The Economic Outlook: The US and Us. Dr. Adam Jones

Transcription

1 The Economic Outlook: The US and Us. Dr. Adam Jones

2 Starting with the US

3 2018 Has Been a Good Year Growth in 2018 has been 3-1/4 percent Up from growth in this expansion of 2-1/4 percent But is it sustainable?

4 What is GDP? GDP is the market value of all the stuff we make in the US, in a given period To make stuff we need: Labor Capital Natural Resources (inputs) Will we be able to make more stuff next year?

5 The Labor Market

6 Percent Growth Has Tightened Labor Markets Unemployment Rate

7 Percent Shadow Unemployment has Declined Too Part Time for Economic Reasons

8 Number (millions) Symptom of a Tight Jobs Market: More Openings than Unemployed Unemployed Openings

9 Percent Usually, Tight Labor Markets Inflation Fed Target Unemployment Core PCE Inflation

10 Percent Labor Costs Still Subdued But growing reports of nonwage compensation - bonuses and flex hours Also incurring costs of training lesserskilled workers Employment Cost Index

11 Business Investment

12 Billions of $ Capital Goods Orders Are Still High

13 Mixed Picture for Business Spending Cut in corporate tax rate and expensing provision raised returns Regulatory rollback also improving incentives to invest Financing conditions remain favorable Optimism generally high, especially among smaller businesses But trade war leading to uncertainty and caution

14 Recall Labor Tight markets low unemployment Capital Business investment has picked up again May take time to show up in numbers Natural Resources Oil market not yet tight Trade war may have effects here

15 Looking Ahead, Growth Slows Federal Reserve sees growth slowing /4 percent 2-1/2 percent 2 percent But forecasts were recently revised upward and growth could be stronger than they project

16 Tension at the Fed % Growth % Δ Labor + % Δ Productivity Many estimates are ~2% as sustainable Tightening labor markets should push inflation upward Fed is targeting 2% Will have to raise rates to slow the economy

17 What the Fed Thinks it Will Do Trying to balance inflation target and growth Will need to raise the funds rate Year-end federal funds rate Fed 2.4 percent 3.1 percent 3.4 percent Market 2.4 percent 2.9 percent 3.0 percent

18 Percent Markets Not Yet Concerned About Inflation yr, 5-yr Forward Inflation Expectations

19 Percent Should We Fear an Inverted Yield Curve? Yield curve moving toward inversion Previous inversions preceded recessions Under well-executed policy, this should not happen yr minus 2 yr Treasury

20 Turning to Us

21 A few brief comments Pre-storm we were on track Storm disruptions Post-storm outlook is clear for a little while

22 % Growth Growth Was Settling In Gross Domestic Product Growth Wilmington MSA (Current Series) Wilmington MSA (Prior Release)

23 Employment (000s) Employment Gap Closed Employment Estimated Full Employment Regional Employment

24 Employment Gap Closed Unemployment Rate (SA)16 Unemployment New Hanover Brunswick Pender

25 Annual Growth Rate Room Occupancy Taxes Room Occupancy Taxes

26 Percent Growth Retail Sales Growth Normalizing Sales Tax Collections Region New Hanover Brunswick Pender

27 Percent Change (YoY) Wage Growth was Showing Signs of an Upswing Separations and Wage Growth Wage Growth (6m MA) Separations (6m MA)

28 Percent Change (YoY) Early Next Year Separations and Wage Growth Wage Growth 18 Months in the Future (6m MA) Separations (6m MA)

29 Index Home Prices Showing Signs of Break Out 250 FHFA Home Price Index

30 Percent (YoY) Home Prices Showing Signs of Break Out Home Price Increases How Fast is too Fast? -12.0

31 Ratio Increases reasonable compared to income Home Price Index / Income Index Watching: No Alarms Yet

32 The Outlook was Sunny Then it Went Dark Source: wtkr.com

33 Hurricane Florence Property Damage Mostly due to water damage Business Disruptions Low intensity strikes ~1% of regional GDP Likely closer to 2% for Florence Outside Perceptions Home prices suffer after multiple strikes Recover quickly after last in series

34 What to expect going forward Other Storms Houston Hurricane Harvey, August 2017 Upwards of 60 inches of rain Baton Rouge Flooding, August 2016 Upwards of 20 inches of rain New Orleans Hurricane Katrina, August 2005 Upwards of 10 inches of rain, levy breaches, winds Atlantic City Hurricane Sandy, October 2012 Upwards of 12 inches of rain

35 Local Rate National Rate Unemployment Recovers Quickly Houston Atlantic City Baton Rouge New Orleans Months Pre and Post Storm

36 Employment Index Nonfarm Employment Resilient Total Employment Houston Baton Rouge Atlantic City New Orleans Months Pre and Post Storm

37 Employment Index Retail Employment Likely to Hold Up Retail Trade Employment Houston Atlantic City Baton Rouge New Orleans Months Pre and Post Storm

38 Employment Index Manufacturing Employment Largely Unaffected Manufacturing Employment New Orleans Houston Baton Rouge Atlantic City Months Pre and Post Storm

39 Employment index Leisure and Hospitality Leisure and Hospitality Employment Baton Rouge Houston Atlantic City New Orleans Months Pre and Post Storm

40 Index Construction Employment is Likely to Rise Construction Employment Houston New Orleans Baton Rouge Months Pre and Post Storm

41 Index Housing Permits Will Increase as Well Housing Permits Houston New Orleans Months Pre and Post Storm

42 Index (1995 = 100) Home Prices Likely to Increase and then Normalize Again Home Prices Houston New Orleans Baton Rouge Months Pre and Post Storm

43 Looking Forward Likely to see a boost to measured gross domestic product for 2019 Expect: Home prices to rise over the next year, then slow Construction employment to increase, on the order of 20% Tourism sector to continue moderate growth * Loss of wealth, time, and leisure not in traditional economic statistics Risks of hard landing and policy uncertainty

44 Soon But Not Soon Enough

45 Thank you.