The Economic Outlook September 2017

Transcription

1 Analysis. Answers The Economic Outlook September 2017 Christopher Thornberg, PhD Founding Partner, Beacon Economics Director, UC Riverside Center for Forecasting and Development Beacon Economics, LLC

2 Forecasting 101 2

3 Anger of the Electorate? American families; no raise in 15 years The crushing burden of the Affordable Care Act Secular stagnation / declining productivity Excessive taxes and regulations US manufacturing output decimated by trade Federal debt levels out of control Crime on the rise, The inner philosophy cities in of decline pessimism or Trying really hard to convince everyone that Undocumented migrants stealing US jobs things are really bad when, in reality, they Income inequality at record high aren t. levels The Fed holding rates dangerously low Technology-real estate-bond-stock-inflationary bubble brewing Miserabilism 3

4 The Victory of Miserabilism If it ain t broke don t fix it US GDP is growing slow, but it is growing Fundamentals still fine, no sign of looming recession U.S.: 5% world s population, 20% of the world s consumption Real incomes have been rising, true wellbeing even more so Labor markets are tight! Inflation slow, interest rates low Business investment solid, profits are high US energy: too successful for its own good Manufacturing: doing just fine Housing market sloooow signs of progress The true challenges State and Local budgets still stressed Under-investment in infrastructure Looming labor shortages Healthcare cost inflation Underfunded pensions and entitlements A broken tax system Growing wealth inequality An under-performing housing market / bad financial regulations (Dodd-Frank) Political gridlock and the growing disconnect between debate and reality 4

5 GDP Q2: 3% Growth Output and Demand Growth (Y-o-Y) GDP Final Demand H1 GDP FD Consumption Goods Services Business Inv Structures Equipment IPP Residential Inventories Net exports Exports Imports Government Federal State and local

6 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Oct-10 May-11 Dec-11 Jul-12 Feb-13 Sep-13 Apr-14 Nov-14 Jun-15 Jan-16 Aug-16 Mar-17 Manufacturing Activity 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% Industrial Production ISM Diffusion Index 6

7 Jan 2009 Oct 2009 Jul 2010 Apr 2011 Jan 2012 Oct 2012 Jul 2013 Apr 2014 Jan 2015 Oct 2015 Jul 2016 Apr 2017 Foreign Trade Exports of goods and services $US RXR Index 7

8 Energy Sector on the Rise Again Daily Oil Production WTI Oil Prices Jan Jan Jan Jan Jan Jan Jan 05, 05, 05, 05, 05, 05, 05,

9 Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10 Jan-12 Apr-13 Jul-14 Oct-15 Jan-17 Drivers US Business Inventory / Sales Ratios to July % 81.0% 79.0% 77.0% 75.0% 73.0% 71.0% 69.0% 67.0% 65.0% Capacity Utilization to August 9

10 H-12 H-10 H-8 H-6 H-4 H-2 H H+2 H+4 H+6 H+8 H+10 H+12 H-12 H-10 H-8 H-6 H-4 H-2 H H+2 H+4 H+6 H+8 H+10 H+12 Hurricane Hyperbole Hurricanes Harvey and Irma: $150 billion and $200 billion in damage to Texas and Florida, comparable to the costs from Hurricane Katrina in New Orleans in 2005 (Moodys) IP Index: Manufacturing Index of Retail Sales Andrew Katrina Andrew Katrina Linear (Andrew) Linear (Katrina) 10

11 Jan-05 May-06 Sep-07 Jan-09 May-10 Sep-11 Jan-13 May-14 Sep-15 Jan-17 Housing Markets 8, , , , , , ,000.0 NAR Housing Sales and Months Supply of Homes National-US 5.0% 5.8% WA-Seattle 11.0% 13.4% NC-Charlotte 5.1% 6.1% OR-Portland 12.6% 8.2% AZ-Phoenix 5.1% 5.8% TX-Dallas 9.0% 7.7% MN-Minneapolis 5.0% 5.7% CO-Denver 9.3% 7.6% CA-Los Angeles 5.3% 5.6% MI-Detroit 5.1% 7.5% GA-Atlanta 5.9% 5.4% NV-Las Vegas 5.7% 7.2% FL-Miami 6.9% 5.0% CA-San Diego 6.6% 7.1% NY-New York 2.2% 3.9% FL-Tampa 7.9% 7.0% IL-Chicago 3.1% 3.3% MA-Boston 4.7% 6.3% DC-Washington 1.6% 3.1% CA-San Francisco 6.5% 6.1% OH-Cleveland 2.7% 2.9% 11

