Federal Reserve Bank of Chicago 22 nd Annual Economic Outlook Symposium Automotive Outlook Will Shearin December 5, 2008
Ability to Buy Leading Indicators Nov 07 Nov 08 Disposable Income Green Red Household Debt Red Yellow Yield Curve Yellow Green Inflation Yellow Red Composite Yellow Red
Real Disposable Income Per Household % Change Year Over Year 8 6 4 2 6.6% - 1.3% Sept 0-2 -4-6 - 4.2% -8 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08
Consumer Debt Payments Installment, Mortgage & Auto Leases % of Disposable Personal Income 16.0% 15.3% Sept 15.0% 14.0% 13.0% 12.0% 11.0% '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
The Yield Curve 10 Yr Minus 1 Yr Treasuries Percentage Points 6 Oil Shock Oil Shock 4 2.4% Oct 2 0-15 -12-19 -13-14 -11-12 -2-4 '57 '61 '65 '69 '73 '77 '81 '85 '89 '93 '97 '01 '05
Consumer Prices All Items, Not Seasonally Adjusted % Change Yr/Yr 18 16 14 14.8% 12 10 8 6 4 2 0-2 6.3% 3.7% Oct -4 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Consumer Prices: Core Inflation All Items Less Food & Energy, NSA % Change Yr/Yr 18 16 14 13.6% 12 10 8 6 5.6% 4 2 2.2% Oct 0 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Willingness to Buy Leading Indicators Nov 07 Nov 08 Consumer Attitudes Red Red Unemployment Claims Green Red Workweek Green Yellow Stock Market Green Red Composite Green Red
Consumer Attitudes Average of U of M & Conference Board Index 140 128.4 120 100 80 60 58.1 48 Oct 40 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Initial Unemployment Claims 4 Week Moving Average Thousands 700 674 600 500 501 489 507 400 300 287 266 287 200 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
U. S. Unemployment Rate Percent 12.0 10.8 10.0 8.0 6.0 6.5 Oct 4.0 2.0 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Manufacturing Workweek Includes Part-time & Overtime Hours 43 42 41 40.6 Oct 40 39 40.0 39.7 38 37 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Stock Market Dow Jones Industrial Average Index 15,000 12,000 9,000 9,177 Oct 6,000 3,000 0 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Energy and Other Commodities
Oil Prices West Texas Intermediate 2006 Dollars Per Barrel 150 135 120 105 Oil Shock Oil Shock 90 75 60 45 30 Real $ 75 Oct 15 Nominal 0 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Gasoline Prices All Grades, Retail Cents per Gallon, 2006$ 450 400 350 300 250 200 150 Real $ 3.11 Oct 100 Nominal 50 0 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Commodity Prices Commodity Research Bureau Index 1967 = 100 1000 900 800 700 600 500 400 300 200 100 Metals* Raw Industrials** 0 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 * Includes copper scrap, lead scrap, steel scrap, tin, and zinc. ** Includes copper scrap, lead scrap, steel scrap, tin, zinc, burlap, cotton, print cloth, wool tops, hides, rosin, rubber, and tallow.
