U.S. Macro Economic Outlook BRYON J PARMAN DEPARTMENT OF AG. BUSINESS AND APPLIED ECONOMICS NDSU EXTENSION - Current US Economic Situation GDP/GNP Unemployment Spending - Macro Trade Trade Balance Industries Affected - Interest Rates Income Interest Macro Discussion Points BLS Unemployment Rate Unemployment 12.0 10.0 8.0 6.0 4.0 2.0 0.0 Unemployment Rate 1948 1951 1954 1957 1960 1963 1966 1969 1972 1975 1978 1981 1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 Unemployment in the U.S. 1981-2018 Employment Structure Real average hourly earnings(1) Real average weekly earnings(1) Average weekly hours Percentage Increase 0.5 1.1 0.6
Stock Market GDP vs. GNP 29000 27000 25000 23000 21000 19000 17000 15000 Dow Jones Monthly Average Close Since 2016 Average Monthly rate Of gain 1.27% Gross Domestic Product (GDP) Goods produced within the boarders of the U.S. and her territories. This includes goods made by companies owned by foreign entities Toyota Cars/Trucks Yokahoma Tires Gross National Product (GNP) Production & Output from companies owned by U.S. Citizens anywhere in the World Does not mater the location Ford Trucks/ Cars in Mexico Consulting services abroad 5 Year GDP Growth 1990 2018 GDP vs. GNP
-1-2 1990-1999 GDP vs GNP GDP vs GNP 10 yr Growth Inflation US Quarterly Inflation Rate 6 5 4 3 2 1 0 2005-Q1 2005-Q2 2005-Q3 2005-Q4 2006-Q1 2006-Q2 2006-Q3 2006-Q4 2007-Q1 2007-Q2 2007-Q3 2007-Q4 2008-Q1 2008-Q2 2008-Q3 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 2014-Q3 2014-Q4 2015-Q1 2015-Q2 2015-Q3 2015-Q4 2016-Q1 2016-Q2 2016-Q3 2016-Q4 2017-Q1 2017-Q2 2017-Q3 2017-Q4 2018-Q1 2018-Q2 2018-Q3 Fed Target Deflation Trade
U.S. Real Imports and Exports Rank Country Exports Imports Total Trade Percent of Total Trade --- Total, All Countries 1,546.8 2,342.9 3,889.7 100.0% --- Total, Top 15 Countries 1,096.6 1,820.1 2,916.8 75.0% 1 China 130.4 505.6 636.0 16.4% 2 Canada 282.4 300.0 582.4 15.0% 3 Mexico 243.0 314.0 557.0 14.3% 4 Japan 67.7 136.5 204.2 5.3% 5 Germany 53.5 117.7 171.2 4.4% 2017 Top Trading Partners Top 15 Countries Data From U.S. Census Bureau 6 Korea, South 48.3 71.2 119.4 3.1% 7 United Kingdom 56.3 53.1 109.4 2.8% Balance of Trade 2014 [5] China Euro Area Japan Mexico Pacific Canada Middle East Lat. America Total by Product Computer -151.9 3.4-8.0-11.0-26.1 20.9 5.8 12.1-155.0 Oil, Gas, Minerals 1.9 6.4 2.4-20.8 1.1-79.8-45.1-15.9-149.7 Transportation 10.9-30.9-46.2-59.5-0.5-6.1 17.1 8.8-106.3 Apparel -56.3-4.9 0.6-4.2-6.3 2.5-0.3-1.1-69.9 Electrical Equipment -35.9-2.4-4.0-8.5-3.3 10.0 1.8 2.0-40.4 Misc. Manufacturing -35.3 4.9 2.7-2.8-1.4 5.8-1.5 1.8-25.8 Furniture -18.3-1.2 0.0-1.6-2.1 0.4 0.2 0.0-22.6 Machinery -19.9-27.0-18.8 3.9 7.6 18.1 4.5 9.1-22.4 Primary Metals -3.1 3.1-1.8 1.0 1.9-8.9-0.9-10.4-19.1 Fabricated Metals -17.9-5.9-3.5 2.8-4.3 7.3 1.2 1.9-18.5 Plastics -15.7-1.9-2.0 5.7-4.1 2.6-0.1 0.5-15.0 Textile -12.3-1.1-0.3 2.8-4.6 1.5-0.9 0.2-14.7 Nonmetallic Minerals -6.1-1.9-0.4-1.2 0.1 1.9-0.5-0.8-8.9 Chemical -3.9-39.5-1.5 19.1 3.2 4.6-2.4 15.8-4.7 Food 0.7-3.6 6.1 4.9 0.9 0.1 1.4-1.1 9.5 Agriculture 17.8 6.2 7.3-3.0 5.7-0.8 2.8-6.5 29.5 Petroleum 0.6-1.2 0.1 16.6-2.0-0.1 0.6 18.3 32.9 2017 : U.S. trade in goods with China NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade. Month Exports Imports Balance January 2017 9,961.1 41,343.1-31,382.0 February 2017 9,735.8 32,804.3-23,068.5 March 2017 9,719.2 34,186.9-24,467.8 April 2017 9,805.7 37,465.6-27,660.0 May 2017 9,862.2 41,783.1-31,920.9 June 2017 9,717.4 42,289.2-32,571.7 July 2017 9,979.1 43,589.2-33,610.1 August 2017 10,828.3 45,817.8-34,989.4 September 2017 10,911.7 45,429.7-34,518.0 October 2017 12,963.4 48,167.7-35,204.2 November 2017 12,765.0 48,127.8-35,362.8 December 2017 13,644.8 44,465.7-30,820.9 TOTAL 2017 129,893.6 505,470.0-375,576.4 Data from the US Census Bureau
