U.S. Economic Outlook. Mark Vitner, Managing Director & Senior Economist September 18, 2015

Transcription

1 U.S. Economic Outlook Mark Vitner, Managing Director & Senior Economist September 18, 2015

2 After a Slow Start, U.S. Growth Should Strengthen During the Second Half of the Year Overall Outlook U.S growth remains solid but unspectacular. Hiring is improving but wage growth is lacking and there are still huge pockets of underemployment. Monetary Policy The Fed is poised to raise interest rates. Policy will remain expansionary, however. We expect the Fed to move cautiously amid slower global economic growth. Inflation Slowing growth in China is pulling down commodity prices and will likely restrain consumer prices. Lower inflation will hold down long-term interest rates. Fiscal Policy The drag from government spending cuts is lessoning in the US and major decisions need to be made on the highway bill, corporate tax rates and federal budget. Global Economy Slower growth in China is weighing on growth in other emerging economies, pushing up the value of the dollar and presenting a threat to exports and earnings. Economic Outlook 2

3 Overall Growth

4 Economic Growth Revisions to previously published data show that economic growth was stronger during the first half of the year. International trade and inventories account for much of the recent volatility in real GDP growth. Private final domestic demand is growing more solidly. Real GDP Forecast Real Private Final Sales 1 8% 6% U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDP - CAGR: 3.7% GDP - Yr/Yr Percent Change: 2.7% 1 8% 6% 8% 6% Real Private Final Sales to Domestic Purchasers Bars = CAGR Line = Yr/Yr Percent Change Forecast 8% 6% Forecast 2% 2% 2% 2% -2% -2% -2% -2% % -6% -6% -6% -8% -8% -8% % -1-1 Real Priv Fin Sales to Dom. Purch. - CAGR: 3.3% Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: % % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC 4

5 Employment Situation Nonfarm employment growth has picked up over the past year and the unemployment rate has fallen sharply. Wages are only rising modestly, however, as productivity growth remains exceptionally weak. Broader measures of wages only show moderately stronger wage gains. Nonfarm Employment Unemployment Rate 600 Nonfarm Employment Change Change in Employment, In Thousands % Unemployment and Wage Rates Wages for Production & Nonsupervisory Workers, SA 12% % 8% % 6% Monthly Change: 173K -1, ,000 2% Unemployment Rate: 5.1% Hourly Earnings - Yr/Yr % Change: 1.9% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 5

6 Global Economic Conditions

7 International Economic Forecast 7.5% Real Global GDP Growth Year-over-Year Percent Change, PPP Weights 7.5% 6. Period Average % 4.5% The International Monetary Fund has reduced their estimate of global GDP growth several times over the past year % % % % Source: IHS Global Insight and Wells Fargo Securities, LLC Economic Outlook 7

8 Global Industrial Production 15% Global Economic Indicators Year-over-Year Percent Change 15% 1 1 5% 5% Slower global economic growth is clearly weighing on the U.S. -5% -5% -1-15% Global Industrial Production: 2. U.S. GDP: 2.7% % Source: IHS Global Insight and Wells Fargo Securities, LLC Economic Outlook 8

9 China Real GDP 15% Chinese Real GDP Forecast Year-over-Year Percent Change 15% % 13% 12% 12% 11% 11% Chinese economic growth has likely slowed more than the official data suggest. 1 9% 8% Forecast 1 9% 8% 7% 7% 6% 6% 5% Year-over-Year Percent Change: % Source: Bloomberg LP and Wells Fargo Securities, LLC Economic Outlook 9

10 Contributions to Chinese Growth Contributions to Chinese Real GDP Growth 16% 16% 12% 12% 8% 8% Chinese authorities hope to rebalance growth toward more consumer spending. - -8% -12% Net Exports: 0.1% Gross Capital Investment: 3.6% Final Consumption Expenditures: 3.7% GDP Growth: % -12% Source: CEIC and Wells Fargo Securities, LLC Economic Outlook 10

11 Debt Outstanding U.S. vs. China Debt Outstanding by Sector Percent of GDP Central Government Non-Financial Corporate Household Slower economic growth will make it tougher for Chinese to service their debt. Much of this borrowing has been done at state-owned firms United States China Source: CEIC, BIS and Wells Fargo Securities, LLC Economic Outlook 11

