Economic Update. December 2017

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Transcription:

Economic Update December 2017 If you have any questions or comments, please contact: Steven Rick, Chief Economist CUNA Mutual Group Economics 800.356.2644, Ext. 665.5454 steve.rick@cunamutual.com CUNA Mutual Group Proprietary Reproduction, Adaptation or Distribution Prohibited 2016 CUNA Mutual Group, All Rights Reserved.

5 Minute Federal Reserve Board Meeting

5 Minute Federal Reserve Board Meeting Federal Reserve s Dual Mandate

5 Minute Federal Reserve Board Meeting Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources

5 Minute Federal Reserve Board Meeting Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Federal Reserve Critical Measures

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual Inflation Rate 2% 1.4%

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual Inflation Rate 2% 1.4% Unemployment Rate 5% 4.1%

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual Inflation Rate 2% 1.4% Unemployment Rate 5% 4.1% Economic Output Gap 0% 0%

Falling GDP Output Gap in 2017 With the Economy Reaching its Potential Level of Output GDP Output Gap vs. Federal Funds Rate 6% Output Gap (Left Axis) Federal Funds Rate (Right Axis) Recession 7.0% -8% Source: CBO & Federal 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 0.0%

Falling GDP Output Gap in 2017 With the Economy Reaching its Potential Level of Output GDP Output Gap vs. Federal Funds Rate 6% Output Gap (Left Axis) Federal Funds Rate (Right Axis) Recession 7.0% -8% Source: CBO & Federal 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 0.0%

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual Inflation Rate 2% 1.4% Unemployment Rate 5% 4.1% Economic Output Gap 0% 0% Fed Funds Interest Rate 3% 1.40%

5 Minute Federal Reserve Board Meeting Federal Reserve Critical Measures Federal Reserve s Dual Mandate 1. Stables Prices 2. Full Employment of Resources Long-Run Equilibrium Goal Actual Inflation Rate 2% 1.4% Unemployment Rate 5% 4.1% Economic Output Gap 0% 0% Fed Funds Interest Rate 3% 1.40% 10-Year Treasury Rate 4% 2.3%

Stronger Economic Growth in 2018, around 2.4% 5% 4% 3% 1% 4.1% 1.0% 1.8% 3.8% 3.3% 2.8% 2.7% U.S. Economic Growth Rate 1.8% 2.5% 2.6% 2.6% 2.2% 2.4% 2.3% 1.6% 1.5% 1.6% 2.0% 5% 0% -1% -0.3% -1.0% -3% -4% -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20-4% Source: Department of Commerce.

When is the Next Recession?

16 14 12 10 8 6 4 2 0-2 -4-6 -8-10 CU Growth Rate Gap Loan Growth Less Deposit Growth Area 3 Recession Growth Rate Gap Gap Forecast -12 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

16 14 12 10 8 6 4 2 0-2 -4-6 -8-10 CU Growth Rate Gap Loan Growth Less Deposit Growth Borrowing future income for current consumption Area 3 Recession Growth Rate Gap Gap Forecast -12 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

16 14 12 10 8 6 4 2 0 CU Growth Rate Gap Loan Growth Less Deposit Growth Borrowing future income for current consumption Area 3 Recession Growth Rate Gap Gap Forecast -2-4 -6-8 -10-12 Saving current income for future consumption 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

16 14 12 10 8 6 4 2 0 CU Growth Rate Gap Loan Growth Less Deposit Growth Borrowing future income for current consumption Area 3 Recession Growth Rate Gap Gap Forecast -2-4 -6-8 -10-12 1998 Global Financial Crisis Saving current income for future consumption 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21

12 10 8 6 4 2 0-2 -4-6 -8-10 Growth Rate Gap Loan Growth Less Deposit Growth Forecast Growth Rate Gap Recession Gap Forecast 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20

