Economic Outlook. Charlie Dougherty, Vice President & Economist January 10, 2019
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1 Economic Outlook Charlie Dougherty, Vice President & Economist January 10, 2019
2 Economic Growth Will Remain Solid in % U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change GDP - CAGR: 3.5% GDP - Yr/Yr Percent Change: 3. Forecast 1 8% Real GDP growth has upshifted recently and should end the year at nearly a 3. pace. Growth will likely moderate in 2019, yet remain solid % -8% Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 2
3 What s Behind Recent Volatility? 65 ISM Manufacturing Index & Real GDP Index, 3-Month Moving Average, Year-over-Year Percent Change 60 Sentiment in the manufacturing sector has weakened, however has come off a near-euphoric level and is still consistent with above-trend growth ISM Manufacturing Index: 57.0 (Left Axis) Real GDP, Year-over-Year Percent Change: 3.1% (Right Axis) % -1 Source: Institute for Supply Management and Wells Fargo Securities Economic Outlook 3
4 Oil Prices Have Also Dropped 2 15% Industrial Production vs. WTI Oil Prices Year-over-Year Percent Change, USD IP: 3.9 (Left Axis) WTI: $52.17 (Right Axis) $140 $120 The recent drop in oil prices may be good for consumers, but is concerning for new energy-related investment. 1 5% -5% -1 $100 $80 $60 $40-15% $ $0 Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities Economic Outlook 4
5 The Housing Market Has Slowed Amid Rising Rates 1 Mortgage Rate vs. Existing Single-Family Home Sales Percent, SAAR In Millions 30-Yr. Conventional Mortg. Rate: 4.83% (Left Axis) SF Existing Home Sales: 4.6M (Right Axis) A combination of rising home prices and higher mortgage rates has restrained sales in % Source: National Association of Realtors, U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 5
6 Employment Situation: Nearly 100 Straight Months of Job Gains 600 U.S. Nonfarm Employment Change Change in Employment, In Thousands Labor market conditions remain incredibly strong. Low unemployment and rising wages will be the driving force behind consumer spending and overall economic growth in ,000-1,200 Monthly Change: 312K 12-Month Average Change: 220K ,000-1,200 Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 6
7 Raleigh-Durham Outlook
8 Southeast Employment Growth by MSA 3-Month Annualized Percent Change 5% 3% 1% -1% - Recovering San Antonio Southeast Employment Growth by Metro 3-Month Moving Averages, November 2018 Total Population Less than 600K 600K - 1,500K More than 1,500K Savannah Greenville, SC Charleston Nashville Memphis New Orleans Richmond Atlanta Charlotte Durham Tampa South FL Dallas Jacksonville Raleigh Austin Houston Expanding Orlando Contracting -3% 1% 3% 5% Source: U.S. Department of Labor and Wells Fargo Securities Year-over-Year Percent Change Decelerating Economic Outlook 8
9 North Carolina GDP Economic growth throughout the state has been solid. North Carolina claims two of the 15 fastest growing metros, with Charlotte and Raleigh near the top of the list. Economic Growth Fastest Growing Metros Real GDP Growth vs. U.S. Year-over-Year Percent Change Metro Area GDP Growth: Top 15 Change in Real GDP, CAGR, % 8% San Jose, CA Austin, TX San Antonio, TX Nashville, TN San Francisco, CA Dallas-Fort Worth, TX Seattle, WA Raleigh, NC Atlanta, GA Denver, CO Jacksonville, FL Charlotte, NC - -8% North Carolina: 2. United States: 2.9% % Miami, FL Los Angeles, CA Columbus, OH 1% 3% 5% 7% 8% Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 9
10 North Carolina Employment North Carolina s job growth moderated somewhat last year but has accelerated recently, with broad-based improvements across most industries and regions. Nonfarm Employment Nonfarm Employment North Carolina Nonfarm Employment Year-over-Year Percent Change, 3-MMA North Carolina Employment Growth By Industry Year-over-Year Percent Change, 3-MMA Total Nonfarm November 2018 Trade, Trans. & Utilities Government Educ. & Health Services Prof. & Bus. Svcs. More - - Manufacturing Leisure and Hospitality Number of Employees - - Financial Activities Construction Less - United States: 1.7% North Carolina Yr/Yr Pct. Change: 2.1% QCEW: Yr/Yr Pct. Change 2. -8% % Other Services Information Nat. Res. & Mining - -5% - -3% - -1% 1% 3% 5% 7% Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 10
