Th ird Qua rter 2008 Vo l. 08
(Memorandum of Industry Momentum and Economics)
This publication will address economic and industry performance important to Utah and Intermountain businesses, as well as specific industries and sectors of significance to UM&A. We will attempt to include as many national and regional indicators as needed to convey need-to-know information that can assist us in business development and on-going projects. When applicable, we will also wave our own flags of achievement.
Economic Overview The resilience of our national economy continues to be tested at this writing. The “final” update to second quarter Gross Domestic Product shows growth at an annualized rate of 2.8 percent, following a 0.2 percent annualized decline in the fourth quarter 2007 and a 0.9 percent incline last quarter. In perspective, the fourth quarter’s slide represented the worst performance since third quarter 2001, when our economy was last in recession. While current performance disturbs the prevailing “recessionary” trend (which did not correspond to the conventional definition of “recession” —e.g. two consecutive quarters of declining real GDP), it hews to the sudden slowdown during the winter, and the temporary nature of [$94 billion in] federal tax rebates distributed to consumers. Moreover, it does not reflect slowing global economic conditions which over the past three years have contributed to export growth —a major buoy of GDP until now. GDP’s increase was driven by exports, personal consumption expenditures, federal government spending, nonresidential construction, and state‐local government spending. Exports grew at a “blistering” rate of 12.3 percent during the quarter, following 5.1 percent in the first quarter. (Imports, which depress GDP, decreased 7.3 percent, vs. 0.8 percent last quarter.) Real Personal Consumption expenditures increased 1.2 percent, compared with 0.9 percent last quarter. Real Non‐Residential fixed investment increased 2.5 percent, steady with 2.4 percent. Non‐Residential Structures increased 18.5 percent, double the previous quarter’s 8.6 percent. These are consistent with underlying business capital investment trends through the economic slowdown. Offsets comprised business inventory investment, residential fixed investment, equipment and software. More to this point: Final sales of computers contributed 0.15 percent to second quarter growth, following 0.05 percent last quarter, and motor‐vehicle output subtracted 1.01 percent from second quarter growth, following a subtraction of 0.41 percent last quarter. Conventional calculations of price inflation (excluding volatile food and energy) increased 2.2 percent, the same amount as last quarter. Declines in the price of refined petroleum products since the first quarter have yet to be digested by the supply‐chain, and, conversely have been retained by several industries —agribusiness, mining and construction— even as global demand has slackened. Preliminary studies reveal the bump in disposable income attributed to our tax rebates was consumed in non‐durable goods and other mass‐merchandise products, whose relative weight was greater in low‐income households. The U.S. Labor nd Department’s revised 2 quarter Productivity & Costs report indicated productivity (the amount of output for an hour of work) rose at a 4.3 percent annual rate during the quarter; this was a full percentage point higher than most economists expected. Corresponding labor costs slid 0.5 percent; the combination of higher productivity and lower costs should help contain price inflation and give the Federal Reserve Board more latitude on credit policy going forward.
A few macroeconomic observations As the current financial crises in “subprime” lending, “structured” products and bank exposures continue to unwind, there appear several salves to markets and regulation that may pre‐empt a recurrence. It is evident that whilst the present scenario originated in a small segment of financial activities —the subprime mortgage market— it has exposed an array of major deficiencies in today’s financial market system. So, the solutions extend beyond simple repairs/maintenance of the subprime market, and, consciously require our financial authorities to implement sweeping change across 1) prudential supervision and regulation and 2) financial institution business methods and models . This must be accomplished in a way that does not constrain financial innovation and market growth, as we operate in a flat world.