What could cause faster economic growth? 5% 4% 3% 1% 0% -1% -3% -4% 4.1% 3.8% 3.3% 2.8% 2.7% 1.8% 1.8% 1.0% U.S. Economic Growth Rate -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Department of Commerce. -0.3% 2.5% 2.2% 2.4% 2.6% 2.3%2.4% 1.6% 1.5% 1.6% -1.0% 2.0% 5% -4%

What could cause faster economic growth? 1. Infrastructure and military spending 5% 4% 3% 1% 0% -1% -3% -4% 4.1% 3.8% 3.3% 2.8% 2.7% 1.8% 1.8% 1.0% U.S. Economic Growth Rate -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Department of Commerce. -0.3% 2.5% 2.2% 2.4% 2.6% 2.3%2.4% 1.6% 1.5% 1.6% -1.0% 2.0% 5% -4%

What could cause faster economic growth? 1. Infrastructure and military spending 2. Lower personal taxes => rising consumer spending 5% 4% 3% 1% 0% -1% -3% -4% 4.1% 3.8% 3.3% 2.8% 2.7% 1.8% 1.8% 1.0% U.S. Economic Growth Rate -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Department of Commerce. -0.3% 2.5% 2.2% 2.4% 2.6% 2.3%2.4% 1.6% 1.5% 1.6% -1.0% 2.0% 5% -4%

What could cause faster economic growth? 1. Infrastructure and military spending 2. Lower personal taxes => rising consumer spending 3. Lower corporate taxes => rising business investment 5% 4% 3% 1% 0% -1% -3% -4% 4.1% 3.8% 3.3% 2.8% 2.7% 1.8% 1.8% 1.0% U.S. Economic Growth Rate -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Department of Commerce. -0.3% 2.5% 2.2% 2.4% 2.6% 2.3%2.4% 1.6% 1.5% 1.6% -1.0% 2.0% 5% -4%

What could cause faster economic growth? 1. Infrastructure and military spending 2. Lower personal taxes => rising consumer spending 3. Lower corporate taxes => rising business investment 4. Rising animal spirits => rising consumer and business spending 5% 4% 3% 1% 0% -1% -3% -4% 4.1% 3.8% 3.3% 2.8% 2.7% 1.8% 1.8% 1.0% U.S. Economic Growth Rate -2.8% Economic Growth Rate Long Run Growth Rate 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Department of Commerce. -0.3% 2.5% 2.2% 2.4% 2.6% 2.3%2.4% 1.6% 1.5% 1.6% -1.0% 2.0% 5% -4%

Labor Market Beyond Full Employment 11 10 9 8 7 6 5 4 3 2 1 CU Delinquency Rate Versus Unemployment Rate Unemployment (Left Axis) Recession Area 1 4.7% Full Employment Target (Left Axis) 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18

Wisconsin Unemployment Rate at 3.5%, down from 4.2% Last Year (Percent) 12 11 10 9 8 7 6 5 4 3 2 1 0 Unemployment Rate Minnesota Vs Wisconsin U.S. Recession Area 1 Minnesota Wisconsin 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 12 9 6 3 0 DISCOVERY CONFERENCE 27

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast Rising Long-term Interest Rates in 2018:

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast Rising Long-term Interest Rates in 2018: 1. U.S. inflation ( P oil, Wages)

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast Rising Long-term Interest Rates in 2018: 1. U.S. inflation ( P oil, Wages) 2. Fiscal Package (more inflation than growth)

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast Rising Long-term Interest Rates in 2018: 1. U.S. inflation ( P oil, Wages) 2. Fiscal Package (more inflation than growth) 3. Federal Reserve shrinking balance sheet

Federal Reserve will Raise Fed Funds Interest Rate 0.75 pp in 2018 10-Year Treasury will increase 0.40 percentage point in 2017 18 Interest Rates and Recessions 14 9 5 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Fed Funds 10-yr Treas Recession Forecast Forecast Rising Long-term Interest Rates in 2018: 1. U.S. inflation ( P oil, Wages) 2. Fiscal Package (more inflation than growth) 3. Federal Reserve shrinking balance sheet 4. ECB exiting QE

13 Risks to Markets and Economy in 2018

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data).

