oregon Job Growth Year to November, 2012Source: Department of Employment

  25. Recent Data Points • Personal Income in Q3 Oregon up .8%, US .5% • Census Population Estimates for 2010-2012 up 1.8% versus the US up 1.7% • PSU Oregon Population Up .7% in 2012 • Brookings Institution- Q3 Portland 4th of the top 100 Metros-Employment, Unemployment, Output, and House Prices • Preliminary Oregon Employment Data .8-.9% Gain in Annual Average Employment • Oregon Jobs Gap in October 133,000 Brookings Hamilton Project • December Data-Total Employment in Oregon down 25,546 in Year to December?

  26. Annual Change in Oregon Wage and Salary Employment

  27. Leftovers • Youth Un and Underemployment -Scarring • December U-6 14.4%, Mean Unemployment 38.1 Weeks, 39.1% of Unemployed more than 27 Weeks • Labor Force Participation Rate December 63.6%-The last Time it was there was December 1981. Recession Start 66% • Real Family Median Net Worth Down 38.8% 2007-2010 Survey of Consumer Finances

  28. Nagging Questions • Sustainability Popular Here- Fiscal Situation is Not- The Current Path leads to sclerosis or stagnation. • How does it end? Simpson-Bowles, Confidence Collapse –Endgame-Mauldin, Rogoff and Reinhart- Slow Growth • Is December/January the best that we can do? • Do we still have the recipe for growth?

  29. Stella and The Fairies • The Tooth Fairy • Free Medical Services Fairy • The No New Taxes Fairy • The Rich Will Pay Fairy • The Entitlement Fairy Stella Fairies

  30. 2013 • Uncertainty Reduced, But Remains • Most likely Growth Near 2% • Falling Debt Burdens, Housing, Rising Income and Employment, Balance Sheets, Financial Institutions Strength, ISM, Energy Developments, Initial Claims

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