2019 State of the U.S. Economy and Outlook

Transcription

1 2019 State of the U.S. Economy and Outlook Dr. Robert Dye VP and Chief Economist, Comerica Bank Dr. Pia Orrenius VP and Senior Economist, Federal Reserve Bank of Dallas

2 The Comerica Economic Outlook Two Stories, One Economy Robert A. Dye Ph.D. January 18, 2018

3 A Tale with Two Stories Story #1 Story #2 Most current economic indicators look good Risk factors for 2019 and beyond are piling up Appendix: Household are a source of stability 2

4 Story #1 Most current economic indicators look good Labor Production Income Spending Profits Inflation 3

5 Story #2 Downside risk factors are piling up Financial markets stocks, bonds and the yield curve Housing sales, construction, mortgage rates and affordability Rest of World Europe and China looking cooler Corporate profits potential for a squeeze Corporate debt market quality is deteriorating Length of expansion Uncertainty including political issues Trade Fiscal Cliff Oil 4

6 Corporate Profits and Wages Nonfinancial Corp Profits and Average Hourly Earnings Nonfinancial Corp Profits, pchya Average Hourly Earnings, pchya '90 '95 '00 '05 '10 ' Source: BEA, BLS 5

7 Back to Story #1, It s All About Productivity 8 Output per worker per hour, Nonfarm businesses, pchya '60 '66 '72 '78 '84 '90 '96 '02 '08 '14 Source: BLS 6

8 The Growing Labor Constraint 16,000 14,000 Job Openings Now Outnumber Available Workers Unemployed workers, ths 12,000 10,000 8,000 6,000 4,000 2,000 0 Job Openings, ths '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: BLS 7

9 Business Investment Was Weak in 2018Q3 20 Real Business Fixed Investmeent, annpct Total Structures Equipment Int Prop '15 '16 '17 '18 Source: BEA 8

10 Business Confidence and Commercial/Industrial Loans NFIB Bus. Confidence Index, C&I Loans pchya C&I Loans, pchya (R) NFIB Index (L) '00 '02 '04 '06 '08 '10 '12 '14 '16 ' Source: Federal Reserve, NFIB 9

11 GDP Forecast: Moderation Ahead U.S. Real GDP Growth, Annualized Percent Change History Forecast Sources: BEA, Comerica Bank 10

12 Job Growth Expected to Ease +312k in December, U. Rate 3.9 Percent Payroll Employment, avg monthly diff, ths (L) Forecast Unemployment Rate, percent (R) '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 3 Sources: BLS, Comerica Bank 11

13 The U.S. Unemployment Rate, What We Don t See 11 U3 Unemployment Rate, percent '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Source: BLS 12

14 Interest Rate Outlook, Near Inversion 7 Yield, percent Year FRM Year Treasury Bond Year Treasury Bond Fed Funds '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Sources: Federal Reserve, Comerica Bank 13

15 Forecast Risks, the 360 View The 360 Vi Downside Risks Stock market correction Trade Wars Political meltdown Consumers lose confidence Higher interest rates Housing stalls Higher inflation Global issues, N. Korea, China, Japan, Europe/Brexit, Russia, MENA, Emerging markets Upside Risks Fiscal policy Corporate profits Business investment Consumer/business confidence Wealth effects Deregulation, including financial Trade Job growth stays strong Second leg for autos 14

16 Robert A. Dye, Chief Economist Subscribe Follow on The opinions in this presentation are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.

17 Regional Economy Strong, but Outlook Points to Slower Growth in 2019 Pia M. Orrenius, Vice President Federal Reserve Bank of Dallas 1/18/2019 The views expressed are my own and do not necessarily reflect the views of the Federal Reserve Bank of Dallas or Federal Reserve System.

