U.S. Economic Outlook

Transcription

1 MIT Enterprise Forum of Texas Kim Chase Senior Economist BBVA Research, Houston TX January 13, 216

2 Global Outlook Balance of risks tilted to the downside Global Real GDP growth % change Source: BBVA Research Advanced Developing World GDP growth forecasts revised down due to slowdown of emerging economies and a more tepid recovery in developed economies Global rebalancing: China, USD, middle class in emerging markets, commodity super cycle Downside risks: a severe adjustment in China s economy; a failed recovery in advanced economies; increasing geopolitical tensions, long-term stagnation/productivity 2

3 China Large spillover effects from China s slowdown China: Industrial Production & Inflation Share of World GDP YoY % change PPP adjusted, % Industrial Production Inflation Other Developed Other Developing China U.S Source: BBVA Research & Haver 3 Jan 9 May 9 Sep 9 Jan 1 May 1 Sep 1 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep

4 Europe ECB taking further actions amid internal disagreements Inflation and Economic Activity Index YoY % change and Index =1 ECB: Assets and interest rates tn and % Inflation Activity (rhs) Jan 1 May 1 Sep 1 Jan 11 May 11 Sep 11 Jan 12 May 12 Sep 12 Jan 13 May 13 Sep 13 Jan 14 May 14 Sep 14 Jan 15 May 15 Sep Assets MRO (rhs) Deposit (rhs) Source: BBVA Research & Haver

5 The Americas Significant challenges ahead Canada: Real GDP Growth % change YoY 4 Consumption 4 Net Exports Investment GDP LATAM: Export Dependency on China Source: BBVA Research 5

6 Mexico: Economic Performance Solid job gains and price stability. Still, the Peso remains under pressure as low oil prices impact fiscal revenues Employment and Inflation YoY % change $Bbl and Peso/USD Oil Mix and Foreign Exchange Rate Employment Inflation Oil Mix Peso (rhs, inverted) Source: BBVA Research & Haver Analytics 6

7 U.S. GDP Lower investments in O&G structures could drag down GDP growth by an accumulated.5pp between 3Q15 and 1Q16 Real GDP Growth Contributions SAAR Percentage Points 2.5 Real Private Investment in Structures Contributions to QoQ SAAR GDP Growth, Percentage Points Advance Preliminary Final Other Structures Mining Exploration, Shafts, & Wells Power and Communication Manufacturing Commercial/Healthcare Mar.215 Jun.215 Sept.215 Source: BBVA Research & BEA 7

8 U.S. GDP Leading indicators pointing to only modest improvement in 4Q growth, with annual growth stabilizing near 2.5% Real GDP Growth Forecasts Real GDP Growth Forecasts QoQ SAAR % Change QoQ SAAR % Change BBVA Research USA WAI MAI Nowcast Baseline Upside Downside Source: BBVA Research & Haver 8

9 Oil Prices When adjusted by the volatility observed between 27-29, prices followed a 12-year expansion that has come to an end WTI spot price ($ per barrel) U.S. economy expands 2.9% between U.S. production of crude oil goes from 5.2 million B/D to 9.6 million B/D Source: BBVA Research and Haver Analytics 9

10 U.S. Oil Production Production has declined as output from new wells fails to compensate rapidly declining production in legacy wells U.S. crude oil production Million barrels per day 12 Texas 1 North Dakota U.S. Total Total Oil Production by shale play Million barrels per day October-214 October-215 Source: BBVA Research, EIA and Haver Analytics 1

11 Oil Price Forecasts Market conditions support an environment of low prices Crude Oil Prices WTI, $ per barrel 12 Crude Oil Prices Forecasts WTI, $ per barrel, annual average Baseline Upside Downside 1 Baseline Downside Upside Source: BBVA Research Source: BBVA Research 11

12 Inflation Strong USD adds further downward pressure to import prices and overall inflation Import Price and USD Strength YoY % Change 15% 1% 5% % Import Prices Import Prices Ex Fuel Trade-Weighted USD Index 1% 8% 6% 4% 2% % Headline CPI Forecasts YoY % Change 4% 3% 2% 1% -5% -1% -15% Source: BBVA Research, BLS, FRB & Haver -2% -4% -6% -8% -1% % -1% -2% Downside Risk Upside Risk Baseline

