Penny wise, Euro foolish

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1 The Dog Ate My Home On Behalf of MACPA By: Anirban Basu Sage Policy Group, Inc. September 21, 2012 Penny wise, Euro foolish 1

Historic and Projected World Output Growth 2004 through

International Monetary Fund *2012-2013 data are projections

2 Historic and Projected World Output Growth 2004 through 2013* Annual % Change 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 4.9% 4.6% 5.2% 5.4% 2.9% 5.3% 3.9% 3.5% 4.1% -1.0% -0.5% -2.0% Source: International Monetary Fund * data are projections Global Recession Watch as of August 2012 Source: Moody s Economy.com 2

3 Debt by Country 2011 Japan Italy United States France Canada United Kingdom Germany Spain India Brazil Argentina Mexico South Africa China Indonesia Russia Saudi Arabia Source: IMF; BIS; Bloomberg L.P General Government Gross Debt in Percent of GDP Top 12 Stock Exchanges 2011 Growth Rank Exchange Index % Change 1 NYSE Group DJI A 5.5% 2 Nasdaq NASDAQ Composite -1.8% 3 London SE FTSE % 12 Swiss Exchange Swiss Market -7.8% 9 TSX Group S&P TSX Composite -9.2% 8 Bolsa De Madrid IGBM -14.6% 6 Frankfurt SE DAX -14.7% 5 Euronext CAC % 4 Tokyo SE Nikkei % 11 Hong Kong Exchanges Hang Seng Index -20.0% 7 Shanghai SE Shanghai Composite -21.7% 10 Borsa Italiana FTSE MIB -25.2% Source: Yahoo! Finance 3

4 Top 12 Stock Exchanges Year to date Growth through 9/7 Rank Exchange Index % Change 6 Frankfurt SE DAX 22.3% 2 Nasdaq NASDAQ Composite 20.4% 5 Euronext CAC % 12 Swiss Exchange Swiss Market 10.1% 1 NYSE Group DJI A 8.9% 11 Hong Kong Exchanges Hang Seng Index 7.4% 10 Borsa Italiana FTSE MIB 6.8% 4 Tokyo SE Nikkei % 3 London SE FTSE % 9 TSX Group S&P TSX Composite 2.6% 7 Shanghai SE Shanghai Composite -3.3% 8 Bolsa De Madrid IBEX % Source: Yahoo! Finance Dow Jones Industrial Average January 1980 through September 11, Ten Worst Daily DJIA Performances, Open to Close Date Percent Change 10/19/ % 10/28/ % 10/29/ % 8/12/ % 11/6/ % Date Percent Change 7/21/ % 10/15/ % 10/18/ % 12/1/ % 10/9/ % Previous 4 recessions: July Nov Jul Mar Mar Nov Dec Jun Source: Yahoo! Finance 4

5 S&P 500 Index October 2007 through September 11, /9/2007, /11/ Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Source: Dow Jones, Standard & Poors 3500 Nasdaq Index October 2007 through September 11, /11/ /31/2007, Oct 07 Jan 08 Apr 08 Jul 08 Oct 08 Jan 09 Apr 09 Jul 09 Oct 09 Jan 10 Apr 10 Jul 10 Oct 10 Jan 11 Apr 11 Jul 11 Oct 11 Jan 12 Apr 12 Jul 12 Source: Yahoo! Finance 5

6 S&P Select Sector Performance As of September 4, 2012 Sector YTD Performance Year over year Performance Technology 19.24% 28.96% Consumer Discretionary 16.17% 26.11% Financial 16.19% 20.81% Health Care 11.77% 20.05% Consumer Staples 9.35% 17.67% Industrial 6.06% 16.50% Utilities 0.49% 9.42% Energy 2.24% 7.17% Materials 4.48% 3.36% Source: Dow Jones, Standard & Poors All dressed up with no place to go 6

105 Industrial Production February 2001 through July 2012 100 (Base year: 2007) Index (2007 = 100) 95 90 85 80 Feb 01 Jun 01 Oct 01 Feb 02 Jun 02 Oct 02 Feb 03 Jun 03 Oct 03 Feb 04 Jun 04 Oct 04 Feb

