2018 U.S. and Rochester Area Economic Outlook. Gary Keith Vice President, Regional Economist Commercial Banking Division January 26, 2018

Transcription

1 2018 U.S. and Rochester Area Economic Outlook Gary Keith Vice President, Regional Economist Commercial Banking Division January 26, 2018

2 Solid Economic Momentum Heading Into Number of Non-farm Job Openings Millions Hiring Demand Remains Robust Strong hiring plans set the stage for faster income and spending growth in the coming year U.S. Leading Indicators Point to Further Expansion The Index suggests that solid economic growth will continue into the first half of R E C E S S I O N The Conference Board U.S. Leading Economic Index R E C E S S I O N Index: 2016= M&T Bank, Member FDIC Sources: U.S. Bureau of Labor Statistics, The Conference Board M&TBank 2

3 Sentiment Has Moved Sharply Higher Over Past Year National Federation of Independent Business U.S. Small Business Optimism Index Index: 1986= average since January Small Business Optimism Is At An All-Time High We haven t seen this kind of optimism in 34 years, and we ve seen it only once in the 44 years that NFIB has been conducting this research 90 J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D The Conference Board U.S. Consumer Confidence Index Upbeat Consumer Outlook Bodes Well For Spending After hitting a 17-year high in November, expectations remain at historically strong levels, suggesting growth will continue well into Index: 1985= average since January J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D M&T Bank, Member FDIC M&TBank 3

4 Constant 2016 Dollars U.S. Real Median Household Income $62,000 $60,000 $58,000 $56,000 $54,000 R E C E S S I O N Household Income Has (Finally) Crossed an Important Threshold Adjusted for inflation, household income is up 10.7% since 2012 and is now 0.6% above the 1999 peak $57,214 average from $58,149 R E C E S S I O N $59,039 $53,331 $52, M&T Bank, Member FDIC Source: U.S. Census Bureau, Income & Poverty in the United States: 2016, September 2017 M&TBank 4

5 10% 9% U.S. Real Gross Domestic Product Growth 8% 7% 5% 2018 Growth Should Improve With Plenty of Wildcards! The economy is expected to grow at a solid pace in 2018, with continued support from 6% consumer spending, improving global trade and bump from federal tax cuts 4% 3% 2% 3.3% 2.7% 1.8% 2.5% 1.6% 2.2% 2.4% 1.5% 2.4% 2.4% 1.6% 2.7% 2.3% 1% 0% -1% -2% -0.3% 3.0% annual average from FORECAST -3% -4% -2.8% M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, Consensus Forecast M&TBank 5

6 How s the Rochester Area Performing?

7 Billions of Constant 2017 Dollars Rochester Metro Area Real Gross Domestic Product Still Climbing Out of a Deep Hole $67 $66 $66.3 Recession Although Rochester area real GDP reached a post-recession high in 2017, it rose by just 0.2% from 2016 levels well below the 1.6% U.S. average gain $65 $65.6 $64 $63 $64.3 Net Change in Output Since $1.3 Billion E S T I M A T E D $ M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, Moody s Analytics, M&T Bank estimates M&TBank 7

8 Seasonally Adjusted Rochester Area Private Sector Employment Excluding Chemical Manufacturing 435, , , ,000 Job Creation Also Moved Sideways Last Year Core private sector employment (i.e., excluding chemical manufacturing) remained relatively flat in 2017 after seven consecutive years of growth 426, , , , ,000 Recession Rochester Metro Area 395, , M&TBank M&T Bank, Member FDIC Source: U.S. Bureau of Labor Statistics Seasonal adjustment by M&T Bank 8

9 Seasonally Adjusted Rochester Area and U.S. Unemployment Rate But Isn t Labor Stress Continuing to Ease? While down three points since 2012, the Rochester area jobless rate edged up slightly during the past year 10% 9% July % 8% 7% 6% 5% 4% 3% Rochester data seasonally adjusted by M&T Rochester Metro Area M&T Bank, Member FDIC Sources: U.S. Bureau of Labor Statistics, New York State Department of Labor Nov % 5.3% 4.1% United States M&TBank 9

