Old Dominion University 2013 National Economic Outlook January 30, - - PowerPoint PPT Presentation

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Old Dominion University 2013 National Economic Outlook

January 30, 2013

Professor Vinod Agarwal Professor Mohammad Najand Professor Gary A. Wagner www.odu.edu/forecasting

• 2012 Scorecard
• Current economic conditions
• Outlook for 2013

– What are the likely sources for growth?

• Monetary Policy
• Downside Risks
• Upside risks

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Presentation Outline

2012 Scorecard

2012 Forecast 2012 Actual Real Gross Domestic Product (GDP) 2.40% 2.26% Employment 2.00% 1.38% Unemployment rate 7.9% 8.1% Consumer Price Index (CPI) 2.30% 1.74% CPI – Core 2.10% 1.89% 3

• month Treasury bill

0.50% 0.09% 10

• year Treasury bond

1.90% 1.80% 30

• year conventional mortgage

3.80% 3.66%

4

Potential and Actual (Real) Gross Domestic Product, 2000-2015

$8,000 $10,000 $12,000 $14,000 $16,000 Billions of 2005 Dollars Potential GDP Actual GDP

Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

5

Growth in Real Gross Domestic Product (GDP), 2006:Q1 – 2012:Q4

Seasonally adjusted annualized rate *100

• 10
• 8
• 6
• 4
• 2

2 4 6

1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012

Percentage

2012 Growth Rates: Q1 = 2.0% Q2 = 1.3% Q3 = 3.1% Q4 = 1.2%

2012:Q4 is forecasted.

Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

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Where has GDP growth been coming from?

Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

Last Four Quarters, seasonally adjusted annualized rate

4.1% 2.0% 1.3% 3.1%

• 2%
• 1%

0% 1% 2% 3% 4% 5% 2011:Q4 2012:Q1 2012:Q2 2012:Q3 GDP Consumption Nonresidential investment Residential investment Change in inventories Government Exports Imports

Change in inventories = 2.5% Defense spending increased by 12.9%

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• 1000
• 800
• 600
• 400
• 200

200 400 600

1/1/2004 4/1/2004 7/1/2004 10/1/2004 1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012

Thousands Private Sector Public Sector

Month-to-Month Change in US Total Nonfarm Employment

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project.

January 2004 – December 2012

Average monthly change 2004-2006: + 184,000 jobs Average last 12 months: +141,800 Average last 6 months: +159,700

Losing roughly 800,000 per month

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US Unemployment Rate, January 2005 – December 2012

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project.

2 4 6 8 10 12 14 16 18

1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012

Percent Unemployment Rate U6 Rate

December 2012: 7.8% Average from 1984-2008: 5.7%

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Long-Term Unemployment, 1990-present

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project.

10 20 30 40 50

1/1/1990 8/1/1990 3/1/1991 10/1/1991 5/1/1992 12/1/1992 7/1/1993 2/1/1994 9/1/1994 4/1/1995 11/1/1995 6/1/1996 1/1/1997 8/1/1997 3/1/1998 10/1/1998 5/1/1999 12/1/1999 7/1/2000 2/1/2001 9/1/2001 4/1/2002 11/1/2002 6/1/2003 1/1/2004 8/1/2004 3/1/2005 10/1/2005 5/1/2006 12/1/2006 7/1/2007 2/1/2008 9/1/2008 4/1/2009 11/1/2009 6/1/2010 1/1/2011 8/1/2011 3/1/2012 10/1/2012

Percentage of those Unemployed

Peak: 45.5% (March 2011) Currently: 39.1% 4 consecutive months of decline

Of Total Unemployed, Percentage Unemployed for 27 Weeks or Longer

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The 2007-2009 Recession in Perspective

% Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

• 7%
• 6%
• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 % of Pre-Recession Peak Employment

Months after Pre-Recession Peak Employment

March 1980 July 1981 June 1990 February 2001 Current (January 2008)

Back to pre-recession peak around April 2015 (87 months)

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The 2007-2009 Recession Including Virginia and Hampton Roads

% Decline in Total US Non-farm Payroll Employment from Pre-Recession Peak

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

• 7%
• 6%
• 5%
• 4%
• 3%
• 2%
• 1%

0% 1% 1 5 9 13 17 21 25 29 33 37 41 45 49 53 57 61 65 69 73 77 81 85 89 93 % of Pre-Recession Peak Employment

