Economic Update Birmingham Bloomfield Chamber

Transcription

1 Economic Update Birmingham Bloomfield Chamber Paul Traub Senior Business Economist Federal Reserve Bank of Chicago/Detroit Branch January 11, 2019 The views expressed here are our own and do not necessarily reflect the views of the Federal Reserve Bank of Chicago, the Federal Open Market Committee (FOMC) or the Federal Reserve System.

2 Overview Real data indicates that 2018 finished strong with momentum leading into 2019 However, there is much volatility and anxiety in the financial markets Outlook for 2019 and 2020 is for somewhat slower growth but still slightly above potential 2019 will likely include some additional tightening of monetary policy But we need to be mindful of risks and monitor and reassess as appropriate based on incoming data If inflation remains low, patient monetary policy will remain appropriate 1

3 U.S. Real GDP Q Contribution to Change - Q/Q at SAAR, $ Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q4 Q1 '18 Q2 Q3 PCE Private Investment Net Exports Government GDP Contribution 2.4% 2.5% -% 0.4% 3.4% Note: Contributions by sector may not sum to total due to rounding errors. Source: U.S. Bureau of Economic Analysis. 2

4 Real Retail & Food Service Sales Millions Chained $2012, Change Yr./Yr Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Source: Author s calculations using Federal Reserve Bank of St. Louis data. 3

5 U.S. Light Vehicle Sales S.A.A.R Millions of Units Millions Cash for Clunkers Aug Dec SAAR 6.0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Annual Sales SAAR Source: Ward s Automotive and BEA 4

6 Fuel Prices and New Car Loan Rates Current Dollars per Gallon and Increasing finance costs are being offset by lower cost of operation. 9.0 New & Used Car Loan Rate Dollars $3.50 Regular Gasoline & Retail Diesel - $/Gal $3.25 $3.00 Jan 3, 2019 $ Dec 28, % 4.55% $2.75 $ $2.25 $2.25 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Used - 36 Mo. New - 60 Mo. $0 J F M A M J J A S O N D J Gasoline Diesel Source: EIA, New York Times, and Haver Analytics. 5

7 Manufacturing Indexes ISM Manufacturing and Richmond Fed Survey of Manufacturing Activity Index '06 '08 '10 '12 '14 '16 '18 ISM (LHA) Richmond (RHA) Dec 18 Index 45 Notes: ISM Manufacturing Index value greater than 50 means expansion. Richmond Fed Survey is a diffusion index calculated by subtracting percent reporting decrease from percent reporting increase. Source: Institute for Supply Management, Richmond Federal Reserve, and Haver Analytics

8 Expectations for Sales of New Homes NAHB Builders Economic Council Survey, (All Good = 100) Index Dec '04 '06 '08 '10 '12 '14 '16 '18 Current Next 6 Months Notes: Single family detached homes sales expectations current and next six months. Source: National Association of Home Builders and Haver Analytics. 7

9 U.S. Dollar and Real Trade Balance Trade Weighted Dollar- Index 2012 = 100, Trade Deficit Billions of $ SA Index Trade Weighted Dollar Stronger Weaker '15 '16 '17 '18 Dec 5, Dollars -$50.0 -$52.5 -$55.0 -$57.5 -$60.0 -$62.5 -$65.0 -$67.5 -$70.0 -$72.5 -$75.0 -$77.5 -$80.0 -$68.9 Source: Author s calculations using U.S. Census Bureau and Bureau of LABOR Statistics data. -$71.6 Trade Deficit -$62.7 -$64.2 -$58.8 -$62.9 -$66.7 -$70.9 -$7-$ F M A M J J A S O Note: U.S. Census Bureau trade data is adjusted for inflation using Bureau of Labor Statistics Import and Export Price Indexes All Commodities. 8

10 Real Government Consumption & Investment Billions Chained $2012, % Change Q/Q at SAAR $ Billions 3,400 3,350 3,300 3,250 3,200 3,150 3,100 3,050 Q3 18 $3, % ,000 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' Source: U.S. Bureau of Economic Analysis 9

11 Real Personal and Corporate Income and Taxes Index 2000 = SA Index Personal Income & Taxes Q Index Corporate Income & Taxes Q '00 '02 '04 '06 '08 '10 '12 '14 '16 ' '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Personal Income Federal Taxes Corporate Profits Federal Taxes Notes: Corporate Profits without IVA & CCAdj, Personal Income and Federal government tax receipts on corporate income and Personal Income and Federal Government tax receipts: Personal current taxes. Source: Author s calculations using U.S. Bureau of Economic Analysis data. 10

12 Federal Debt and Interest on Debt Billions of Dollars Fiscal Year (October 1 September 30) $Billions $400.0 $236.2 $200.0 Federal Surplus or Deficit [-] $0.0 -$200.0 ($160.7) -$ $ $800.0 ($412.7) ($438.5) ($779.0) -$1, $1, $1,400.0 ($1,412.7) -$1,600.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 $Billions $350.0 Interest Payments on Federal Debt $324.7 $300.0 $250.0 $222.9 $237.1 $230.0 $223.2 $200.0 $186.9 $160.2 $150.0 $100.0 $50.0 $0.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: Office of Management and Budget. 11

