Moody's Corporation · NYSE:MCO

Moody's — Moody's Analytics — Earnings Presentation (November 2022)

33 slides from Moody's's earnings presentation, November 2022

  1. Slide 1: Is Recession Inevitable?

    Is Recession Inevitable? Mark Zandi, Cris deRitis and Marisa DiNatale November 2022

  2. Slide 2: Supply-Side Shocks Slam the Global Economy

    Supply-Side Shocks Slam the Global Economy Current business cycle status Hong Kong Expansion Recovery At Risk Singapore Recession Source: Moody’s Analytics Moody’s Analytics November 2022 2

  3. Slide 3: Growth Recession: 50% Probability (Baseline)

    Growth Recession 50% Probability (Baseline)

  4. Slide 4: Inflation Moderates As Supply-Shocks Abate

    Inflation Moderates As Supply-Shocks Abate Contribution to year-over-year growth in consumer prices, ppt 10 Forecast 8 Energy Food Supply-chains Shelter Other 6 4 Federal Reserve CPI inflation target 2 0 -2 '19 '20 '21 '22 '23 '24 Sources: BLS, Moody’s Analytics Moody’s Analytics November 2022 4

  5. Slide 5: Economic Fallout From Russian Invasion Fades

    Economic Fallout From Russian Invasion Fades Brent Crude, US$ per barrel 120 Change in supply/demand from start of Russian invasion to March '23, Mil bpd 110 Lost oil supplies 2.3 Sources of oil supplies 2.3 100 Lost Russian oil 4.4 U.S. 0.9 Import bans 4.4 Saudi Arabia 0.0 90 Self‐sanctioning 0.0 O

  6. Slide 6: Labor Supply Set To Outpace Labor Demand

    Labor Supply Set To Outpace Labor Demand % change year ago 15 Labor demand equals the sum of payroll 10 employment and unfilled open positions. 5 0 -5 Labor supply equals the labor force -10 which is the product of labor force participation and working age population. -15 '18 '19 '20 '21 '22 Sources

  7. Slide 7: Consumers Remain a Sturdy Economic Firewall

    Consumers Remain a Sturdy Economic Firewall Average checkable deposits and currency by income group, $ $17,699 $150,000-$500,000 $28,760 $67,345 Household Income $7,074 $91,000-$150,000 $12,024 $31,303 $3,893 '19Q4 $56,000-$91,000 $7,058 '20Q3 $20,911 '22Q2 $2,624 $28,000-$56,000 $4,053 $8,363 $2,31

  8. Slide 8: Corporate Debt Burden is Light

    Corporate Debt Burden is Light Interest Coverage Ratio of Nonfinancial Corporations, % 30 25 20 15 10 Coverage ratio is defined as net interest expense 5 as a % of cashflow for nonfinancial corporations. 0 '50 '60 '70 '80 '90 '00 '10 '20 Sources: Bureau of Economic Analysis, Moody’s Analytics Moody’

  9. Slide 9: Mild Recession: 40% Probability

    Mild Recession 40% Probability

  10. Slide 10: Leading Indicators Suggests High Recession Probability

    Leading Indicators Suggests High Recession Probability Composite Index of Leading Indicators* (2016=100) % change over 6 months % change over 12 months 20 1 15 0.9 0.8 10 0.7 5 0.6 0 0.5 -5 0.4 0.3 -10 0.2 -15 0.1 -20 0 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06

  11. Slide 11: What Could Go Wrong?

    What Could Go Wrong? What could push the economy over the edge? 1. Spike in long-term rates 2. Fed policy error 3. Energy price shock 4. Geopolitical tensions in Eastern Europe 5. Supply chain issues due to pandemic 6. Something else – wouldn’t take much given Federal debt limit breach fragility of

  12. Slide 12: Fed is Behind the Curve

    Fed is Behind the Curve Fed Funds rate target models, % Fed Funds Rate Taylor Rule Modified Taylor Rule Bernanke Rule Yellen Rule 20 1 15 0.9 0.8 10 0.7 5 0.6 0 0.5 -5 0.4 0.3 -10 0.2 -15 0.1 -20 0 '60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '1

  13. Slide 13: Energy Prices Notoriously Difficult to Forecast

    Energy Prices Notoriously Difficult to Forecast Sources: EIA, Moody’s Analytics Moody’s Analytics November 2022 13

  14. Slide 14: Global Supply Chains Improved, But Are Still Vulnerable

    Global Supply Chains Improved, But Are Still Vulnerable Supply-Chain Stress Index, Oct 2019=100 150 The supply-chain stress index includes 14 indicators of bottlenecks in the 140 supply chain, such as supplier deliver times from purchasing manager surveys, freight rates, and job openings in transpor

  15. Slide 15: Recession Fears Could Starve the Economy of Credit

    Recession Fears Could Starve the Economy of Credit Net percentage of banks tightening standards on C&I loans to… Large / middle-market firms Small firms 100 1 0.9 80 0.8 60 0.7 40 0.6 0.5 20 0.4 0 0.3 0.2 -20 0.1 -40 0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 Sources: FRB

  16. Slide 16: Housing Recession Could Spread

    Housing Recession Could Spread Housing Permits, ths, SAAR Single-family Multifamily 2000 1 1800 0.9 1600 0.8 1400 0.7 1200 0.6 1000 0.5 800 0.4 600 0.3 400 0.2 200 0.1 0 0 '65 '67 '69 '71 '73 '75 '77 '79 '81 '83 '85 '87 '89 '91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17 '19 '21 Sources: Cen