18 Federal Reserve District map 2

19 10 years after Great Recession, long run regional growth trends reemerge Index, each district's peak employment = Peak=t t+12 t+24 t+36 t+48 t+60 t+72 t+84 t+96 t+108 t+120 t+132 t+144 NOTE: Data through November SOURCES: Bureau of Labor Statistics; FRB Dallas. Dallas San Francisco Atlanta New York Minneapolis Richmond Kansas City Boston Philadelphia Chicago St. Louis Cleveland 3

20 Percent change, year/year, SA Texas job growth usually above nation s U.S. Texas NOTES: Shaded bar represents YTD 2018 annualized growth for Texas (Nov. 2018/Dec. 2017). Long-run trend growth is 1.1 percent for the U.S. and 2.0 percent for Texas. SOURCES: Bureau of Labor Statistics, Texas Workforce Commission; FRB Dallas

21 Texas economy accelerated in was second year of recovery from the oil bust Oil bust job growth: 1.2 percent 2017: 2.1 percent 2018: 2.4 percent 2018 drivers included strong US economy (tax cut), initially upward revisions in global growth, high oil prices But headwinds apparent early on and began to pick up in the second half By September, indications of slowing underway This year Texas job growth likely to weaken to between 1 and 2 percent 5

22 Texas third among states in 2018 job growth (BLS data) Percent change, Nov. 2018/Dec. 2017, SAAR Texas U.S. AZ NV TX WY WA UT NH FL CO NM GA OH TN NC VA OR DE ND SD MD AL MA U.S. OK NJ CA IDHI Energy states denoted in black SC WI KS AR NY MN NE MO MI LA PA CT MT RI MS IL IN KY ME WV IA DC VT AK SOURCES: Bureau of Labor Statistics; FRB Dallas. 6

23 Large net in-migration allows Texas to grow faster Net migration (thousands) International migration Domestic migration '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 NOTE: Data are for July of the previous year to July of the year indicated. SOURCE: U.S. Census Bureau Population Estimates. 7

24 Texas and U.S. unemployment rates at record lows Percent, SA U.S. Texas NOTE: U.S. data through Dec and Texas data through Nov SOURCE: Bureau of Labor Statistics. 8

25 Goods-producing, professional & business services sectors led the charge in 2018 Percent job growth YTD, SAAR Total (100) Trade, Transp. & Util. (20.0) Gov't (15.4) Prof. & Bus. Serv. (13.9) Educ. & Health Serv. (13.6) Leisure & Hosp. (10.8) Mfg. (7.1) U.S Financial (6.2) Texas Constr. (6.0) Info. & Other Svcs (5.0) Oil & Gas Extract., Mining Sup. (1.9) NOTES: U.S. data refer to Dec / Dec and Texas data refer to Nov / Dec Numbers in parentheses are share of Texas employment for most recent month. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas. 9

26 In 2018, Dallas and SA slowed, while Houston rebounded Percent job growth, SAAR Nov 2018/Dec Texas Houston (24.8%) Dallas (21.0%) Ft. Worth (8.4%) San Antonio (8.4%) Austin (8.5%) NOTE: Numbers in parentheses refer to the share of Texas employment in the most recent month. SOURCES: Bureau of Labor Statistics; Texas Workforce Commission; seasonal and other adjustments by Dallas Fed. Other Parts of Texas (28.9%) 10

27 Texas exports outperform nation, surge after 2016 Index, Jan. 2000=100, SA 330 Texas U.S. ex. Texas NOTES: Data through October Underlying data in real dollars. SOURCES: U.S. Census Bureau; WISERTrade. 11

28 U.S. crude exports surge after lifting of export ban Million barrels per day Crude oil exports NOTE: Data through December SOURCE: Energy Information Administration. 12

29 Texas exports broad-based and top trading partners are Mexico, Canada Transportation Equipment, 8% Primary & Fabricated Metals, 4% Other, 6% Agriculture & Food, 3% Mining, Oil & Gas Extraction, 20% Canada, 9% Other, 4% China, 5% Mexico, 34% Machinery & Elec. Appliances, 11% Petroleum & Coal Products, 18% European Union, 13% Computers & Electronics, 15% Chemicals, 15% NOTES: Data for Q Underlying data are seasonally adjusted. SOURCES: U.S. Census Bureau; Bureau of Labor Statistics, WISERTrade. Latin America ex. Mexico, 13% Asia ex. China, 22% 13

30 Dallas Fed business outlook surveys suggest slowing ahead Index, 3MMA, SA Revenue (TSSOS) Production (TMOS) Mean TMOS since 2007: 7.5 Mean TSSOS since 2007: NOTE: Data through December SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys (TBOS). 14

31 Index, SA Company outlook turned negative in December TMOS company outlook TSSOS company outlook NOTES: Data through Dec Dashed lines are post-recession averages. SOURCES: Federal Reserve Bank of Texas Business Outlook Surveys (TBOS).