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors. 9. Bigger than expected positive economic impact of U.S. tax reform than expected.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors. 9. Bigger than expected positive economic impact of U.S. tax reform than expected. 10.Continued rise in US inequality => more dissatisfied voters => more populism coming.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors. 9. Bigger than expected positive economic impact of U.S. tax reform than expected. 10.Continued rise in US inequality => more dissatisfied voters => more populism coming. 11.Special prosecutor Robert Mueller s Russia investigation.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors. 9. Bigger than expected positive economic impact of U.S. tax reform than expected. 10.Continued rise in US inequality => more dissatisfied voters => more populism coming. 11.Special prosecutor Robert Mueller s Russia investigation. 12.Rising commodity prices.

13 Risks to Markets and Economy in 2018 1. U.S. inflation moving higher => interest rate moving up faster than expected. 2. ECB exiting QE in 2018 Qtr. 2. 3. Negative EU government bond rates coming to an end, impacting global bond markets. 4. U.S. Investment Grade and High Yield bond spreads to widen because of lower foreign appetite. 5. New Fed leadership to be tested (will Jerome Powell be politically driven, or driven by incoming data). 6. Rising term premia in Treasuries as global central bank QE comes to an end. 7. Valuation and fundamentals mismatch in US equities, are markets ready for a small correction. 8. Bitcoin crash, confidence impact on retail investors. 9. Bigger than expected positive economic impact of U.S. tax reform than expected. 10.Continued rise in US inequality => more dissatisfied voters => more populism coming. 11.Special prosecutor Robert Mueller s Russia investigation. 12.Rising commodity prices. 13.Housing bubble burst in china => China equity market correction => slower Chinese economic growth.

Rising Deficits Over Next 4 Years and Rising Long-term Interest Rates Federal Government Surplus/Deficit (Billions of Dollars) $400 $200 $0 -$200 -$400 -$600 -$800-22 -107-164 -203-269 -255-290 69 126 236 128-158 -378-413 -248-318 -161-459 -438-485 -520-590 -594-625 -680-714 2% -$1,000 -$1,200 -$1,400 -$1,600 -$1,800 Deficit (LHS) Deficit-to-GDP (RHS) -3% Deficit Ratio Limit (RHS) -1,294-1,300 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20-1,413-1,087 Source: Congressional Budget Office. -9%

Rising Deficits Over Next 4 Years and Rising Long-term Interest Rates 12.0 Nominal Interest Rates, Real Interest Rates and Inflation Expectations TIPS (10-Yr) Line 2 10-yr Treas Inflation Expectations 8.8 5.5 2.3-1.0 07 08 09 10 11 12 13 14 15 16 17 DISCOVERY CONFERENCE 49

Vehicle Sales over17 million in 2018 Millions of Units 21 20 19 18 17 16 15 14 13 12 11 10 9 8 U.S. Vehicles Sales Seasonally Adjusted Annual Rate 07 08 09 10 11 12 13 14 15 16 17 18 19 20 Source: Autodata Corp. New Auto Sales Recession Inherent Demand Auto Sales Forecast

Home Sales will Accelerate to 5.6 million in 2018 8,000 7,500 7,000 6,500 Existing Home Sales (annual rate) & Inventories Sales (Left Axis) Recession Healthy Housing Market Home Sales Foecast (Left Axis) Thousands 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20

Home Sales will Accelerate to 5.6 million in 2018 Thousands 8,000 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 Existing Home Sales (annual rate) & Inventories Sales (Left Axis) Recession Inventories (Right Axis) Healthy Housing Market Home Sales Foecast (Left Axis) 4,250 4,000 3,750 3,500 3,250 3,000 2,750 2,500 2,250 2,000 1,750 Thousands 2,500 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 1,500