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Among the pitfalls of relying exclusively on monetary policy, for instance, there are: • Potential build‐up of price‐inflation pressures if such policy remains slack for too long. (i.e. while it’s easy to implement the policy, it is considerably more difficult to reverse it once it gains momentum and spreads through the economy) • Monetary policy’s transmission mechanism depends on a fluid financial system, operating within a notably narrow network with nodes that are sensitive to the cost of credit, such as housing and automobiles. • The risk that a protracted period of low (but of course, attractive) interest rates may distort long‐term investment decisions, provoking a [global] search for yields which also can result in excessive risk‐taking. (which, in recent history, has contributed to global asset price bubbles) Consequently, an increasing chorus of economists considers monetary policy to be our first line of defense, not to be relied upon exclusively, for too long. Moreover, taking [alternative] pre‐emptive measures to reduce the likelihood or depth of financial crises would obviate the need to exercise monetary muscle, with its global multiplier effects. Among the themes expressed by a consensus group of economists is greater market discipline; that is, both investors and creditors need timely/accurate information, but more significantly, the wake‐up call that their capital is at risk all the time. Of course, the demand for greater transparency [and standardization] will build this consciousness level, but it is more difficult to convey —to creditors, for instance— that their investments in the largest financial institutions are at risk! But market discipline of itself is not the only alternative. Since the increased cadence of “financial innovation” straddling the Glass‐Steagall Act’s rescission (1999), it has become extremely difficult for both market players and regulators to keep current with the financial landscape. One of the basic antidotes proffered by a consensus of industry economists addresses the need for a new set of “best practices” in the financial sector, and its corporate utility counterparts elsewhere. In context of the current financial stability legislation passed by the U.S. Congress, it remains to be seen if this updated regulatory regimen will be 1) built into the law and 2) implemented in timely fashion, to assuage the global financial markets’ concerns. Considering global monetary authority actions recently, the “flat world” is flatter than ever.
Below we address key performance indicators nationally, and recent trends regionally:
Since the beginning of the current economic downturn (represented above), the engines of growth have apparently been slowed by hesitance of commercial banks to extend credit to other than pristine borrowers, with strong earnings records in the trailing twelve.
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This phenomenon has bled into manufacturing and transportation, along with the costs of fuel. As the housing balloon has deflated, along with the equities market — a perception of lost household wealth—retailers (which includes restaurants and motor vehicle dealers) have also lost traffic.
Within the manufacturing sector, Durable goods are usually the first to show weakness in a slowdown; volume in the “white goods” market of motor vehicles/major appliances has depressed profits in fabricated metals and electrical equipment, on a 3‐6‐month lag. Were it not for exports, this sector would have suffered more losses.
Volatility in crude oil prices since the end of the previous economic cycle (they were not a major factor in the economic slowdown) has blunted the pass‐through effect on costs in downstream segments like chemical products. Again, global demand and the weak Dollar have continued to sustain profit margins in many exportable Non‐Durables. The discovery of new natural gas reserves, combined with a glut in ethanol production, have boosted one segment of the energy sector, while depressing profits in the other. Fuel costs embedded in food and beverage processing have been successfully passed along to consumers.
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Employment Trends in the Intermountain Region Over the period spanning our most recent economic growth, 2003‐2007, the Intermountain Region has grown at a pace much greater than the rest of the country. The following conclusions can be drawn regarding Intermountain employment growth in key industry contributors during these five years, and in the past year: 1. Total Non‐Farm Employment 2003‐2007: Total Non‐Farm Employment 2007‐2008 (2Q) Arizona 16.5% ‐1.1% Colorado 8.7% 1.3% Idaho 15.2% ‐0.6% Nevada 19.9% ‐0.5% Utah 17.2% 1.0% Wyoming 15.2% 2.8% 2. Construction &Mining Employment 2003‐2007: Construction & Mining Employment 2007‐2008 (2Q) Arizona 13.1% ‐13.4% Colorado 19.8% ‐0.5% Idaho 32.5% ‐8.6% Nevada 24.1% ‐8.8% Utah 44.6% ‐8.5% Wyoming 56.8% 9.4%
3. Manufacturing Employment 2003‐2007
Manufacturing Employment 2007‐2008 (2Q) ‐2.2% ‐2.7% ‐7.5% 0.0% 0.0% 0.0%
4.
Arizona 1.7% Colorado ‐7.1% Idaho 0.0% Nevada 18.6% Utah 14.3% Wyoming 11.1% Prof/Tech/Sci Employment 2003‐2007 Arizona 25.1% Colorado 22.4% Idaho 18.6% Nevada 30.5% Utah 26.0% Wyoming 18.8% Education/Health Svc Employment 2003‐2007 Arizona 27.1% Colorado 17.4% Idaho 22.6% Nevada 28.0% Utah 23.7% Wyoming 9.7%
Prof/Tech/Sci Employment 2007‐2008 (2Q) ‐1.1% 1.7% 0.0% ‐3.1% 2.5% 5.6%
Trade/Transport/Util Employment 2003‐2007 Arizona 17.3% Colorado 8.2% Idaho 14.4% Nevada 21.6% Utah 16.4% Wyoming 16.7%
Trade/Transport/Util Emploment 2007‐2008 (2Q) ‐1.3% 1.2% ‐0.8% 1.7% 1.6% 1.8%
5.
