Economic Update Automotive Insights Conference Federal Reserve Bank of Chicago January 18, 2018 Paul Traub Senior Business Economist
Main Economic Indicators Year-over-year Comparison 2015 2016 2017 GDP Annual Growth Rate 1 2.0% 1.8% 2.3% Unemployment Rate 2 5.3% 4.9% 4.4% Participation Rate 2 62.7% 62.8% 62.8% Nonfarm Job Growth 3 226.1 186.7 171.3 PCE Core Inflation Yr. / Yr. 4 1.3% 1.8% 1.5% 1. Year-over-year - 2015 & 2016 Q4/Q4, 2017 Q3/Q3 2. Annual Average 3. Average Monthly Job Growth in Thousands- SA 4. Change Year-over-year PCE Core Annual Average & November 2017 YTD Source: U.S. Bureau of Economic Analysis, Census Bureau and Bureau of Labor Statistics January 18, 2018 Federal Reserve Bank of Chicago 1
U.S. Real GDP GDP and Contribution to Change, Q/Q at SAAR 6.0 5.0 4.0 3.0 2.0 1.0 3.2 2.7 1.6 0.5 0.6 2.2 2.8 1.8 1.2 3.1 3.2-1.0-2.0 Q1 '15 Q2 Q3 Q4 Q1 '16 Q2 Q3 Q4 Q1 '17 Q2 Q3 Q3 2017 PCE Private Investment Net Exports Government GDP Contribution 1.5% 1.2% 0.4% 0.1% 3.2% Source: U.S. Bureau of Economic Analysis, and FRB of St Louis FRED database. January 18, 2018 Federal Reserve Bank of Chicago 2
Real Personal Consumption Expenditures Index, Q4 2007 = 100 Index 15 14 Q3 17 148.2 13 12 11 115.3 115.0 10 9 8 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 Durables Nondurables Services Source: Author s calculations using data from the BEA January 18, 2018 3 Federal Reserve Bank of Chicago
Real Gross Private Domestic Investment Billions Chained $2009, % Change Q/Q at SAAR $ Billions 3,250 3,000 2,750 2,500 Q2 17 5 $2,977 4 3 2 2,250 2,000 1,750 1,500 1,250 1,000 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 7.3% 1-1 -2-3 -4 Source: U.S. Bureau of Economic Analysis January 18, 2018 4 Federal Reserve Bank of Chicago
Real Private Fixed Investment Billions Chained $2009, Index 2005 = 100 Index 16 14 12 10 8 6 Q3 17 135.5 111.7 67.3 4 2 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Fixed Investment Nonresidential Residential Source: U.S. Bureau of Economic Analysis January 18, 2018 5 Federal Reserve Bank of Chicago
Industrial Production & New Orders Index, 2012 = 100 Index 12 Industrial Production Index 14 New Orders 115.0 13 11 105.0 Dec 17 107.5 106.1 12 11 Nov 17 109.9 10 10 102.8 95.0 9 9 8 85.0 7 8 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 6 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Total Manufacturing All Mfg. Mfg. Durable Goods Source: Board of Governors, Federal Reserve and U.S. Census Bureau January 18, 2018 Federal Reserve Bank of Chicago 6
ISM Purchasing Managers Index Manufacturing & Composite, SA - Greater than 50 = Expansion Index 65.0 6 Dec 17 59.7 56.3 55.0 5 45.0 4 35.0 Jan-16 Apr-16 Jul-16 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Mfg. PMI (LHA) Composite (LHA) Source: Institute for Supply Management, Haver Analytics and FRED January 18, 2018 Federal Reserve Bank of Chicago 7
Real Government Consumption & Investment Billions Chained $2009, % Change Q/Q at SAAR $ Billions 3,200 3,100 3,000 2,900 2,800 2,700 2,600 2,500 Q3 17 $2,900 07% 3 25.0 2 15.0 1 5.0-5.0 2,400 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17-1 Source: U.S. Bureau of Economic Analysis January 18, 2018 8 Federal Reserve Bank of Chicago
The U.S. Dollar and Trade Deficit Index 2012 = 100 Index 14 U.S. Dollar & Import Price Index Index 16 Trade Deficit - Next Exports 13 12 Dec 17 120.7 14 Q3 17 133.7 -$597.5B 11 12 10 9 Dec 17 88.8 10 8 8 7 '12 '13 '14 '15 '16 '17 TWD Import Prices Source: Board of Governors, Federal Reserve and Bureau of Labor Statistics. 6 '12 '13 '14 '15 '16 '17 January 18, 2018 Federal Reserve Bank of Chicago 9