12 China Stock Market Chinese Stock Market Index, January 4, 2013 = 100 Shanghai Composite: August Shenzen Composite: August The recent Chinese stock market crash has raised doubts and fanned fears about the implications of a more significant slowdown or recession in China Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul Source: Bloomberg LP and Wells Fargo Securities, LLC Economic Outlook 12

13 ISM The global economic slowdown is weighing on U.S. manufacturing. Export orders, overall manufacturing orders and production have all weakened in recent months while inventories have increased. GDP growth will likely remain modest and surprise us to the downside. ISM Export Orders ISM vs. GDP 65 ISM Export Orders Index Diffusion Index ISM Manufacturing Index & Real GDP Index, 3-Month Moving Average, Year-over-Year Percent Change 6% % % % 35 ISM Export Orders Index: Month Moving Average: ISM Manufacturing Index: 52.4 (Left Axis) Real GDP, Year-over-Year Percent Change: 2.6% (Right Axis) % -1 Source: Institute for Supply Management, U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 13

14 Inflation and Interest Rates

15 Energy Oil prices collapsed in late 2014 and early The number of active oil rigs has subsequently fallen sharply. While there are some tentative signs that the rig count has bottomed, another slide in energy prices and another downturn in the rig count cannot be ruled out. WTI Production & Employment 1,800 1,600 Baker-Hughes Rig Count vs. Oil Prices Oil Rotary Rigs; USD per Barrel Oil Rig Count: 675 (Left Axis) WTI: $40.8 (Right Axis) $180 $ Oil Production vs. Employment Thousands of Jobs, Million of Barrels per Day Oil & Gas Employment: 619K (Left Axis) Oil Production: 9.2M (Right Axis) 10 1,400 $ ,200 $120 1,000 $ $ $ $ $ $ Source: IHS Global Insight, Baker-Hughes, U.S. Department of Energy, U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 15

16 Inflation Global disinflation has led more aggressive easing moves by the ECB and BOJ. We expect the Fed to look through this transitory slowdown, however, and raise the federal funds rate. U.S. CPI Eurozone CPI 15% Headline CPI Year-over-Year Percent Change 15% 5% Eurozone Consumer Price Index Year-over-Year Percent Change 5% 12% 12% 9% 9% 3% 3% 6% 6% 2% 2% 3% 3% 1% 1% CPI: 0.2% -3% % CPI: 0.2% -1% % Source: U.S. Department of Labor, IHS Global Insight and Wells Fargo Securities, LLC Economic Outlook 16

17 FOMC The FOMC is slightly more optimistic about the economy s near-term prospects than the financial markets but has consistently expressed caution about long-term growth. Fed s Dot Plot Long Term Forecast % Fed Funds Target Rate Expectations Fed Projections as of June Meeting; Market Futures as of Sept. 8 Median Fed Expectations Futures Market Rate % 4.3% 4.2% FOMC Longer Term Fed Funds Rate Forecast Median of Dot Plot Fed Funds Rate: 3.75% 4.3% 4.2% % % % % % 2.5% 3.9% 3.9% % 3.8% 1.5% 1.5% 3.7% 3.7% % % 3.6% 3.6% Longer Run % % Source: Federal Reserve Board and Wells Fargo Securities, LLC Economic Outlook 17

18 Global Yields 3.5% 10-Year Government Bond Yields Percent 3.5% U.S. yields have tended to follow Eurozone yields. The bounce back from earlier lows reflects greater comfort with the growth and inflation outlooks. The latest iteration of the Greek crisis led to only a modest pullback in yields but growth and inflation prospects have been scaled back a bit % % % United States: Sep 2.2% United Kingdom: Sep 1.8% Germany: Sep 0.7% % % % 0. Source: IHS Global Insight and Wells Fargo Securities, LLC Economic Outlook 18

19 Housing

20 Housing Mortgage purchase applications and pending home sales both point to further strengthening in new and existing home sales. Most other leading indicators also remain positive. New Home Sales Existing Home Sales 1,500 1,350 New Home Sales vs. Mortgage Applications Thousands, Index 1990=100; Seasonally Adjusted Pending vs. Existing Home Sales Index, Millions, 3-Month Moving Average Pending Home Sales: 111 (Left Axis) Existing Home Sales: 5.46M (Right Axis) 8 1, , New Home Sales: (Left Axis) Mortgage Applications: (Right Axis) Source: U.S. Department of Commerce, MBA, National Association of Realtors and Wells Fargo Securities, LLC Economic Outlook 20