6.
Education/Health Svc Employment 2007‐2008 (2Q) 3.3% 4.2% 2.7% 4.3% 5.0% 3.0%
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7.
Leisure & Hospitality Employment 2003‐2007 Leisure & Hospitality Employment 2007‐2008 (2Q) Arizona 18.5% 1.1% Colorado 13.1% 2.2% Idaho 18.5% 0.0% Nevada 12.3% 0.0% Utah 17.2% 2.7% Wyoming 9.7% 3.0% 8. Financial Services Employment 2003‐2007 Financial Services Employment 2007‐2008 (2Q) Arizona 11.9% ‐3.8% Colorado 2.6% ‐1.3% Idaho 22.2% 0.0% Nevada 8.6% ‐3.1% Utah 13.8% ‐1.3% Wyoming 20.0% 9.1% Indicators of over‐reliance on the Construction industry can be seen across the region (excepting Wyoming, which enjoys a resilient Mining sector); the relative competitive stature of Manufacturing and Professional/Scientific/Technical services sectors show that overall, Utah and Colorado are best positioned to withstand the current economic slowdown. The Financial Services sector, as tied to mortgage banking, consumer and commercial lending, shows the effects of economic slowdown, beginning in mid‐2007. Impacts on this sector will depend on the severity of job losses in other industries and the longevity of the current financial crisis. The demographic composition of the Intermountain Region, nonetheless, will continue to support modest expansion of Education/Health Services employment, while Leisure/Hospitality —which are more dependent on disposable income and out‐of‐ state visitors— have already shown declines.
A depiction of relative industry employment shares follows:
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Disposable Personal Income Trends Another indicator of economic health relative to the individual households of our region is Disposable Personal Income, which is defined as Personal Income less Personal Current Taxes. Personal Current Taxes consists of income taxes, motor vehicle licenses, and personal property taxes. During the most recent economic growth cycle, the Intermountain Region has surpassed the national average growth pace of both Disposable Personal Income and Disposable Per Capita Personal income, and this is expected to continue through the current economic downturn.
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At State level, Disposable Personal Income grew the fastest in Nevada (42%), followed by Arizona and Utah (35%), Wyoming (33%), Idaho (31%) and Colorado (26%). This compares favorably with the national cumulative 25%, and is attributable to migration of manufacturing, professional/technical/scientific services, along with construction activity; all of these industries also have wages above average, and generate higher disposable income for retail, hospitality and leisure activity. At household level, Disposable Per Capita Personal Income growth exceeded the national average (20%) in Wyoming, Nevada and Utah —27%, 24%, 21%, respectively— but trailed by similar margins in Arizona, Idaho and Colorado. In absolute terms:
Disposable Per Capita Personal Income Trends 2007
%Change 2003‐07
Arizona $24,391 $25,957 $27,034 $28,190 $29,056 Colorado 30,269 31,716 33,211 34,627 35,760 Idaho 23,169 24,906 25,299 26,525 27,513 Nevada 28,508 30,772 33,074 34,151 35,300 Utah 22,574 23,634 24,928 25,961 27,390 Wyoming 29,817 32,096 33,237 35,970 37,969
19.1% 18.1% 18.7% 23.8% 21.3% 27.3%
Nat'l Avg $28,053 $29,563 $30,576 $32,222 $33,667
20.0%
2003
2004
2005
2006
(Source: U.S. Department of Commerce/Bureau of Economic Analysis)
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General Economic Conditions in Utah in context of September 2008 National Financial Crisis Favorable: Utah’s unemployment rate is up, but only to 3.7%, which reflects continued quality job growth, and remains below that of the nation (6.1%). Major industries are still hiring, and the previous labor shortages are somewhat alleviated. Help Wanted advertising remains robust. Utah’s housing markets are slipping, but compared with Arizona and Nevada, our downturn is still milder, and will recover sooner. Housing prices did not jump as quickly, and inventories are considered close to equilibrium State‐wide. Commercial and industrial space is still barely keeping ahead of demand. Prices for fuel and food are moderating, reflecting national trends. However, since