Economic Outlook. Economic Outlook. Whitley Penn. Ft. Worth, TX December Nathaniel Karp Chief Economist BBVA Compass

Transcription

1 Economic Outlook Whitley Penn Nathaniel Karp Chief Economist BBVA Compass Ft. Worth, TX December 218

2 DISCLAIMER This document and the information, opinions, estimates and recommendations expressed herein, have been prepared by Banco Bilbao Vizcaya Argentaria, S.A.(hereinafter called BBVA ) to provide its customers with general information regarding the date of issue of the report and are subject to changes without prior notice. BBVA is not liable for giving notice of such changes or for updating the contents hereof. This document and its contents do not constitute an offer, invitation or solicitation to purchase or subscribe to any securities or other instruments, or to undertake or divest investments. Neither shall this document nor its contents form the basis of any contract, commitment or decision of any kind. Investors who have access to this document should be aware that the securities, instruments or investments to which it refers may not be appropriate for them due to their specific investment goals, financial positions or risk profiles, as these have not been taken into account to prepare this report. Therefore, investors should make their own investment decisions considering the said circumstances and obtaining such specialized advice as may be necessary. The contents of this document is based upon information available to the public that has been obtained from sources considered to be reliable. However, such information has not been independently verified by BBVA and therefore no warranty, either express or implicit, is given regarding its accuracy, integrity or correctness. BBVA accepts no liability of any type for any direct or indirect losses arising from the use of the document or its contents. Investors should note that the past performance of securities or instruments or the historical results of investments do not guarantee future performance. The market prices of securities or instruments or the results of investments could fluctuate against the interests of investors. Investors should be aware that they could even face a loss of their investment. Transactions in futures, options and securities or high-yield securities can involve high risks and are not appropriate for every investor. Indeed, in the case of some investments, the potential losses may exceed the amount of initial investment and, in such circumstances, investors may be required to pay more money to support those losses. Thus, before undertaking any transaction with these instruments, investors should be aware of their operation, as well as the rights, liabilities and risks implied by the same and the underlying stocks. Investors should also be aware that secondary markets for the said instruments may be limited or even not exist. BBVA or any of its affiliates, as well as their respective executives and employees, may have a position in any of the securities or instruments referred to, directly or indirectly, in this document, or in any other related thereto; they may trade for their own account or for third-party account in those securities, provide consulting or other services to the issuer of the aforementioned securities or instruments or to companies related thereto or to their shareholders, executives or employees, or may have interests or perform transactions in those securities or instruments or related investments before or after the publication of this report, to the extent permitted by the applicable law. BBVA or any of its affiliates salespeople, traders, and other professionals may provide oral or written market commentary or trading strategies to its clients that reflect opinions that are contrary to the opinions expressed herein. Furthermore, BBVA or any of its affiliates proprietary trading and investing businesses may make investment decisions that are inconsistent with the recommendations expressed herein. No part of this document may be (i) copied, photocopied or duplicated by any other form or means (ii) redistributed or (iii) quoted, without the prior written consent of BBVA. No part of this report may be copied, conveyed, distributed or furnished to any person or entity in any country (or persons or entities in the same) in which its distribution is prohibited by law. Failure to comply with these restrictions may breach the laws of the relevant jurisdiction. In the United Kingdom, this document is directed only at persons who (i) have professional experience in matters relating to investments falling within article 19(5) of the financial services and markets act 2 (financial promotion) order 25 (as amended, the financial promotion order ), (ii) are persons falling within article 49(2) (a) to (d) ( high net worth companies, unincorporated associations, etc. ) Of the financial promotion order, or (iii) are persons to whom an invitation or inducement to engage in investment activity (within the meaning of section 21 of the financial services and markets act 2) may otherwise lawfully be communicated (all such persons together being referred to as relevant persons ). This document is directed only at relevant persons and must not be acted on or relied on by persons who are not relevant persons. Any investment or investment activity to which this document relates is available only to relevant persons and will be engaged in only with relevant persons. The remuneration system concerning the analyst/s author/s of this report is based on multiple criteria, including the revenues obtained by BBVA and, indirectly, the results of BBVA Group in the fiscal year, which, in turn, include the results generated by the investment banking business; nevertheless, they do not receive any remuneration based on revenues from any specific transaction in investment banking. BBVA is not a member of the FINRA and is not subject to the rules of disclosure affecting such members. BBVA is subject to the BBVA Group Code of Conduct for Security Market Operations which, among other regulations, includes rules to prevent and avoid conflicts of interests with the ratings given, including information barriers. The BBVA Group Code of Conduct for Security Market Operations is available for reference at the following web site: / Corporate Governance. BBVA, S.A. is a bank supervised by the Bank of Spain and by Spain s Stock Exchange Commission (CNMV), registered with the Bank of Spain with number 182.