12 New Housing Markets Jan-04 Dec-04 Nov-05 Oct-06 Sep-07 Aug-08 Jul-09 Jun-10 May-11 Apr-12 Mar-13 Feb-14 Jan-15 Dec-15 Nov-16 Building Permits Single Multi 59.0% 60.0% 61.0% 62.0% 63.0% 64.0% 65.0% 66.0% 67.0% 68.0% 69.0% 70.0% Q1-85 Q4-86 Q3-88 Q2-90 Q1-92 Q4-93 Q3-95 Q2-97 Q1-99 Q4-00 Q3-02 Q2-04 Q1-06 Q4-07 Q3-09 Q2-11 Q1-13 Q4-14 Q3-16 Home Ownership

13 2016 ACS Total: Occupied Vacant % 13.1% 12.3% 12.4% For rent % 2.7% 2.0% 2.0% For sale only % 1.5% 1.0% 1.0% Other vacant % 4.0% 4.2% 4.3% Total: Owner-occ , detached , attached MF Mobile home Renter-occ , detached , attached MF Mobile home Ownership 66.9% 63.0% 63.1% 13

14 :Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 Housing Markets 70% 65% 60% 55% 50% 45% 40% 35% 30% 25% 20% Housing Affordability (Purchase Share of Income) Mortgage Credit Origination by Credit Score <

15 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Consumer Spending 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% Real Consumer Spending by Type (Y-o-Y Growth to July) ISM Index: Non-Manufacturing 50 Goods Services 15

16 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-11 Aug-11 Mar-12 Oct-12 May-13 Dec-13 Jul-14 Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Recent Data New Vehicle Sales: Autos and light trucks, (Ths. Units, SAAR) 16.6M Units 3 Month Avg 9.0% 8.0% 7.0% 6.0% Y-o-Y Growth Nominal Retail Sales % % % 2.0% 1.0% 0.0% 16

17 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Nov-14 Mar-15 Jul-15 Nov-15 Mar-16 Jul-16 Nov-16 Mar-17 The Savings Issue 7.00% 6.00% Nominal Growth Income and Spending Spending 6.5% 6.0% 5.5% Consumer Savings 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% Disposable Income 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 17

18 1980Q1 1982Q3 1985Q1 1987Q3 1990Q1 1992Q3 1995Q1 1997Q3 2000Q1 2002Q3 2005Q1 2007Q3 2010Q1 2012Q3 2015Q1 1980Q1 1982Q4 1985Q3 1988Q2 1991Q1 1993Q4 1996Q3 1999Q2 2002Q1 2004Q4 2007Q3 2010Q2 2013Q1 2015Q4 No debt Hangovers to worry about 160.0% 140.0% 120.0% 100.0% 80.0% 60.0% 40.0% 20.0% 0.0% Household Debt / Income 18.5% 18.0% 17.5% 17.0% 16.5% 16.0% 15.5% 15.0% 14.5% 14.0% Household Financial Obligation Ratio 18

19 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 NYF Consumer Credit: Q2 Y-o-Y Growth 90 Day Plus Delinquency 20.0% % % % % % Other Mortgages AUTO CC 19

20 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-95 Oct-96 Jul-98 Apr-00 Jan-02 Oct-03 Jul-05 Apr-07 Jan-09 Oct-10 Jul-12 Apr-14 Jan-16 Labor Market Gains 350 Change in Payroll Jobs (3 Month MA) 4.0% Y-o-Y Growth HH Employment % % % 0.0% % 0-2.0% 20

21 Jan-07 Nov-07 Sep-08 Jul-09 May-10 Mar-11 Jan-12 Nov-12 Sep-13 Jul-14 May-15 Mar-16 Jan-17 Plenty of Job Opportunities JOLT Job Openings Rate Level Rate Jul-16 Jul-17 Jul-16 Jul-17 Total Professional Health care Hospitality Logistics Mining Information Financial activities Retail trade Wholesale trade Construction Education Manufacturing Government Northeast South Midwest West