10 So Not Much Good News to Get Excited About?

11 Seasonally Adjusted Relative Change Since January 2015 Rochester Area Tech Knowledge Job Growth* 7% 6% 5% 4% 3% 2% 1% 0% Growth in Knowledge-Intensive Employment Continues to Track the U.S. Rochester area tech knowledge job creation has been 93% of the U.S. average since the start of 2015 * Professional, scientific & technical, computer & electronic manufacturing, information, hospital and ambulatory care services, private education services Rochester Metro Area 8,200 Net Increase in Jobs United States +6.5% +6.1% -1% J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J M&T Bank, Member FDIC Source: U.S. Bureau of Labor Statistics Seasonal adjustment by M&T Bank M&TBank 11

12 Inflation-Adjusted Year-Over-Year Percentage Change* Growth in Real Rochester Area Private Sector Payroll Income Ex. Chemical Manufacturing 7% 6% Payroll Income Growth Has Accelerated Excluding the sector that includes Kodak, aggregate payroll income is now growing at a faster pace than the U.S. overall 5% 4% 3% 2% 1% 0% -1% Rochester Metro Area * Annual change in in aggregate four quarter running total payroll wages Q income in Rochester adjusted for one-time bonus-related spike Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q M&T Bank, Member FDIC Sources: U.S. Bureau of Labor Statistics, Bureau of Economic Analysis, NYS Department of Labor +4.2% +3.5% United States M&TBank 12

13 Rochester Area Median Household Income $56,000 $54,000 Household Spending Power Climbs For the Third Consecutive Year Median household income has increased by an estimated 10% since 2014 matching the U.S. average and boosting consumer spending and housing demand $56,300 $52,000 Recession $50,000 $51,086 $48,000 Rochester Metro Area $46, est M&T Bank, Member FDIC Sources: U.S. Census Bureau, Bureau of Economic Analysis, M&T Bank estimate for 2017 M&TBank 13

14 Inflation-Adjusted Relative Change Since Q Rochester Area Real Sales Tax Collections* 5% 4% 3% Consumer Spending Picked Up Steam In the Second Half of 2017 NYS sales tax collections a good proxy for consumer spending trends turned sharply higher last year, suggesting that Rochester area economic growth may be stronger than reported +5.2% 2% 1% Inflation-Adjusted Sales Tax Collections * Four-quarter running total 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, Bureau of Labor Statistics, NYS Dept of Taxation & Finance M&TBank 14

15 Inflation-Adjusted Year-Over-Year Percentage Change Rochester Area Real GDP Growth Forecast Two-Track Recovery Should Continue in 2018 Drag from contracting manufacturing output should diminish, lessening downward pressure on growth in other sectors Rochester U.S. Metro Area Average Manufacturing Non-Manufacturing 10% 8.9% Forecast 4% 3.9% Forecast 5% 0% 3.3% 3% 2% 1% 2.0% 2.7% 1.1% 2.5% 1.2% 0.9% 1.7% -5% -3.8% -3.4% -1.4% -3.0% 0% -1% -0.3% -0.1% -10% -15% -6.9% -9.9% -9.2% -12.0% -12.1% % -3% -4% -1.2% -2.1% M&T Bank, Member FDIC Sources: U.S. Bureau of Economic Analysis, M&T Bank forecast M&TBank 15

16 Impact on Housing Demand 16

17 Rochester Regional Housing Market* Closed & Pending Sales of Existing Homes Rising Income & Pent Up Demand Keep Sales Elevated While existing home sales dipped slightly in 2017, they remain high by historic standards, propelled by improving household incomes, rising consumer confidence and affordable mortgage rates Total Closed Sales Pending Sales (At Year End) 15,247 14,802 15,221 15,010 14,372 13,977 12,951 13,133 12,772 13, * Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties M&T Bank, Member FDIC Source: Greater Rochester Realtors Association M&TBank 17