U.S. Real GDP Blue Chip Forecast Change Billions of Chained $2009 6.0 5.0 5.2 4.0 3.0 2.8 3.2 2.8 2.0 1.0 1.8 1.2-1.0-2.0-0.9 '14 '15 '16 '17 '18 '19 Actual Q/Q (SAAR) Fcst Q/Q (SAAR) Actual (Y/Y) Fcst (Y/Y) Source: BEA and January 2018 Blue Chip Economic Indicators January 18, 2018 10 Federal Reserve Bank of Chicago
Employment, Productivity, and Output Nonfarm and Manufacturing Change Yr./Yr. 8.0 6.0 4.0 2.0 Nonfarm Business Sector Q3 17 2.9 1.5 1.4 2 15.0 1 5.0 Manufacturing Sector Q3 17 1.2 0.3 0.8-5.0-2.0-4.0-6.0-1 -15.0-2 -25.0-8.0 '00 '02 '04 '06 '08 '10 '12 '14 '16-3 '00 '02 '04 '06 '08 '10 '12 '14 '16 Employment Output/Person Output Employment Output/Person Output Source: Author s calculations using U.S. Bureau of Labor Statistics data. January 18, 2018 Federal Reserve Bank of Chicago 11
Employment, Productivity, and GDP Growth 3.0 2.5 2.0 1.5 1.0 0.5 Change Yr./Yr. Employment Change Yr./Yr. 2.4 1.9 1.7 1.3 1.1 0.5 3.0 2.5 2.0 1.5 1.0 0.5 Productivity Change Yr./Yr. 2.6 1.9 1.4 1.3 0.8 1.0 5.0 '60's '70's '80's '90's '00's '10's 4.5 GDP Change Yr./Yr. 5.0 '60's '70's '80's '90's '00's '10's 4.4 CBO Potential Change Yr./Yr. 4.0 3.0 2.0 3.3 3.2 3.2 1.8 2.1 4.0 3.0 2.0 3.3 3.2 3.1 2.5 1.5 1.9 1.0 1.0 '60's '70's '80's '90's '00's '10's '60's '70's '80's '90's '00's '10's '20's Source: Author s Calculations using BEA, BLS, and Fed data. January 18, 2018 Federal Reserve Bank of Chicago 12
U.S. Real GDP Actual and Potential Billions Chained $2009 and H/L than Potential $Billions 19,000 18,000 17,000 16,000 15,000 14,000 13,000 12,000 Q3 17 $17,157 $17,126 0.26% $44.2 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Gap (Right) Actual (Left) Blue Chip (Left) Potential (Left) 8.0 6.0 4.0 2.0-2.0-4.0-6.0 Source: Bureau of Economic Analysis and the U.S. Congressional Budget Office January 18, 2018 13 Federal Reserve Bank of Chicago
U.S. Consumer January 18, 2018 Federal Reserve Bank of Chicago 14
Income and Savings Rate Change and of DPI 1 Real DPI - % Chg. Yr./Yr., $2009 12.0 Personal Saving Rate - % of DPI 8.0 Pre-recession 3.1% 1 6.0 Post recession Average 5.6% 4.0 2.0 Nov 17 1.9% 8.0 6.0-2.0-4.0 Post Recession 1.8% 4.0 2.0 Pre-recession average 4.0% Nov 17 2.9% -6.0 '00 '02 '04 '06 '08 '10 '12 '14 '16 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: U.S. Bureau of Economic Analysis January 18, 2018 15 Federal Reserve Bank of Chicago
Total Consumer Debt by Composition Trillions of Dollars Trillions 14.0 12.0 1 8.0 $8.066 $12.670 $11.153 $12.955 Q3 2017 $0.386 $1.357 $0.808 $1.213 $0.448 6.0 $8.743 4.0 2.0 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Mortgage HE Revolving Auto Loan Credit Card Student Loan Other Total Source: Federal Reserve Bank of New York and Equifax January 18, 2018 Federal Reserve Bank of Chicago 16
Interest Payments As a of Disposable Personal Income 3.5 3.0 2.5 2.0 Nov 17 2.1% 1.5 1.0 '59 '63 '67 '71 '75 '79 '83 '87 '91 '95 '99 '03 '07 '11 '15 Source: Federal Reserve Bank - Board of Governors January 18, 2018 Federal Reserve Bank of Chicago 17
Household Net Worth Trillions of Current Dollars, Q1 00 to Q1 17 $Trillions 10 9 8 7 6 5 4 3 2 1 Q2 07 $65.2 '00 '02 '04 '06 '08 '10 '12 '14 '16 Financial & Other Total Decline Q2 07 Q1 09 -$12.6 Home Equity Q3 17 $93.6 $28.3 Source: Federal Reserve Z.1 Statistical Release,Table B100, Households and Nonprofit Organizations January 18, 2018 Federal Reserve Bank of Chicago 18