7 105 Industrial Production February 2001 through July (Base year: 2007) Index (2007 = 100) Feb 01 Jun 01 Oct 01 Feb 02 Jun 02 Oct 02 Feb 03 Jun 03 Oct 03 Feb 04 Jun 04 Oct 04 Feb 05 Jun 05 Oct 05 Feb 06 Jun 06 Oct 06 Feb 07 Jun 07 Oct 07 Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Source: Federal Reserve The industrial production index measures the real output of the manufacturing, mining, and electric and gas utilities industries. Percent Change from Preceding Period (SAAR) Gross Domestic Product 1990Q1 through 2012Q2 10% 8% 6% 4% 2% 0% 2% 4% 6% 8% 10% 2012Q2: +1.7% 1990Q1 1990Q4 1991Q3 1992Q2 1993Q1 1993Q4 1994Q3 1995Q2 1996Q1 1996Q4 1997Q3 1998Q2 1999Q1 1999Q4 2000Q3 2001Q2 2002Q1 2002Q4 2003Q3 2004Q2 2005Q1 2005Q4 2006Q3 2007Q2 2008Q1 2008Q4 2009Q3 2010Q2 2011Q1 2011Q4 Source: Bureau of Economic Analysis 7

8 Net Change in U.S. Jobs, BLS January 2002 through August Thousands Aug. 2012: +96K Between Aug and Aug. 2012, the nation gained 1,808,000 jobs Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Source: Bureau of Labor Statistics National Nonfarm Employment by Industry Sector August 2012 v. August 2011 Professional and business services 576 Education and health services 423 Leisure and hospitality Trade, transportation, and utilities Manufacturing 199 Financial activities 61 Mining and logging 40 Other services 28 Information Construction Government All told 1,808K Jobs gained Thousands, SA Source: Bureau of Labor Statistics 8

9 Issues with the Federal Budget The automatic sequestration mandated by the Budget Control Act of 2011 is set to begin in January Both defense and non defense programs will be cut by $54.7 billion each year from 2013 through 2021 a total of approximately $109.3 billion per year or $984 billion through In addition, if Congress does not act by the end of the year, nearly 50 items in the tax code will expire. Among the most significant items are the Bush tax cuts and the payroll tax cut. Bush Tax Cuts: If tax cuts are not extended, approximately 60 percent of taxpayers will see an increase in their tax rate between 3 and 5 percentage points (e.g. a couple that makes $90,000/year will pay an extra $2,700 in federal income taxes). Expiring tax cuts also mean reductions to investment income. If the current rates expire, the tax rate for capital gains would increase from 15 percent to 20 percent and dividends would be taxed as normal income, instead of at the current 15 percent rate. Payroll Tax Cut: If allowed to expire, roughly 160 million workers will see a 2 percentage point tax increase in payroll taxes, or an average of $714 or more/year for each worker. The Joint Committee on Taxation reports that the payroll tax cut will save workers $114 billion in Maryland Nonfarm Employment by Industry Sector Groups (SA) July 2012 v. July 2011 Absolute Change Professional & Business Services 14,400 Education & Health Services 10,900 Leisure & Hospitality Other Services Government 1, ,700 Mining, Logging, and Construction Trade, Transportation & Utilities Information Manufacturing ,700 MD Total: +22.6K; +0.9% US Total (SA): +1,797K; +1.4% Financial Activities -3,200-5, ,000 10,000 15,000 20,000 Source: Bureau of Labor Statistics 9

10 Baltimore Towson MSA Nonfarm Employment by Industry Sector Groups (NSA) July 2012 v. July 2011 Absolute Change Professional & Business Services 8200 Education & Health Services 3500 Other Services 1200 Government 100 Mining, Logging, and Construction Information Baltimore Total: +0.7K; +0.1% Financial Activities Leisure & Hospitality Manufacturing MD Total (NSA): +22.5K; +0.9% US Total (SA): +1,797K; +1.4% Trade, Transportation & Utilities ,000 6,000 4,000 2, ,000 4,000 6,000 8,000 10,000 Source: Bureau of Labor Statistics Washington, DC Arlington Alexandria MSA Nonfarm Employment by Industry Sector Groups (NSA) July 2012 v. July 2011 Absolute Change Educational & Health Services 13,000 Leisure & Hospitality 7,100 Professional & Business Services 6,800 Financial Activities 5,500 Mining, Logging & Construction 4,700 Government Manufacturing Other Services Trade, Transportation & Utilities -1, ,700 DC MSA Total: +24.3K; +0.8% US Total (SA): +1,797K; +1.4% Information -1,700-5, ,000 10,000 15,000 Source: Bureau of Labor Statistics 10

