U.S. Economic Outlook. Mark Vitner, Managing Director & Senior Economist August 31, 2016

Transcription

1 U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist August 31, 2016

2 Five Key Themes Economic Outlook Weaker real GDP over the past three quarters exaggerates the extent of the slowdown in the U.S. economy. Growth is solid, albeit unspectacular. Weaker Global Growth Monetary Policy The Housing Recovery The Mix of Growth is Shifting Brexit will weigh on global economic growth, pulling at industries closely tied to it. With demand growing more slowly, inflation will likely remain below 2 percent. The Fed s more hawkish recent tone is aimed at avoiding another taper tantrum. The economy is closer to full employment than widely thought and the Fed will need to hike rates in coming quarters. Easier monetary policy has paved the way for a more substantial housing recovery. Single-family construction is gaining steam, while low interest rates pull money into private equity and keep the apartment boom going. The economy is better for consumers than producers. Regions exposed to agriculture, energy, mining and manufacturing continue to struggle with slower growth. Economic Outlook 2

3 Economic Growth Reductions in inventory building and widening trade gap account for much of the shortfall in Real GDP growth over the past three quarters. Private final demand remains much stronger, led by growth in consumer spending and home building. Real GDP Forecast Real Private Final Sales 10% U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDP - CAGR: 1.1% GDP - Yr/Yr Percent Change: 1.2% 10% Real Private Final Sales to Domestic Purchasers Bars = CAGR Line = Yr/Yr Percent Change Forecast Forecast 2% 2% 2% 2% 0% 0% 0% 0% -2% -2% -2% -2% % % -10% Real Priv Fin Sales to Dom. Purch. - CAGR: 3.0% Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: 2.3% -12% % -12% Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 3

4 Employment Situation The monthly payroll employment numbers have been unusually volatile in recent months, primarily reflecting unusual seasonal factors. The unemployment rate is now below 5 percent. Labor markets are tight around the country and job openings remain near an all-time high. Nonfarm Employment Unemployment Rate 600 Nonfarm Employment Change Change in Employment, In Thousands % Unemployment and Wage Rates Wages for Production & Nonsupervisory Workers, SA 12% % 10% Monthly Change: 255K -1, ,000 2% Unemployment Rate: 4.9% Hourly Earnings - Yr/Yr % Change: 2. 0% % 0% Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 4

5 Consumer Confidence 160 Consumer Confidence Index Conference Board Consumer confidence improved solidly in August and remains near its high for this cycle Confidence Yr/Yr % Chg: -0.2% Confidence: Month Moving Average: Source: The Conference Board and Wells Fargo Securities, LLC Economic Outlook 5

6 Gradual Recovery in Homebuilding We continue to expect a gradual recovery in home building Multifamily Starts Multifamily Forecast Single-Family Starts Single-Family Forecast Housing Starts Millions of Units Single-family construction has been slow to come back on track with long-held norms relative to population and employment growth. We look for stronger gains this year, but improvement will remain exceptionally gradual Forecast Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 6

7 Interest Rates The Fed has consistently delayed and scaled back their timeline and the ultimate magnitude for normalizing the federal funds rate. Brexit has made policymakers even more cautious. 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Appropriate Pace of Policy Firming Target Federal Funds Rate at Year-End June 2016 Median Response March 2016 Median Response December 2015 Median Response December 2014 Median Response Futures Market: August Longer Run 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities Economic Outlook 7

8 Sovereign Yields 5% 10-Year Government Bond Yields Percent Japan: -0.10% United States: 1.5 Germany: -0.1 United Kingdom: 0.57% 5% 3% 3% Government bond yields have declined across the globe 2% 1% 2% 1% 0% 0% -1% % Source: Federal Reserve Board, IHS Global Insight and Wells Fargo Securities Economic Outlook 8

9 Global Forecast 7.5% Real Global GDP Growth Year-over-Year Percent Change, PPP Weights 7.5% 6.0% Period Average 6.0% Global economic growth has remained sluggish for the past four years and is expected to remain below its long-term average for the next few years. 4.5% 3.0% 1.5% WF Forecast 4.5% 3.0% 1.5% 0.0% 0.0% -1.5% % Source: International Monetary Fund and Wells Fargo Securities Economic Outlook 9

