California Association of Joint Powers Authorities

Transcription

1 California Association of Joint Powers Authorities Economic Update April 27, 2017 Scott Prickett, CTP EVP, Portfolio Strategist CHANDLER ASSET MANAGEMENT chandlerasset.com

2 1 Major Indicators Employment report, (1st Friday of month) CPI: Consumer Price Index, (Mid-month) PCE: Personal Consumption Expenditures, (End of month) Retail Sales, (Mid-month) Institute for Supply Management (ISM) Survey, (1st day of new month) Quarterly GDP

3 MOM Change In (000's) Rate (%) 2 Employment 400 Nonfarm Payroll (000's) 13.0% Unemployment Rate % 11.0% 10.0% 9.0% 8.0% 7.0% Underemployment Rate (U6) Unemployment Rate (U3) % % 0 4.0% Source: US Department of Labor Source: US Department of Labor

4 YOY( %) Change YOY( %) Change 3 Inflation 3.5% 3.0% 2.5% Consumer Price Index (CPI) CPI YOY % Change Core CPI YOY % Change 3.5% 3.0% 2.5% Personal Consumption Expenditures (PCE) PCE Price Deflator YOY % Change PCE Core Deflator YOY % Change 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% -0.5% -0.5% Source: US Department of Labor Source: US Department of Labor

5 YOY (%) Change Index Level 4 Consumer 7.0% Retail Sales YOY % Change 130 Consumer Confidence 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Source: US Department of Commerce Source: Federal Reserve

6 MOM ( %) Change 3 Month Average 5 Economic Activity 0.7% 0.6% Leading Economic Indicators (LEI) 0.60 Chicago Fed National Activity Index (CFNAI) 0.5% 0.4% 0.3% % 0.1% % -0.1% % -0.3% % Source: The Conference Board Source: Federal Reserve Bank of Chicago

7 MOM Change (In Thousands of Units) YOY( %) Change 6 Housing Multi Family Housing Starts Single Family Housing Starts Housing Starts 6.5% 6.0% 5.5% 5.0% 4.5% 4.0% 3.5% S&P/CaseShiller 20 City Composite Home Price Index Source: US Census Bureau Source: S&P

8 7 The ISM Survey (Formerly NAPM) A leading indicator released on the first business day of the new month Survey of national purchasing managers gives us a good indication of the health of manufacturing sector Composite index above 50 indicates expansion, below 50 indicates contraction Historically, as ISM approaches 60, investors worry about a overheating economy. A slide toward 40 signals recession

9 Rate (%) 8 Manufacturing Institute of Supply Management Purchasing Manager Index Expanding 80.0% 79.0% Capacity Utilization % % 76.0% Contracting 75.0% 74.0% Source: Institute for Supply Management Source: Federal Reserve

10 9 GDP Statistical Data The most common indicator of economic growth measures the change in value of all final goods and services produced in the U.S. Two consecutive quarters of negative GDP indicates recession GDP averaged +3.1% from 1947 to 2016, although the -5.1% contraction rate during the Great Recession was the worst in seven decades GDP has yet to reach +2.5% in any single year during the 7-year recovery cycle, despite massive stimulus From , real GDP increased by at an annual rate of +2.0% Lagging indicator Source: U.S. Department of Commerce, Bureau of Economic Analysis

11 10 Gross Domestic Product (GDP) Components of GDP 3/16 6/16 9/16 12/16 Gross Domestic Product (GDP) 6.0% Personal Consumption Expenditures 1.1% 2.9% 2.0% 2.4% 5.0% Gross Private Domestic Investment -0.6% -1.3% 0.5% 1.5% 4.0% 3.0% Net Exports and Imports 0.0% 0.2% 0.9% -1.8% 2.0% Federal Government Expenditures -0.1% 0.0% 0.2% -0.1% 1.0% 0.0% State and Local (Consumption and Gross Investment) 0.4% -0.3% 0.0% 0.1% -1.0% -2.0% GDP QOQ % Change GDP YOY % Change Total 0.8% 1.4% 3.5% 2.1% Source: US Department of Commerce Source: US Department of Commerce

12 11 Potential Yield Curve Flattening Fed Tightening Cycle 5/2 Year US Treasury Spread - 67 bps Spread (basis points) Source: Bloomberg

13 12 Potential Reduction in the Fed s Balance Sheet 4,500,000 Securites Held on the Fed's Balance Sheet 4,000,000 3,500,000 Federal Agency Debt Mortgage-Backed Securities US Treasuries $ millions 3,000,000 2,500,000 2,000,000 1,500,000 1,000, ,000 0 Source: Federal Reserve

14 Yield (%) Yield (%) 13 Bond Yields 3.5% 3.0% US Treasury Note Yields 2-Year 5-Year 10-Year 3.5% 3.0% US Treasury Yield Curve Mar-17 Dec-16 Mar % 2.5% 2.0% 2.0% 1.5% 1.0% 0.5% 0.0% 1.5% 1.0% 0.5% 0.0% Source: Bloomberg Source: Bloomberg

15 14 Incorporating Economic Data into Investment Strategy Watch for trends in the data, and how the market reacts to data releases Weigh current yields against future expectations to assist in determining optimal portfolio structure Irrespective of your interest rate outlook, stay disciplined and avoid significant inconsistencies with your portfolio s benchmark Risk is something to be managed, not avoided Diversify portfolio by sector, issuer, and maturity

16 15 Biography Scott Prickett, CTP EVP, Portfolio Strategist Scott Prickett is an Executive Vice President and Portfolio Strategist at Chandler Asset Management. He is responsible for building and maintaining client relationships with a focus upon developing and enhancing client investment programs. Scott actively participates in the portfolio management process and meets with clients on a regular basis to review their accounts, portfolio activity, portfolio strategy and financial markets. Prior to joining the firm in 2014, Scott was a Managing Director and Portfolio Manager at Davidson Fixed Income Management and was a Fixed Income Securities Analyst at Pacific Investment Management Company. Scott earned his B.S. in business administration with an emphasis in finance from the University of Northern Colorado. He holds the designation of Certified Treasury Professional (CTP) through the Association for Financial Professionals and is a frequent speaker for various local and national organizations.

17 16 Disclosures The information herein is provided for informational purposes only and should not be construed as a recommendation of any security, strategy or investment product, nor an offer or solicitation for the purchase or sale of any financial instrument. References to investment indices are for informational purposes and do not imply that managing portfolios to those styles will achieve comparable returns. Indices do not reflect the deduction of transaction and/or custodial charges or the deduction of an investment management fee, the incurrence of which would have the effect of decreasing historical performance results. Indices are unmanaged, and one cannot invest directly in an index. Past performance is not indicative of future results. Any forecasts, forward-looking statements and assumptions are inherently limited and should not be relied upon as an indicator of future results. Any opinions and views constitute judgments made by the author at the date of this presentation and may become outdated or superseded at any time without notice. Any statements concerning financial market trends are based on current market conditions, which will fluctuate. Economic factors, market conditions and investment strategies will affect the performance of any portfolio and there are no assurances that it will match or outperform any particular benchmark. The data contained in this presentation is the property of those providers, which were obtained from sources believed to be reliable, but are subject to change at any time at the provider s discretion. Fixed income investments are subject to interest, credit and market risk. Interest rate risk: the value of fixed income investments will decline as interest rates rise. Credit risk: the possibility that the borrower may not be able to repay interest and principal. Low rated bonds generally have to pay higher interest rates to attract investors willing to take on greater risk. Market risk: the bond market in general could decline due to economic conditions, especially during periods of rising interest rates.