13 Inflation Core services inflation offsetting commodities CPI Components November 215 CPI MoM YoY Total.3%.44% Food.11% 1.27% 3% Energy 1.26% 14.8% Core.18% 2.2% 2% Core Commodities.16%.55% Apparel.32% 1.52% 1% Medical Care Commodities.29% 2.49% Core Services.28% 2.88% Shelter.24% 3.18% % Medical Care Services.38% 3.8% Core Ex Shelter.14% 1.18% -1% Core CPI Inflation YoY % Change 4% Core Services Core Commodities Source: BBVA Research & Haver Analytics 13

14 Inflation However, core PCE inflation is expected to hold below the Fed s 2% target at least throughout 216 Market Inflation Expectations % 4.% 3.% 2.% 1.% Core CPI and PCE YoY % Change 3.% 2.5% 2.%.% 1.5% -1.% 5yr implicit -2.% 5yr forward -3.% Source: BBVA Research & Haver Analytics 1.%.5% Core CPI Core PCE Fed Target (PCE)

15 Monetary Policy FOMC announces first rate hike since 26 Unemployment, Inflation, and Fed Funds Rate %, YoY % Change, % 1% 8% Core PCE Fed Funds Rate Unemployment Rate (rhs) 11% 1% 9% 6% 4% 8% 7% 6% 2% 5% 4% % % Source: BBVA Research, BEA, BLS, & FRB 15

16 Monetary Policy Uncertainty about the Phillips Curve and the equilibrium real rate of interest could imply low inflation, growth and interest rates for a prolonged time Unemployment and Inflation % Real-time estimates of the natural interest rate % 4.5% 4.% 3.5% Q6 4Q1 3Q15 4Q8 4Q12 3.% % 2.% 1.5% % Current.5%.% Source: BBVA Research & Haver

17 Monetary Policy Unemployment Rate, 4Q % Central Tendency 8. Actual 7. Sept High 6. Dec High 5. Sept Low Dec Low Minor revisions to FOMC outlook Change in Real GDP, 4Q % Change Central Tendency L-Run Core PCE Inflation, 4Q % Change Central Tendency 2.5 Actual Dec Low Dec High Sept Low Sept High Source: BBVA Research & Haver Actual Sept Low Sept High Dec Low Dec High 17

18 Monetary Policy Despite dovish undertones, Fed maintains projections for four rate increases in 216 Target Fed Funds Rate, December Year-end, % 4.5 Median Fed Funds Rate FOMC Forecast September vs December, Year-end % December September Long Run Source: BBVA Research & FRB 18

19 Monetary Policy Our expectations remain less optimistic than the Fed s Average Change in Fed Funds Rate Past Tightening Cycles, Basis Points Jan Sept 1987 Mar May 1989 Source: BBVA Research & FRB Feb Feb 1995 Jun May 2 Jun 24 - June 26 FOMC Forecast BBVA (Dec) Research Forecast Sept Dec 216 Sept Dec 216 Federal Funds Rate Futures Implied Probabilities 2 nd 25bp increase, % /21/215 11/17/215 12/15/215 1/12/216 Jan-16 Mar-16 Apr-16 Jun-16 Jul-16 Sep-16 19

20 Fiscal Policy Government Outlays and Revenue % of GDP Under current policy, entitlements and interest dominate outlays, while gross debt exceeds 1% of GDP Federal Debt % of GDP Net Interest Discretionary Spending Other Mandatory Spending Medicaid* Medicare Held by government accounts Held by government accounts - projection Held by the public Held by the public - projection Source: BBVA Research & CBO **Medicaid includes Medicaid, CHIP and Exchange Subsidies Source: BBVA Research, Haver, OMB 2

21 Fiscal Policy Discretionary Funding in Appropriations Bills $ billions Congress passed substantial fiscal legislation last year, but elections will dominate agenda in Defense Military Construction/Veterans Affairs Commerce/Justice/Science State/Foreign Operations Interior & Environment Agriculture Labor/Health & Human Services/Education Transportation/Housing & Urban Development Homeland Security Energy & Water Financial Services Legislative Branch 215: Budget deal raising of debt ceiling Highway funding bill reauthorization of EXIM Bank Appropriations bills lifting of oil export ban extension of tax breaks Pending: TPP / TTIP Elections Source: House Appropriations Committee & BBVA Research 21