21 Housing We continue to look for a gradual recovery in homebuilding Multifamily Starts Multifamily Forecast Single-family Starts Single-family Forecast Housing Starts Millions of Units Forecast Apartment demand remains exceptionally strong but supply is catching up with demand Single-family housing starts are beginning to ramp back up. Gains will be more modest than in past building cycles Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 21

22 Home Prices Household formations have picked up in a significant way in recent quarters, likely reflecting improving labor market conditions. Stronger demand and tight inventories are resulting in higher home prices, at least as measured by median sales prices. Household Formation Home Prices 2.5 Household Formations Average of CPS/ ASEC and CPS/HVS, In Millions Survey Averages: 780K 1948 to 2014 Average % 2 Home Prices Year-over-Year Percentage Change 25% % 15% % 5% % -1-5% -1-15% -15% Median Sale Price: $235,500 Median Sale Price, 3-M Mov Avg: 7.1% -25% FHFA Purchase Only Index: 5.6% S&P/Case-Shiller Composite-10: 4.6% % -3 Source: U.S. Department of Commerce, National Association of Realtors, S&P and Wells Fargo Securities, LLC Economic Outlook 22

23 South Carolina

24 South Carolina 5% 3% 2% 1% South Carolina Gross State Product & U.S. GDP Year-over-Year Percent Change 5% 3% 2% 1% South Carolina matched the national average growth of 2.2 percent in % -2% -3% -1% -2% -3% - -5% U.S. GDP: 2.2% South Carolina GDP: 2.2% % Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 24

25 South Carolina - Employment Situation South Carolina employment rose a steady 2.6 percent over the year. The professional & business services sector saw the largest payroll gains. The unemployment rate appears to have stalled out, possibly reflecting stronger population and labor force growth. Nonfarm Employment Unemployment Rate 6% South Carolina Nonfarm Employment 3-Month Moving Averages 6% 12% South Carolina vs. U.S. Unemployment Rate Seasonally Adjusted Unemployment Rate: 6. United States: 5.1% 12% 2% 2% 1 1 8% 8% -2% -2% - - 6% 6% -6% -8% QCEW: Yr/Yr Pct. Change: 2.8% Nonfarm: Yr/Yr Pct. Change: 2.6% Household: Yr/Yr Pct. Change: 2.6% % -8% -1 2% % Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 25

26 South Carolina - Employment Situation The South Carolina portion of Charlotte, which includes York, Lancaster and Chester counties, reported solid 4.9 percent employment growth in Data for early 2015 suggest that growth has remained strong this year and the economic development pipeline remains strong. Employment Growth Unemployment Rates South Carolina Employment Growth by Area Year-over-Year Percent Change of 3-MMA, QCEW Employment South Carolina MSA Unemployment Rates July 2015 Cherokee-Gaffney 1.7% 2014 Charleston 6. Greenville 6.2% Spartanburg 3. Columbia 6. Spartanburg 7.1% Greenville-Anderson 3.8% Sumter 8. S.C. Portion of Charlotte 4.9% Florence 8.1% 2% 6% 8% 1 1% 2% 3% 5% 6% Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 26

27 South Carolina S.C. Payroll Employment Comparisons Index (Dec 2007=100) The state s strongest payroll growth since December 2007 has been in the Charleston area. The Charlotte-Rock Hill, Greenville and Columbia areas have also outpaced the state s average employment growth South Carolina: Charleston: Charlotte/Rock Hill: Columbia: Greenville: Sumter: Myrtle Beach: 98.2 Florence: Source: U.S. Department of Labor and Wells Fargo Securities, LLC Economic Outlook 27

28 South Carolina South Carolina MSA Population Growth Population Growth , in Thousands Sumter 0.3 Florence 1.3 Spartanburg 7.7 Charleston has seen the greatest population growth since 2010, increasing 60,000 over the period. Chester-Lancaster-York Columbia Greenville Myrtle Beach 39.0 Charleston Source: U.S. Department of Commerce and Wells Fargo Securities, LLC Economic Outlook 28

29 South Carolina Housing Market The housing market in South Carolina has seen solid recovery in comparison to other states. Single-family permits continue to post gains and are at their highest post-recession level. South Carolina s home prices continue to outpace the national average. Housing Permits Home Prices South Carolina Housing Permits Thousands of Permits, Annual Rate Single-Family: 26,424 Single-Family, 12-MMA: 23,099 Multifamily, 12-MMA: 6,688 Single-Family Average ( ): 26, % 12% Core Logic HPI: SC vs. U.S. Year-over-Year Percent Change 2 16% 12% % 8% % -8% % -16% United States: 6.9% South Carolina: 7.8% % -16% -2 Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities, LLC Economic Outlook 29