3 Global Economy Subpar global economic growth amid elevated uncertainty World GDP YoY % Change Source: BBVA Research, WB, FH, IMF and Haver Advanced Developing Growth moderating & less synchronized Monetary policy normalization at different stages Structural imbalances remain Pressures on emerging markets with greater vulnerabilities Rebalancing of risk appetite impacting all asset classes Elevated policy uncertainty and geopolitical risks 3

4 Global Economy Global economic activity losing momentum Industrial Production and Trade YoY % Change 2 1 Industrial Production Trade World GDP QoQ % Change Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Jun-18 Dec-18 Industrial Output YoY % change CI 2% CI 4% CI 6% Point Estimates Period average Source: BBVA Research, WB, FH, IMF and Haver 4

5 Global Economy FX vs. USD YTD Change: Exchange rate per USD Argentina Turkey Brazil India Chile Sweden Indonesia Australia Colombia Israel China Philippines N Zealand Denmark EMU Peru Canada Taiwan Mexico Malaysia Singapore UK Switzerland Norway Thailand Japan Hong Kong Source: BBVA Research, Haver, Bloomberg, FT, WSJ Global Stock Markets, Jan-18= Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 1Y Government Bond Yields, % Emerging US Developed ex US Sep-18 U.S. Developed Emerging (rhs) Oct-18 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Nov

6 U.S. Financial Markets Financial Stress Indicators > = stress above average Oil & Real Effective Exchange Rate Dpb and Broad Index (CPI based 21=1) Credit Equities Safe assets WTI Last (+/- 2sd) Funding Volatility Risk Nonfin Leverage REER (rhs) Source: BBVA Research, FRBKC, Treasury OFR, R. Shiller, ICE and Haver Financial Stress Index Above = above average stress Corporate Spreads Basis points AAA BBB (rhs)

7 U.S. Business Cycle Budget deal and personal income tax cuts boosting government spending and private consumption Real GDP Growth YoY % CHange Contribution to GDP Growth 218 vs. 217, pp, first 3 quarters 5.% 4.% 3.% 2.% 1.% Cons Inv Net X Gov't GDP State & Local PCE Inventories Federal Eqpt+IP.% Struc+Resid -1.% 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 1Q18 2Q18 3Q18 Net Exports Source: BBVA Research, BEA & Haver 7

8 Business Cycle Worse Activity Index ISM Manufacturing ISM Nonmanufacturing Small Business Optimism Industrial Production Capacity Utilization New Orders Nonfarm Payroll Unemployment Rate Consumer Confidence Personal Income Personal Consumption Retail Sales Auto Sales Housing Starts New Home Sales Existing Home Sales Home Prices Bank Credit Heatmap: 3m change, normalized , 1 th vs. 9 th percentile Source: BBVA Research, CBI & Haver Better Last 3m ago 6m ago 12m ago Leading Indicators YoY % Change Solid economic conditions