11 Metro Area Employment Growth North Carolina Regional Job Recovery Nonfarm Payroll Employment, SA, Index, Dec = 100 North Carolina: Raleigh+Durham: Charlotte: Rest of State: Charlotte and Raleigh-Durham have seen a rapid recovery and expansion of payrolls. However outside of those areas, employment growth has been more subdued Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 11
12 North Carolina Employment by MSA 3-Month Moving Average Percent Change % % % % -2. North Carolina Job Growth by Metro Year-over-Year Percent Change, 3-Month Moving Average, Nov 2018 Recovering Population Size Less than 200, , ,000 More than 500,000 Rocky Mount Wilmington Goldsboro Fayetteville Greenville Burlington Asheville Winston-Salem Jacksonville Hickory Greensboro Charlotte Durham-Chapel Hill Expanding Raleigh-Cary Contracting -2.5% % % % % % % 4. Source: U.S. Department of Labor and Wells Fargo Securities Year-over-Year Percent Change Decelerating Economic Outlook 12
13 Raleigh-Durham Employment Growth 8% Nonfarm Employment Year-over-Year Percent Change, 3-Month Moving Averages 8% Payrolls in Raleigh are growing at a robust pace, backed by a booming tech industry. Durham has seen more moderate growth, but the metro s key sectors are performing well % -1 United States: 1.7% Durham, NC: 2. Raleigh, NC: % -1 Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 13
14 Triangle Employment Outlook Raleigh-Durham-Chapel Hill CSA Job Gain by County Year-over-Year Level Change in Annual Averages, Thousands Wake Durham Orange Other Forecast After growing 2.8% in 2018, we expect another strong year of 2. job growth in 2019, a pace well ahead of the national rate Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 14
15 Labor Market Tightness 1 Raleigh CSA Unemployment vs. Avg. Hourly Earnings Non Seasonally Adjusted, 12-MMA Year-over-Year Percent Change 1 1 9% Raleigh-Durham s low unemployment rate has led to a rising wages, which has benefited all areas of the local economy. The Triangle has more room to run, as the area has seen unemployment dip even lower. 8% 3% -3% Raleigh-Durham-Chapel Hill CSA Unemployment: 3.1% Average Hourly Earnings: 4.7% Source: U.S. Department of Labor and Wells Fargo Securities Economic Outlook 15
16 Raleigh-Durham Population Components of Population Change: Raleigh-Durham CSA In Thousands North Carolina had the 10 th fastest growing population in the country in Natural Increase: 12K International Migration: 7.2K Domestic Migration: 22.5K 60 Population growth in Raleigh- Durham continues to be boosted by an influx of retirees and job-seekers from out of state, which helps reinforce the organic economic growth experienced throughout the region Source: U.S. Census Bureau and Wells Fargo Securities Economic Outlook 16
17 Home Prices 2 CoreLogic Home Price Index Year-over-Year Percent Change 2 Home sales have also lost momentum alongside higher mortgage rates and years of price appreciation. As a result of softer sales, price appreciation in Raleigh has decelerated somewhat over the past year. By contrast, home values in relatively more affordable Durham continue to gain steam. 15% 1 5% -5% -1-15% United States: 5.1% Raleigh, NC: 4.7% Durham: 6.5% Source: CoreLogic and Wells Fargo Securities 15% 1 5% -5% -1-15% -2 Economic Outlook 17
18 Housing Permits Single-family home building has moderated recently amid slowing overall home sales and higher mortgage rates. Apartment construction has ramped back up as demand has held firm despite a wave on new deliveries Raleigh-Durham CSA Housing Permits Thousands of Permits, Seasonally Adjusted Annual Rate Single-family: 16,013 Single-family 12-MMA: 15,454 Multifamily 12-MMA: 8,067 Single-family average : 15, Source: U.S. Department of Commerce and Wells Fargo Securities Economic Outlook 18
19 Commercial Real Estate 1 1 Raleigh Vacancy Rates By Property Type, Percent Apartment Vacancy: 7. Office Vacancy: 5. Retail Vacancy: 2.9% Industrial Vacancy: 3.1% New and expanding businesses have spurred demand for commercial properties and pushed vacancy rates lower over the course of the expansion. 8% 8% Source: CoStar and Wells Fargo Securities Economic Outlook 19
20 Apartment Market 1 Raleigh Apartment Supply & Demand Percent, Thousands of Units The Triangle has seen a deluge of apartments come to market in recent years. However, demand has reignited amid softening singlefamily fundamentals, reversing the trend in higher vacancy rates. 8% 1 0 Apartment Net Absorption: 1,119.0 (Right Axis) Apartment Completions: (Right Axis) Apartment Vacancy: 7. (Left Axis) Source: CoStar and Wells Fargo Securities Economic Outlook 20
21 Appendix