30 Five Critical Key Takeaways Economic Outlook Weaker Global Growth Interest Rates Will Rise This Year The economy should weather the global economic slowdown. Exports will clearly slow. We expect real GDP to rise 2.4 percent in 2015 and 2.6 percent in The stronger gains seen in Europe earlier this year likely were a short-term response to the plunging value of the euro. China s economy will slow further and will weigh further on commodity prices. We still look for the Fed to raise the federal funds rate this fall but the pace and ultimate magnitude of rate hikes now looks to be less than previously thought. The Housing Recovery The Mix of Growth is Shifting Demand for single-family homes is reviving, with firsttime homebuyers finally coming back into the market. Apartment construction is close to peaking. The economy is better for consumers than producers. Areas of the country exposed to Agriculture, Energy, Mining and Manufacturing will likely see growth slow. Economic Outlook 30

31 U.S. Forecast Wells Fargo U.S. Economic Forecast Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Actual Forecast Real Gross Domestic Product Personal Consumption Inflation Indicators 2 PCE Deflator Consumer Price Index Industrial Production Corporate Profits Before Taxes Trade Weighted Dollar Index Unemployment Rate Housing Starts Quarter-End Interest Rates 5 Federal Funds Target Rate Conventional Mortgage Rate Year Note Forecast as of: September 11, Compound Annual Growth Rate Quarter-over-Quarter 2 Year-over-Year Percentage Change 3 Federal Reserve Major Currency Index, 1973=100 - Quarter End 4 Millions of Units 5 Annual Numbers Represent Averages Economic Outlook 31

32 International Economic Forecast (Year-over-Year Percent Change) Wells Fargo International Economic Forecast GDP CPI Global (PPP Weights) 2.9% 3.3% 3.5% 3.3% 3.5% 3.5% Global (Market Exchange Rates) 2.7% % n/a n/a n/a We project that global GDP growth will strengthen a bit during the next two years. Advanced Economies % 1.6% 1.8% United States % % 2.1% 2.2% Eurozone 1.5% % 0.1% 1.1% 1.5% United Kingdom 2.6% 2.3% 2.3% 0.3% 1.6% 1.9% Japan 0.6% 1.1% % 1.1% Korea 2.2% % 0.8% 2.3% 2.1% Canada % 2.3% 2. Developing Economies 1 3.8% 4.1% 4.5% 6.1% 5.3% 5.3% China 6.8% 6.3% % 1.8% 1.9% India 2 7.3% 7.3% 7.9% 5.3% % Mexico 2.3% 2.5% 2.6% 2.9% 3.3% 3. Brazil % 1.2% 9.1% 7.9% 6.8% Russia -3.8% 1.1% 2.5% 15.5% 7.1% 5.6% Forecast as of: September 9, Aggregated Using PPP Weights 2 Forecasts Refer to Fiscal Year Source: IHS Global Insight and Wells Fargo Securities, LLC Economic Outlook 32