11 Employment Growth, U.S. States (SA) July 2012 v. July 2011 Percent Change Rank State % Rank State % Rank State % 1 North Dakota District of Columbia South Carolina California Kansas South Dakota Oklahoma Georgia Illinois Arizona Idaho Connecticut Indiana Massachusetts Pennsylvania Kentucky New York Alabama Louisiana Montana Maine Minnesota Tennessee West Virginia Texas Oregon Delaware Utah Florida New Mexico Ohio Hawaii Wyoming Vermont New Jersey Mississippi Washington Maryland New Hampshire Nebraska Nevada Alaska Virginia North Carolina Missouri Colorado Arkansas Wisconsin Michigan Iowa Rhode Island -1.6 Source: Bureau of Labor Statistics U.S. Year-over-year Percent Change: 1.4% Unemployment Rates, U.S. States (SA) July 2012 Rank State Rate Rank State Rate Rank State Rate 1 North Dakota Maryland Tennessee Nebraska Missouri Connecticut South Dakota Ohio Washington Oklahoma Texas Oregon Vermont Arkansas Florida Iowa Wisconsin District of Columbia New Hampshire West Virginia Illinois Wyoming Idaho Michigan Minnesota Louisiana Mississippi Virginia Maine New York Utah Alaska Georgia Massachusetts Pennsylvania North Carolina Kansas Indiana South Carolina Hawaii Alabama New Jersey Montana Arizona California New Mexico Colorado Rhode Island Delaware Kentucky Nevada 12.0 Source: Bureau of Labor Statistics U.S. Unemployment Rate: 8.3% 11

12 Unemployment Rates, Selected Large Metros (NSA) July 2012 Rank MSA UR Rank MSA UR 1 Washington Arlington Alexandria, DC VA MD 5.6 WV 11 Chicago Joliet Naperville, IL IN WI Minneapolis St. Paul Bloomington, MN WI Philadelphia Camden Wilmington, PA NJ DE MD Boston Cambridge Quincy, MA NH San Diego Carlsbad San Marcos, CA San Antonio New Braunfels, TX Atlanta Sandy Springs Marietta, GA 9.3 Miami Fort Lauderdale Pompano Beach, 5 Dallas Fort Worth Arlington, TX FL 6 Houston Sugar Land Baytown, TX Tampa St. Petersburg Clearwater, FL Phoenix Mesa Glendale, AZ New York Northern New Jersey Long Island, NY NJ PA Baltimore Towson, MD Los Angeles Long Beach Santa Ana, CA Seattle Tacoma Bellevue, WA Detroit Warren Livonia, MI San Francisco Oakland Fremont, CA Riverside San Bernardino Ontario, CA 12.7 Source: Bureau of Labor Statistics MD County Unemployment Rates July 2012 Rank Jurisdiction UR Rank Jurisdiction UR 1 Montgomery County Garrett County Howard County Talbot County Frederick County Harford County Calvert County Baltimore County Queen Anne s County Allegany County Saint Mary s County Caroline County Charles County Wicomico County Anne Arundel County Washington County Carroll County Cecil County Worcester County Somerset County Kent County Dorchester County Prince George's County Baltimore City 11.1 Source: Bureau of Labor Statistics 12

13 It could be worse, right?? 15 Year & 30 Year Fixed Mortgage Rates January 1995 through September 2012* 10% 9% 8% 7% 15-yr 30-yr Rate 6% 5% 4% 3% 2% 1% Sep % Sep % Source: Freddie Mac *Average rate through 9/6. 13

