May We Live in Interesting Times

Transcription

1 May We Live in Interesting Times RYAN SWEET, DIRECTOR OF REAL-TIME ECONOMICS March 2017

2 Trend Job Growth Holding Steady Payroll employment, change, ths mo 6-mo avg Sources: BLS, Moody s Analytics 2

3 A Checklist for Full Employment 3

4 Consumer Is in the Driver s Seat Contributions to real GDP, annualized % change, ppt 6 Government Net exports 5 Inventories Fixed investment 4 Consumption Q1 15Q2 15Q3 15Q4 16Q1 16Q2 16Q3 16Q4 Sources: BEA, Moody s Analytics 4

5 Multifamily Starts Show Signs of Fatigue Housing starts, % change 60 Single-family Multifamily Sources: Census Bureau, Moody s Analytics 5

6 Investment Will Broaden Real nonresidential fixed investment, % change annualized Structures Equipment Intellectual property Total Sources: BEA, Moody s Analytics 6

7 Tide Beginning to Turn for Mining Real nonresidential investment in structures, % change Commercial/healthcare Manufacturing Power/communication Mining exploration Other Sources: BEA, Moody s Analytics 7

8 Changing Dynamics of Trade Competitiveness Real effective exchange rate, Jan 2014= U.S. Euro zone U.K. China Japan Sources: Bank for International Settlements, Moody s Analytics 8

9 Baseball is 90% mental and the other half is physical. Yogi Berra 9

10 Election Spurs Small-Business Optimism Net % of small firms expecting economy to improve over next 6 mos Monthly 6-mo MA Sources: NFIB, Moody s Analytics 10

11 A Word of Caution on NFIB Survey 11

12 Actions Speak Louder Than Words 12

13 Disconnect Between Hard and Soft Data ISM manufacturing, diffusion index Hard-data ISM Actual ISM Sources: ISM, Moody s Analytics 13

14 It s tough to make predictions, especially about the future. Yogi Berra 14

15 Winners and Losers in President s First Budget Proposed base funding in fiscal 2018, % change from current level EPA State Agriculture Labor HHS Commerce Education HUD Transportation Interior Energy Treasury Justice Veterans Affairs Homeland Security Defense Sources: OMB, Moody s Analytics

16 Investors Expect Big Tax Cuts Individual Income Tax Current Law House GOP Plan Trump Plan Top individual tax rate 39.6% 33% 33% Top capital gain rate 23.8% 16.5% 20% Top dividend rate 23.8% 16.5% 20% Top interest income rate 43.4% 16.5% 33% Standard deduction (joint filers) Corporate Income Tax $12,600 $24,000 $30,000 Top corporate tax rate 35% 20% 15% Top pass-through rate 39.6% 25% 15% Transition tax on unrepatriated earnings N/A 8.75% on cash; 3.5% on other earnings 10% on cash; 4% on other earnings Sources: House Ways and Means Committee, Trump Campaign, Moody s Analytics 16

17 The Ebb and Flow of Fiscal Policy Fiscal policy, contribution to real GDP growth, ppt Sources: Brookings, Moody s Analytics 17

18 Small Boost to 2017 Federal discretionary fiscal policy contrib. to real GDP growth, % Stimulus Trump stimulus Sequester Obamacare Bush taxes over $400k Payroll tax & UI Recovery Act Other policy Cash for clunkers Tax rebate checks Total fiscal policy Austerity Source: Moody s Analytics 18

19 Biggest Boost to GDP Could Come in 2018 Hypothetical path for infrastructure spending, $ bil Assumes bill passes in 17Q3 and is for $250 billion over 5 yrs Q3 18Q1 18Q3 19Q1 19Q3 20Q1 20Q3 21Q1 21Q3 Source: Moody s Analytics 19

20 Trade Not Primary Factor Behind Slide Manufacturing s share of total employment, % 35 U.S. joins WTO China joins WTO Sources: BLS, Moody s Analytics 20

21 Midwest Is Most Export-Intensive Region Total exports, goods and commodities, % of GMP, 2015 < to Sources: BEA, Census Bureau, ITA, Moody s Analytics 21

22 Immigration Buoys Northeast Net international migration, 2016, rate per 1,000 population U.S.= to 6.1 Near avg 0.5 to 1.7 Sources: Census Bureau, Moody s Analytics 22

23 Pair up in threes. Yogi Berra 23

24 Fed Leans on Discretion Nominal fed funds rate, % Taylor rule with time-varying equilbrium fed funds rate Shadow fed funds rate Sources: Federal Reserve, Wu-Xia, Moody s Analytics 24

25 Still Room for Rates to Rise 10-yr Treasury yield decomposed, % Inflation expectations Term premium Expected path of real short-term rates Sources: Federal Reserve, Moody s Analytics 25

26 United States 121 North Walnut Street Suite 500 West Chester PA Australia Level 10 1 O'Connell Street Sydney, NSW, 2000 Australia United Kingdom One Canada Square Canary Wharf London E14 5FA Prague Washingtonova Prague 1 Czech Republic

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