BBVA Research USA. Economic Outlook. Whitley Penn. Houston, TX. Nathaniel Karp Chief Economist BBVA Compass

Transcription

1 BBVA Research USA Economic Outlook Whitley Penn Houston, TX Nathaniel Karp Chief Economist BBVA Compass January 218

2 BBVA Research USA

3 Global Economy A synchronized global recovery World Economy YoY % Change Leading Indicators YoY % Change Industrial Production Trade Euro 4 Asia Source: BBVA Research & Haver 3

4 Global Economy Higher dependency on emerging markets Share of World GDP %, PPP Adjusted World Population Billions Developed Developing GDP ($tn) Advanced: 52 Emerging: Developed GDP Per Capita Advanced: $49K Emerging: $12K Developing Source: BBVA Research, IMF and Haver 4

5 U.S. Financial Markets Elevated uncertainty amid businessfriendly policies and tax cuts Policy Uncertainty Mean=1 (24-217) BBVA Research. Bloomberg & Haver U.S. Economic Outlook S&P 5 Index High Tax vs. Low Tax Equity Prices Ratio 5 Jan-16 Feb-16 Mar-16 Apr-16 May-16 Jun-16 Jul-16 Aug-16 Sep-16 Oct-16 Nov-16 Dec-16 Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan Max Min Nov-16 Last % 15% 1% 5% % -5% -1% -15% Partisan Conflict Policy News Tax Gov't spending Inflation Sep 16 Oct 16 Nov 16 Dec 16 Jan 17 Feb 17 Mar 17 Apr 17 May 17 Jun 17 Jul 17 Aug 17 Sep 17 Oct 17 Nov 17 Dec 17 Jan 18

6 U.S. Economic Activity Real GDP Growth YoY % Change An expansion cycle characterized by brinkmanship and structural changes 211-Present GDP: 2.1 GDPexS: 2.8 BBVA Research & Haver GDP GDP ex selected Government Contribution to GDP Average, % Real Private Investment 1Q1= Fixed Inv ex Selected IT+IP Fed Cons State Cons Fed Inv State Inv

7 Business Cycle On average, recessions start 4 to 5 quarters after the unemployment rate hits bottom Duration of Expansion Cycles Months Unemployment Rate and Recessions % Aug21-May23 Aug24-Oct26 Dec27-Aug29 Apr33-May37 Jul38-Feb45 Nov45-Nov48 Nov49-Jul53 Jun54-Aug57 May58-Apr6 Mar61-Dec69 Dec7-Nov73 Apr75-Jan8 Aug-8-Jul81 Dec82-Jul9 Apr-91-Mar1 Dec1-Dec7 Jun9-Present Source: BBVA Research & Haver

8 Economic Slack Recession less likely if labor market slack is greater than estimated Output and Unemployment Gaps %, shaded=recession Output UR (inverted) Source: BBVA Research & Haver Part-time/Full-time & Unemployed 27wks+ % Persons Not in the Labor Force Thousands Part-time/Full-time Share 27Wks+ (rhs) Want a job Marginally attached(rhs)

9 Economic Trends: Expansion Can Continue Through 219 Activity Index Consumer Confidence Small Business Optimism ISM Manufacturing ISM Nonmanufacturing Builders Confidence Industrial Production Capacity Utilization New Orders Personal Income Personal Consumption Retail Sales Auto Sales Housing Starts Home Prices New Home Sles Existing Home Sales Unemployment Rate Nonfarm Payroll Mortgage Volume Bank Credit Worse Last 3m ago 6m ago 9m ago 12m ago Better Leading Indicators YoY % Change Probability of Recession 12m Ahead % Source: BBVA Research, CBI & Haver 9

10 U.S. Economic Outlook Fundamentals: Solid Conditions Aside from High Asset Prices Financial Sector Debt Real YoY % Change 3 Cost per Unit of Real Value Added YoY % change, Nonfinancial Corporate Business Sector Nonfarm Hours YoY % change Real Asset Price Index Real HPI & SP5 CAPE Source: BBVA Research & Haver

11 Inflation Core inflation excluding shelter at a 14-year low Core Inflation 12m % change Core CPI 12m % change CPI PCE Core ex Shelter Shelter Core Goods Source: BBVA Research & Haver 11