Months after Pre-Recession Peak Employment

US Virginia Hampton Roads

Pre-Recession Peak Dates: US: January, 2008 Virginia: February, 2008 Hampton Roads: July, 2007

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Percentage of ‘Great Recession’ Job Losses Recovered, by State

As of December 2012

0% 50% 100% 150% 200% 250%

ND TX LA OK NY AK UT MD VA SD MA MN PA CO KY VT IN NE HI WA TN SC IA NC GA MT ID OH CA KS AZ IL NJ OR DE AR WV WY MI FL CT NV MO NH AL MS WI RI NM ME

All recession job losses recovered VA = 75%

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

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CPI and CPI-Core, January 2002 – December 2012

12-Month Percentage change

• 4%
• 2%

0% 2% 4% 6%

1/1/2002 5/1/2002 9/1/2002 1/1/2003 5/1/2003 9/1/2003 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 9/1/2006 1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012

CPI CPI-Core

Source: Bureau of Labor Statistics and Old Dominion University Economic Forecasting Project

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National Outlook for 2013

2013 Forecast Real Gross Domestic Product (GDP) 2.10% Employment 1.15% Unemployment rate 7.6% Consumer Price Index (CPI) 1.73% CPI – Core 1.51% 3

• month Treasury bill

0.20% 10

• year Treasury bond

1.95% 30

• year conventional mortgage

3.80%

• Gross Domestic Product (GDP) is comprised of 4 components:
• 1. Consumption
• 2. Investment
• 3. Net exports
• 4. Government

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What are the likely sources for growth?

• Almost 71% of GDP
• Primarily driven by income, employment, wealth
• We expect consumption will continue to “limp along” in 2013

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Consumption (or “Personal Consumption Expenditures”)

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Real Disposable Income Per Person, 2000 – present

$28,000 $29,000 $30,000 $31,000 $32,000 $33,000 $34,000 $35,000 1/1/2000 5/1/2000 9/1/2000 1/1/2001 5/1/2001 9/1/2001 1/1/2002 5/1/2002 9/1/2002 1/1/2003 5/1/2003 9/1/2003 1/1/2004 5/1/2004 9/1/2004 1/1/2005 5/1/2005 9/1/2005 1/1/2006 5/1/2006 9/1/2006 1/1/2007 5/1/2007 9/1/2007 1/1/2008 5/1/2008 9/1/2008 1/1/2009 5/1/2009 9/1/2009 1/1/2010 5/1/2010 9/1/2010 1/1/2011 5/1/2011 9/1/2011 1/1/2012 5/1/2012 9/1/2012 2005 Dollars

End of recession

Source: Bureau of Economic Analysis.

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New Delinquent Balances by Loan Type, 2003:Q1 – 2012:Q3

Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.

50 100 150 200 250 300 350 400 450 0.00 50.00 100.00 150.00 200.00 250.00 300.00 350.00 400.00 450.00

03:Q3 04:Q2 05:Q1 05:Q4 06:Q3 07:Q2 08:Q1 08:Q4 09:Q3 10:Q2 11:Q1 11:Q4 12:Q3

MORTGAGE HOME EQUITY AUTO CREDIT CARD STUDENT LOAN OTHER

Billions of Dollars Billions of Dollars

Source: FRBNY Consumer Credit Panel/Equifax Note: 30 or more days delinquent

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Nominal Home Price Growth in 2011 and 2012

• 1.25
• 0.75
• 0.25

0.25 0.75 1.25 1/1/2011 2/1/2011 3/1/2011 4/1/2011 5/1/2011 6/1/2011 7/1/2011 8/1/2011 9/1/2011 10/1/2011 11/1/2011 12/1/2011 1/1/2012 2/1/2012 3/1/2012 4/1/2012 5/1/2012 6/1/2012 7/1/2012 8/1/2012 9/1/2012 10/1/2012 Percent Case-Schiller 20 Case-Schiller 10 FHFA Purchase Only

Monthly Percentage Change in Selected Indices, Jan. 2011 – Oct. 2012

9 consecutive months

• f positive growth

Source: Standard and Poor’s, FHFA, and Old Dominion University Forecasting Project.

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Year-Over-Year Nominal Home Prices, 2011:Q3 - 2012:Q3

Less than 0% 0 – 2.5% 2.5 – 5% 5 – 10% 10% and higher

% Change in FHFA All Transactions Index (Seasonally Adjusted)

Source: FHFA and Old Dominion University Economic Forecasting Project

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Number of Consumers with New Foreclosures and Bankruptcies

2003:Q1 – 2012:Q3

Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.