Stock Market and Home Prices S&P 500 and S&P Case Shiller Composite, Index 2006 = 100 Index 225.0 20 175.0 Dec 17 203.0 15 125.0 10 Oct 17 99.2 75.0 5 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Home Prices Stocks Source: Author s calculations using Financial Times and S&P Case Shiller data. January 18, 2018 Federal Reserve Bank of Chicago 19
Consumer Sentiment University of Michigan Index 140 120 100 January 00 112.0 Dec 17 95.9 80 60 40 20 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: Thomson Reuters / University of Michigan January 18, 2018 Federal Reserve Bank of Chicago 20
Monetary Policy January 18, 2018 Federal Reserve Bank of Chicago 21
Unemployment Rate & Prices Unemployed, PCE / CPI % Change Yr./Yr. 11.0 Unemployment 4.0 PCE / CPI Inflation All Items 1 3.5 9.0 3.0 8.0 7.0 2.5 2.0 1.5 Target 2.0% Dec 17 2.1% Nov 17 1.8% 6.0 1.0 5.0 0.5 4.0 Dec 17 3.0 4.1% '09 '10 '11 '12 '13 '14 '15 '16 '17-0.5 '11 '12 '13 '14 '15 '16 '17 Actual Target PCE CPI Source: U.S. Department of Labor: Bureau of Labor Statistics, Bureau of Economic Analysis and the Federal Reserve January 18, 2018 22 Federal Reserve Bank of Chicago
Civilian Labor Force Growth Annual Average and Annual Average Change by Year 68.0 67.0 Participation Rate Workers 3,60 3,20 Labor Force in Thousands 3,206 66.0 65.0 2,80 2,40 2,00 2,057 64.0 63.0 2017 62.8 1,60 1,20 2017 1.119 62.0 80 40 61.0 6 '90 '95 '00 '05 '10 '15-40 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Note: Current noninstitutionalized civilian population is 255.4 million people. Source: U.S. Bureau of Labor Statistics & U.S. Census Bureau January 18, 2018 23 Federal Reserve Bank of Chicago
U.S. Nonfarm Payrolls Monthly and Annual Average Job Change In Thousands Thousands 6,000 4,000 2,000 2,793 1,425 2,415 1,588 2,208 2,876 2,139 0-2,000-1,443-757 -4,000-6,000-8,000-5,940 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Monthly Actual Source: U.S. Department of Labor: Bureau of Labor Statistics January 18, 2018 24 Federal Reserve Bank of Chicago
Labor Conditions Job Openings and Quit & Layoff Rates Ratio 6.0 Unemployed / HWOL Job Ads Rate 2.50 5.0 2.00 Quits and Layoffs & Discharges Divided by Nonfarm Payroll Nov 17 2.16% 4.0 3.0 2.0 Dec 17 1.33 1.50 1.00 1.15% 1.0 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 0.50 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Quit Rate Layoffs & Discharge Rate Sources: U.S. Department of Labor Job Openings and Labor Turnover Survey (JOLTS & Conference Board Help Wanted Online Data (HWOL) January 18, 2018 Federal Reserve Bank of Chicago 25
Average Hourly Earnings Private Employees Change Year / Year 5.0 4.0 3.5% = 1.5 Productivity Growth + 2% Inflation 3.0 2.0 Dec 17 2.5% 2.3% 1.0 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 All Employees Production & Nonsupervisory Source: U.S. Department of Labor: Bureau of Labor Statistics January 18, 2018 26 Federal Reserve Bank of Chicago
Inflation Expectations 1-5 Year and 5-10 Year Inflation Expectations 6.0 Consumer s Inflation Expectations 4.0 TIPS Inflation Compensation 5.0 3.0 4.0 3.0 Dec 17 2.7% 2.0 Jan 12, 2017 1.97% 2.0 2.4% 1.0 1.0 '06 '07 '08 '08 '09 '10 '12 '13 '14 '15 '16 '17 1 Year & 5 Years Out '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 5-10 Year Rate Source: Survey of Consumers University of Michigan and Federal Reserve Board January 18, 2018 Federal Reserve Bank of Chicago 27
Yield Curve 10 Year 1 Year Treasuries in Basis Points 3.5 3.0 2.5 2.0 1.5 Jan 12, 2018 254 bps 76 bps 178 bps 1.0 0.5 '12 '13 '14 '15 '16 '17 10 Yr - 1 Yr T-Bill Spread 1 Year Treasury 10 Year Treasury Source: Board of Governors Federal Reserve System January 18, 2018 28 Federal Reserve Bank of Chicago
