Full text of FedViews : April 9, 2009 : April 9, 2009 Charts
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Key Issues House Prices Closing in on “Normal” Level Ratio of House Prices to Rent 10-City Case-Shiller Index divided by Owner's Equivalent Rent; 1970-1999 average = 1 2 • Adverse Feedback Loop 1.8 1.6 p or U-Shaped p Recovery? y • V-Shaped Q4 1.4 1.2 • The Risk of Deflation Futures 1 Long-run average 0.8 1987 It Started with Subprime, then Spread to Prime Mortgage Delinquency Rates Percent 60-days or greater, First-lien mortgage Feb. 9 1990 1993 1996 1999 2002 2005 2008 Households Deep in Debt… Ratio Ratio 0.15 1.4 1.3 8 0.14 7 1.2 2008Q4 High FICO ARM 6 0.13 5 4 0.9 0.12 3 High FICO fixed 0.8 2 0.7 0.11 Debt service to disposable income ratio (left axis) 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 and Suffering from Fall in Wealth 14 90 95 139 138 Change Nov. Dec. Jan. Feb. Mar. 8 5.0 05 Millions of employees; seasonally adjusted 10 5.5 00 Nonfarm Payroll Employment 12 Net worth to income ratio (left axis) Saving rate (right axis) 85 Over 5 Million Jobs Lost So Far Percent 6.0 0.5 80 6.5 0.6 0.1 2009 Ratio -597 K -681 K -741 K -651 K -663 K 137 136 135 6 134 133 4 4.5 1.1 1 Debt to disposable income ratio (right axis) Mar. 2 132 131 4.0 FRBSF forecast 3.5 0 130 -2 59 64 69 74 79 84 89 94 99 04 09 129 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 1 V-Shaped or U-Shaped Recovery? Arguments for V-Shaped Recovery Arguments for U-Shaped Recovery Has Housing Hit Bottom (Again)? Home Sales 1400 1200 • Typical pattern of past severe recessions • P Pent-up t d demand d ffor h housing i and cars, and inventory rebuilding • Banking/financial crises followed by slow recoveries; healing of banks will take time • Heightened uncertainty exerts drag on investment Thousands Seasonally adjusted annual rate 7500 7000 New Homes (left axis) 6500 1000 6000 800 5500 Existing Homes (right axis) 600 Feb. 5000 • Sizable monetary and fiscal stimulus • Global recession 400 • Monetary policy limited by zero bound 4500 200 4000 2001 Global Recession 2002 2003 2004 2005 2006 2007 2008 Gradual Recovery Real Gross Domestic Product (GDP) Real GDP Percent Percent change at seasonally adjusted annual rate (2007Q4 = 100) 8 105 USA Germany UK Japan 6 FRBSF Forecast 4 2 0 100 Consensus Forecast -2 -4 -6 Q4 Q1 95 2007 2008 2009 2010 -8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Unemployment Continues to Rise Unemployment Rate The Risk of Deflation Percent Seasonally adjusted 10.0 Core PCE Price Inflation 3.0 Long run inflation expectations 9.0 Mar. Percent Percent change from four quarters earlier 9.5 Q1 8.5 Q4 8.0 FRBSF forecast Well-anchored Phillips curve 2.0 forecast 7.5 FRBSF forecast 70 7.0 1.0 6.5 0.0 6.0 5.5 Unanchored Phillips curve forecast 5.0 4.5 -1.0 4.0 3.5 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 -2.0 95 00 05 10 2