22 Jan-02 Apr-03 Jul-04 Oct-05 Jan-07 Apr-08 Jul-09 Oct-10 Jan-12 Apr-13 Jul-14 Oct-15 Jan-17 Jan-97 Aug-98 Mar-00 Oct-01 May-03 Dec-04 Jul-06 Feb-08 Sep-09 Apr-11 Nov-12 Jun-14 Jan-16 Shortage of Workers, Not Jobs 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Labor Force Growth Unemployment U-3 U-6 22

23 Jan-98 Aug-99 Mar-01 Oct-02 May-04 Dec-05 Jul-07 Feb-09 Sep-10 Apr-12 Nov-13 Jun-15 Jan-17 Real Wage Gains Real Wage Gains Median Wage Growth by Census Division Division Latest 3 months (%) 1-yr Chang e (p.p.) Median Real Jul-17 Jun-17 May-17 Jul-17 Pacific West North Central New England East South Central South Atlantic Mountain East North Central Middle Atlantic West South Central Overall

24 Participation Rates Participation (June-Aug Avg) Participation Ch Population 16 years % 63.1% -2.8% AGE 16 to 19 years 47.5% 38.4% -9.1% 20 to 24 years 77.7% 74.9% -2.8% 25 to 44 years 82.3% 82.4% 0.1% 45 to 54 years 80.5% 80.2% -0.3% 55 to 64 years 61.7% 64.3% 2.6% 65 to 74 years 22.5% 25.5% 3.0% 75 years and over 6.0% 6.5% 0.5% SEX Male 84.8% 81.9% -2.9% Female 70.9% 72.4% 1.5% EDUCATION Less than high school 62.8% 60.2% -2.6% High school 75.3% 72.1% -3.2% Some college or associate's 80.1% 78.9% -1.2% Bachelor's or higher 84.5% 86.2% 1.7% 24

25 Jan-72 Mar-76 May-80 Jul-84 Sep-88 Nov-92 Jan-97 Mar-01 May-05 Jul-09 Sep-13 Blue Collar Blues? 68.0% 66.0% 64.0% 62.0% 60.0% 58.0% 56.0% US Labor Participation Rate Change that would occur in TODAY s Labor Force With 2000 Participation Rates (Total 215 Million) Bach + Some College High School < HS All -1,220.1 Men Men 25 to < 55 BC 1, to BC to Bach to Total Women Women 25 to < 55 BC to BC -1, to Bach + -1, to Total -2,

26 Income Stagnation? $100,000 $90,000 $80,000 $70,000 $60,000 $50,000 Real Mean Household Incomes Census Cash BEA Disposable What is better today? Communications Medical care, Pharmaceuticals Entertainment options Transportation Shopping, Product quality Food quality / variety Access to information Environmental conditions Legal Marijuana What isn t? 26

27 Which Inequality? Gini Indexes for Gross and Net US Income Source: Congressional Budget Office y = 0.003x y = x Real Net Worth (FRB SCF) Mean Net Worth by Percentile of Net Worth Less than 25 -$1.0 $0.1 -$ $41.8 $58.4 $ $162.2 $219.9 $ $411.6 $594.0 $546.3 Market Income Linear (Market Income) After-Tax Income Linear (After-Tax Income) $2,294 $3,631 $3,962 27

28 The Minimum Wage Debate Ask the right question The Wrong Question: Does a higher minimum wage lead to a large reduction in employment The Right Question: Does a higher minimum wage lead to a decline in poverty in a local community? The answer to the right question: NO, it doesn t Minimum wages are a blunt tool to reach the needy, only $1 out of $5 goes to the truly working poor The most needy those without jobs are hurt by higher prices The most at risk the lowest skilled workers are disproportionally impacted by those job losses that do occur 28

