Perspective on Economic Expansions

Transcription

1 U.S. Economic and Market Outlook: People & Policies Dan Kieffer Director, Equity & Alternative Research Perspective on Economic Expansions Longest Economic Expansions in History United States (4Q Present) United States (4Q Q 2001) Australia (4Q Present) Netherlands (2Q Q 2008) Years Length of Expansion (Consecutive Quarters of Positive GDP Growth) Source: Fifth Third, Strategas Research Partners, Bloomberg 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 2 1

2 Closer to the End? 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 3 Sources of Payroll Growth Natural population growth contributes ~96k monthly payroll growth The five-year average growth in payrolls is ~200k To continue this growth, the annual shortfall we need is: (200,000 96,000) x 12 = 1,248,000 With cyclical unemployment, we can grow payrolls By shrinking the unemployment rate Through demographic growth: immigration & new entrants At full employment, we can grow payrolls by By increasing the labor force participation rate Through natural population growth and immigration Source: Fifth Third, Evercore ISI Research, Bureau of Labor Statistics 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 4 2

3 Sources of Payroll Growth Percent 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 5 Challenge #1: Long Term Unemployment Duration of Unemployment Middle Aged Adults Living at Home Weeks No. of Persons, million Average Duration of Unemployment in Weeks Source: Fifth Third, Macrobond Men and Women 35 to 64 Years Old Living With Parent Source: Fifth Third, Macrobond 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 6 3

4 Challenge #2: Incarceration & Recidivism International Rates of Incarceration United States Rwanda Russia Brazil Australia Spain China Canada France Austria Germany Denmark Sweden India 0.00% 0.10% 0.20% 0.30% 0.40% 0.50% 0.60% 0.70% 0.80% Source: Walmsley, R. (2015). World Prison Brief. London: Institute for Criminal Policy Research. Available online: prisonstudies.org/world-prison-brief 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 7 60,000 Challenge #3: Opioids and Drug Abuse Deaths in the United States by Cause 50,000 52,404 Number of Deaths 40,000 30,000 33,091 Opioid related overdoses 43,115 38,022 36,252 20,000 10,000 0 Drug Overdoses (2015) HIV/AIDS (1995) Car crashes (2015) Gun deaths (2015) Source: Fifth Third, Centers for Disease Control 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 8 4

5 Challenge #3: Opioids and Drug Abuse Source: Fifth Third, Centers for Disease Control, Vox Media 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 9 Impact of Labor Market Challenges Economic Cost of Structural Challenges in the Labor Market: Annual shortfall of workers at full employment = million 5-year recidivism rate (~76.6%) x Number of people released from jails and prison annually (~1.5 million) = million Number of people reportedly using prescription opioids for non-medical reasons = 10 million Cost of each year of potential growth lost: GDP of ~$18.6 trillion x 2% real growth = $370 billion Source: Fifth Third, U.S. Department of Health & Human Services; Note: all numbers are estimates 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 10 5

6 Deregulation 90,000 Pages in the Federal Register 80,000 70,000 60,000 # of pages 50,000 40,000 30,000 20,000 10, Federal Register Pages Published Source: Fifth Third, Office of the Federal Register 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC % 40.00% 35.00% Corporate Income Tax by Country At 38.9 percent, the United States has the third highest corporate tax rate among 188 countries % 25.00% 20.00% 15.00% 10.00% 5.00% 0.00% Ireland Canada Japan Germany France United States Combined Corporate Income Tax Rate Source: Fifth Third, Organization for Economic Co-operation and Development 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 12 6

7 Infrastructure Report Card Category 1988* Aviation B- C- D D+ D D D Bridges - C- C C C C+ C+ Dams - D D D+ D D D Drinking Water B- D D D- D- D D Energy - - D+ D D+ D+ D+ Hazardous Waste D D- D+ D D D D+ Inland Waterways B- - D+ D- D- D- D Levees D- D- D Ports C C+ Public Parks & Recreation C- C- C+ D+ Rail C- C- C+ B Roads C+ D- D+ D D- D D Schools D F D- D D D D+ Solid Waste C- C- C+ C+ C+ B- C+ Transit C- C- C- D+ D D D- Wastewater C D+ D D- D- D D+ GPA C D D+ D D D+ D+ Cost to Improve** - - $1.3T $1.6T $2.2T $3.6T $4.59T Source: American Society of Civil Engineers 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 13 Points of Political Tension Growth of $1, Log Scale 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 14 7