  17. Slide 17: Negative Wealth Effects as Home Prices Fall

    Negative Wealth Effects as Home Prices Fall Moody’s Analytics Home Price Index, % year ago Home price as % above/below estimated Baseline (50%ile) S1 (10%ile) fundamental value 25 1.00 S3 (90%ile) S4 (96%ile) 20 Stagflation Next Recession 0.90 0.80 15 0.70 10 <0% 0.60 5 0% - 9.9% 0.50 0 10% - 19.9%

  18. Slide 18: Barring Another Shock, Next Recession Should Be Modest

    Barring Another Shock, Next Recession Should Be Modest Unemployment rate, % 15 1.00 Moody’s Analytics Alternative Economic Scenarios 0.90 Baseline (50%ile) S1 (10%ile) S3 (90%ile) 0.80 S4 (96%ile) Stagflation Next Recession 0.70 10 0.60 0.50 0.40 5 0.30 0.20 0.10 0 0.00 '19 '20 '21 '22 '23 '24 '25 S

  19. Slide 19: Stagflation Recession: 10% Probability

    Stagflation Recession 10% Probability

  20. Slide 20: Stagflation In the Late 1970s & Early 1980s

    Stagflation In the Late 1970s & Early 1980s % change year ago 15 10 5 0 -5 -10 65 68 71 74 77 80 83 86 89 92 95 98 01 04 07 10 13 16 19 22 Real GDP CPI Sources: BLS, BEA, Moody’s Analytics Moody’s Analytics November 2022 20

  21. Slide 21: This Isn't Stagflation (Yet)

    This Isn’t Stagflation (Yet) Misery index, % 22 20 This is 18 stagflation This is not stagflation 16 14 12 10 8 6 4 2 0 -2 70 80 90 00 10 20 Unemployment rate CPI inflation Sources: BLS, Moody’s Analytics Moody’s Analytics November 2022 21

  22. Slide 22: Stagflation Requires Another Supply-Side Shock…

    Stagflation Requires Another Supply-Side Shock… Brent crude, $ per barrel 120 100 80 60 40 20 0 15 16 17 18 19 20 21 22 23F 24F 25F 26F 27F Baseline Stagflation Sources: Six Financial, ECB, Moody’s Analytics Moody’s Analytics November 2022 22

  23. Slide 23: …That Unhinges Investors' Inflation Expectations...

    …That Unhinges Investors’ Inflation Expectations... U.S. inflation expectation, % 4 5-yr, 5-yr Forward Russia invades Ukraine 5-yr Breakeven 3 Fed target 2 5-yr, 5-yr forwards are investors’ expectations for CPI inflation 5 years from now for the subsequent 5-yr period. 1 5-yr breakeven measures the

  24. Slide 24: …And Sets Off the Dreaded Wage-Price Spiral

    …And Sets Off the Dreaded Wage-Price Spiral % change year ago 14 12 10 8 6 4 2 0 -2 -4 -6 70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15 18 21 Unit labor costs Core CPI Sources: BLS, Moody’s Analytics Moody’s Analytics November 2022 24

  25. Slide 25: What to Watch

    Al What to Watch

  26. Slide 26: Multiple Economic Indicators Flash Warning Signs

    Multiple Economic Indicators Flash Warning Signs Business Time to Recession Indicator Cycle recession, Threshold Recent Value Risk Timing mo Financial stress index Leading 11 to 15 >0 -0.6 Moderate Housing permits Leading 10 to 12 yr-over-yr decline -3.2% High Yield curve 10-yr minus 3-mo Leading 8

  27. Slide 27: Bond Investors Convinced We're Going into Recession

    Bond Investors Convinced We’re Going into Recession Yield Curve: 10-year minus 2-year / 3-month Treasury yield, ppt 10Y - 2Y 10Y - 3M 10Y - FED FUNDS 5 1 4 0.9 0.8 3 0.7 2 0.6 1 0.5 0 0.4 0.3 -1 0.2 -2 0.1 Yield curve inversion leads recessions by 12-18 months -3 0 '76 '78 '80 '82 '84 '86 '88 '90 '9

  28. Slide 28: Equity Investors Fear Lower Profitability from Recession

    Equity Investors Fear Lower Profitability from Recession S&P 500 Stock Price Index 5,000 4,500 4,000 -20% 3,500 3,000 2,500 -19% 2,000 1,500 1,000 500 -30% -50% 0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 Sources: Standard & Poor's, Moody’s Analytics Moody’s Analytics November 2022 28

  29. Slide 29: Consumers Are Anxious, But Haven't Lost Faith

    Consumers Are Anxious, But Haven’t Lost Faith Consumer confidence indexes Conference Board U of Michigan 160 1 140 0.9 0.8 120 0.7 100 0.6 80 0.5 60 0.4 0.3 40 0.2 20 Consumer confidence falls sharply 6 months prior to recession. 0.1 0 0 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '0

  30. Slide 30: Not Even Close to Recession

    Not Even Close to Recession Year-over-year change in the unemployment rate, % 5 1 4 0.9 3 0.8 2 0.7 1 0.6 0 0.5 -1 0.4 -2 0.3 -3 Best indicator of when a recession has started is when 0.2 -4 the unemployment rate rises by 0.5 ppt from a year ago. 0.1 -5 0 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96

  31. Slide 31: Q&A

  32. Slide 32: Contact Us: Predictive Analytics - Economics Offices

    Contact Us: Predictive Analytics - Economics Offices Singapore +65.6511.4400 6 Shenton Way #14-08 OUE Downtown 2 Singapore 068809 West Chester, Economics-HQ New York, Corporate-HQ London Prague +1.610.235.5299 +1.212.553.1653 +44.20.7772.5454 +420.22.422.2929 Sydney Tokyo 121 North Walnut Street 7 W

  33. Slide 33: Moody’s Analytics November 2022

    © 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, To the extent permitted by law, MOODY’S and its directors, officers, employees, agents, representatives, licensors and suppliers “MOODY’S”). All rights reserved.

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