300 600 900 1,200 300 600 900 1,200

Foreclosures Bankruptcies

Thousands Thousands

Foreclosures Peaked: 2009:Q2 at 566,000 Currently: 241,000 Bankruptcies Peaked: 2010:Q2 at 621,000 Currently: 354,000

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Total Household Debt Balance, 2003:Q1 – 2012:Q3

3 6 9 12 15 Trillion of Dollars

Mortgage HE Revolving Auto Loan Credit Card Student Loan Other

(3%) (8%) (6%) (71%) (5%) (7%)

2012Q3 Total: $11.31 Trillion

Source: Federal Reserve Bank of New York Quarterly Report on Household Debt and Credit.

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Household Debt-to-Income, 1980:Q1 – 2012:Q3

0% 20% 40% 60% 80% 100% 120% 140%

1/1/1980 11/1/1980 9/1/1981 7/1/1982 5/1/1983 3/1/1984 1/1/1985 11/1/1985 9/1/1986 7/1/1987 5/1/1988 3/1/1989 1/1/1990 11/1/1990 9/1/1991 7/1/1992 5/1/1993 3/1/1994 1/1/1995 11/1/1995 9/1/1996 7/1/1997 5/1/1998 3/1/1999 1/1/2000 11/1/2000 9/1/2001 7/1/2002 5/1/2003 3/1/2004 1/1/2005 11/1/2005 9/1/2006 7/1/2007 5/1/2008 3/1/2009 1/1/2010 11/1/2010 9/1/2011 7/1/2012

Mortgage & Consumer Credit Debt to Disposable Income

Average 1980-2000: 72% Average: 2001-present: 110% Currently: 103%

Source: Board of Governors of the Federal Reserve and Bureau of Economic Analysis.

2000:Q1 - present

• Residential investment (2.5% of GDP)

– Construction of single- and multi-family housing units

• Nonresidential investment (10% of GDP)

– Firm purchases of structures, equipment, and software that are used in the production of goods and services

• Change in inventories (0.3% of GDP)
• Primarily driven by interest rates, expectations, and the

availability of credit

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Investment (or “Private Fixed Investment”)

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Housing Starts: New Privately Owned Units, 1960 –present

Seasonally adjusted annual rate, 1960:Q1 – 2012:Q4

500 1000 1500 2000 2500 3000

1/1/1960 6/1/1961 11/1/1962 4/1/1964 9/1/1965 2/1/1967 7/1/1968 12/1/1969 5/1/1971 10/1/1972 3/1/1974 8/1/1975 1/1/1977 6/1/1978 11/1/1979 4/1/1981 9/1/1982 2/1/1984 7/1/1985 12/1/1986 5/1/1988 10/1/1989 3/1/1991 8/1/1992 1/1/1994 6/1/1995 11/1/1996 4/1/1998 9/1/1999 2/1/2001 7/1/2002 12/1/2003 5/1/2005 10/1/2006 3/1/2008 8/1/2009 1/1/2011 6/1/2012

Thousands

Recession Housing Starts

Consecutive months below 800,000: 47 Currently: 954,000 800,000

Source: US Department of Commerce.

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Commercial Bank Loan Delinquency Rates

2 4 6 8 10 12

Rate (*100)

Business Loans Consumer Loans Residential Mortgages Credit Card Loans

Peak Rate Currently Business 4.4% 1.2% Consumer 4.9% 2.8% Mortgages 11.3% 10.8% Credit Cards 6.8% 2.8%

Source: Federal Reserve Board of Governors and Old Dominion University Economic Forecasting Project.

2000:Q1 – 2012:Q3

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Bank-Reported Lending Standards

• 40
• 20

20 40 60 80 100 Percentage Responding Commerical and Industrial Loans Traditional Mortgage Loans Non-Traditional Mortgage Loans

Federal Reserve Senior Loan Officer Opinion Survey, 2001:Q1 to 2012:Q3

Easier to obtain loans

Source: Federal Reserve Board of Governors and Old Dominion University Economic Forecasting Project.

DEMAND over the last 6 months: Traditional mortgages  up 5 months Non-traditional mortgages  up 4 months Auto loans  up 6 months Commercial  up 4 months Harder to obtain loans

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Corporate After-Tax Profits, 1995:Q1 – 2012:Q3

As a percentage of GDP

Source: Bureau of Economic Analysis and Old Dominion University Economic Forecasting Project.