8 Debt Levels in the U.S. Debt as % of GDP 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 15 Congressional Budget Office Projections Percent 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 16 8

9 Stock Market Peak vs. Economic Peak Index, Log Scale 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 17 The Fed & the Yield Curve Normal curve Inverted curve Percent 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 18 9

10 History of Inflation & Recessions % 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 19 Performance Ahead of Recessions 24 Months Leading Up to Recession Average Growth of $1 of the S&P 500 $1.25 $1.20 $1.15 $1.10 $1.05 $1.00 Average 2 Year Annualized Total Return Leading Up To Economic Peak 12.13% $ Months Until Peak Growth of $1 of S&P 500 Index, Average of Last 10 Recessions Source: Fifth Third, Bloomberg 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 20 10

11 Lessons Learned Diversification It s about time not timing. Social problems are economic problems. 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 21 Questions? 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 22 11

12 Disclosures & Definitions U-3 Unemployment Rate is the total unemployed as a percentage of the civilian labor force. U-6 Unemployment Rate is the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. The Labor Force Participation Rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. The Federal Register is the official daily publication for rules, proposed rules, and notices of Federal agencies and organizations, as well as executive orders and other presidential documents. The CEO Confidence Index measures CEO confidence in the economy 1 year from now. The Flow of Funds Nonfarm Nonfinancial Corporate Business Total Capital Expenditures Index is a measure of capital expenditures (CAPEX) from the Federal Reserve. The ASCE Infrastructure Report Card assigns grades to infrastructure based on capacity, condition, funding, future need, operation and maintenance, public safety, resilience and innovation. The grade is based on an assessment of relevant data and report and consultations with technical and industry experts. *The first infrastructure grades were given by the National Council on Public Works Improvements in its report Fragile Foundations: A Report on America s Public Works, released in February ASCE s first Report Card for America s Infrastructure was issued a decade later. **The 2017 Report Card s investment needs are over 10 years. The 2013 Report is over eight years. In the 2001, 2005, and 2009 Report Cards the time period was five years. The Consumer Price Index (CPI) is a measure of prices paid by consumers for a market basket of consumer goods and services. The year-over-year growth rate of CPI represents the inflation rate. The U.S. 10-Year Treasury Yield is the pre-tax yield to maturity on Generic United States on-the-run government bill/note/bond indices. The Federal Funds Rate is the short-term interest rate targeted by the Federal Reserve s Open Market Committee (FOMC) as part of its monetary policy. GDP (Gross Domestic Product) is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. The BofA Merrill Lynch US 3-Month Treasury Bill Index tracks the performance of USD-denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months. The Barclays Intermediate Gov/Credit Index measures the investment grade, USD-denominated, fixed-rate, taxable corporate and government related bond markets.the Barclays Global Aggregate ex-usd Index is a measure of investment grade debt from 24 local currency markets, including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers. The Barclays US Corporate High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. The Barclays US Treasury Inflation-Linked Bond Index measures performance of the US Treasury Inflation Protected Securities (TIPS) market. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy. The Russell 2500 Index is comprised of the smallest 2500 securities in the Russell 3000 Index and is designed to measures the small to mid-cap segment of the U.S. equity universe. The MSCI EAFE Index is a free-float weighted equity index covering developed market countries in Europe, Australasia, Israel, and the Far East. The MSCI Emerging Markets Index is a free-float weighted equity index that captures large and mid cap representations across Emerging Market countries. The MSCI US REIT Index is a free float-adjusted market capitalization index comprised of equity Real Estate Investment Trusts. The Alerian MLP Infrastructure Index is a composite of energy infrastructure Master Limited Partnerships (MLPs) in a capped, float-adjusted, capitalization-weighted index. The HFRX Global Index is designed to be representative of the overall composition of the hedge fund universe. 11/12/2017 Fifth Third Bank All Rights Reserved Member FDIC 23 Disclosures & Definitions Opinions are provided by Fifth Third Private Bank. This information is intended for educational purposes only and does not constitute the rendering of investment advice or a specific recommendation on investment activities and trading. The mention of any specific security does not constitute a solicitation or an offer to buy or sell any security. This information is current as of the date of this presentation and is subject to change at any time, based on market and other conditions. Asset Allocation, Diversification, Alternative Investment and Hedging strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. There are no guarantees that any strategy presented will perform as intended. The Standard & Poor's 500 Stock Index is a composite of the 500 largest companies in the United States and it used as a measure of the overall U.S. stock market. Indexes are unmanaged and do not incur investment management fees. 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