Economics in Use GBA BANKING SCHOOL MAY 2 ND, 2016 UNIVERSITY OF GEORGIA ATHENS, GEORGIA

Economics in Use GBA BANKING SCHOOL MAY 2 ND, 2016 UNIVERSITY OF GEORGIA ATHENS, GEORGIA

Professor Evans Rules of Business 1) Buy low, sell high 2) Everything happens where the lines meet on the graph; outside of this point, someone is making money and someone is losing money 3) The truth is negotiable and subject to change due to fluctuations in market conditions

Economic Principles

Real World Economics

Review of Economic Models CAPITALISM: You have two cows; you sell one and buy a bull. You breed a herd, sell it, and retire on the income SOCIALISM: You have two cows; you give one to your neighbor COMMUNISM: You have two cows; the state takes both and gives you milk FASCISM: You have two cows; the state takes both and sells you some milk

Elements within Capitalism CORPORATION: You have two cows; you sell one and make the other produce the milk of four cows. You then hire a consultant to analyze why that cow dropped dead. GOVERNMENT: You have two cows; the state takes both, shoots one, milks the other, and then throws the milk away

Economic Schools of Thought Classical Theory Keynesian (Positive) Adam Smith s Invisible Hand John Maynard Keynes Leave the market to its own devices and it will naturally find a point of equilibrium that will bring stability and prosperity; NO GOVERNMENT INTERVENTION! Friedrich Hayek (Austrian) Aggregate demand is a key driver in the economy, and in downturns (like Great Depression) AD drops, leading to unnecessary unemployment. Gov can manipulate AD to smooth out cycles

Recent Economic Thought Neoclassical Synthesis Two Parts to Keynesian Method Blends Classical and Keynesian: Government can intervene BUT only to a point where the markets will self-regulate Stimulate in downturn AND Pay back in recovery Current system seems to have forgotten the back half of the equation! Did Bernanke s movements stimulate Aggregate Demand?

Aggregate Demand The total demand for goods and services within an economy at a certain point. This can be influenced by government either through monetary policy and/or fiscal policy Monetary Policy: The Fed can shift the aggregate demand curve when it changes monetary policy. An increase in the money supply shifts the money supply curve to the right. Without a change in the money demand curve, the interest rate falls. Falling interest rates increase the quantity of goods and services demanded.

Aggregate Demand Fiscal Policy Tools: Government Spending Taxation Remember austerity measures, expiration of tax cuts, etc? All of this affects economic performance

GDP: Gross Domestic Product

Recent GDP Composition

Net Exports: Impact of Strong Dollar Imports: Less Expensive for Us Exports: More Expensive for Them

Consumption: Medical Expenditures Just the Beginning of ACA Effects

Consumption: Changes in Preferences 55,000 50,000 45,000 40,000 Grocery Food Service 35,000 30,000 Jan-2010 Mar-2010 May-2010 Jul-2010 Sep-2010 Nov-2010 Jan-2011 Mar-2011 May-2011 Jul-2011 Sep-2011 Nov-2011 Jan-2012 Mar-2012 May-2012 Jul-2012 Sep-2012 Nov-2012 Jan-2013 Mar-2013 May-2013 Jul-2013 Sep-2013 Nov-2013 Jan-2014 Mar-2014 May-2014 Jul-2014 Sep-2014 Nov-2014 Jan-2015 Mar-2015 May-2015 Jul-2015 2015 first year ever where more was spent on restaurants than groceries!

Unemployment Rate U-3 Unemployment Rate: unemployed/labor force Official US unemployment rate; the percentage of labor force that is currently unemployed but was available for job in last four weeks and was actively seeking employment in that period. U-5 Unemployment Rate: Adds discouraged and marginally attached workers U-6 Unemployment Rate: Adds workers who are part-time for purely economic reasons

Unemployment Rate

Unemployment Rate: Tale of Two Cities Birmingham, AL U/E Rate 1/2011: 10.0% Labor Force 1/2011: 538,000 Employed 1/2011: 484,000 Tampa, FL U/E Rate 1/2011: 11.6% Labor Force 1/2011: 1.3mm Employed 1/2011: 1.15mm U/E Rate 1/2016: 5.8% Labor Force 1/2016: 527,400 Employed 1/2016: 496,900 U/E Rate 1/2016: 4.8% Labor Force 1/2016: 1,451,400 Employed 1/2016: 1,381,200 NET LABOR FORCE: -11,000 NET EMPLOYED: +12,900 NET LABOR FORCE: +151,400 NET EMPLOYED: +231,200

Economics in Use Practical Applications

Major Categories to Consider Build Your Own Model! Employment Housing Industrial/Manufacturing Service Industries Sentiment Indices Currency/Commodity/Credit

Employment Metrics BLS Employment Data ADP Payroll Data

BLS vs. ADP Employment Growth http://www.adpemploymentreport.com/ http://www.bls.gov/news.release/empsit.toc.htm

Housing Metrics Freddie Mac 30 Year Mortgage Rate Housing Starts and Permits New and Existing Home Sales Case-Shiller 20 City Growth Rate