9 Business Cycle Will the current expansion become the longest in modern history? Duration of Expansion Cycles Months Real GDP Per Capita Growth Annual rate, %, 1-year average Aug21-May23 Aug24-Oct26 Dec27-Aug29 Apr33-May37 Jul38-Feb45 Nov45-Nov48 Nov49-Jul53 Jun54-Aug57 May58-Apr6 Mar61-Dec69 Dec7-Nov73 Apr75-Jan8 Aug-8-Jul81 Dec82-Jul9 Apr-91-Mar1 Dec1-Dec7 Jun9-Present 9 Source: BBVA Research, BEA, NBER & Haver

10 Economic Outlook Households Liabilities/Disposable Income Ratio Hours Worked and Real Personal Income YoY % Change Hours Income Source: BBVA Research, Federal Reserve, BLS, BEA and Haver Interest Payments/Personal Income % Consumer Delinquency Rate % Credit Card Other

11 Business Sector Nonfinancial Corporate Profits and Tax Rate % of GDP and % of Profits 8 45 Nonfinancial Business Debt % of GDP $9.4t Profits Tax rate (rhs) Nonfarm Cost / Unit of Real Value Added YoY % change, Nonfinancial Corporate Business Sector Source: BBVA Research, Federal Reserve, BEA and Haver 3 Corporate NonCorporate $5.4t Business Confidence Index Manufacturing NFIB (rhs)

12 Labor Markets Labor Force Participation Rate by Age % Not in the Labor Force Thousands Want Job Prime-age (rhs) Source: BBVA Research, BLS & Haver Total (rhs) Unemployment and Job Openings Rate % U6 Openings (rhs) Average Hourly Earnings YoY % Change Goods Servcies

13 Real Estate Housing Starts and New Home Sales Thousand units, annualized Delinquency Rate % Starts Sales Residential CRE Source: BBVA Research, Federal Reserve, Census, BEA and Haver. Housing Affordability and Prices Index and YoY % Change Nonresidential Construction YoY % Change HPI Affordability (rhs)

14 Inflation Distribution of Inflation %, PCE th Median 9th Share of Expenditures with Price: %, PCE Declines Increases CPI Inflation 12M % Change Core Source: BBVA Research, BEA, BLS and Haver Headline Core CPI 12M % Change Core Srvs ex Shelter Core Goods Shelter

15 Monetary Policy Debate within the FOMC to intensify as rates approach neutral FOMC Fed Funds Expectations EOY, %, dots and median Fed Funds Expectations EOY, % Sept Jun FOMC Dovish FOMC Median FOMC Hawkish Consensus Dealers 2.. Source: BBVA Research, Bloomberg, FRB & Haver 15

16 Treasury Yields Upward pressures contained by negative term-premium 1-Year Yield Decomposition % Source: BBVA Research & Haver Risk premium Real rate Inflation exp Yield Distribution of Treasury Holdings Foreign 7 Financial 6 5 Fed 4 Government 3 2 Private

17 Fiscal Policy USD reserve status tolerating fiscal profligacy Federal Outlays % of GDP, CBO Baseline Fiscal Balance and Debt % of GDP, CBO Baseline 6.6 Discretionary Mandatory (rhs) Balance (rhs) Debt Source: BBVA Research, CBO & Haver 17

18 Risks: Asset Prices S&P Price Earnings Ratio Cyclically Adjusted Corporate Spreads Basis points vs. 1MTN B Source: BBVA Research, R. Shiller, BEA and Haver CCC (rhs) Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov BBVA Residential Price Misalignment Index 199= BBVA CRE Prices Misalignment Index 199=

19 Risks: Business Leverage Nonfinancial Corporate ST Liabilities YoY % Change BBVA Debt Distress and C&I Delinquencies Index (1=Average) and % LCDDI Source: BBVA Research, FRB, FDIC and Haver C&I loan delinquency rate (rhs) Leveraged Loans & HY Bond Ratings % of issuance 1% 8% 6% 4% 2% C&I Past Due Loans and Interest Rates % % Past Due Fed Funds (rhs) Leveraged Loans High-Yield Bonds Ba B Caa- Ca