2018 : U.S. trade in goods with China NOTE: All figures are in millions of U.S. dollars on a nominal basis, not seasonally adjusted unless otherwise specified. Details may not equal totals due to rounding. Table reflects only those months for which there was trade. Month Exports Imports Balance January 2018 9,835.3 45,788.0-35,952.8 February 2018 9,806.1 39,067.6-29,261.5 March 2018 12,382.1 38,256.7-25,874.6 April 2018 10,268.0 38,230.0-27,962.0 May 2018 10,610.8 43,797.4-33,186.6 June 2018 11,115.6 44,599.5-33,483.8 July 2018 10,261.7 47,096.0-36,834.3 August 2018 9,294.3 47,863.9-38,569.6 TOTAL 2018 83,573.9 344,699.1-261,125.2 What sectors account for the largest share of U.S. and Chinese Trade? Farm Crops account for Largest share of U.S. Exports To China GDP vs GNP for China Ag. Percentage of GDP Gross Output of Ag. To Total GDP As of July 2018 Ag, forestry, fishing, and hunting = 365.7 billion US Real Gross Output = 30,270.2 Billion Ratio 1.21%
Biggest Changes Auto Industry The USMCA NAFTA 2.0 75% of components must be made in the area vs 62.% in under the old system. Higher Minimum wage for auto workers in Mexico 40% of a car must be made at a plant paying $16/hour 3.5% of Canadian diary market will open up to U.S. Interest Rates Comments From the Federal Reserve A summary of the Sept. 25-26 Federal Open Market Committee session reflected both confidence in the rate of economic growth and some hesitancy over the impact that tariffs might have on the future path Ultimately, the committee unanimously voted to approve a quarter-point hike to its benchmark rate target, with members indicating that more increases are on the way. The increase took the Fed's overnight target to a range of 2 percent to 2.25 percent NOTE: Steel and Aluminum are not included in the USMCA Monthly Average Prime Rates 1960 August, 2018 10 Year US T-Bill Yields October 2017 October 2018
10 Year T-Bill Rate vs 30 Year Mortgage Rates 1971 2018 Correlation between 10 yr T bill and 30 yr Mortgage, 0.99 (1 is a perfect relationship) Average Difference is 170 Basis points Why Raise Rates? Primarily interest rates are used as a tool to promote growth, or limit inflation Lower Rates encourage borrowing and growth often used to help mitigate recession Higher rates limit inflation and encourage saving In the long run, rates must increase to ensure the FED has tools in the future should another recession arise Currently unemployment is 3.9% Full employment at 5% Current Inflation rate 2.7% Target rate at 2% What does the Fed Think? 3.25% by the end of 2019 1962 2018 10 Yr T- Bill averages 105 basis points higher than Federal Funds Rate Mean: 105 Min: -414 basis points Max: 371 basis points CV: 1.54 1990 2018 Difference Mean: 168 basis Min: -89 points Max: 371 points CV: 0.73
Interest Rates Impact on Agriculture Interest recently has had a reduced impact on operating expenses 6 5 4 3 2 1 0 Percentage of Operating Expenses7 Interest as a Percentage of Operating Expenses Year What is the Long Run Target? Comments from the FED suggest the long range target rate = 3 % 3% viewed as the neutral rate What does a 3% Federal Funds Rate mean? 4.68% 10 Year T-Bill yield (approximately) 6.375% 30 Year Mortgage rate (approximately)
Thank You Bryon J. Parman, Ph.D Agricultural Financial Specialist North Dakota State University Extension 701-231-8248 bryon.parman@ndsu.edu