10 Regional Outlook

11 Year-over-Year Employment Growth by State (June 2016) A majority of Western states have seen stronger job growth relative to the rest of the country Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities Economic Outlook 11

12 3-Month Annualized Percent Change Southeast Employment Growth by MSA 5% Recovering Southeast Employment Growth by Metro 3-Month Moving Averages, July 2016 Charleston Expanding Orlando 3% Durham Charlotte Tampa 2% New Orleans Birmingham Chattanooga Nashville Asheville Raleigh 1% Augusta Greenville, SC Atlanta Richmond 0% -1% -2% Contracting Biloxi Jackson Memphis Huntsville -3% -1% 0% 1% 2% 3% 5% Source: U.S. Department of Labor and Wells Fargo Securities Year-over-Year Percent Change Total Population Less than 550K 550K - 950K More than 1,000K Decelerating Economic Outlook

13 Domestic Migration State-to-state migration trends tend to closely follow employment conditions. The largest gains in domestic inmigration have tended to be in the Southeast. Houston, TX Dallas, TX Phoenix, AZ Tampa, FL Atlanta, GA Austin, TX Denver, CO Orlando, FL Charlotte, NC-SC San Antonio, TX Las Vegas, NV Portland, OR-WA North Port, FL Nashville, TN Cape Coral, FL Net Domestic Migration Top 15 MSAs Number Added in Thousands, Source: International Monetary Fund and Wells Fargo Securities Economic Outlook 13

14 Demographic Trends: Primary City vs. Suburban Growth In line with broader national trends, many Southern metropolitan areas have seen stronger growth occurring in the region s urban core cities relative to prior decades Primary City vs. Suburb United States Primary City vs. Suburb by Metro Area US Population Growth: Primary City vs. Suburbs Annual Average Growth, Percent Population Growth: Primary City vs. Suburbs Average Annual Growth Rate, Percent 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% Primary City Suburban % 2.0% 1.5% 1.0% 0.5% 0.0% Austin, TX Orlando, FL Raleigh, NC Denver, CO Charlotte, NC-SC Atlanta, GA Seattle, WA Washington, DC Dallas, TX San Antonio, TX Oklahoma City, OK Nashville, TN New Orleans, LA Houston, TX Phoenix, AZ Miami, FL San Francisco, CA Las Vegas, NV Portland, OR-WA Richmond, VA Primary City Suburban 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 14

15 U.S. Commercial Real Estate

16 Construction Supply 10% Completions as a Percent of Inventory Percent Avg. '85-'89=4. Apartment: % Office: % Retail: % Industrial: Hotel: % Aggregate: % Avg. '97-'01=2. 10% Avg. '04-'08=1.3% Avg. '12-'16F=0.9 2% 2% 0% 0% -2% -2% Apartment 3- Yr. Supply Growth Hotel Metro 3- Yr. Supply Growth Warehouse 3- Yr. Supply Growth Office 3- Yr. Supply Growth Retail 3- Yr. Supply Growth New York Metro 17.5% New York 15.9% Inland Empire 14.5% Oklahoma City 11.3% Charlotte 4.5% Nashville 13.0% Cleveland 10.5% Atlanta 10.1% Nashville 8.3% Richmond 4. Charlotte 10. Miami 10.3% Dallas - Fort Worth 9.2% Austin 8.1% Raleigh-Durham 3.7% Charleston 10.5% Boston 9. Las Vegas 8. Dallas 7.9% Kansas City 3. Seattle 10.2% Palm Beach County 9.1% Austin 8. Houston 6.2% Cincinnati 3. Washington D.C 9.9% Austin 9.0% Phoenix 7.5% Charlotte 5.3% Austin 3.3% Chattanooga 9. Houston 8. San Antonio 6. Kansas City 4. Winston-Salem 3.2% Miami 8.7% Denver 8. Oklahoma City 6.3% Charleston 4. Baltimore 3.1% Austin 8. Minneapolis 8.5% Nashville 6.1% Milwaukee 4. San Francisco 3.1% Greenville 7.9% Nashville 8. Washington D.C 5. Denver 4.0% Northern New Jersey 3.0% National 5.0% National 6.1% National 4.7% National 3.5% National 2.1% Note: Supply growth is the cumulative supply expected to be added through 2018 as a percentage of current inventory. Source: CoStar Realty Information, Inc., Reis, Inc., Smith Travel Research, Property and Portfolio Research and Wells Fargo Securities Economic Outlook 16