Financial Crisis
Evolution of Financial Crisis Low Interest Rates Construction Boom Proliferation of Sub Prime Asset Backed Securities Falling Home Prices Housing Collapse Credit Crisis
Generation-Low Interest Rates Percent 20 18 16 14 12 10 8 6 4 2 10 Year Treasury BAA Corporate Bonds (20 yr or longer maturity) 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 8.9% 3.8% Percent 12 10 8 6 4 2 Adjusted for Inflation BAA Corporate Bonds, Real 2.4% 0-2 -4 10 Yr Treasury, Real - 1.3% -6 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
Mortgages Maintain Positive Real Return Percent 16 14 12 10 Fixed 8 6 Adjustable 6.2% 5.8% 4 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Percent 12 10 Adjusted for Inflation 8 6 4 2 Adjustable Rate, Real 0.6% 0 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 Fixed Rate, Real 1.2%
Construction Boom
Housing Starts New Housing Units Thousands 2600 2200 2121 Aug 50 2494 Jan 72 2260 Feb 84 2273 Jan 06 1800 1400 1000 843 798 600 Oct 63 Jan 91 '47 '52 '57 '62 '67 '72 '77 '82 '87 '92 '97 '02 '07 791 Oct 08 Source: Bureau of Census
Backlog of Unsold Houses Slide from Chrysler s 2005 Symposium Presentation (New Houses for Sale) Thousands of Units 550 500 450 400 350 300 250 200 150 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 Source: Bureau of the Census
Home Sales Inventory Months of Supply, SA 12 10 8 New Homes 10.4 Existing Homes 9.9 6 4 2 0 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 Source: Bureau of Census, NAR
S&P/Case-Shiller Home Price Index Index, NSA Jan 2000=100 250 Composite 10 200 150 Composite 20 100 50 0 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09
Real Estate Market
U.S. Housing Affordability Index Existing Homes Index 150 130 135 Sept 110 103.8 90 70 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 Source: National Association of Realtors
Buying Conditions for Houses During Next 12 Months Index 200 180 160 175 Good 175 140 120 100 102 106 Bad 116 117 Oct 80 60 40 20 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Source: Reuters/University of Michigan
Homeownership Rate NSA Percent 70 68 67.9% Q3 08 66 64 62 60 '65 '68 '71 '74 '77 '80 '83 '86 '89 '92 '95 '98 '01 '04 '07 '10 Source: Census
Foreclosures Started During Quarter, SA % Units 5.0 4.0 Sub-Prime 4.7 Q2 08 3.0 2.0 1.0 Prime 0.7 Q2 08 0.0 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Mortgage Delinquencies Total Loans with Installments Past Due, SA Percent 20 18 16 14 12 10 8 6 4 2 Sub-Prime Loans Prime Loans '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 Source: Mortgage Bankers Association
Auto Industry
Auto Loans Past Due 30 Days or More Indirect Loans, Closed-End Percent 3.5 3.1% 3.0 2.5 2.0 1.5 1.0 '75 '78 '81 '84 '87 '90 '93 '96 '99 '02 '05 '08 Source: American Bankers Association
New Vehicle Consumer Prices % Change Year/Year 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% - 2.3% Oct -3.0% '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 Monthly Data
Auto Affordability Weeks of Median Income 32 31 30 29 28 27 26 25 24 23 22 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 23.1 2 nd Qtr Source: Comerica Bank
Buying Conditions for Vehicles During Next 12 Months Index 170 160 165 Good 164 150 140 130 120 110 119 Bad 100 90 104 98 Oct 80 81 70 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 Source: Reuters/University of Michigan
U.S. Auto Industry Long Term Trend Analysis Units 20,000 Oil Shock Oil Shock Oil Shock 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020 Denotes Recession
Vehicles per Household United States Number 2.0 1.92 1.8 1.6 1.4 1.2 '70 '75 '80 '85 '90 '95 '00 '05 Actual
Demographic Decline in Sales Number of Vehicles Sold per Year per 1000 Households Number 200 175 150 125 100 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Strong Growth in New Car Buying Households Change in Number of Households, 2006 to 2016 2,500 2,000 1,500 1,000 500 $150+ $100-150 $75-100 $50-75 $25-50 0 <$25-500 -1,000 <25 25-34 35-44 45-54 55-64 65+ Note: Highlighted boxes are 70% of new vehicle sales.
Jan '03 Apr '03 Jul '03 Oct '03 Jan '04 Apr '04 Jul '04 Oct '04 Jan '05 Apr '05 Jul '05 Oct '05 Jan '06 Apr '06 Jul '06 Oct '06 Jan '07 Apr '07 Jul '07 Oct '07 Jan '08 Apr '08 Jul '08 Oct '08 Trade in Vehicle Age Years 7.0 6.5 6.0 5.5 5.0 4.5 4.0 Source: JD Power
Residential and Auto Investment Share of Real GDP 7.0 % 6.0 Residential 5.0 4.0 Auto 3.0 2.0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10
U.S. Auto Industry Number of Vehicles per Year Million Units 20 18 16 14 12 10 8 6 4 2 Oil Shock 15.4 Oil Shock 10.5 16.3 0 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 '20 12.5 17.8 Peak to Trough 13.7 Upside Trough 12.1 Downside Trough % Decline 73 75-23% 78 82-32% 86 91-23% 00 08-23% Note: 23% drop from 17.8 = 13.7 Note: 32% drop from 17.8 = 12.1