Utah is a major transportation and distribution hub, price spikes are moderated. Labor wage increases have also been muted, due to the slow pace of economic growth lately. Still, there remain spot shortages in skilled manufacturing, health care and professional/scientific/technical services, which have contributed to wage increases in those sectors. Tourism and hospitality are resilient, due to the relative weakness of the U.S. dollar, and prevalence of “stay‐cations” this year. Absent adverse weather, the ski industry expects another record year, due to resort upgrades. Trade shows and conventions, typically booked years ahead, comprise a full schedule, and are not as sensitive to mild economic downturns. Recent global demand for energy and minerals has kept activity at high levels, and demand will remain strong as Utah is a major producer of petroleum products, natural gas and coal for power plants. Discoveries of crude oil and natural gas in Central and Eastern Utah, respectively, will sustain the sector, irrespective of political changes. National research studies include Utah in the top ten high‐technology centers again, and the sector is considered robust. The biotech and medical device sub‐sectors are the fastest expanding beyond the Wasatch Front, attracting European partners, while computer software pushes out from Salt Lake to adjacent counties. Utah’s financial services sector is not as affected as elsewhere, excepting those companies tied directly to the home mortgage industry. Commercial banks and credit unions did not overextend themselves, even as realtors pushed for more business during the housing boom. Utah’s venture capitalists continue to enjoy national attention, and its Fund of Funds —which invests in venture capital companies— has earned another injection of several tens of millions dollars from Deutsche Bank. As [nationally‐owned] commercial banks tighten their lending standards during this rebound, venture capital business will become a more important part of the total financial services sector.
Unfavorable: Utah released its worst employment report in five years in September, as job creation was down to 0.1 percent (net 1,800 jobs year‐ to‐date); this was notably behind the peak achieved at fiscal year‐end 2006, when 54,000 jobs were propagated. About 48,000 Utahns were unemployed in September, compared with 38,000 the previous year. The largest losses were experienced in construction, finance and real estate, and are expected to bleed into manufacturing/wholesale trade before the calendar year is over. The unemployment rate, nonetheless, is 3.7 percent, compared with a national rate of 6.1 percent. While Utah’s home prices did not experience the run‐ups in major cities from 2002‐2006, sales have slowed and prices are down 10‐ 20% from last year. There is no sign of a bottom yet. New home construction has slowed in response to the national economic perception and more for‐sale signs in pricier neighborhoods. The slowing housing market, combined with scarcities in other building materials, have softened prices for mineral commodities. The credit crunch is adversely affecting smaller energy companies, which need capital to expand existing oil+gas fields to meet present energy demand. Labor and equipment, nonetheless, are in short supply. During the first two quarters of 2008, angel and private equity investors have been hesitant to pump funding into startup companies in the high‐technology sector. Utah’s national ranking, along with other hubs, has not been immune to the national slowdown at this investor level. National economic dislocations attributed to the investment banking/credit derivatives market collapse have led to the expectations of tighter credit standards for the next year. Higher fees and rates for credit cards and other loans are projected by major financial institutions, but credit will be ample for businesses/individuals with good histories and documented financials. In the mineral supplement industry, there is heightened potential for sales losses in companies competing with mass‐marketers like Costco, Wal‐Mart and Target. Pricing power of the giant, publicly‐held companies will withstand economic slowdown, vs. USANA, TahitiaNoni, etc.
