Economics in Use GBA BANKING SCHOOL MAY 2 ND, 2016 UNIVERSITY OF GEORGIA ATHENS, GEORGIA

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1 Economics in Use GBA BANKING SCHOOL MAY 2 ND, 2016 UNIVERSITY OF GEORGIA ATHENS, GEORGIA

2 Professor Evans Rules of Business 1) Buy low, sell high 2) Everything happens where the lines meet on the graph; outside of this point, someone is making money and someone is losing money 3) The truth is negotiable and subject to change due to fluctuations in market conditions

3 Economic Principles

4 Real World Economics

5 Review of Economic Models CAPITALISM: You have two cows; you sell one and buy a bull. You breed a herd, sell it, and retire on the income SOCIALISM: You have two cows; you give one to your neighbor COMMUNISM: You have two cows; the state takes both and gives you milk FASCISM: You have two cows; the state takes both and sells you some milk

6 Elements within Capitalism CORPORATION: You have two cows; you sell one and make the other produce the milk of four cows. You then hire a consultant to analyze why that cow dropped dead. GOVERNMENT: You have two cows; the state takes both, shoots one, milks the other, and then throws the milk away

7 Economic Schools of Thought Classical Theory Keynesian (Positive) Adam Smith s Invisible Hand John Maynard Keynes Leave the market to its own devices and it will naturally find a point of equilibrium that will bring stability and prosperity; NO GOVERNMENT INTERVENTION! Friedrich Hayek (Austrian) Aggregate demand is a key driver in the economy, and in downturns (like Great Depression) AD drops, leading to unnecessary unemployment. Gov can manipulate AD to smooth out cycles

8 Recent Economic Thought Neoclassical Synthesis Two Parts to Keynesian Method Blends Classical and Keynesian: Government can intervene BUT only to a point where the markets will self-regulate Stimulate in downturn AND Pay back in recovery Current system seems to have forgotten the back half of the equation! Did Bernanke s movements stimulate Aggregate Demand?

the aggregate demand curve when it changes monetary policy.

9 Aggregate Demand The total demand for goods and services within an economy at a certain point. This can be influenced by government either through monetary policy and/or fiscal policy Monetary Policy: The Fed can shift the aggregate demand curve when it changes monetary policy. An increase in the money supply shifts the money supply curve to the right. Without a change in the money demand curve, the interest rate falls. Falling interest rates increase the quantity of goods and services demanded.

10 Aggregate Demand Fiscal Policy Tools: Government Spending Taxation Remember austerity measures, expiration of tax cuts, etc? All of this affects economic performance

11 GDP: Gross Domestic Product

12 Recent GDP Composition

13 Net Exports: Impact of Strong Dollar Imports: Less Expensive for Us Exports: More Expensive for Them

14 Consumption: Medical Expenditures Just the Beginning of ACA Effects

15 Consumption: Changes in Preferences 55,000 50,000 45,000 40,000 Grocery Food Service 35,000 30,000 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul first year ever where more was spent on restaurants than groceries!

16 Unemployment Rate U-3 Unemployment Rate: unemployed/labor force Official US unemployment rate; the percentage of labor force that is currently unemployed but was available for job in last four weeks and was actively seeking employment in that period. U-5 Unemployment Rate: Adds discouraged and marginally attached workers U-6 Unemployment Rate: Adds workers who are part-time for purely economic reasons

17 Unemployment Rate

18 Unemployment Rate: Tale of Two Cities Birmingham, AL U/E Rate 1/2011: 10.0% Labor Force 1/2011: 538,000 Employed 1/2011: 484,000 Tampa, FL U/E Rate 1/2011: 11.6% Labor Force 1/2011: 1.3mm Employed 1/2011: 1.15mm U/E Rate 1/2016: 5.8% Labor Force 1/2016: 527,400 Employed 1/2016: 496,900 U/E Rate 1/2016: 4.8% Labor Force 1/2016: 1,451,400 Employed 1/2016: 1,381,200 NET LABOR FORCE: -11,000 NET EMPLOYED: +12,900 NET LABOR FORCE: +151,400 NET EMPLOYED: +231,200

19 Economics in Use Practical Applications

20 Major Categories to Consider Build Your Own Model! Employment Housing Industrial/Manufacturing Service Industries Sentiment Indices Currency/Commodity/Credit

21 Employment Metrics BLS Employment Data ADP Payroll Data

22 BLS vs. ADP Employment Growth

23 Housing Metrics Freddie Mac 30 Year Mortgage Rate Housing Starts and Permits New and Existing Home Sales Case-Shiller 20 City Growth Rate