29 The Estimates Employment Poverty Social Services Long Run Effects Don t confuse analysis with advocacy The Right The Left Consensus (80%) Big negative impact None or actually Small impact overall, on number of jobs increase the high for some groups and hours worked number of jobs (young and low skilled) Increases due to job, income, and public benefit losses Increase due to loss of jobs Substantial slowing / loss of jobs Decreases significantly due to higher pay Big Decrease in Need Faster Growth from reduced poverty No impact, gains for some offset by losses for others Small Decrease largely at Federal Level Slowdown in rate of growth, less incentive to invest in education 29

30 Where are the Jobs? State Jobs 5 Y % 1 Y % State Jobs 5 Y % 1 Y % State Jobs 5 Y % 1 Y % Utah % 2.9% 5 Year New Change York in Payroll Jobs 9.3% by State 1.7% Nebraska % 1.4% Nevada % 3.0% Delaware % 0.6% SDakota % 1.0% Florida % 2.8% Indiana % 1.6% Iowa % 1.1% Oregon % 3.0% Missouri % 2.1% Illinois % 0.7% Colorado % 1.9% Hawaii % 1.3% Mississippi % 1.0% Idaho % 2.2% DC % 2.0% Maine % 1.1% Washington % 2.4% Rhode Island % 1.9% Pennsylvania % 1.4% Georgia % 2.5% Montana % 1.8% Vermont % 0.4% California % 1.8% N Hampshire % 1.9% New Mexico % 1.0% Texas % 2.5% Kentucky % 1.6% Connecticut % 1.0% S Carolina % 1.7% Maryland % 2.3% Kansas % -0.5% Arizona % 1.7% Arkansas % 2.7% Louisiana % 1.0% Tennessee % 1.8% Virginia % 1.8% Oklahoma % 1.1% N Carolina % 1.6% Ohio % 1.1% N Dakota % 1.6% Mass % 1.5% Alabama % 1.6% Alaska % -0.1% Minnesota % 2.3% Wisconsin % 1.1% West Virginia % 0.7% Michigan Analysis. 9.5% Answers. 1.8% New Jersey % 1.5% Wyoming % %

31 Regional Configurations 31

32 Regional Trends Unemployment Rates by Census Division Division Q2-17 (%) Chg since Q2-11 (p.p.) West North Central New England Mountain East North Central South Atlantic Middle Atlantic Pacific East South Central West South Central Total Payroll Employment (SA) Census Division % chg National 131, , Mountain 9,136 10, Pacific 5,415 6, South Atlantic 25,051 27, West South Central 15,254 16, East South Central 7,409 8, East North Central 20,333 21, New England 6,867 7, West North Central 9,934 10, Middle Atlantic 18,202 19,

33 Population Shifts 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0% -0.1% -0.2% -0.3% Net Migration (% of Pop) by region Northeast Region South Region Midwest Region West Region Net Migration by State Florida 1.51% Ohio -0.05% Nevada 1.27% Penn -0.06% Colorado 1.10% Wisconsin -0.08% Oregon 1.08% Michigan -0.08% South Carolina 1.04% New Jersey -0.14% Washington 0.99% Vermont -0.19% Arizona 0.96% W Virginia -0.26% Texas 0.90% New York -0.27% North Dakota 0.79% Mississippi -0.28% Idaho 0.77% Kansas -0.30% Delaware 0.66% Connecticut -0.32% North Carolina 0.66% Wyoming -0.35% Montana 0.60% New Mexico -0.47% Georgia 0.54% Illinois -0.58% Tennessee 0.53% Alaska -0.73% Utah 0.49% 33

34 Regional Changes: LF by Age Age New England 12, % 30.2% 34.5% 20.0% % Chg 1.4% 0.0% -0.1% 16.1% Middle Atlantic 33, % 32.1% 33.6% 19.7% % Chg -4.1% 0.7% -0.2% 13.2% East North Central 37, % 31.5% 33.6% 19.5% % Chg -2.0% -0.8% -1.1% 15.2% West North Central 16, % 32.0% 32.7% 19.6% % Chg 0.7% 2.5% -1.1% 14.9% South Atlantic 51, % 32.2% 32.8% 20.4% % Chg -0.7% 4.3% 4.1% 22.4% East South Central 15, % 31.9% 33.0% 19.6% % Chg -0.3% 0.8% -0.2% 17.1% West South Central 30, % 35.5% 31.2% 16.7% % Chg 4.0% 7.1% 4.4% 20.7% Mountain 18, % 34.1% 31.1% 18.9% % Chg 3.6% 6.3% 3.7% 26.3% Pacific 42, % 35.2% 31.8% 17.7% % Chg -3.0% 5.3% 3.5% 22.4% 34

