Fed Stats

A few quick stats from some Fed pieces that I read last week (and a quick football comment).  Most everything contained in today’s blog is a direct quote from the different Fed pieces.  I’ve listed the sources at the bottom of the article.

1. The total number of employees on nonfarm payrolls remains about 6.1 million workers fewer than at the start of the recession, a dramatic shortfall.

2. Auto sales fell dramatically below scrappage in 2009, the most recent year for which data are available.  That was historically unprecedented, showing the severity of the auto sector downturn.  Auto sales remain roughly in line with the scrappage trend, suggesting that December’s sales rate is easily sustainable and has room to run somewhat higher.  See chart below.  (This speaks to pent up demand.)

3. Consumer sentiment seems to have improved, though remaining far below pre-recession levels.  Higher consumer confidence bodes well for purchases of big-ticket items, such as autos, furniture, appliances and homes.

4. The National Association of Realtors reported that housing affordability rose to an all-time high.  (Home prices are low and mortgage rates are at all-time lows.)  See chart below.  In addition, the ratio of the cost of buying a house compared with the cost of renting one has fallen dramatically over the past five years and now is close to historical averages.

5. While 620 is generally considered a prime borrower, the median FICO score for prime borrowers has risen about 40 points to around 770.  Thus, a prospective homeowner must have a much higher credit rating than in the past to qualify for a loan.  See chart below.

6. Equity in household real estate peaked at $13.3 trillion in Q1 of 2006 before plummeting to $5.5 trillion in Q3 of 2011 (in 2005 dollars).  See chart below.

7. During this time period, household debt fell to 113% of disposable personal income, a level not seen since 2004.  Net borrowing fell as consumers defaulted on loans, paid down debt and took out fewer loans.

Comparing Wartime Deficits With Our Current Deficit:

1. Wartime deficits are explained by large temporary increases in defense expenditure.  However, revenue also increases – which results in a post-war fiscal surplus.  Today, we have higher expenditures and lower revenue.  Two-thirds of the increase was due to transfers.  Revenue fell by 2.8% of GDP as a result of tax cuts, credits, rebates and depressed economic activity.

2. Output during the three wars increased significantly, whereas it is currently below trend.

3. Inflation increased substantially during all three wars.  After WWII, high inflation was used to reduce the real value of accumulated debt.

4. Deficits are expected to continue until the end of FY 2014.  By 2016, outlays (net of interest payments) are estimated to fall to about 19.8% of GDP, which is still 1.4 percentage points higher than the average from 2004 to 2008.  Assuming revenues climb to 19.3% of GDP, debt held by the public will reach 68% of GDP, which would more than double interest payments in terms of output.  These developments will create strong incentives to use inflation to reduce the financial burden of fiscal liabilities.  An even greater incentive is the fact that over half of the debt is held by foreign and international investors.  This “is a troubling scenario that should not be lightly dismissed.”

Quick Football Comment

How ‘bout those Giants?  Pretty exciting finish.  But, the game was ruined by Williams fumbling twice.  I never enjoy seeing a game decided by a big mistake (let alone two mistakes by the same player).  With that said, I’m excited for the Super Bowl.

Jim Harbaugh is clearly a great coach.  But, did you watch when he shook hands with Coughlin after the game?  Harbaugh hardly said anything.  He pretty much ran by Coughlin, shook his hand (while still moving) and ran off.  Then, he wouldn’t do an interview (with the network) after the game.  Good role model.  I was watching the game with my nine-year-old and I replayed the handshake to show him how not to behave.

All comments (above) are from the following Fed pieces:

Fiscal Policy in the Great Recession and Lessons From the Past, by Fernando M. Martin

Twelfth Federal Reserve District Fed Views, by Eric Swanson (Jan. 12, 2012)

Where Are Households in the Deleveraging Cycle, by R. Andrew Bauer and Betty Joyce Nash

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