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Idaho Economic Conditions and updated outlook Idaho’s official economic authorities, and independent banking sources revised their statewide Economic Outlook downward during the quarter. Plunges in home construction, high energy prices, soft housing values, and consumer caution (tied to recent negative economic perceptions) have all contributed. Current estimates show the weakest employment since 2002, with over 8,000 jobs lost during the last year in the construction and manufacturing sectors. Over the same period, all of Idaho’s job creation has been provided by the service sector, led by education & health services, leisure & hospitality, information services and local government employment. Overall, Non‐Farm Employment fell at a 2.2% [seasonally‐adjusted annual] rate during the first quarter, and slipped by 0.4% in the second quarter. While Idaho’s unemployment rate ranked among the nation’s lowest (3.1%) earlier in 2008, in the third quarter it exceeded 4%. Many Idaho businesses have felt the Gem State is generally insulated from global developments…but high commodity prices, increased mining activity, wider credit spreads, narrower credit availability and tighter lending standards are currently affecting the whole state. Despite Micron’s March selection of Boise for an expanded processing facility, they have just announced a global cutback which is expected to eliminate 1,500 jobs in Idaho. On the bright side, with projects like Hoku Scientific’s new polysilicon plant and Nordic Windpower’s turbine plant in Pocatello, it is projected that Idaho’s economy will resume solid growth by 2010.
Arizona Economic Conditions and updated outlook Since the fourth quarter of 2007, Arizona’s economy has continued to shed jobs, 30,000 alone in the construction sector, which accounted for nearly all of the net losses through the second quarter 2008. Employment growth in the Greater Phoenix MSA has decelerated from a peak of 7.2% year‐on‐year in September 2005 to ‐1.5% at the end of second quarter 2008, resulting in a 4.5% unemployment rate. Statewide, Financial Services jobs have been drained by the sub‐prime mortgage fallout, and Professional/Scientific/Technical services have followed. Manufacturing has seen contractions for 18 months, despite regional and global demand. Even government payrolls have seen losses the past year. The only sectors displaying strength are Education and Health Services, which have added 10,000 jobs over the last year, and 30,000 since September 2005. Home prices continue to tumble, as the job market has deteriorated; speculators have withdrawn from the market and foreclosures have spiked, leaving supply and demand disproportionately out of balance. Credit quality has continued deteriorating, in tandem with the rise in mortgage delinquencies and foreclosures, in both prime and sub‐prime markets. Further slowing in the national economy, protracted concerns about credit and the ongoing housing price slump will weigh on the state, and economists at Wells Fargo Bank have forecast a contraction of 0.4% in 2008 for the Greater Phoenix MSA. Employment is projected to shrink by 0.8%, and the unemployment rate to end at 4.2%. As measured by the Case‐Shiller Price Index, home prices are forecast to fall 26.7% in 2008 and a further 15.4% in 2009. It is generally believed that until this Index falls to the level of 2004 prices, the housing crisis will continue.
Nevada Economic Conditions and updated outlook At mid‐year, a combination of persistent housing market slippage and seasonality posed more serious challenges to Nevada’s economy. The statewide [seasonally‐adjusted] unemployment rate jumped to 6.6%, an increase of 1.7% over the year. This reflects the loss of 27,000 jobs, most of them in the construction and financial services industry, since the peak of Nevada’s economic cycle in mid‐2006. By comparison, the Trade/Transportation/Utilities sector has gained about 10,000 jobs since, but has slipped recently, and the Education/Health Care sector continues to grow steadily. Normally, seasonal employment losses occur at this time; however, State & Local Government employment fell by nearly 6,000 this year and was not absorbed by the private sector. To add to this dilemma, the national credit market seizure has constrained development on the Las Vegas strip, stalling planned projects like the multi‐billion dollar Echelon Place, on which a 2009 economic turnaround were based. Nonetheless, projects with financing in‐ place prior to the current credit crisis —City Center, Fountain Blue, and the Cosmopolitan— remain on schedule for opening over the next two years. Despite the relatively weak U.S. Dollar, however, tourism is suffering, and this sector has lost jobs five consecutive months, compared to 2007. Putting Nevada locations in context: Clark County’s unemployment rate during the first half of 2008 averaged 5.8%, Washoe’s 6.3%, and the balance 6.5%. In rural counties unemployment varied widely, from 4.1% in Elko to 8.9% in Lyon. The economic outlook for Las Vegas and Reno has deteriorated over the quarter, as fuel prices and global retrenchment have weighed on tourism and consumer spending. Employment is forecast to fall another 1.0%, and the Statewide unemployment rate to finish 2008 at 6.5%. Home prices are projected to fall by 27.8%, then drop another 14.9% in 2009; housing starts will, accordingly,
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slow dramatically. The headline in The Las Vegas Sun of September 28 said it clearly: “What we can expect…Less spending, fewer new resorts, slower growth —get used to it.”