32 Strong growth but with some tapering, headwinds Growth is above trend year to date (2.4 percent) But supply side constraints emerged Labor market tightness Energy infrastructure bottlenecks in Permian, ports And then there s the policy headwinds Tariffs and retaliatory tariffs Uncertain trade policy Higher cost of credit, stronger dollar Plus signs of slowing demand growth in ROW Lower oil prices; financial market volatility 16

33 Texas firms say it s hard to hire; cite lack of applicants Percent of respondents 75 Feb 2017 Nov 2017 Feb 2018 May 2018 Aug 2018 Nov Having problems hiring qualified workers Increasing wages and/or benefits to recruit and retain employees 70.6 *Difficulty finding qualified workers due to lack of available applicants/ no applicants *Percent of respondents is taken as a percent of those who answered "Yes" to the question: "Are you having problems finding qualified workers when hiring? NOTE: Starting in Nov. 2018, "increasing wages" appears as a separate answer choice from "increasing benefits and the combined value is calculated based on responses to increasing wages and increasing benefits. SOURCE: FRB Dallas Texas Business Outlook Surveys. 17

34 Some slowing in energy due to lack of pipeline capacity Index, Jan = 100 Mb/d Texas energy employment Texas oil production Texas Rig Count NOTES: Texas rig count data through Dec Texas energy employment through Nov Texas oil production through Oct Employment data seasonally adjusted. SOURCES: Baker Hughes; EIA; BLS; Texas Workforce Commission; seasonal and other adjustments by FRB Dallas. 0 18

35 Midland WTI spot price diverges from Cushing when pipeline constraints increase $/bb WTI Cushing WTI Midland $50.97 $ NOTE: Data are through January 11, SOURCE: Bloomberg. 19

36 $/bb Oil price decline suggests upcoming decline in rig count Oil price 532 $50.78 $ NOTE: Data are weekly; last data point is the week of Jan. 11, SOURCES: Oil and Gas Journal; Baker Hughes. Rig Count Natural Gas Price (x10) Number of rigs 1,

37 Texas firms report they are far more likely to be harmed than helped by tariffs Current (2018) Longer term ( ) 5% 15% 6% Positive 32% 35% Negative No impact 37% 45% Don t know 26% NOTES: Data collected September and 364 business executives responded to the surveys. SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys. 21

38 Percent Interest rates on the rise How does the cost of credit compare to what it was 6 months ago? Increased cost of credit 48% Oct-2014 Oct-2015 Oct-2016 Oct-2017 Oct-2018 NOTES: Chart omits respondents who reported not applicable haven t sought credit (approximately 40% in October 2018). Latest responses were collected Oct , and 388 Texas business executives responded to the surveys. SOURCE: Federal Reserve Bank of Dallas Texas Business Outlook Surveys. 27% No change Decreased cost of credit 22

39 Home price appreciation slowing slightly in North Texas Percent, year/year, SA DFW U.S NOTE: Data through Oct SOURCE: Standard & Poor's CoreLogic Case-Shiller Home Price Index. 23

40 Texas home sales at high levels but trending down Total existing home sales, Index, Jan = 100, SA 200 Texas U.S NOTE: Last data point is November SOURCES: Real Estate Center at Texas A&M; Multiple Listing Service; adjustments by Federal Reserve Bank of Dallas. 24

41 Residential construction activity slowing in recent months Index, Jan. 2008=100, 5MMA, SA 150 Single family permits Residential housing starts Multifamily permits NOTE: Data through October SOURCES: U.S. Census Bureau; Bank of Tokyo-Mitsubishi UFJ. 25

42 Regional economy outlook Strong broad-based growth may be slowing slightly 2019 employment forecast is 1.4 percent Upside risks Lagged effects of tax cuts Downside risks Continued supply side constraints Additional tariffs; USMCA passage? Global slowing Declining oil prices Political risk, uncertainty 26

43 Thank you! 27