High Stock Prices Producing Wealth Effect among High-Income Households Home Prices will Rise 6% in 2018 S&P 500 Stock Index (monthly average) 6,000 4,500 3,000 1,500 0 Price-Earnings Ratio (Right Axis) Recession Real S&P Index (Left Axis) Nominal S&P Index (Left Axis) 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 53

High Stock Prices Producing Wealth Effect among High-Income Households Home Prices will Rise 6% in 2018 12 10 8 6 4 2 0-2 -4-6 -8-10 -12 Recession U.S. OFHEO House Price Index (4-Qtr Percent Change) Seasonally-Adjusted Purchase-Only Index 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 12 10 8 6 4 2 0-2 -4-6 -8-10 -12 55

Wisconsin Home Prices will Rise 6% in 2018 15 OFHEO House Price Index (4-Qtr Percent Change) 15 10 10 5 5 0 0-5 -5-10 Minnesota U.S. Wisconsin Recession -10-15 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 U.S. home prices rose 6.6% over the last year. Wisconsin s home prices rose 6.2% over the last year. Minnesota s home prices rose 7.2% over the last year. -15 56

National Savings Rate is Falling 10 National Savings Rate [3-month moving average (Personal Savings/DPI)] 9 8 7 6 5 4 3 2 1 0 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 57

Confidence at 17 year Highs 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Consumer Confidence & Sentiment Index Recession Confidence Sentiment 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 58

Confidence at 17 year Highs 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Consumer Confidence & Sentiment Index December 2000 Recession Confidence Sentiment 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 59

Optimism:

Optimism: 1. sustained low gas prices

Optimism: 1. sustained low gas prices 2. low interest rates

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation 4. rising stock and home prices

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation 4. rising stock and home prices 5. labor market at full employment & rising job openings

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation 4. rising stock and home prices 5. labor market at full employment & rising job openings 6. low debt burdens

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation 4. rising stock and home prices 5. labor market at full employment & rising job openings 6. low debt burdens 7. improving credit availability

Optimism: 1. sustained low gas prices 2. low interest rates 3. low retail inflation 4. rising stock and home prices 5. labor market at full employment & rising job openings 6. low debt burdens 7. improving credit availability 8. possible tax cuts.

Pessimism:

Pessimism: 1. worries over pace of job growth

Pessimism: 1. worries over pace of job growth 2. political uncertainty, dysfunction and gridlock

Pessimism: 1. worries over pace of job growth 2. political uncertainty, dysfunction and gridlock 3. slow wage growth

Pessimism: 1. worries over pace of job growth 2. political uncertainty, dysfunction and gridlock 3. slow wage growth 4. fears of financial market bubbles (i.e. non investment grade corporate bond market)

The Dollar is Falling and Oil Prices are Rising U.S. Dollar Exchange Rate Major Currency Index Nominal & Real (1973 = 100) 120 105 3-D Column 4 3-D Column 3 Real Nominal 120 105 90 90 75 75 60 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 60 74

The Dollar is Falling and Oil Prices are Rising Oil Price per Barrel (West Texas Intermediate Crude) 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 Nominal Recession Area 1 Real 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 150 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 75

Wisconsin Economic Growth 6% 5% 3% 2% 0% -2% -3% -5% -6% 4.3% 4.7 5.5% 7.3 4.8% 4.2 4.2% WI Economic Growth WI Growth Rate Gap WI Economic Growth vs WI CU Growth Rate Gap (Loan Growth less Deposit Growth) 3.3% -0.9-0.6 1.9 0.4% 0.2% -7.6 3.2% -3.6 2.6% 2.7 2.1% 2.7 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 3.8% -1.7 3.8% -3.4 3.4% 2.1 3.3% 4.4 3.7% 0.7 9 6 3 0-3 -6-9 Source: Department of Commerce. 76

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