17 Real Estate Prices Commercial Property Prices vs. S&P 500 Index, Q = 100 Moody's/RCA Commercial Property Price Index: S&P 500: S&P/Case Shiller National Home Price Index: Commercial property prices continue to advance Source: Moody s, Standard and Poor s and Wells Fargo Securities Economic Outlook 17

18 Apartment Demand for apartment units was closely in line with supply in the second quarter. Areas with strong employment growth have seen the greatest increases in apartment demand as well as lower vacancy rates. Prices Supply & Demand $140 Apartment Price vs. Vacancy Rate Dollars per Square Foot, Percent 10% 9% Apartment Supply & Demand Percent, Thousands of Units 100 $ $100 7% 50 $80 25 $60 5% 0 $ % $20 $0 Apartment Price: $ per SF (Left Axis) Apartment Vacancy Rate: 4.5% (Right Axis) % 3% Apartment Net Completions: 49,132 Units (Right Axis) Apartment Net Absorption: 36,003 Units (Right Axis) Apartment Vacancy Rate: 4.5% (Left Axis) 2% Source: Real Capital Analytics, REIS, Inc. and Wells Fargo Securities Economic Outlook 18

19 Office Major office markets such as New York City and San Francisco, with a large share of high-tech jobs, are seeing stronger demand. Prices Supply & Demand $350 Office Price vs. Vacancy Rate Dollars per Square Foot, Percent 1 21% Office Supply & Demand Percent, Millions of Square Feet 30 $ $ % 10 $200 12% 12% 0 $150 10% 9% -10 $ $50 $0 Office Price: $ per SF (Left Axis) Office Vacancy Rate: 16.0% (Right Axis) % Office Net Completions: 8.6M SF (Right Axis) Office Net Absorption: 6.9M SF (Right Axis) Office Vacancy Rate: 16.0% (Left Axis) 0% Source: Real Capital Analytics, REIS, Inc. and Wells Fargo Securities Economic Outlook 19

20 Industrial Demand continues to outpace supply in the industrial market. Although supply is beginning to increase, it remains low compared to historical norms. E-commerce continues to spur demand as retailers are seeing a pick up in consumer spending. Prices Supply & Demand $90 Industrial Price vs. Vacancy Rate Dollars per Square Foot, Percent 1 12% Industrial Supply & Demand Percent, Millions of Square Feet 80 Industrial Price: $79.99 per SF (Left Axis) $80 Industrial Vacancy Rate: 5.5% (Right Axis) 1 11% 60 10% 40 $70 12% 9% 20 $60 10% 0 $50 7% $40 $ Industrial Net Completions: 37.0M SF (Right Axis) 5% Industrial Net Absorption: 46.8M SF (Right Axis) Industrial Vacancy Rate: 5.5% (Left Axis) Source: Real Capital Analytics, CoStar Realty Information, Inc. and Wells Fargo Securities Economic Outlook 20

21 Retail The retail market has been slow to recover. The retail vacancy rate has continued to hover in the percent range for almost six years, showing few signs of pick up. Low retail demand is largely due to the on-going shift from traditional brick-and-mortar stores to online retailers. Prices Supply & Demand $280 $240 Retail Price vs. Vacancy Rate Dollars per Square Foot, Percent Retail Price: $ per SF (Left Axis) Retail Vacancy Rate: 9.9% (Right Axis) 12% 11% 1 12% Retail Supply & Demand Percent, Millions of Square Feet Retail Net Completions: 1.4M SF (Right Axis) Retail Net Absorption: 3.2M SF (Right Axis) Retail Vacancy Rate: 9.9% (Left Axis) $200 10% 10% 12 8 $160 9% 4 $120 0 $80 7% 2% -4 $ % Source: Real Capital Analytics, REIS, Inc. and Wells Fargo Securities Economic Outlook 21