22 Raleigh-Durham Employment Forecast Raleigh-Durham Employment Outlook: Total Additions to Payrolls Actual Forecast North Carolina 70,200 71,200 83, , ,650 73,900 91,067 89,000 85,000 Yr/Yr Percent Change 1.8% 1.8% % 2.1% % Raleigh-Durham CSA 22,081 18,261 25,212 29,167 30,001 19,795 28,044 24,300 21, % 2.9% % 2.8% Raleigh-Cary MSA 15,526 16,904 18,107 22,723 19,852 14,222 20,180 18,010 16, % 3.3% % % 2.9% 2.5% Durham-Chapel Hill MSA 5,747 1,493 7,134 3,927 7,955 4,095 7,040 6,201 5, % % 1.7% Wake County 14,227 17,810 16,550 21,049 19,094 12,996 19,100 17,100 14, % 3.5% 4.3% 3.7% % Durham County 5,228 (604) 5,022 2,201 4,417 3,659 4,770 4,170 3, % -0.3% 2.7% % 1.9% Orange County 774 2,065 1,869 1,315 3, ,505 1,750 1, % 3.3% 2.9% % 0.5% 3.5% % All Other Counties in CSA 1,852 (1,010) 1,771 4,602 3,189 2,767 1,669 1,280 2, % 0 2.9% 0 1.9% % 0 1. Sources: U.S. Department of Labor and Wells Fargo Securities Forecast as of: January 08, 2019 Economic Outlook 22
23 North Carolina Economic Forecast North Carolina Economic Outlook Real Gross Domestic Product by State, $ Millions 439, , , , , , , , ,559 Annual Rate 0.1% 1.3% 1.9% 3.1% 1.1% % 2. Nominal Personal Income, $ Millions 379, , , , , , , , ,916 Nominal Personal Income, Percent Change % 3.3% 4.7% 4.8% 5.1% 5.3% Real Median Household Income, $ 44,446 48,840 48,490 52,559 54,920 50,343 51,400 52,634 53,634 Population, Thousands 9,749 9,844 9,934 10,033 10,157 10,271 10,384 10,496 10,605 Change in thousands Percent Change % % 1.1% 1.1% 1.1% 1. Nonfarm Employment, Thousands 3,985 4,057 4,140 4,240 4,341 4,415 4,506 4,595 4,680 Change in thousands Percent Change 1.8% 1.8% % 2.1% % Unemployment Rate, Annual Average 9.3% % 5.7% 5.1% % 3.8% 3. Total Housing Permits 47,828 50,787 50,642 53,512 57,090 65,009 67,821 66,215 65,797 Single-Family Permits 29,564 34,941 35,456 37,465 41,174 46,500 48,128 49,475 50,564 Multi-Family Permits 18,264 15,846 15,186 16,047 15,916 18,509 19,694 16,740 15,233 FHFA Home Price Index, Percent Change % % % % 4.9% Actual Forecast Sources: National Association of Realtors, Federal Housing Finance Authority, U.S. Department of Commerce, U.S. Department of Labor, Moody's Analytics & Wells Fargo Securities Forecast as of: January 08, 2019 Economic Outlook 23
24 U.S. Economic Forecast Wells Fargo U.S. Economic Forecast q Actual Forecast Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Actual Forecast Real Gross Domestic Product Personal Consumption Business Fixed Investment Equipment Intellectual Property Products Structures Residential Construction Government Purchases Net Exports Inventories Nominal GDP Corporate Profits Before Taxes Forecast as of: January 8, Compound Annual Growth Rate Quarter-over-Quarter 2 Percentage Point C ontribution to GDP 3 Year-over-Year Percentage Change Economic Outlook 24
25 Wells Fargo Securities Economics Group Senior Economists Jay H. Bryson, Global Economist Mark Vitner, Senior Economist Sam Bullard, Senior Economist Nick Bennenbroek, Macro Azhar Iqbal, Econometrician Tim Quinlan, Senior Economist Sarah House, Senior Economist Economists Charlie Dougherty, Erik Nelson, Macro Strategist Michael Pugliese, Economist Brendan McKenna, Macro Economic Analysts Abigail Kinnaman, Economic Analyst Shannon Seery, Economic Matthew Honnold, Economic Donna LaFleur, Executive Assistant Dawne Howes, Administrative Assistant Administrative Assistants 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 Clearing Services, LLC, Wells Fargo Securities International Limited, Wells Fargo Securities Canada, Ltd., Wells Fargo Securities Asia Limited and Wells Fargo Securities (Japan) Co. Limited. Wells Fargo Securities, LLC. 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. is registered with the Commodities Futures Trading Commission as a swap dealer and is a member in good standing of the National Futures Association. Wells Fargo Securities, LLC. and Wells Fargo Bank, N.A. 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 2018 Wells Fargo Securities, LLC. 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. For the purposes of Section 21 of the UK Financial Services and Markets Act 2000 ( the Act ), the content of this report has been approved by WFSIL, an authorized person under the Act. WFSIL does not deal with retail clients as defined in the Directive 2014/65/EU ( MiFID2 ). 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. SECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUESECURITIES: NOT FDIC-INSURED/NOT BANK-GUARANTEED/MAY LOSE VALUE Economic Outlook 25
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