Global Economic Outlook As the prevailing winds of economic slowdown continue drifting across the Atlantic, we thought it timely to share the views of respondents to a mid‐year survey conducted by Mergermarket, the purveyor of on‐line M&A transactional information. Among its findings: • • • • • • •
Total respondents had a generally bleak outlook for global economic growth in 2009. Overall, 61% expect a decrease in growth, while only 15% expect an increase. Corporate respondents had a comparatively positive outlook, however, with a below‐average 52% expecting a decrease and an above average 30% expecting an increase. Private equity executives were the most expectant of a decrease in economic growth, but none expected the decrease to be significant. The most notable keywords included: “growth in other countries will keep the global economy healthy” and “consider the growth of China, India, Brazil and Eastern Europe.” Most respondents highlighted the impediment to growth posed by credit problems, and its relationship to consumer spending. Instability, in general, was blamed for a lack of consumer confidence worldwide, which, in turn, would affect spending patterns. A majority of respondents (61%) believe the U.S. economy is in either poor or very poor condition. Again, corporate respondents were the most optimistic, and financial advisors the least optimistic. Still, the corporate optimists were a minority, as slightly less than half (48%) gave the U.S. economy a “poor” rating, and only 4% rating it “healthy.” Curiously, 65% of European respondents label the U.S. economy “poor,” compared with 45% of American respondents. While a small (but still above average) 5% of American respondents said the U.S. economy was “healthy,” no European respondents agreed. All but 22% of overall respondents expect the U.S. to enter a recession; the majority 78% could not agree on when, however. Some 40% forecast a recession before the end of 2008, while a similar 38% predicted the onset during or after 2009. Consistent with the relative optimism of the corporate respondents, 42% of them do not see a recession in our near future. Although still a minority, this is nearly triple the amount of private equity executives and financial advisors expressing a positive outlook for the U.S. economy.
National Economic Outlook Several professional surveys conducted during the last month — addressing the real‐time issues which affect businesses and consumers — were consistent in the downward revisions of their forecasts through next year. Among the anecdotal responses, the general consensus across several economic trade associations is: 1) They see no growth in the fourth quarter 2008, in context of annualized [real GDP] growth of 1.0 percent in the third quarter. They expect the economy to remain sluggish through the first quarter 2009, growing at an annualized rate of 1.3%. 2) Despite forecasts of no quarterly decline in GDP, two‐thirds now believe a recession has already begun, or will begin during the fourth quarter 2008. 3) Recent credit market deteriorations will drive the unemployment rate up to 7.0 percent by mid‐year 2009, a full percentage point over its position at mid‐year 2008; job losses will continue through then. 4) Real GDP is expected to improve to an annualized rate of 2.3 percent in the second quarter, 2.7 percent in the third quarter, and 3.0 percent in the final quarter of 2009. 5) Without the Emergency Economic Stabilization Act of 2008, GDP growth in 2009 would be ¾ percentage point lower, unemployment would be ½ percentage point higher, and stock prices would be 10 percent lower by year‐end 2008. 6) All major economic sectors will be weaker, but net exports will outperform; the U.S. Dollar is expected to firm relative to the Euro, but hold steady versus a broader basket of currencies. 7) The price of a barrel of crude oil is expected to average $95 by December 2008, and $92 by year‐end 2009. Generally lower energy costs and sluggish economic growth will reduce price inflation over the next year; Consumer price
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increase should be muted to 2.3 percent (4th Quarter on 4th Quarter 2009), in contrast with this year’s 4.2 percent. Note: the slowing is in range of Fed’s comfort zone. 8) One of the fiscal effects of the slowdown is a widening of the Federal Budget Deficit to more than $480 billion in 2009, compared with estimates of $410 billion in fiscal 2008. Note: this does not include expected impact of the Emergency Economic Stabilization package. 9) A Federal Reserve Bank fed funds target rate increase previously expected by first quarter 2009 has now been projected for delay until at least mid‐year, with a year‐end 2009 rate at 3.00 percent. 10) Corporate profits are expected to decline by 5.9 percent at year‐end 2008, and rebound 4.4% in 2009. Another economic consensus group suggests that since the only favorable element of growth has been foreign demand, and the U.S. Dollar has gained value against many currencies, a global slowdown could indeed wash back on us. Signs of slowdown have already dampened price inflation here, and international crude oil prices have been driven below $80.00 a barrel since the end of September. The Federal Reserve Board is now taking into account the medium term inflation situation, increased household borrowing costs, tighter credit conditions and a protracted housing market “retrenchment.” It remains to seen through the economic trough whether energy‐driven prices will be retained by the supply‐chain, or — as seen already in chemicals and institutional transportation carriers — if they will pass the costs along to end‐users. Analogous with the competitive environment of each industry, it already appears many supply‐chain companies have determined this is a one‐time opportunity to play to the inflationary expectations of consumers, and build‐in surcharges to their prices through the end of 2008. This will squeeze retail consumers further, and discretionary spending will be curtailed as the Christmas holiday season approaches. The global banking enigma will be discussed in our next UM&A MIME; in the meantime, we will relay commentary of notable developments as they occur.