12 Inflation Low inflation due to both cyclical and structural forces Selected Prices Index 1997=1 Core Inflation and Population YoY % Change College Nursing Homes Food Housing Core CPI Population (rhs) Apparel Toys TVs Computer BBVA Research & Haver 12

13 U.S. Economic Outlook Inflation Expectations BBVA Research U.S. Inflation Heat Map Money Stock Loans House prices CRE prices PPI consumer PPI capital Wages 1YTN BAA AAA Nonfin Corp debt Fin Corp debt Gov't debt Households Debt SME debt Households debt to income DSR FOR Delinquencies Charge offs Q4 Muted price pressures ahead Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 BBVA Research U.S. Inflation Risk Index Downward risk<; Upward risk> Source: BBVA Research Index (+4Q) Core CPI (rhs) 3.% 2.5% 2.% 1.5% 1.%.5%.% 13

14 Monetary Policy Data supports continuing with gradual interest rate increases Fed Funds Decomposition % Fed Funds % NIR Dual Mandate Inflation Actual Implied Source: BBVA Research, Haver, FRB, Bloomberg % 14

15 U.S. Economic Outlook Treasury Yields We expect higher long-term yields as term-premium moves up and Fed continues normalizing policy and balance sheet 1-Year Yield Decomposition % Fed Funds 1YTN Neutral Bp, shaed area = slope<25bp Risk premium Real rate Inflation expectations Yield Source: BBVA Research & Haver 15

16 Fiscal Policy: Taxes and Growth No conclusive evidence to support a relationship between lower tax rates and higher economic growth Real GDP Per Capita Growth and Top Corporate Tax Rate, Real GDP Per Capita Growth and Top Marginal Individual Tax Rate, Real GDP per Capita Growth on vertical axis; tax rates on horizontal axis Source: BBVA Research Real GDP per Capita Growth on vertical axis; tax rates on horizontal axis 16

17 Fiscal Policy: Effects from Monetary Policy and Slack Impact of tax cuts conditional on the degree of economic slack remaining and monetary policy response Fiscal Multiplier and Interest Rates % Impact on GDP Fiscal Multiplier and Slack % Impact on GDP Linear Nonaccommodative Accommodative Linear Non-slack Slack T+1 T+2 T+3-4 T+1 T+2 T+3 Source: BBVA Research, IMF. Model averages: Wu and Xia (214), : Lombardi and Zhu (214), Belinga and Lonkeng (215) 17

18 Fiscal Policy: Tax Reform A positive short-term impact is likely; high uncertainty over the long-run Revenue Effect: -$1.5tn US$tn GDP Impact Cumulative Estate Pass-through Child credit AMT Corporate Standard deduction Positive Inflation+Other International ACA Itemized deductions Personal exemptions Brackets Negative 1.8% 1.6% 1.4% 1.2% 1.%.8%.6%.4%.2%.% TF: 2.1 TPC:.5 JCT:.7 PW:.6 PW: "Clean" "W/interest"

19 Fiscal Policy: Sustainability Comprehensive tax reform is needed to guarantee fiscal sustainability and increase the efficiency of public spending Public Debt % of GDP, CBO Baseline Total Federal Net Share of Total Outlays %, CBO Baseline Revenues Defense Income Support Health Care Social Security Nondefense Interest Source: BBVA Research, Haver and CBO 19

20 Regional: Ongoing Rebalancing Regional rebalancing: commodity cycle, IT & global growth Job Creation YoY % change, 3mma Unemployment Rate % Source: BBVA Research & Haver Analytics Better Worse 2

21 Texas: Real GDP A solid rebound in GDP growth after the slump in Real GDP 26=1 Texas Real GDP YoY Change, US$bn New York California Florida Texas U.S Mining Real estate and rental and Manufacturing Utilities Management of companies Administrative and waste Professional, scientific, Wholesale trade Retail trade Information Health care and social Transportation and Government Accommodation and food Other services, except Finance and insurance Arts, entertainment, and Educational services Agriculture, forestry, Construction Source: BBVA Research & Haver Analytics 21

22 Texas Economic Conditions BBVA State Monthly Activity Index YoY % change Retail Sales YoY % change, nominal US Texas Source: BBVA Research & Haver Analytics US Texas Mining Nonfarm Payroll YoY % change Unemployment Rate % US US ex TX Texas Texas