0% 2% 4% 6% 8% 10% 12%

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Nonfinancial Corporate Cash Holdings, 1995:Q1 – 2012:Q3

As a percentage of GDP

Source: Federal Reserve Board of Governors and Old Dominion University Economic Forecasting Project.

0% 2% 4% 6% 8% 10% 12% 14%

Current cash holdings: Dollar amount = $1.7 trillion As a share of GDP = 11%

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Limping Out of 2012?

20 40 60 80 100 120

1/1/2003 4/1/2003 7/1/2003 10/1/2003 1/1/2004 4/1/2004 7/1/2004 10/1/2004 1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012

Conference Board Consumer Confidence Index (1985=100) NFIB Small Business Optimism Index (1986=100)

Sources: Conference Board, National Federal of Independent Business, and Old Dominion University Economic Forecasting Project.

October 2012 to December 2012 Conference Board = -10.9% Small Business = -5.4%

• Primarily driven by domestic economic conditions, economic

conditions of our trading partners, and exchange rates

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Net Exports (or “exports less imports”)

Exports (billions) Imports (billions) Percent of Total Trade Canada 270.1 298.4 16.2% China 100.2 390.8 14.0% Mexico 199.9 257.3 13.0% Japan 64.0 134.6 5.7% Germany 45.0 99.3 4.1% United Kingdom 50.8 50.6 2.9% South Korea 38.9 54.3 2.7% Brazil 40.2 29.9 2.0% Saudi Arabia 16.2 52.0 1.9% France 28.4 38.3 1.9%

Top Trading Partners in Goods, 2012 (through November)

• Slowing growth around the world

– China, Japan, India, Latin America

• Reasons to be concerned about Europe

– Recession/near-zero growth – Are they committed to their sovereign debt solutions?

• Canada and Mexico are performing about the same as US

– No MAJOR stimulus likely

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Outlook for Net Exports in 2013

• State and local sector (12% of GDP)

– 50% larger than Federal government – Good news: budgets are starting to grow (slowly) – Bad news: FY13 spending projected to be lower in 24 states than in 2008

• Federal government (8% of GDP)

– Stimulus packages of 2008 and 2010 have been fully exhausted – The largest source of economic uncertainty?

• American Taxpayer Relief Act of 2012
• Debt limit

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Government (“Government Consumption & Investment”)

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American Taxpayer Relief Act of 2012 (“fiscal cliff” deal)

Major revenue changes

For individuals earning over $400,000 per year (couples over $450K):

• Marginal tax rates increased from 35% to 39.6%
• Long-term capital gains & dividends increased from 15% to 20%
• Top tax rate on estates over $5.12 million will be 40%
• AMT exemption is indexed to inflation
• Social Security payroll tax reduction expired
• Child tax credit, EITC, and education credits extended until 2017
• R&D and investment expensing allowances extended to 2013

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American Taxpayer Relief Act of 2012 (“fiscal cliff” deal)

Major expenditure changes

• Federal unemployment insurance extensions carry into 2013
• Extend Medicare physician payments (would have reduce payments by 27% in FY13)

Planned spending reductions of $109.4 billion in FY2013 (Sequestration)

• A one-time $54.7 billion in defense and $54.7 billion in non-defense
• Changed to a $42.5 billion reduction in FY2013 and a $12.2 reduction in FY2014
• Initial impact delayed until March 1, 2013

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Federal Budget Deficits, 1970 – 2022

As a percentage of GDP

Sources: Congressional Budget Office and Old Dominion University Economic Forecasting Project.

Actual Projected

• 12%
• 10%
• 8%
• 6%
• 4%
• 2%

0% 2% 4%

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021

Actual Deficit Deficit with no fiscal cliff deal Deficit with fiscal cliff deal

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Federal Revenues and Outlays, 1975 – 2035

As a percentage of GDP

Sources: Congressional Budget Office and Old Dominion University Economic Forecasting Project.

Actual Projected

0% 5% 10% 15% 20% 25% 30% 35% 40% Revenues Outlays

Historical averages from 1950-2011: Revenue = 18% of GDP Spending = 20% of GDP

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Federal Entitlement Spending, 1975 – 2035

As a percentage of GDP

Sources: Congressional Budget Office and Old Dominion University Economic Forecasting Project.