Prepared by Dean C. Dinas, Research Director, United® Mergers & Acquisitions
Information in this report has been obtained by UM&A from sources believed to be reliable. UM&A cannot, however guarantee the accuracy or completeness of this information, nor is UM&A responsible for any errors, omissions or damages arising from the use of this information. ©2008 United Mergers & Acquisitions®, 6985 Union Park Center, Salt Lake City, Utah 84047. ALL RIGHTS RESERVED.
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Forecast of Key Economic Indicators at September 2008 2007 Qtr3 Qtr4 Real Gross Domestic Product₁ % change, year‐on‐year
4.8 ‐0.2 2.8 2.3
Real Disposable Personal Income₁ % change, year‐on‐year
3.1 3.1
Real Business Investment₁ % change, year‐on‐year
8.8 5.3
Change in Business Inventories (($bn, chained 2000 px, annual rate) p )
Forecast Periods‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐‐ 2008 2009 2010 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1 Qtr2 Qtr3 Qtr4 Qtr1
Qtr2
0.9 2.5
3.3 2.2
0.7 1.2
0.2 1.3
1.0 1.3
2.0 1.0
2.6 1.4
2.9 2.1
3.1 2.6
3.2 2.9
0.6 1.8
‐0.7 0.6
11.4 3.5
‐6.9 0.9
‐0.9 0.5
2.8 1.4
2.6 ‐0.7
2.5 1.7
2.9 2.7
3.5 2.9
3.4 3.1
3.4 6.4
2.4 6.2
2.3 4.2
0.5 2.1
0.6 1.4
‐1.8 0.4
‐0.2 ‐0.2
1.6 0.0
2.9 0.6
3.2 1.9
4.2 3.0
‐10.2 ‐49.4 ‐26.3 ‐20.7
‐12.3
‐3.8
7.3
16.8
22.5
29.7
16.0 ‐8.1
Industrial Production₁ % change, year‐on‐year
3.6 1.8
0.3 2.1
0.4 1.8
‐3.2 0.2
0.6 ‐0.5
0.2 ‐0.5
0.2 ‐0.6
1.6 0.6
2.7 1.2
2.8 1.8
3.0 2.5
3.4 3.0
Consumer Prices₁ % change, year‐on‐year
2.8 2.4
5.1 4.0
4.4 4.2
5.1 4.3
6.2 5.1
2.4 4.5
2.4 4.0
2.0 3.2
2.4 2.3
2.3 2.3
2.3 2.2
2.3 2.3
Producer Prices₁ % change, year‐on‐year
1.6 3.6
9.2 6.7
9.3 7.1
10.7 7.6
8.1 9.5
2.5 7.8
1.4 5.8
0.9 3.4
1.7 1.6
1.5 1.4
1.5 1.4
1.8 1.6
Unemployment Rate %₂
4.7
4.8
4.9
5.3
5.8
6.1
6.2
6.3
6.3
6.2
6.1
6.0
3 month Treasury Bill Rate₂
3.7
3.3
1.4
1.8
1.8
1.8
2.0
2.2
2.6
2.9
3.4
3.6
10 year Treasury Bond Yield₂
4.6
4.2
3.4
4.0
3.9
4.0
4.1
4.2
4.4
4.6
4.9
4.9
1 Change from prior quarter at Seasonally Adjusted Annual Rate
2 End of Quarter
Source: Consensus Economics, Inc.