The Economic & Financial Outlook

Transcription

1 The Economic & Financial Outlook James Marple Director & Senior Economist TD Economics May 3, 2018

2 Global Economies Break Pattern Of Serial Disappointment 4.0 World GDP, Year/Year % Change (April) Source: IMF World Economic Outlook, TD Economics

3 Economic Growth Has Exceeded Potential 3.5 Real GDP growth; 2017 Q4/Q4 % change Average growth Range for trend growth Canada U.S. Eurozone Japan Source: National Statistical Agencies via Haver Analytics, TD Economics

4 Broad-Based Improvement Evident Across Metrics 1.4 Unemployment Rate Gap with Natural Rate of Unemployment, Percentage Points Current Gap 4-Quarters Prior Gap Japan UK U.S. Canada Euro Area Source: National Statistical Agencies via Haver Analytics, TD Economics.

5 G7 Inflation Showing Signs Of Trending Higher 3.0 Average Core Inflation*, Year-on-Year % Change. Target Source: Central banks via Haver Analytics, TD Economics. *Average of the central banks' preferred measures of core inflation in the Eurozone, U.S., Japan and Canada.

6 "The Great Unwind": Central Banks Stepping Back From Emergency-Level Policies 80 Basis Point Increase in Policy Rate Federal Reserve Bank of Canada Bank of England European Central Bank Forecast Source: TD Economics

7 U.S. Fiscal Policy Is Adding Fuel to the Fire 2.9 Median Bloomberg Forecast for 2018 Real GDP Growth, % Budget = $300 bn Tax bill signed into law = $1.5 trn President asks for tax bill on his desk by Christmas Jan-17 Mar-17 May-17 Jul-17 Sep-17 Nov-17 Jan-18 Mar-18 Source: Bloomberg, TD Economics

8 Economic Growth Getting Close to the 3% Mark Real GDP growth; fourth-quarter to fourth quarter % change Residual upgrade + Budget spending TCJA Pre-Stimulus forecast Mar-18 forecast F 2019F 2020F Source: Bureau of Economic Analysis, TD Economics

9 Large Deficits Near Full Employment Lacks Precedent Deficit, % of GDP* Federal Surpls/Deficit as % of GDP (left axis) Unemployment Rate (right axis) Unemployment Rate (%), Inverted Fcst *Four-quarter moving average. Source: U.S. Treasury, BLS, TD Economics

10 Population Aging Means Difficult Budget Choices Ahead 20 Contribution to change in U.S. population growth; millions Projection < Source: U.S. Census Bureau, TD Economics

11 Rising Mandatory Spending + Net Interest Costs Leave Little Room For Much Else Federal Revenues/Outlays, % of GDP 1.4 Net interest Mandatory Discretionary Revenues Source: CBO, TD Economics.

12 4 2 Setting Up A Future Fiscal Cliff? Budget Deficit/Surplus, % of Fiscal Year GDP CBO June 17 baseline with TCJA With TCJA + Budget deal CBO/TD Economics Projection Tax cut 1986 Tax reform Source: CBO, Haver Analytics, TD Economics.

13 Meanwhile, Forecast Upgrade = Higher Policy Rates Fed Fund Rate Target, Upper Bound, % March 2018 December 2017 Forecast Source: TD Economics

14 Bonds Pricing in Higher Inflation Risk 2.9 Inflation compensation*; percent Term premium on 10-year bond; percent Inflation compensation (lhs) Term premium (rhs) *Five-year five-year forward inflation rate. Source: Federal Reserve Board, FRB New York, TD Economics.

15 Vulnerability to Global Trade War Global Trade And Growth At Risk Of Rising Protectionism Export Relative Share of Domestic Nominal GDP, % 2.0 South Korea Mexico 0.5 UK Canada 0.0 Australia -0.5 India Japan Euro Area -1.0 China Brazil Relative Share of U.S. Total Trade (Exports + Imports), % Vulnerability to U.S. Focused Trade War Source: National Statistical Agencies via Haver Analytics, TD Economics. Normalized trade shares calculated from 4-qtr moving average of latest available data as of March 12, 2018.

16 Economic Expansion Coming On the Longest on Record Length of economic expansion (in months); horizontal axis shows last month July Mar 2018 Dec 2007 Mar 2001 Jul 1990 Jul 1981 Jan 1980 Nov 1973 Dec 1969 Apr 1960 Aug 1957 Jul 1953 Nov 1948 Feb 1945 May 1937 Aug 1929 Oct 1926 May 1923 Jan 1920 Aug 1918 Jan 1913 Jan 1910 May 1907 Sep 1902 June 1899 Dec 1895 Jan 1893 Jul 1890 Mar 1887 Mar 1882 Oct 1873 Jun 1869 Apr 1865 Oct 1860 Jun 1857 Source: National Bureau of Economic Research

17 Flattening Yield Curve Signals a Maturing Business Cycle 5 Yield Curve Slope, % 10y-2y Excluding-QE 10y-2y Source: Bloomberg, Federal Reserve Board, TD Economics Notes: Grey shaded areas represent NBER defined recessions.

18 Heralding A Return of Financial Volatility Financial Stress Index 8 Lehman Bear Stearns Euro Area Crisis 60% Probability of Recession 35% Probability of Recession 2018 Sell- Off 0 20% Probability of Recession Source: TD Economics

19 Housing Still Has Room To Grow 6 Investment in New Residential Structures as a Share of GDP, % Standard Deviation Average 3-1 Standard Deviation Source: Bureau of Economic Analysis, NBER, TD Economics.

20 8% Lots of Ground For Investment to Make Up Net Domestic Investment as a Share of GDP 6% 4% 2% 0% -2% Source: BEA, Haver Analytics, TD Economics.

21 Likely Still Some Room for Labor Market to Run Nationally Core labor force participation rate; percent of population (25 to 54 year olds) Fcst Employment rate Labor force participation rate Source: Bureau of Labor Statistics. Forecast by TD Economics

22 Less So In New England Unemployment rate; % United States New Hampshire Massachusetts Sources: Bureau of Labor Statistics, TD Economics

23 Demographics Will Remain A Growth Headwind 9 Share of total population 2016; percent 8 7 United States New Hampshire Source: U.S. Census Bureau

24 Attracting Migrants Will Be the Key to Success Contribution to change in New Hampshire population growth; thousands Natural increase Net migration Projection Source: U.S. Census Bureau, Moody's Analytics, TD Economics

25 This report is provided by TD Economics for customers of TD Bank Group. It is for information purposes only and may not be appropriate for other purposes. The report does not provide material information about the business and affairs of TD Bank Group and the members of TD Economics are not spokespersons for TD Bank Group with respect to its business and affairs. The information contained in this report has been drawn from sources believed to be reliable, but is not guaranteed to be accurate or complete. The report contains economic analysis and views, including about future economic and financial markets performance. These are based on certain assumptions and other factors, and are subject to inherent risks and uncertainties. The actual outcome may be materially different. The Toronto-Dominion Bank and its affiliates and related entities that comprise TD Bank Group are not liable for any errors or omissions in the information, analysis or views contained in this report, or for any loss or damage suffered.