33 Appendix

34 Economic Outlook Group Publications A Sampling of Our Recent Special, Regional & Industry Commentary To view any of our past research please visit: economics To join any of our research distribution lists please visit: economics Selected Recent Economic Reports Date Title Authors U.S. Macro August-24 Raining on the Parade Quinlan, House & Nelson August-24 Capitol Hill Update: A Packed Agenda Awaits Congress Silvia & Brown August-24 Retail Sales by Distribution Channel: Pre-and-Post Great Recession Alemán August-20 Fiscal Policy: Tighter Than Originially Thought? Brown & Pugliese August-06 Wells Fargo Small Business Survey: Q Vitner & Wolf U.S. Regional August-21 California Employment Conditions: July 2015 Vitner August-21 Texas Labor Market Conditions Held Up Well Through July Vitner August-21 Florida Job Growth Picked Up in July Vitner August-20 Hiring Ramps Up in New York Vitner August-20 Minnesota Posts Slight Job Loss in July Vitner Global Econom y August-24 The Peruvian Economy Strengthened in Q2 Alemán August-21 Could Developing Countries Take Down Developed Economies? Bryson August-20 Mexican Economic Growth Was Unimpressive in Q2 Alemán August-19 Outlook for Developing Countries: A Compendium Bryson, Alemán, Quinlan & Nelson August-18 Chilean Economy Remained Weak in Q2 Alemán Interest Rates/Credit Market August-19 Mortgage Lending Standards: Different Strokes Silvia, Vitner & Brown August-12 Economics and Consumer Interest Rates: A Link? Silvia, Vitner & Brown August-05 TIP: Pay Little Heed to Current TIPS Breakeven Inflation Silvia, Vitner & House July-29 Potential Fiscal Policy Challenges to Monetary Policy: Part II Silvia, Vitner & Brown July-22 Potential Fiscal Policy Challenges to Monetary Policy: Part I Silvia, Vitner & Brown Real Estate August-07 Commerial Real Estate Chartbook: Q2 Khan July-31 Housing Chartbook: July 2015 Vitner, Khan & Batcheller July-24 Nonresidential Construction Recap: July Khan June-30 Housing Data Wrap-Up: June 2015 Vitner, Khan & Moehring June-30 Nonresidential Construction Recap: June Khan Economic Outlook 34

35 Wells Fargo Securities, LLC Economics Group Global Head of Research and Economics Diane Global Head of Research & Economics Chief Economist John E. Silvia... Mark Vitner, Senior Economist..... Jay H. Bryson, Global Sam Bullard, Senior Economist Nick Bennenbroek, Currency Strategist Eugenio J. Alemán, Senior Economist Anika R. Khan, Senior Economist Senior Economists. Economists Azhar Iqbal, Econometrician Tim Quinlan, Eric J. Viloria, Currency Strategist Sarah House, Economist Michael A. Brown, Economist Economic Analysts Erik Nelson, Economic Analyst Alex Moehring, Economic Analyst Misa Batcheller, Economic Analyst Michael Pugliese, Economic Analyst Administrative Assistants Donna LaFleur, Executive Assistant. Cyndi Burris, Senior Administrative Assistant Wells Fargo Securities Economics Group publications are produced by Wells Fargo Securities, LLC, a U.S broker-dealer registered with the U.S. Securities and Exchange Commission, the Financial Industry Regulatory Authority, and the Securities Investor Protection Corp. Wells Fargo Securities, LLC, distributes these publications directly and through subsidiaries including, but not limited to, Wells Fargo & Company, Wells Fargo Bank N.A., Wells Fargo Advisors, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. ("WFS") is registered with the Commodities Futures Trading Commission as a futures commission merchant and is a member in good standing of the National Futures Association. Wells Fargo Bank, N.A. ("WFBNA") is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. WFS and WFBNA are generally engaged in the trading of futures and derivative products, any of which may be discussed within this publication. Wells Fargo Securities, LLC does not compensate its research analysts based on specific investment banking transactions. Wells Fargo Securities, LLC s research analysts receive compensation that is based upon and impacted by the overall profitability and revenue of the firm which includes, but is not limited to investment banking revenue. The information and opinions herein are for general information use only. Wells Fargo Securities, LLC does not guarantee their accuracy or completeness, nor does Wells Fargo Securities, LLC assume any liability for any loss that may result from the reliance by any person upon any such information or opinions. Such information and opinions are subject to change without notice, are for general information only and are not intended as an offer or solicitation with respect to the purchase or sales of any security or as personalized investment advice. Wells Fargo Securities, LLC is a separate legal entity and distinct from affiliated banks and is a wholly owned subsidiary of Wells Fargo & Company 2015 Wells Fargo Securities, LLC. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Important Information for Non-U.S. Recipients For recipients in the EEA, this report is distributed by Wells Fargo Securities International Limited ("WFSIL"). WFSIL is a U.K. incorporated investment firm authorized and regulated by the Financial Conduct Authority. The content of this report has been approved by WFSIL a regulated person under the Act. For purposes of the U.K. Financial Conduct Authority s rules, this report constitutes impartial investment research. WFSIL does not deal with retail clients as defined in the Markets in Financial Instruments Directive The FCA rules made under the Financial Services and Markets Act 2000 for the protection of retail clients will therefore not apply, nor will the Financial Services Compensation Scheme be available. This report is not intended for, and should not be relied upon by, retail clients. This document and any other materials accompanying this document (collectively, the "Materials") are provided for general informational purposes only. Economic Outlook 35