20 Recession Probability, Timing and Severity BBVA TSTPA Recession Probability %, 12m-ahead BBVA Recession Timing Index Above = longer lag to recession Source: BBVA Research, Federal Reserve Board, FRBSL and Haver BBVA TSTPA Risk Factors Percentile Rank Wages Shadow Banking BBVA Credit Cycle Risk Index Above = above average risk Tipping Point Slope Personal Int Expense CAPE

21 Regional: Economic Conditions All states expanding above post-crisis average amid greater convergence GDP Growth 217-Present % State GDP Distribution % change, 5 States plus DC Post Crisis State GDP Volatility Standard deviation real GDP growth Source: BBVA Research and Haver 21

22 Texas: Economic Conditions BBVA State Monthly Activity Index YoY % change Retail Sales YoY % change, nominal Source: BBVA Research & Haver US US Texas Texas Mining Nonfarm Payroll YoY % change US ex TX Unemployment Rate % US Texas Texas

23 Texas: GDP Real GDP 26= Manufacturing, professional services, wholesale trade and mining contributing with 6% to GDP growth 9 8 New York California Florida Illinois Texas U.S Real GDP Contribution PP contribution YoY Manufacturing Professional, scientific, Wholesale trade Mining Retail trade Information Administrative and waste Real estate and rental and Management of companies Utilities Construction Transportation and Health care and social Agriculture, forestry, Other services, except Accommodation and food Educational services Arts, entertainment, and Government Finance and insurance Source: BBVA Research and Haver 23

24 Texas: Employment Nonfarm payroll hits an all-time high of 12.7M Nonfarm Payroll Thousands Nonfarm Payroll Thousands Total ex Selected (rhs) Trade, Health & Prof Srvcs (rhs) Last 12M ago Source: BBVA Research & Haver 24

25 Texas: Risks Weaker Global Demand Lower Higher Stronger USD Higher Interest Rates Automation Source: BBVA Research 25

26 Ft. Worth: Employment Employment at 1.1M sets a new record-high Nonfarm Payroll Thousands Nonfarm Payroll Thousands Total Ex Selected Edu+Health+Trade (rhs) Last 12M ago Source: BBVA Research & Haver

27 Ft. Worth: Labor Markets Solid job creation and low unemployment Employment Index 27=1 Unemployment Rate % 125 Ft. Worth Chicago 12 Los Angeles Miami 115 New York U.S. Dallas Texas Houston Ft. Worth Austin Source: BBVA Research & Haver

28 Ft. Worth: Residential Market House Price Index 27= Home Sales and Months Supply 12mma, FWD 6, 5, 4, US Houston Austin Texas Ft. Worth San Antonio Vacancy Rates: FWD % Household Debt Per Capita: Texas US$ Thousand 4 3 Rental Homeowner (rhs) Mortgage C Card Auto , 1 2 2, 1, Sales Months (rhs) Source: BBVA Research & Haver

29 Ft. Worth: Economic Outlook We expect economic performance to remain above national average Real GDP Index, 29=1 Real GDP Growth %, FWD TX FWD Houston Miami U.S. Average NYC LA Source: BBVA Research & Haver 29

30 Summary Downside risks to global growth Solid U.S. economic performance Recession risk still low but edging up Structural challenges require attention Positive outlook for Texas and Ft. Worth

31 Thank You Thank You Merci Grazie Obrigado Teşekkür Ederim תודה Gracias ありがとう Xiè Xie Tak Спасибо A Dank Join our distribution list and send us your comments: bbvaresearch_usa@bbva.com

32 Economic Outlook Whitley Penn Nathaniel Karp Chief Economist BBVA Compass Ft. Worth, TX December 218