22 Charlotte

23 Employment Situation: Charlotte MSA Job growth in Charlotte continues to outpace both the state and the nation. Employment growth has been broad based, as a majority of the region s industries have seen job gains over the past year. Nonfarm Employment Employment by Industry Charlotte MSA Nonfarm Employment Year-over-Year Percent Change of a 3-MMA Charlotte MSA Employment Growth By Industry Year-over-Year Percent Change, 3-MMA Total Nonfarm July % 3% Trade, Trans. & Utilities Prof. & Bus. Svcs. 0% 0% Government Leisure & Hospitality Educ. & Health Services More -3% -3% Financial Activities Manufacturing Number of Employees - Charlotte: 2.3% United States: 1.7% North Carolina: 2.1% -9% % Other Services Less Information -1% 0% 1% 2% 3% 5% 7% Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 23

24 Housing Market: Charlotte MSA The housing market has ramped up over the past year, with both single and multifamily housing permits registering solid gains over the year. Charlotte s stellar population growth continues to be a boon for residential development. Housing Permits Population Growth Charlotte MSA Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-Family: 18,324 Single-Family, 12-MMA: 12,475 Multifamily, 12-MMA: 5, Charlotte MSA Population Growth Charlotte MSA: 47.2K In Thousands Single-Family Average ( ): 17, Source: U.S. Department of Labor, U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 24

25 North Carolina Population Charlotte and Raleigh have seen a surge in population growth over the past five years Durham-Chapel Hill North Carolina Population Growth by MSA Total Population Gains From 2010 to 2015, In Thousands Charlotte Raleigh Greensboro Wilmington Asheville Winston-Salem Fayetteville Greenville Jacksonville Burlington Goldsboro Hickory Rocky Mount Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 25

26 Charlotte Apartment Supply & Demand 12% Charlotte Apartment Supply & Demand Percent, Thousands of Units % 2.0 The apartment vacancy rate has seen an increase over the past year as completions spiked in the second quarter Apartment Completions: 1728 Units (Right Axis) Apartment Net Absorption: 641 Units (Right Axis) Apartment Vacancy Rate: 6.1% (Left Axis) 2% Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 26

27 Charlotte Office Supply & Demand 2 Charlotte Office Supply & Demand Percent, Millions of SF % Office vacancy rates have fallen modestly over the past year 12% 0.0 Office Completions: 0 SF (Right Axis) Office Net Absorption: 73,000 SF (Right Axis) Office Vacancy Rate: 15. (Left Axis) Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 27

28 Charlotte Retail Supply & Demand 1 Charlotte Retail Supply & Demand Percent, Thousands of Units % % 200 Net absorption dipped in the second quarter, however, retial demand has been relatively healthy over the past year. 2% Retail Completions: 7,000 SF (Right Axis) Retail Net Absorption: -10,000 SF (Right Axis) Retail Vacancy Rate: 9. (Left Axis) 0% Source: Reis, Inc. and Wells Fargo Securities, LLC Economic Outlook 28

29 Charlotte Warehouse Supply & Demand Charlotte Warehouse Supply & Demand Percent, Thousands of Square Feet 12% 2,500 Warehouse vacancy rates continue to decline, falling to 5.4 percent in the second quarter. 11% 10% 9% 7% 5% Warehouse Net Absorption: 1,108,054 SF (Right Axis) Warehouse Completions: 613,792 SF (Right Axis) Warehouse Vacancy Rate: 5. (Left Axis) 3% ,000 1,500 1, ,000-1,500-2,000-2,500 Source: CoStar Realty Information, Inc. and Wells Fargo Securities Economic Outlook 29

30 Five Critical Key Takeaways Economic Outlook The economy should weather slower global growth. Exports will decelerate but we expect real GDP to rise about 1.4 percent in 2016 and x.x percent in North Carolina is Outpacing the Nation North Carolina is seeing stronger job and income growth than the nation. Population is also much stronger, particularly areas surrounding Charlotte and Raleigh. Growth is More Urban Oriented Employment growth and population growth have been more oriented toward urban areas this decade, reflecting demographic and technological shifts. Interest Rates Are Set to Rise Off Historic Lows The Election Outcome The Fed is poised to raise interest rates but will ultimately raise them less than the FOMC had previously anticipated. Rates will remain low for quite some time. The November election will not likely change the economy s underlying growth trajectory but should bring about a resolution to HB2. Economic Outlook 30

