U.S. Macro Economic Outlook

Transcription

1 U.S. Macro Economic Outlook BRYON J PARMAN DEPARTMENT OF AG. BUSINESS AND APPLIED ECONOMICS NDSU EXTENSION - Current US Economic Situation GDP/GNP Unemployment Spending - Macro Trade Trade Balance Industries Affected - Interest Rates Income Interest Macro Discussion Points BLS Unemployment Rate Unemployment Unemployment Rate Unemployment in the U.S Employment Structure Real average hourly earnings(1) Real average weekly earnings(1) Average weekly hours Percentage Increase

2 Stock Market GDP vs. GNP Dow Jones Monthly Average Close Since 2016 Average Monthly rate Of gain 1.27% Gross Domestic Product (GDP) Goods produced within the boarders of the U.S. and her territories. This includes goods made by companies owned by foreign entities Toyota Cars/Trucks Yokahoma Tires Gross National Product (GNP) Production & Output from companies owned by U.S. Citizens anywhere in the World Does not mater the location Ford Trucks/ Cars in Mexico Consulting services abroad 5 Year GDP Growth GDP vs. GNP

3 GDP vs GNP GDP vs GNP 10 yr Growth Inflation US Quarterly Inflation Rate Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q3 Fed Target Deflation Trade

4 U.S. Real Imports and Exports Rank Country Exports Imports Total Trade Percent of Total Trade --- Total, All Countries 1, , , % --- Total, Top 15 Countries 1, , , % 1 China % 2 Canada % 3 Mexico % 4 Japan % 5 Germany % 2017 Top Trading Partners Top 15 Countries Data From U.S. Census Bureau 6 Korea, South % 7 United Kingdom % Balance of Trade 2014 [5] China Euro Area Japan Mexico Pacific Canada Middle East Lat. America Total by Product Computer Oil, Gas, Minerals Transportation Apparel Electrical Equipment Misc. Manufacturing Furniture Machinery Primary Metals Fabricated Metals Plastics Textile Nonmetallic Minerals Chemical Food Agriculture Petroleum : U.S. trade in goods with China NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade. Month Exports Imports Balance January , , ,382.0 February , , ,068.5 March , , ,467.8 April , , ,660.0 May , , ,920.9 June , , ,571.7 July , , ,610.1 August , , ,989.4 September , , ,518.0 October , , ,204.2 November , , ,362.8 December , , ,820.9 TOTAL , , ,576.4 Data from the US Census Bureau

5 2018 : U.S. trade in goods with China NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade. Month Exports Imports Balance January , , ,952.8 February , , ,261.5 March , , ,874.6 April , , ,962.0 May , , ,186.6 June , , ,483.8 July , , ,834.3 August , , ,569.6 TOTAL , , ,125.2 What sectors account for the largest share of U.S. and Chinese Trade? Farm Crops account for Largest share of U.S. Exports To China GDP vs GNP for China Ag. Percentage of GDP Gross Output of Ag. To Total GDP As of July 2018 Ag, forestry, fishing, and hunting = billion US Real Gross Output = 30,270.2 Billion Ratio 1.21%

6 Biggest Changes Auto Industry The USMCA NAFTA % of components must be made in the area vs 62.% in under the old system. Higher Minimum wage for auto workers in Mexico 40% of a car must be made at a plant paying $16/hour 3.5% of Canadian diary market will open up to U.S. Interest Rates Comments From the Federal Reserve A summary of the Sept Federal Open Market Committee session reflected both confidence in the rate of economic growth and some hesitancy over the impact that tariffs might have on the future path Ultimately, the committee unanimously voted to approve a quarter-point hike to its benchmark rate target, with members indicating that more increases are on the way. The increase took the Fed's overnight target to a range of 2 percent to 2.25 percent NOTE: Steel and Aluminum are not included in the USMCA Monthly Average Prime Rates 1960 August, Year US T-Bill Yields October 2017 October 2018

7 10 Year T-Bill Rate vs 30 Year Mortgage Rates Correlation between 10 yr T bill and 30 yr Mortgage, 0.99 (1 is a perfect relationship) Average Difference is 170 Basis points Why Raise Rates? Primarily interest rates are used as a tool to promote growth, or limit inflation Lower Rates encourage borrowing and growth often used to help mitigate recession Higher rates limit inflation and encourage saving In the long run, rates must increase to ensure the FED has tools in the future should another recession arise Currently unemployment is 3.9% Full employment at 5% Current Inflation rate 2.7% Target rate at 2% What does the Fed Think? 3.25% by the end of Yr T- Bill averages 105 basis points higher than Federal Funds Rate Mean: 105 Min: -414 basis points Max: 371 basis points CV: Difference Mean: 168 basis Min: -89 points Max: 371 points CV: 0.73

8 Interest Rates Impact on Agriculture Interest recently has had a reduced impact on operating expenses Percentage of Operating Expenses7 Interest as a Percentage of Operating Expenses Year What is the Long Run Target? Comments from the FED suggest the long range target rate = 3 % 3% viewed as the neutral rate What does a 3% Federal Funds Rate mean? 4.68% 10 Year T-Bill yield (approximately) 6.375% 30 Year Mortgage rate (approximately)

9 Thank You Bryon J. Parman, Ph.D Agricultural Financial Specialist North Dakota State University Extension