FRMC 30 Year Mortgage Rate http://www.freddiemac.com/pmms/

Housing Starts and Permits https://www.census.gov/construction/bps/msamonthly.html

New and Existing Home Sales (Annualized) https://www.census.gov/construction/nrs/

Case-Shiller 20 City Growth Rate http://us.spindices.com/index-family/real-estate/sp-case-shiller

Industrial and Manufacturing Metrics Industrial Production ISM Manufacturing Index Markit PMI

Industrial Production http://www.federalreserve.gov/releases/g17/current/

ISM Manufacturing Index http://www.ism.ws/ismreport/mfgrob.cfm

Markit PMI http://www.markiteconomics.com/public/page.mvc/pressreleases

Service Metrics ISM Non-Manufacturing Markit Service PMI

ISM Non-Manufacturing Index http://www.ism.ws/ismreport/nonmfgrob.cfm

Markit Service PMI http://www.markiteconomics.com/public/page.mvc/pressreleases

Sentiment Indices Reuters/Michigan Consumer Confidence Index NFIB Small Business Optimism Index

NFIB Small Business Optimism http://www.nfib.com/surveys/small-business-economic-trends/

Reuters/U Michigan CC Index http://www.sca.isr.umich.edu/

Miscellaneous Metrics Dollar Spot Rate West Texas Intermediate Price Consumer Credit

Dollar Spot Rate: DXY http://ieconomics.com/dxy

West Texas Intermediate: WTI http://www.bloomberg.com/energy/

Consumer Credit http://www.federalreserve.gov/releases/g19/

Other Data Sources Employment Change United States Conference of Mayors http://www.usmayors.org/metroeconomies/ GMP Change United States Conference of Mayors http://www.usmayors.org/metroeconomies/ Median Home Price National Association of Realtors http://www.realtor.org/topics/metropolitan-median-area-prices-and-affordability/data Single Family Permits YTD US Census Bureau https://www.census.gov/construction/bps/msamonthly.html Multifamily Permits YTD US Census Bureau https://www.census.gov/construction/bps/msamonthly.html Home Ownership Rate US Census Bureau Homeownership Rates for Top 75 MSA http://www.census.gov/housing/hvs/data/rates.html FHFA MSA House Price Index FHFA House Price Index http://www.fhfa.gov/datatools/tools/pages/house-price-index-(hpi).aspx Leisure/Hospitality Employment Bureau of Labor Statistics http://www.bls.gov/eag/ Incoming Air Passengers Bureau of Transportation Statistics http://www.transtats.bts.gov/data_elements.aspx?data=1 Accomodations/Food Service Mgr Wage BLS Occupational Employment Statistics http://www.bls.gov/oes/current/oessrcma.htm US Personal Income ($mm) 1Q13/1Q14 Bureau of Economic Analysis http://www.bea.gov/newsreleases/regional/spi/sqpi_newsrelease.htm US Corporate Profits ($B) 1Q13/1Q14 St Louis Federal Reserve Bank http://research.stlouisfed.org/fred2/series/cp/ MSA Gas Price per Gallon US Department of Energy http://www.gasbuddy.com/gb_price_list.aspx?cntry=usa#us_cities Revolving Credit Federal Reserve http://www.federalreserve.gov/releases/g19/current/g19.pdf MSA Average Weekly Earnings BLS http://www.bls.gov/sae/tables.htm Fixed Investment Non-Res Structures BEA http://www.bea.gov/national/index.htm ISM Non Manufacturing Index Institute of Supply Management Non-Manufacturing Report on Business http://www.ism.ws/ismreport/pastrob.cfm PMI Services Index Markit Area (SF) Supply and Delivery Figures CBRE Econometric Advisors https://www.cbre-ea.com/index.aspx?_title=clienthome Average Hard Cost per Square Foot CBRE Econometric Advisors https://www.cbre-ea.com/index.aspx?_title=clienthome Total Intermodal + Carloads Shipped US Rail Association of American Railroads Railtime Indicators https://www.aar.org/newsandevents/pages/rail-time-indicators.aspx ISM Purchase Manager Index Index (US) Institute of Supply Management Report on Business http://www.ism.ws/ismreport/pastrob.cfm Markit US PMI Markit Economics http://www.markiteconomics.com/public/page.mvc/pressreleases