18 Rochester Regional Housing Market* Inventory of Existing Homes For Sale Even as Available Supply Continues to Tighten Inventory constraints are a major challenge, intensifying competition for prime properties and putting upward pressure on pricing Inventory of Homes For Sale 5,446 5,009 4, Months Supply of Inventory ,578 3, * Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties M&TBank M&T Bank, Member FDIC Source: Greater Rochester Realtors Association 18

19 Rochester Regional Housing Market* Median Price of Existing Homes Sold Net Result: Economics 101 Solid Demand + Less Supply = Positive Pricing Momentum Limited inventory should continue to put upward pressure on pricing Median Sales Price Annual Change in Median Price $130, % 2.8% $126,500 $124,000 $123,000 $125, % -1.2% * Monroe, Cayuga, Allegany, Genesee, Livingston, Ontario, Orleans, Seneca, Steuben, Wayne, Wyoming and Yates counties M&TBank M&T Bank, Member FDIC Source: Greater Rochester Realtors Association 19

20 Rochester Area Single and Multifamily Home Building Permits New Residential Construction Also Remains Elevated Single and multifamily building permit counts are well above pre-recession levels Limited supply, rising resale values and improving household income fundamentals should continue to support demand for new residential construction Single Family Permits Multifamily Permits 1,500 1,300 1,100 1,067 1,333 1,282 1,150 1,200 1, , M&T Bank, Member FDIC Sources: U.S. Census Bureau, Moody s Analytics, M&T Bank estimate for December 2017 M&TBank 20

21 Interest Rate Forecast January 18, % 4.0% Monetary Policy Will Continue to Slowly Tighten, But Remain Accommodative by Past Recovery Standards The next Fed rate hikes are expected in March and July 2018 with one more increase in Meanwhile, a tame inflation outlook will keep downward pressure on medium- and long-term rates. 3.5% 3.0% Forecast 2.5% 2.0% 1.5% 10 Year LIBOR swap 2.50% 2.36% 2.08% 1.0% 0.5% 2 Year LIBOR swap 1 Month LIBOR 0.0% M&T Bank, Member FDIC M&TBank 21

22 Tax Returns That Itemized Deductions: Monroe County Federal Personal Income Tax Filers Taking Selected Itemized Deductions 2015 Tax Year Total Tax Filers AGI* of $100,000+ Total Returns Average Deduction Total Returns Average Deduction State & Local Income Taxes 103,160 $8,303 49,860 $13,945 28% of returns 85% of returns Real Estate Taxes 112,750 $6,836 50,390 $8,865 31% of returns 86% of returns Mortgage Interest Paid 92,500 $4,942 41,090 $5,895 25% of returns 70% of returns TOTAL $20,081 $28,705 M&TBank 2018 M&T Bank, Member FDIC Source: Internal Revenue Service Statistics of Income * AGI = Adjusted Gross Income 22

23 14% 12% 10% 8% 6% 4% 2% 0% -2% Relative Change Since 2007 Rochester Metro Area Population by Age Group Millennial Demographic Will Likely Boost Housing Demand Over Next Few Years The 10.6% increase in young adults since 2007 exceeds the 9.2% U.S. average gain 20 to 34 Years 20,848 increase since % Total 20 to 64 Years Old +2.7% 35 to 64 Years Old -0.9% M&T Bank, Member FDIC Source: U.S. Census Bureau American Community Survey 1-Year Estimate M&TBank 23

24 Questions? Note: This presentation is for informational and educational purposes only. Nothing herein should be considered or relied upon as legal, tax, accounting or financial advice. The author assumes no responsibility or liability for the specific applicability of the information provided. Please consult your own legal counsel for any legal advice. 24