24 FRMC 30 Year Mortgage Rate

25 Housing Starts and Permits

26 New and Existing Home Sales (Annualized)

27 Case-Shiller 20 City Growth Rate

28 Industrial and Manufacturing Metrics Industrial Production ISM Manufacturing Index Markit PMI

29 Industrial Production

30 ISM Manufacturing Index

31 Markit PMI

32 Service Metrics ISM Non-Manufacturing Markit Service PMI

33 ISM Non-Manufacturing Index

34 Markit Service PMI

35 Sentiment Indices Reuters/Michigan Consumer Confidence Index NFIB Small Business Optimism Index

36 NFIB Small Business Optimism

37 Reuters/U Michigan CC Index

38 Miscellaneous Metrics Dollar Spot Rate West Texas Intermediate Price Consumer Credit

39 Dollar Spot Rate: DXY

40 West Texas Intermediate: WTI

41 Consumer Credit

42 Other Data Sources Employment Change United States Conference of Mayors GMP Change United States Conference of Mayors Median Home Price National Association of Realtors Single Family Permits YTD US Census Bureau Multifamily Permits YTD US Census Bureau Home Ownership Rate US Census Bureau Homeownership Rates for Top 75 MSA FHFA MSA House Price Index FHFA House Price Index Leisure/Hospitality Employment Bureau of Labor Statistics Incoming Air Passengers Bureau of Transportation Statistics Accomodations/Food Service Mgr Wage BLS Occupational Employment Statistics US Personal Income ($mm) 1Q13/1Q14 Bureau of Economic Analysis US Corporate Profits ($B) 1Q13/1Q14 St Louis Federal Reserve Bank MSA Gas Price per Gallon US Department of Energy Revolving Credit Federal Reserve MSA Average Weekly Earnings BLS Fixed Investment Non-Res Structures BEA ISM Non Manufacturing Index Institute of Supply Management Non-Manufacturing Report on Business PMI Services Index Markit Area (SF) Supply and Delivery Figures CBRE Econometric Advisors Average Hard Cost per Square Foot CBRE Econometric Advisors Total Intermodal + Carloads Shipped US Rail Association of American Railroads Railtime Indicators ISM Purchase Manager Index Index (US) Institute of Supply Management Report on Business Markit US PMI Markit Economics

43 Econoday!

44 Trading Economics

45 My Economic Barometer Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 GDP 0.6% 3.9% 2.0% 1.4% % Economy E-Commerce Retail Sales 3.5% 4.4% 3.8% 2.1% Retail DXY Dollar Index Spot Ex Rate End of Month Index Economy West Texas Intermediate $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $/Barrel Economy US Ten Year Yield 1.68% 2.00% 1.93% 2.12% 2.19% 2.42% 2.20% 2.20% 2.06% 2.15% 2.22% 2.27% 1.93% 1.74% 1.72% End of Month Yield % Economy ADP Employment Growth 250, , , , , , , , , , , , , , ,000 Jobs Employment BLS Employment Growth 201, ,000 85, , , , , , , , , , , , ,000 Jobs Employment US Unemployment Rate 5.7% 5.5% 5.5% 5.4% 5.5% 5.3% 5.3% 5.1% 5.1% 5.0% 5.0% 5.0% 4.9% 4.9% 5.0% % Employment S&P/Case Shiller 20 City 4.50% 5.00% 5.00% 4.90% 5.00% 4.90% 4.90% 5.10% 5.50% 5.50% 5.80% 5.60% 5.70% YOY % Housing New Home Sales 500, , , , , , , , , , , , ,000 Homes Housing NAHB Housing Mkt Index Diffusion >50 is positive Housing Housing Permits Homes mm Housing Housing Starts Homes mm Housing Existing Home Sales Annualized mm Housing 30 Year Mortgage Rate FRMC 3.67% 3.71% 3.77% 3.68% 3.87% 4.02% 3.98% 3.91% 3.89% 3.76% 3.95% 4.01% 3.79% 3.62% 3.71% % Housing FHFA Home Price Index Purch 0.3% 0.6% 0.3% 0.3% 0.4% 0.20% 0.50% 0.30% 0.70% 0.50% 0.60% 0.40% % Housing Markit PMI Diffusion >50 is positive Man/Ind ISM Manufacturing Index Diffusion >50 is positive Man/Ind Industrial Production -0.40% 0.00% 0.00% -0.50% -0.20% 0.10% 0.60% -0.10% -0.20% -0.40% -0.90% -0.70% 0.80% -0.50% % Man/Ind Manufacturing -0.30% -0.20% 0.30% 0.10% -0.20% -0.30% 0.80% -0.40% -0.10% 0.30% -0.10% -0.20% 0.50% 0.20% % Man/Ind PMI Services Index (Markit) Diffusion >50 is positive Office ISM Non-Manufacturing Ind Diffusion >50 is positive Office Auto Sales Annualized Retail Retail Sales -0.6% -0.5% 0.9% 0.2% 1.2% 0.0% 0.6% 0.0% 0.1% 0.1% 0.4% 0.2% -0.4% -0.1% % Retail RS Less Autos and Gas -0.1% -0.3% 0.5% 0.2% 0.7% 0.2% 0.4% 0.2% 0.0% 0.1% 0.5% 0.1% 0.1% 0.3% % Retail Consumer Credit $ 10.8 $ 14.8 $ 21.3 $ 20.5 $ 16.1 $ 27.0 $ 18.9 $ 16.0 $ 28.9 $ 15.6 $ 14.0 $ 6.4 $ 10.5 MTM, B, Revolv & NR Retail Reuters/Mich Consumer Sent General Index Retail NFIB Small Biz Optimism Ind General Index Small Business

Rising Risks for the Housing Outlook

Rising Risks for the Housing Outlook Master Builders Association of Pierce County October 17, 2018 Robert Dietz, Ph.D. NAHB Chief Economist Population Growth Pierce County population growing faster than