0% 2% 4% 6% 8% 10% 12% 14% 16% 18% Social Security Medicare Medicaid

Actual Projected

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Debt Held by the Public, 1975 – 2035

As a percentage of GDP

0% 25% 50% 75% 100% 125% 150% 175% 200% Debt Held by the Public (Actual) Debt Held by the Public (alternative fiscal scenario)

Actual Projected

Sources: Congressional Budget Office and Old Dominion University Economic Forecasting Project.

• A limit on the total amount of federal debt that can be
• utstanding at any point in time

– Began with the Second Liberty Bond Act of 1917 – Office of Management & Budget: 76 authorized increases since 1962

• Total federal debt will increase if the government:

– Issues debt to government accounts in exchange for their surpluses

• Examples: Social Security Trust Fund, Medicare Trust Fund
• Called “debt held by government accounts”

– Sells debt to the public to finance current operations

• Called “debt held by the public”

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What exactly is the statutory debt limit (or debt ceiling)?

• Current debt limit is $16.2 trillion

– Reached on December 31, 2012

• Current revenues fund roughly 75% of current spending
• Consequences to not raising the debt limit:

– Federal spending will fall by 25% immediately (roughly 6% of GDP)

• US economy will almost certainly enter a recession

– Our default risk will increase

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More on the debt limit

• Federal funds rate target: 0 to 0.25% (November 2008)

– Expected to stay at this level while unemployment is above 6.5% and while inflation expectations are anchored – Announced in their December, 2012 meeting

• Non-traditional forms of monetary policy

– Balance sheet has expanded from $1 trillion to nearly $3 trillion

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Monetary Policy

• Quantitative easing

– Large-scale purchases of mortgage-backed securities and other agency debt

• QE1: 3/2009 – 3/2010
• QE2: 11/2010 – 6/2011
• QE3: 9/2012 - ?
• Maturity Extension Program and Reinvestment Policy

– “Operation Twist” (ended in 2012) – Goal: extend the average maturity of the Fed’s Treasury portfolio

• Term deposit facility

– Program to lower reserve balances of depository institutions

• Foreign currency swap lines

– Currently extended until February 2014

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Non-traditional Monetary Policy

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Federal Reserve Balance Sheet, January 2007 – January 2013

$0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

Billions of dollars

Traditional Security Holdings Long Term Treasury Purchases Lending to Financial Institutions Liquidity to Key Credit Markets Federal Agency Debt & Mortgage-Backed Securities

Source: Board of Governors of the Federal Reserve.

• Is inflation going to be a short-term problem?

– Rapid growth in Fed’s balance sheet – Excess capacity may help keep inflation in check

• How will the Fed “unwind” their balance sheet?

– Too fast  could slow down the (sluggish) recovery – Too slow  inflation

• Are additional and/or new stimulus plans on the horizon?

45

Areas of Primary Concern with the Federal Reserve’s policies

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Inflation expectations

10-Year Time Horizon, 2005:Q1 – 2012:Q4

Source: Federal Reserve Bank of St. Louis, FRED.

0% 1% 2% 3% 4% 5% 6%

1/1/2005 4/1/2005 7/1/2005 10/1/2005 1/1/2006 4/1/2006 7/1/2006 10/1/2006 1/1/2007 4/1/2007 7/1/2007 10/1/2007 1/1/2008 4/1/2008 7/1/2008 10/1/2008 1/1/2009 4/1/2009 7/1/2009 10/1/2009 1/1/2010 4/1/2010 7/1/2010 10/1/2010 1/1/2011 4/1/2011 7/1/2011 10/1/2011 1/1/2012 4/1/2012 7/1/2012 10/1/2012

10-Year TIPS Spread U Michigan Inflation Expectations Cleveland Fed 10-Year

47

Expectations of Fed policy-firming

Survey Results of FOMC Members, December 11-12, 2012

Appropriate timing of policy firming

Source: Economic Projections of Federal Reserve Board Members and Federal Reserve Bank Presidents, December 2012.

2 3 13 1

2013 2014 2015 2016

• Inflation picks up and the Federal Reserve is forced to act
• Recovery in housing slows/stops
• European recession/sovereign debt crisis turns for the worse
• Political uncertainty
• Regulatory uncertainty

– Dodd-Frank – Affordable Care Act

48

Downside risks

• The Mayans were wrong!
• Energy prices
• Sovereign debt crisis abates
• Housing market stabilizes

49

Upside risks