Econoday! http://mam.econoday.com/

Trading Economics http://www.tradingeconomics.com/

My Economic Barometer Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 GDP 0.6% 3.9% 2.0% 1.4% % Economy E-Commerce Retail Sales 3.5% 4.4% 3.8% 2.1% Retail DXY Dollar Index Spot Ex Rate 94.80 95.29 98.36 94.81 97.33 95.59 97.17 95.83 96.35 96.95 100.17 98.631 99.606 98.211 94.586 End of Month Index Economy West Texas Intermediate $ 49.08 $ 49.84 $ 51.71 $ 55.56 $ 60.24 $ 59.47 $ 47.56 $ 47.69 $ 45.09 $ 46.59 $ 41.65 $ 37.04 $ 33.62 $ 33.75 $ 38.34 $/Barrel Economy US Ten Year Yield 1.68% 2.00% 1.93% 2.12% 2.19% 2.42% 2.20% 2.20% 2.06% 2.15% 2.22% 2.27% 1.93% 1.74% 1.72% End of Month Yield % Economy ADP Employment Growth 250,000 212,000 175,000 169,000 201,000 237,000 177,000 186,000 190,000 196,000 217,000 257,000 205,000 214,000 200,000 Jobs Employment BLS Employment Growth 201,000 264,000 85,000 187,000 254,000 223,000 245,000 136,000 137,000 271,000 252,000 292,000 151,000 245,000 215,000 Jobs Employment US Unemployment Rate 5.7% 5.5% 5.5% 5.4% 5.5% 5.3% 5.3% 5.1% 5.1% 5.0% 5.0% 5.0% 4.9% 4.9% 5.0% % Employment S&P/Case Shiller 20 City 4.50% 5.00% 5.00% 4.90% 5.00% 4.90% 4.90% 5.10% 5.50% 5.50% 5.80% 5.60% 5.70% YOY % Housing New Home Sales 500,000 543,000 484,000 517,000 517,000 481,000 522,000 529,000 468,000 470,000 491,000 544,000 494,000 Homes Housing NAHB Housing Mkt Index 57 55 52 56 54 59 60 61 62 65 62 61 60 58 58 Diffusion >50 is positive Housing Housing Permits 1.060 1.102 1.038 1.140 1.250 1.337 1.130 1.161 1.105 1.161 1.282 1.204 1.204 1.167 Homes mm Housing Housing Starts 1.081 0.908 0.944 1.165 1.069 1.204 1.161 1.132 1.191 1.062 1.179 1.143 1.099 1.178 Homes mm Housing Existing Home Sales 4.82 4.89 5.21 5.04 5.32 5.48 5.58 5.3 5.55 5.32 4.76 5.45 5.47 5.08 Annualized mm Housing 30 Year Mortgage Rate FRMC 3.67% 3.71% 3.77% 3.68% 3.87% 4.02% 3.98% 3.91% 3.89% 3.76% 3.95% 4.01% 3.79% 3.62% 3.71% % Housing FHFA Home Price Index Purch 0.3% 0.6% 0.3% 0.3% 0.4% 0.20% 0.50% 0.30% 0.70% 0.50% 0.60% 0.40% % Housing Markit PMI 53.9 55.1 55.7 54.1 54.0 53.6 53.8 53.0 53.1 54.1 52.8 51.2 52.4 51.3 51.5 Diffusion >50 is positive Man/Ind ISM Manufacturing Index 53.5 52.9 51.5 51.5 52.5 53.5 52.7 51.1 50.2 50.1 48.6 48.0 48.2 49.5 51.8 Diffusion >50 is positive Man/Ind Industrial Production -0.40% 0.00% 0.00% -0.50% -0.20% 0.10% 0.60% -0.10% -0.20% -0.40% -0.90% -0.70% 0.80% -0.50% % Man/Ind Manufacturing -0.30% -0.20% 0.30% 0.10% -0.20% -0.30% 0.80% -0.40% -0.10% 0.30% -0.10% -0.20% 0.50% 0.20% % Man/Ind PMI Services Index (Markit) 54.2 57.1 59.2 57.4 56.2 54.8 55.7 56.1 55.1 54.8 56.1 54.3 53.2 49.7 Diffusion >50 is positive Office ISM Non-Manufacturing Ind 56.7 56.9 56.5 57.8 55.7 56.0 60.3 59 56.9 59.1 55.9 55.3 53.5 53.4 Diffusion >50 is positive Office Auto Sales 16.7 16.2 17.2 16.9 17.8 17.2 17.6 17.8 18.2 18.2 18.2 17.3 17.6 17.5 Annualized Retail Retail Sales -0.6% -0.5% 0.9% 0.2% 1.2% 0.0% 0.6% 0.0% 0.1% 0.1% 0.4% 0.2% -0.4% -0.1% % Retail RS Less Autos and Gas -0.1% -0.3% 0.5% 0.2% 0.7% 0.2% 0.4% 0.2% 0.0% 0.1% 0.5% 0.1% 0.1% 0.3% % Retail Consumer Credit $ 10.8 $ 14.8 $ 21.3 $ 20.5 $ 16.1 $ 27.0 $ 18.9 $ 16.0 $ 28.9 $ 15.6 $ 14.0 $ 6.4 $ 10.5 MTM, B, Revolv & NR Retail Reuters/Mich Consumer Sent 98.1 95.4 93.0 95.9 90.7 96.1 93.1 91.9 87.2 90 91.3 92.6 92.0 91.7 General Index Retail NFIB Small Biz Optimism Ind 97.9 98 95.2 96.9 98.3 94.1 95.4 95.9 96.1 96.1 94.8 95.2 93.9 92.9 91 General Index Small Business