23 Texas: Employment Solid job gains in government, professional services, and manufacturing Nonfarm Payroll Thousands Nonfarm Payroll Thousands 1,5 1, Last 12M ago Mining+Constr Total ex Selected (rhs) Source: BBVA Research & Haver Analytics 23

24 Texas: O&G Sector Production, investment and refining capacity are recovering after short-term disruptions New Well Oil Production Per Rig BLD Bakken Eagle Ford Haynesville Marcellus Niobrara Permian Utica Source: BBVA Research & Haver Analytics Crude Oil Production TBL/D U.S. ex TX Texas TX Rig Count & Crude Oil to Refineries Number and TBLD, PADD TX Rigs P3 CO Ref (rhs)

25 Texas: Policy Uncertainty Higher interest rates, a stronger USD and robust global demand could have large regional effects Stronger USD Higher Interest Rates Stronger Global Demand Worse Better Source: BBVA Research 25

26 Texas: Economic Performance Texas will continue to be a global powerhouse Average Annual Real GDP Growth % % 2.6% Finland Portugal Italy Greece Singapore Ireland Israel Korea Texas Taiwan Hong Kong Australia Luxembourg Houston N. Zealand Iceland Sweden Switzerland Czech Rep. Canada U.S. Germany Norway UK Belgium Austria Netherlands France Japan Denmark Spain Cyprus Source: BBVA Research, IMF & Haver

27 Houston: Impact from Harvey Economic Cost US$bn $12 $1 The large negative effects will be offset by federal aid, insurance payments and reconstruction efforts $8 $6 $4 $2 $ Capital Stock Economic Activity Multiplier Effect $5.98 $35.18 Harvey $24.71 * Harvey s impact only considers Texas. Figures valid as of Sept 15, 218; subject to change without notice Source: BBVA Research Impact on GDP % 2.%.% -2.% -4.% -3.7% Gross impact.1% Net impact U.S. Disaster Capital Transfers Paid By: US$bn Insurance S&L Federal World

28 Houston: Economic Performance Labor markets returning to historical trends Employment Index 27= Houston Chicago Los Angeles Miami Unemployment Rate % U.S. DFW Texas Houston San Antonio Austin Source: BBVA Research & Haver Analytics

29 Houston: Employment Job growth supported by professional services, manufacturing and healthcare Nonfarm Payroll Thousands 2,7 2,6 2,5 2,4 2,3 2,2 2,1 2, Total exselected Min+Cons+Manuf (rhs) Nonfarm Payroll Thousands Last 12M ago 1, Source: BBVA Research & Haver Analytics

30 Houston: Residential Markets Improved economic conditions support housing markets House Price Index YoY % change 3% 2% 1% Home Sales and Months Supply 12mma 8, 7, 6, 5, % -1% -2% US Texas Houston Dallas Austin 4, 3, 2, 1, Sales Supply (rhs) % San Antonio Source: BBVA Research & Haver Analytics 3

31 Houston: Economic Outlook We expect solid growth ahead Real GDP Index, 29=1 Real GDP Growth % TX DFW NYC Houston Miami LA 6.% 5.% 4.% 3.% 2.% 1.%.% -1.% -2.% U.S. Average 1-3.% -4.% Source: BBVA Research & Haver Analytics 31

32 Houston Market Potential One of the most attractive MSAs in the country: productivity, diversity, demographics and workforce TFP Contribution to Growth % Ind. Diversity Innovation Inequality MSA Attractiveness Ranking Score 1=Lowest, 7=Highest STEM Sector TFP Relative Prices Mobility Houston Big City Avg Leaders Digital Demographics Innovators 6 5 Banking MSA Potential GDP % Employment Capital TFP Source: BBVA Research Austin San Jose Portland Houston Dallas Boston Baltimore Philadelphia New York 32

33 Thank You Merci Grazie Obrigado Teşekkür Ederim Tak Gracias ありがとう Xiè Xie תודה Спасибо A Dank Join our distribution list and send us your comments: bbvaresearch_usa@bbva.com 33

34 BBVA Research USA Economic Outlook Whitley Penn Houston, TX Nathaniel Karp Chief Economist BBVA Compass January 218