Looking Through the Noise ADAM KAMINS, SENIOR ECONOMIST

Looking Through the Noise ADAM KAMINS, SENIOR ECONOMIST

Full Employment Is in View U-6 underemployed per open job position 12 9 6 3 0 02 04 06 08 10 12 14 16 Sources: BLS, Moody s Analytics 2

More Jobs, Mobility Portend Wage Growth Rate, % 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 Hires Openings Quits Layoffs 01 03 05 07 09 11 13 15 Sources: BLS, Moody s Analytics 3

Productivity Growth Continues to Disappoint % change yr ago 6 4 2 0-2 -4 GDP, 2009$ Employment -6 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Sources: BLS, BEA, Moody s Analytics 4

Housing Swings From Overbuilt to Undersupplied Vacant homes for sale, for rent, and held off market, ths 10,500 9,500 Current thousing Supply 1,250,000 Single family 800,000 Multifamily 375,000 Manufactured Housing 75,000 8,500 Trend Housing Demand 1,700,000 Household Formations 1,150,000 Obsolescence 375,000 7,500 6,500 Second Homes 175,000 Trend vacancy 5,500 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Sources: Census Bureau, Moody s Analytics 5

Demographic Reversion to Norm Will Continue Population, % change 1.6 1.4 1.2 1.0 0.8 South West 06 0.6 0.4 02 0.2 Northeast Midwest 0.0 05 07 09 11 13 15 17F 19F 21F 23F 25F Sources: Census Bureau, Moody s Analytics 6

Inflation Pressures Build in the U.S Difference between core PCE inflation and Fed s 2% target 1.0 0.5 0.0 Other Housing Healthcare Energy $ Slack Total -0.5-1.0 14 15 16 17F 18F Source: Moody s Analytics 7

Causing Central Banks to Part Ways % 0.8 0.6 ECB deposit rate 04 0.4 0.2 Federal funds rate 0.0-0.2-0.4 10 11 12 13 14 15 16 Sources: ECB, Federal Reserve, Moody s Analytics 8

Global Economy Remains a Mixed Bag Business cycle status Expansion Recovery At risk In recession Source: Moody s Analytics 9

Low Energy Prices Have Stung Canada 4.5 Real GDP, % chg yr ago (L) 4.0 WTI oil price, 3-mo lag, $ per bbl (R) 3.5 30 3.0 2.5 2.0 1.5 1.0 05 0.5 0.0 10 11 12 13 14 15 16 Sources: Statistics Canada, U.S. EIA, Moody s Analytics 130 120 110 100 90 80 70 60 50 40 10

Chinese Industrial Investment, Production Fall China, % change yr ago 25 20 15 10 5 Fixed asset investment, YTD 0 Industrial production Industrial profits, YTD -5 13 14 15 16 Sources: National Bureau of Statistics, Moody s Analytics 11

Market Turmoil Puts Businesses on Edge % that say business conditions are improving, 4-wk MA 70 60 50 40 30 20 10 0 04 05 06 07 08 09 10 11 12 13 14 15 16 Source: Moody s Analytics Business Survey 12

And Could Make Consumers More Cautious Based on 28-qtr rolling regressions on metro area retail sales, $ 0.25 0.20 Stock wealth Housing wealth 0.15 0.10 0.05 0.00 98 00 02 04 06 08 10 12 14 Sources: IXI MarketMix, Federal Reserve, Census Bureau, Moody s Analytics 13

Global Oil Supply Is Set to Turn Down Oil production costs, $ per bbl 80 70 Operating 60 50 40 30 20 10 0 Total Saudi Iraq Iran U.S. shale Sources: EIA, Moody s Analytics U.S. conv. Russia Canada 14

Energy, Commodities Bend the Business Cycle Business cycle status, March 2016 Source: Moody s Analytics Recession At Risk Recovery Expansion 15

Next Recession Will Scar Smaller Metro Areas Source: Moody s Analytics Late in cycle, below 2006-2009 peak Early in cycle, but with slowing housing market 16

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