35 1985Q1 1987Q2 1989Q3 1991Q4 1994Q1 1996Q2 1998Q3 2000Q4 2003Q1 2005Q2 2007Q3 2009Q4 2012Q1 2014Q Secular Stagnation? 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Real GDP Growth Y-o-Y 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% US Population of Year Olds 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% 0.0% Growth Share

36 Where can growth come from? 36

37 Immigration 350,000 H-1B Visa Acceptance Number by Year (New and Renew) 300, , , , ,000 50,

38 Taxes? 38

39 1980I II III IV 1989I II III IV 1998I II III IV 2007I II III IV 2016I 1980I 1982I 1984I 1986I 1988I 1990I 1992I 1994I 1996I 1998I 2000I 2002I 2004I 2006I 2008I 2010I 2012I 2014I 2016I Tax Reform not Tax Cuts 35% 30% 25% 20% 15% 10% 5% 0% US Corporate Taxes as % Profit 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Corporate Net Income as % National Income Federal State & Local 39

40 Long Run Trends in Investment Real Net Investment % GDP Business Eq and Gov Real Net Investment % GDP Structures 3.0% 4.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% -0.5% 0.0% Government Business Non Residential Residential 40

41 1980I IV III II 1987I IV III II 1994I IV III II 2001I IV III II 2008I IV III II 2015I Implications 17.0% 15.0% 13.0% 11.0% 9.0% 7.0% 5.0% Income Taxes Share of Income Real Net Worth Mean Net Worth by Percentile of Net Worth Less than 25 -$1.0 $0.1 -$ $41.8 $58.4 $ $162.2 $219.9 $ $411.6 $594.0 $ $2,294 $3,631 $3,962 Taxes S I Payment 41

42 Social Insurance Population Growth Projections Total 321,369 25, % 23, % <18 years 73,635 1, % 2, % 18 to 24 31,214 (478) -1.5% % 25 to 44 84,657 8, % 3, % 45 to 64 84,032 (1,797) -2.1% 3, % 65 years+ 47,830 18, % 13, % 85 years+ 6,304 1, % 4, % Medicare Spending Projections Fed M. Spending / Senior 1995 $5, $13, * $43,395 Spending Share Federal Rev % % 2035* 41.0% 42

43 The Federal Budget Outlook , , , ,600.0 CBO: Past and Projected Federal Budget Gap 30, , , , , , Outstanding Federal Debt 65% ND/GDP to > 100% ND/GDP 43

44 The Healthcare Crisis 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% National Health Spending % GDP 2.1% / Decade 3.3% / Decade Per Capita Healthcare Spending 2015, PPP Adjusted USA $9,402 Norway $7,832 Switzerland $7,300 Sweden $6,285 Netherlands $6,209 Germany $6,204 Austria $6,143 France $5,428 Canada $5,421 Belgium $5,340 Australia $4,873 Finland $4,467 Japan $4,255 UK $3,717 44

45 The Big Picture The Economic Outlook Economic Growth Outlook for : 2-2.5% even with the weak first quarter Labor markets to remain tight, rising wages to put pressure on profits Financial markets frothy, but interest rates to remain low Exports, business investment to pick up The West and South: Moving Ahead Participation rates will drift up slowly, but not enough to offset lack of labor supply Great time to work on skill training The Trump Factor The Potential Good: Infrastructure spending, Mortgage Reform, Government Efficiency, Trade negotiations The Clear Bad: Anti-immigration efforts, the failure to address the looming entitlement crisis, bad ideas on taxes The Possibly Ugly: The potential for a trade war, Foreign policy 45

46 Our Services Economic Forecasting Regional Intelligence Reports Business & Market Analysis Real Estate Market Analysis Ports & Infrastructure Analysis Economic Impact Analysis Public Policy Analysis To view or download this presentation please visit: For additional information visit 46