Appropriate pace of policy firming Fed Funds Rate Year End Projections 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 Market Expectations 1/5/2018 2017 2018 2019 2020 Long Run Source: Federal Reserve - F.O.M.C. participants, September 20, 2017 January 18, 2018 29 Federal Reserve Bank of Chicago
Target Federal Funds Rate Long Run Projections 5.00 4.50 Sep 12 4.5% 4.00 3.50 3.00 2.50 2.00 4.0% 3.0% Sep '12 Sep '13 Sep '14 Sep '15 Sep '16 Sep '17 Jan '18 Low Median High Jan 18 3.00% 2.75% 2.25% Source: Federal Reserve - F.O.M.C. participants projections. January 18, 2018 Federal Reserve Bank of Chicago 30
U.S. Auto Industry January 18, 2018 Federal Reserve Bank of Chicago 31
U.S. Light Vehicle Sales S.A.A.R Millions of Units Millions 2 18.0 16.0 Cash for Clunkers Aug 09 14.6 2016 17.5 Dec 17 17.8 SAAR 17.1 Annual 14.0 12.0 1 8.0 6.0 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 SAAR Annual Average Note: Total 2016 Light Vehicle Sales: 17,465,020 / Including M/H: 17,866,260. Source: Ward s Automotive and BEA January 18, 2018 Federal Reserve Bank of Chicago 32
U.S. Light Vehicle Inventory & Production Index 2015 = 100 - SA Millions 125.0 12 115.0 11 105.0 10 95.0 Dec 17 107.2 Nov 17 99.1 9 85.0 2015 2016 2017 Inventory N.A. Production January 18, 2018 Federal Reserve Bank of Chicago 33
Vehicle Incentives As of Transaction Price - SA 16.0 14.0 Dec 17 13.4 12.0 1 8.0 6.0 4.0 2.0 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Source: Author s calculations using FOMC Board of Governors and J.D. Power data. January 18, 2018 Federal Reserve Bank of Chicago 34
Buying Conditions for Vehicles University of Michigan Index 160 150 140 Dec 17 145 130 120 110 100 90 80 '08 '10 '12 '14 '16 Source: Thomson Reuters / University of Michigan January 18, 2018 Federal Reserve Bank of Chicago 35
Reasons for Buying Conditions for Vehicles University of Michigan Good / Bad Reason: Why do you say so? Low Prices Prices Will Increase Low Interest Rates Rising Interest Rates Time's good Fuel Efficiency Prices High High Interst Rates Can't Afford Uncertain Future Gas Prices Poor Selection 1 2 2 3 4 4 5 6 12 16 20 28 Note: May add to more than a 100 due to multiple mentions. Source: University of Michigan Survey of Consumers December 2017 survey 5.0 1 15.0 2 25.0 3 January 18, 2018 Federal Reserve Bank of Chicago 36
Average Finance Term & Transaction Price Months to Term and Annual Average Transaction Price Months 70 68 66 64 Finance Term 63.8 68.3 $(000) 35.0 3 25.0 $26.3 Transaction Price $31.4 62 60 2 58 56 15.0 54 '02 '04 '06 '08 '00 '12 '14 '16 Note: 2017 data is September year-to-date. Source: J.D. Power data. 1 '02 '04 '06 '08 '00 '12 '14 '16 January 18, 2018 Federal Reserve Bank of Chicago 37
Sales Weighted Vehicle Age 10 Year Moving Average Millions 2 17.5 2017 17.135 Years 6.00 5.75 15.0 5.50 12.5 5.25 1 5.1 5.00 7.5 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 L.V. Sales (LHA) Sales Weighted Age (RHA) 4.75 Source: Author's calculations using WardsAuto data. January 18, 2018 Federal Reserve Bank of Chicago 38
U.S. Light Vehicle Sales Calendar Year Sales Millions of Units Thousands 20,000 18,000 16,000 17,350 17,135 16,700 Long-term Trend 16,525 14,000 12,000 10,000 10,402 8,000 6,000 '00 '01 '01 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Source: WardsAuto January 18, 2018 Federal Reserve Bank of Chicago 39
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