31 U.S. Forecast Wells Fargo U.S. Economic Forecast Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Actual Forecast Real Gross Domestic Product Personal Consumption Inflation Indicators 2 PCE Deflator Consumer Price Index Industrial Production Corporate Profits Before Taxes Trade Weighted Dollar Index Unemployment Rate Housing Starts Quarter-End Interest Rates 5 Federal Funds Target Rate Conventional Mortgage Rate Year Note Forecast as of: August 26, Compound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage Change 3 Federal Reserve Major Currency Index, 1973=100 - Quarter End 4 Millions of Units 5 Annual Numbers Represent Averages Source: IHS Global Insight and Wells Fargo Securities Economic Outlook 31

32 Appendix

33 Economic Outlook Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary To view any of our past research please visit: economics To join any of our research distribution lists please visit: economics Selected Recent Economic Reports Date Title Authors U.S. Macro August-18 Will U.S. Export Growth Stregthen Anew Bryson & Pershing August-17 Dragging Anchor Quinlan & House August-16 Don Quixote and the Pursuit of Rising Inflation Silvia, Bullard & Iqbal August-15 Working Hard or Hardly Working? Quinlan & House August Long-Term Budget Outlook: An Uncertain Path Forward Silvia, Brown & Pugliese U.S. Regional August-18 New York Employment Conditions: July 2016 Vitner, Feik & Batcheller August-18 Minnesota Employment Conditions:; July 2016 Vitner, Feik & Batcheller August-12 Georgia Economic Outlook: August 2016 Vitner & Feik August-03 Local area Employment & unemployment Vitner & Batcheller August-01 Commercial real estate in the Carolinas Vitner & Batcheller Global Econom y August-15 Scant Growth in Japan in Q2 Quinlan August-11 Mexican Energy Reform: Still Little to Show Alemán August-11 Q2 GDP Data Suggest Russian Economy is Bottoming Bryson August-05 Bank of England Eases Policy Further Bryson August-02 Latin America and Brexit: What say you? Alemán Interest Rates/Credit Market August-17 Normal as an Evolving Target Silvia August-10 Managing Expectations to Avoid Another Tantrum Silvia & Vitner August-03 Net treasury issuance update for H and beyond Silvia & Brown July-27 Fiscal Policy: Optimism and Market Imperfections Silvia July-13 Financial Evolution: More Government, More Something Else Alemán Real Estate August-11 Commercial Real Estate Chartbook: Q2 Khan, Causey & Tysinger July-06 International Home Buying: 2016 Vitner, Khan & Batcheller June-28 Brexit Vote Could Pump More Dollars into U.S. CRE Khan June-01 Housing Chartbook: June 2016 Vitner, Khan & Batcheller May-20 Commercial Real Estate Chartbook: Q1 Khan & Causey Economic Outlook 33

34 Wells Fargo Securities Economics Group John E. Silvia Global Head of Research and Economics Diane Global Head of Research & Economics Chief Economist Economists Eric J. Viloria, Currency Strategist Sarah House, Economist Michael A. Brown, Economist Jamie Feik, Economist Economic Analysts Senior Economists Erik Nelson, Currency Analyst Mark Vitner, Senior Economist Jay H. Bryson, Global Economist Sam Bullard, Senior Economist Nick Bennenbroek, Currency Strategist Anika R. Khan, Senior Economist Eugenio J. Alemán, Senior Economist Azhar Iqbal, Econometrician Tim Quinlan, Senior Economist Misa Batcheller, Economic Analyst Michael Pugliese, Economic Analyst Julianne Causey, Economic Analyst E. Harry Pershing, Economic Analyst May Tysinger, Economic Analyst Administrative Assistants Donna LaFleur, Executive Assistant Dawne Howes, Administrative Assistant Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company 2016 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only. Economic Outlook 34