Economic Outlook. Lauren Bresnahan, Ph.D. Deputy Chief Economist, KPMG May 17, 2018

Transcription

1 Economic Outlook Lauren Bresnahan, Ph.D. Deputy Chief Economist, KPMG May 17, 2018

2 Today s Outline 1 Global Economic Backdrop 2 U.S. Economic Backdrop 3 Economic Outlook 4 Economic Implications of Tax Change 1

3 Global Economic Backdrop

4 Global expansion trending higher Note: Data in three-month moving average 3

5 Global growth is synchronized and wide spread Growth Prospects of Major Economies Number of Countries OECD Forecast Contraction Slowing Growth Accelerating Growth Note: 2017, 2018, 2019 estimates are the OECD forecast from Nov Source: KPMG Economics, WSJ, OECD Economic Outlook Nov

6 Low interest rates have supported global growth 5

7 Easy money is not going away anytime soon $18 $16 Central Bank Balance Sheet Assets US$ Tn Fed ECB BoJ Forecast $18 $16 $14 $14 $12 $12 $10 $10 $8 $8 $6 $6 $4 $4 $2 $2 $0 $0 Source: KPMG Economics, Federal Reserve, ECB, BoJ, Central Bank 6

8 Inflation remains persistently low, but trending upward 7

9 U.S. Economic Backdrop

10 Second longest expansion in post-war era Expansion Present Longest Expansions in U.S. History Duration in Months Months Source: KPMG Economics, NBER, Haver Analytics 9

11 The economy finally reaching its potential growth rate $Tn $19 Growth Reaching Potential $Tn $19 $18 $18 $17 $17 $16 $16 $15 $15 $14 $14 $ Real GDP Forecast Real Potential GDP Forecast Note: Real GDP Forecast is KPMG Economics. Real Potential GDP and Forecast is CBO Source: KPMG Economics, Macroeconomic Advisers by HIS Markit, CBO, BEA $13 10

12 Rates remain low despite stronger growth Source: KPMG Economics, Federal Reserve, FOMC projections March

13 The consumption engine is strong Note: Real GDP measured year-on-year 12

14 Business investment on an upswing 13

15 Business and consumer confidence trends upward Index Economic Confidence Indicators 100 = Most Optimistic Consumer Confidence (LHS) Business Optimism (RHS) Note: 4-Quarter Moving Average Source: KPMG Economics, Conference Board, Duke Fuqua School of Business, CFO Magazine, Haver Analytics 14

16 Jobs growth in longest post-war streak 91 consecutive months of jobs growth 15

17 Labor market continues to tighten % Unemployment Rate vs. Natural Rate 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% Natural Rate of Unemployment Unemployment Rate Source: KPMG Economics, BLS, CBO, Haver Analytics % 12% 11% 10% 9% 8% 7% 6% 5% 4% 3% 2% 16

18 Labor market tight enough to translate into inflation? Note: Inflation is measured by the Consumer Price Index (CPI); Core CPI excludes volatile food and energy prices 17

19 Economic Outlook

20 Fiscal stimulus - trade tensions - tighter labor market Real GDP Forecast % Annual Rate 4.0% 3.0% Historical Forecast 4.0% 3.0% 2.0% 2.0% 1.0% 1.0% 0.0% 0.0% Source: KPMG Economics, Macroeconomic Advisors by IHS Markit, BEA 19

21 Rising trade tensions unlikely to have direct effect U.S Goods Exports (2017, $b, % of total) U.S Goods Imports (2017, $b, % of total) China, $130, 8% China, $506, 22% Other Canada, $282, 18% Other Mexico, $243, 16% Italy Canada, $300, 13% Italy India France UK S. Korea Japan Germany India France UK S. Korea Germany Japan Mexico, $314, 13% Source: KPMG Economics, US Census 20

22 Rising trade tensions unlikely to have direct effect Exports Average Contribution: 0.37% Imports Average Contribution: -0.56% 21

23 Trade tensions will likely increase market volatility % BAA Corporate Bond Yield % Original Forecast Trade Tensions, Elevated VIX Even Higher VIX Source: KPMG Economics, Macroeconomic Advisors by IHS Markit, Bureau of Economic Analysis 22

24 Labor market to continue tightening through 2020 % 10.0 Unemployment rate with median FOMC projections Civilian Unemployment Rate (%) FOMC Longer Run FOMC Short Run Source: KPMG Economics, FOMC projections March 2018, Janet Yellen s Remarks at the NABE 2017 Annual Meeting, BLS 23

25 Economic Effects of Tax Change

26 Economic goals of Public law no (TCJA) Increase investment by U.S. and foreign firms Increase wages Broaden the U.S. tax base 25

27 Passage of TCJA had little influence on investment plans 80% 70% How has the TCJA affected your plans for capital expenditures? Nov Feb % 50% 40% 30% 20% 10% 0% Decrease by 10% or more Decrease by less than 10% No material change Increase by less than 10% Increase by 10% or more Source: KPMG Economics, Survey of Business Executives (SBE): Federal Reserve Bank of Atlanta, Stanford University, and the University of Chicago 26

28 TCJA long-term consequence is increased debt 150 Federal Debt Held by the Public % of GDP CBO Baseline Projection World War II Great Depression Civil War World War I Source: KPMG Economics, CBO Long-Term Budget Projections 27

29 Higher interest is a potential boomerang effect 28

30 Productivity is the holy grail as labor force disappears Potential GDP: 1.8 % by

31 Conclusion Global growth tailwinds mostly in force Rising trade tensions risk derailing the positive global growth trajectory Tightening labor conditions suggest a potential slowdown in 2020 U.S. tax reform could spur business investment and drive productivity growth 30

32 Thank you

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