14 U.S. New Home Sales January 1999 through July 2012 Thousands, SAAR 1,600 1,400 1,200 1, Source: Economy.com, Census Bureau 2,500 U.S. Housing Starts February 1999 through July ,000 Thousands, SAAR 1,500 1, Feb 99 Jul 99 Dec 99 May 00 Oct 00 Mar 01 Aug 01 Jan 02 Jun 02 Nov 02 Apr 03 Sep 03 Feb 04 Jul 04 Dec 04 May 05 Oct 05 Mar 06 Aug 06 Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09 May 10 Oct 10 Mar 11 Aug 11 Jan 12 Jun 12 Source: Census Bureau 14

15 A penny saved is a penny earned Conference Board Consumer Confidence 2005 August Aug Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09 May 09 Jun 09 Jul 09 Aug 09 Sep 09 Oct 09 Nov 09 Dec 09 Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 Jul 10 Aug 10 Sep 10 Oct 10 Nov 10 Dec 10 Jan 11 Feb 11 Mar 11 Apr 11 May 11 Jun 11 Jul 11 Aug 11 Sep 11 Oct 11 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12 Jun 12 Jul 12 Aug 12 Source: Conference Board 15

16 U.S. Chain Store Sales Growth by Type of Store August 2011 v. August 2012 Luxury Dept. 21.0% Apparel 8.1% Department 7.1% Wholesale 6.0% 5.1% Discount 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 12-month % change Source: Economy.com U.S. Retail and Food Service Sales January 2002 through July % 10.0% 5.0% 0.0% 5.0% 10.0% 15.0% Jan 02 Jun 02 Nov 02 Apr 03 Year to Year % change Sep 03 Feb 04 Jul 04 Dec 04 May 05 Oct 05 Mar 06 Aug 06 Jan 07 Jun 07 Nov 07 Apr 08 Sep 08 Feb 09 Jul 09 Dec 09 May 10 Oct 10 Mar 11 Aug 11 Jan 12 Jun 12 Source: Census Bureau 16

Vehicle Sales (millions) National Vehicle Sales June 2004 through August 2012 (SAAR) 20 18 16 14 12 10 8 6 4 2 0 Jun 04 Oct 04 Feb 05 Jun 05 Oct 05 Feb 06 Jun 06 Oct 06 Feb 07 Jun 07 Oct 07 Feb 08

17 Vehicle Sales (millions) National Vehicle Sales June 2004 through August 2012 (SAAR) Jun 04 Oct 04 Feb 05 Jun 05 Oct 05 Feb 06 Jun 06 Oct 06 Feb 07 Jun 07 Oct 07 Feb 08 Jun 08 Oct 08 Feb 09 Jun 09 Oct 09 Feb 10 Jun 10 Oct 10 Feb 11 Jun 11 Oct 11 Feb 12 Jun 12 Source: Autodata Corp. GM Ford Chrysler Honda Toyota Nissan U.S. Personal Savings Rate January 2002 through July % 8% Personal Savings as % of Personal Income 7% 6% 5% 4% 3% 2% 1% 0% Source: Bureau of Economic Analysis 17

18 Conference Board Leading Economic Indicators Index August 2007 through July % 1.0% One month Percent Change 0.5% 0.0% 0.5% 1.0% 1.5% June 2012 = 95.8 where 2004=100 Aug 07 Nov 07 Feb 08 May 08 Aug 08 Nov 08 Feb 09 May 09 Aug 09 Nov 09 Feb 10 May 10 Aug 10 Nov 10 Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Source: Conference Board It s difficult to forecast, particularly the future Economy hit a soft patch; 2013 could be very different depending on ; Recession not imminent; Many headwinds remain and the nascent recovery could easily falter; and Black swan threats: (1) Iran (2) Israel/Iran (3) Europe; Maryland is in trouble maybe you agree, maybe you don t. 18

19 Thank You You can always reach me at Please look for updates of information at Also, if you need us in a hurry, we are at ( SAGE) Please contact us when you require economic research & policy analysis. 19

House Price Appreciation by State Percent Change in House Prices Period Ended June 30, 2009

House Price Appreciation by State Percent Change in House Prices (Estimates use FHFA s Seasonally-Adjusted Purchase-Only House Price Index) State Rank* 1-Yr. Qtr. 5-Yr. Since 1991Q1 North Dakota (ND) 1