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Enough Adjustment?

Enough Adjustment?. US economic headwinds remain, but ready to recover. HSBC. Ian Morris Managing Director Chief US Economist. End of the recession?. Household finances – back to where they should be…. …based on where consumer wealth is.

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Enough Adjustment?

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  1. Enough Adjustment? US economic headwinds remain, but ready to recover

  2. HSBC Ian Morris Managing Director Chief US Economist

  3. End of the recession?

  4. Household finances –back to where they should be…

  5. …based on where consumer wealth is

  6. So, time for consumer stabilization? Depends on asset prices

  7. San Francisco affordability now looks cheap…

  8. …as does Miami

  9. New York adjusting down but still more to go

  10. If house prices stabilize, housing construction will rise

  11. FHFA house price index has risen in two out of the past three months

  12. Various financial indicators have recently improved

  13. Financial conditions – back to pre-Lehman/AIG

  14. Stress tests pricing in Great Depression under “adverse” scenario

  15. Surely this has to keep rising for a while

  16. Commercial paper market still a warning

  17. Junk spreads still need to come in a long way to be consistent with easier bank lending standards

  18. Taylor-rule Fed funds – going where it cannot go in real life

  19. So, ramp up Fed assets…

  20. …and Fed liabilities (straight out of thin air)

  21. But a case can be made for much lower inflation

  22. 10-year yields may stay low as a result, despite deficits

  23. GDP corporate profits led the S&P500 decline (again)

  24. Share buybacks sharply down but still sizeable…

  25. …as corporate debt issuance is cut (but coming back?)

  26. A crumb of comfort for capex

  27. Profit share of GDP down, but still structurally high

  28. S&P500 reported earnings – reversion to mean would be 60% of GDP profits…

  29. …but S&P500 EPS would not reach previous peak

  30. Housing share of GDP lowest since 1930s– closer to the bottom than the top

  31. Fall in prices has helped improve home-buying attitudes

  32. Homebuilder optimism may be starting to get a lift

  33. New home inventory at lowest level since 2001

  34. Existing home inventory remains high

  35. Exports and imports hit a brick wall in November

  36. Exports have recently started to look less bad

  37. Fiscal sustainability will become an issue in 2-3 years

  38. Conclusions • GDP may soon stop falling… • …but unemployment will continue to rise and inflation will fall • Financial sector healing still the major uncertainty

  39. Taylor-rule model specifications

  40. Core CPI model specifications

  41. Could be the worst unemployment rise since mid-1970s

  42. Unemployment rate

  43. Previous increases in unemployment

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