22 Cracks Show in Texas Economy Weak exports and declining investment in Oil & Gas weighs on our outlook for economic activity in 216 Texas Exports Unemployment Insurance Claims Year-over-year, current $ K 12% 11% 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % -1% -2% -3% -4% -5% -6% Nonmanufactured Manufactured (rhs) 4% 35% 3% 25% 2% 15% 1% 5% % -5% -1% -15% -2% -25% Texas U.S. (rhs) Dec-21 Apr-211 Aug-211 Dec-211 Apr-212 Aug-212 Dec-212 Apr-213 Aug-213 Dec-213 Apr-214 Aug-214 Dec-214 Apr-215 Aug-215 Aug-2 Jul-21 Jun-22 May-23 Apr-24 Mar-25 Feb-26 Jan-27 Dec-27 Nov-28 Oct-29 Sep-21 Aug-211 Jul-212 Jun-213 May-214 Apr Source: BBVA Research, BLS, Census & Haver Analytics

23 Why This Time is Different than 8s Production and GDP 14.% 12.% 1.% 8.% 6.% 4.% 2.%.% Production($)-to-GDP Production(bbl)-to-GDP(29$) U.S. & Texas Employment Year-over-year% 1.% 8.% 6.% 4.% 2.%.% -2.% -4.% -6.% Texas U.S Loans to GDP % 45% 4% 35% 3% 25% 2% 15% 1% 5% % Ratio of Information & Healthcare to Oil & Gas Mar-9 May-91 Jul-92 Sep-93 Nov-94 Jan-96 Mar-97 May-98 Jul-99 Sep- Nov-1 Jan-3 Mar-4 May-5 Jul-6 Sep-7 Nov-8 Jan-1 Mar-11 May-12 Jul-13 Sep-14 Source: BBVA Research, BEA, FDIC, BLS & Haver Analytics 23

24 Texas Outlook Upside to 216 fading, as oil prices trend towards inflation adjusted lows 216 Texas Real GDP Growth & Oil Prices Dotted lines= 95% C.I., Markers represent median estimate GDP growth likely to be lowest since recession Pessimistic oil price outlook implies a Ushaped path to recovery in Texas 216 GDP (2.1%) up from 215, but remains below potential Downsides risks could emerge from further oil price declines Labor markets characterized by weak employment growth and rising unemployment rates More resilient balance sheets and greater diversity lowers the probability of a tail 24 risk event for Texas

25 Texas Home Price Outlook Home price growth to remain positive amidst economic headwinds Texas Home Prices Scenarios YoY % change, 95% Confidence Interval Baseline: 2.4% Jan-5 Jan-6 Jan-7 Jan-8 Jan-9 Jan-1 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 Texas MSA Home Prices YoY % change, EOP 11.% 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% Houston DFW Austin San Antonio 25

26 Texas Metropolitan Area Outlook At the local-level, there will be a growing divergence amongst oil and non-oil dependent MSA Real GDP Annualized % change, TX Leaders TX Laggards '16 Location Quotient Austin-Round Rock 4.2% 1.4 Dallas-Fort Worth-Arlington 2.8% 2.1 San Antonio-New Braunfels 2.6% 2.8 McAllen-Edinburg-Mission 2.2% 3.3 Brownsville-Harlingen 2.1% 2. Lubbock 1.9% 4.3 Waco 1.7%.7 Killeen-Temple 1.6% 1.6 Victoria 1.5% 15. Corpus Christi 1.4% 1.6 College Station-Bryan 1.2% 4.8 Longview 1.2% 13.5 Houston-The Woodlands-Sugar Land 1.2% 7.2 Beaumont-Port Arthur.7% 3. Laredo.6% 13.3 El Paso.6% 1.5 Sherman-Denison.4% 1.6 Amarillo.3% 2.8 Texarkana.3% - Tyler -1.1% 4.5 Odessa -1.9% 23.7 Wichita Falls -1.9% 6.5 San Angelo -2.3% 16.6 Midland -3.6% 34.1 Abilene -3.9% * Location Quotient: Oil & Gas extraction and Support Services

27 MIT Enterprise Forum of Texas Kim Chase Senior Economist BBVA Research, Houston TX January 13, 216