13 Debt Projections in Historical Context 12

14 Commodities and Oil Index 2016 = 100 and Current U.S. Dollars - SA Index Commodities 1 $/bbl Crude Oil Jan 4, Jan 4, $ '16 '16 '17 ' '16 '16 '17 '18 1. Bloomberg Commodity Spot Index. 2. Europe Brent Crude Oil Spot Price. Source: Author s calculations using WSJ, EIA, and Haver Analytics data. 13

15 Global Outlook for 2018 & 2019 IMF Forecast for Growth, % Chg. Yr./Yr World United States Euro Area China Japan Source: IMF World Economic Outlook 14

16 U.S. Real GDP Blue Chip Forecast Change Billions of Chained $ '14 '15 '16 '17 '18 '19 Actual Q/Q (SAAR) Fcst Q/Q (SAAR) Actual (Y/Y) Fcst (Y/Y) Potential Source: BEA and December 2018 Blue Chip Economic Indicators 15

17 Consumer

18 Real Disposable Income Billions of Chained 2012 Dollars - Change Yr./Yr. 6.0 Dec % Average 3.25% Nov % Source: Bureau of Economic Analysis. 17

19 Total Consumer Debt by Composition Trillions of Dollars Trillions $8.066 $ $ Q3 18 $ $0.399 $1.442 $0.844 $1.265 $ $9, '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Mortgage HE Revolving Auto Loan Credit Card Student Loan Other Total Source: Federal Reserve Bank of New York and Equifax 18

20 Interest Payments As a of Disposable Personal Income '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Interest Payments (LHA) Prime Rate (RHA) Nov % 2.21% Source: Federal Reserve Bank - Board of Governors 19

21 Household Net Worth Trillions of Current Dollars & Annual Average $Trillions $140.0 $120.0 $ % Q3 18 YTD $ % 25.0% 20.0% $80.0 $ % 15.0% $ % $ % $ Real Estate Equity - % of Net Worth Net Worth 0.0% Source: Bureau of Economic Analysis. 20

22 Stock Market NYSE Stock Price Index, January 2018 = 100 Index /4/ Composite Energy Health Care Financial Source: Haver data taken from the Wall Street Journal and Coindesk. 21

23 Consumer Sentiment University of Michigan Index Dec '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Source: Thomson Reuters / University of Michigan January 11, 2019 Federal Reserve Bank of Chicago 22

24 Employment & Inflation

25 U.S. Nonfarm Payrolls Monthly and Annual Average Job Change In Thousands Thousands Dec Monthly Actual Monthly Average Source: U.S. Department of Labor: Bureau of Labor Statistics 24

26 Labor Force Unemployment & Participation Rates 10 Unemployment Rate 69.0 Participation Rate % Dec % Dec % '05 '07 '09 '11 '13 '15 '17 Unemployment Rate NAIRU 60.0 '05 '07 '09 '11 '13 '15 '17 Sources: U.S. Department of Labor. 25

27 PCE & CPI Inflation All Items & Core, 12-Month Change Personal Consumption Expenditures '11 '12 '13 '14 '15 '16 '17 '18 All Items Core Nov % 1.8% Consumer Price Index '11 '12 '13 '14 '15 '16 '17 '18 All Items Core Nov % 2.2% Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve 26

28 Inflation Expectations 1-5 Year and 5-10 Year Inflation Expectations 6.0 UM Consumer s Inflation Expectations 4.0 TIPS Inflation Compensation Dec 28, Dec % 1.81% 2.7% '06 '07 '08 '08 '09 '10 '12 '13 '14 '15 '16 '17 '18 1 Year & 5 Years Out 0.0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 ' Year Rate Source: Survey of Consumers University of Michigan and Federal Reserve Board 27

29 Average Hourly Earnings Private Employees Change Year / Year % = 1.5 Productivity Growth + 2% Inflation Dec % 3.2% '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 All Employees Production & Nonsupervisory Source: U.S. Department of Labor: Bureau of Labor Statistics 28

30 Annual Wage Growth Phillips Curve Unemployment Rate and Wage Inflation Unemployment Rate 1995 to to to Present Source: William Philips (1958) theory, and U.S. Bureau of Labor Statistics data. 29

31 Yield Curve 10 Year 1 Year Treasuries in Basis Points Jan 4, bps 7 bps 258 bps '12 '13 '14 '15 '16 '17 '18 10 Yr - 1 Yr T-Bill Spread 1 Year Treasury 10 Year Treasury Source: Board of Governors Federal Reserve System 30

32 Probability of Recession 10 Year 1 Year Treasuries Model OPEC oil price Extremely high increases, Nixon inflation. enacts wage-price controls, U.S. leaves gold standard causing skyrocketing gold prices and leading to stagflation Savings and loan crisis Dot-com boom and bust Subprime mortgage crisis Dec % 0.0 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 '19 Source: Authors calculations using Federal Reserve Bank of New York Model with 10 year minus 1 year Treasury spread. 31

33 Appropriate pace of policy firming Fed Funds Rate Year End Projections Longer-run Sep 18 FOMC Projections Dec 18 FOMC Projections Jan 19 CBOT Futures Source: Federal Reserve Board Members and Federal Reserve Bank Presidents individual assessments. 32

34 Summary Hard data suggests substantial momentum and growth modestly above trend in 2019 But some leading indicators suggest more pronounced slowing Recent financial market developments suggest caution Given low inflation, appropriate policy is likely to be patient in getting rates to a neutral or slightly restrictive setting 33

35 Thank You!