U.S. Economic Outlook STEVE COCHRANE, MANAGING DIRECTOR

U.S. Economic Outlook STEVE COCHRANE, MANAGING DIRECTOR

Recessions Are Few and Far Between Business cycle status, January 2017 Source: Moody s Analytics Recession At Risk Recovery Expansion

Wage Growth Is Normalizing % 4.0 Job opening rate, 1-yr lag (L) 3.5 Wage growth (R) 3.0 2.5 2.0 Correlation coefficient =.67 1.5 00 02 04 06 08 10 12 14 16 Sources: Atlanta Federal Reserve, Moody s Analytics 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 3

Housing Vacancy Is Low and Falling Vacancy rate, homes for sale and rent, 4-qtr MA, % 5.00 4.75 4.50 4.25 4.00 Current Housing Supply 1,250,000 Single-family 800,000 Multifamily 375,000 Manufactured Housing 75,000 Trend Housing Demand 1,700,000 Household Formations 1,200,000 Obsolescence 325,000 Second Homes 175,000 3.75 3.50 3.25 90 92 94 96 98 00 02 04 06 08 10 12 14 16 Sources: Census Bureau, Moody s Analytics 4

A Few Housing Markets Heating Up FHFA all-transactions index, % above equilibrium trend, 2016Q4 Sources: FHFA, BEA, Census Bureau, Moody s Analytics U.S. = 0.4% < -10% -9.99 to 0% 0 to 9.99% >10% 5

The Economy Is Bubble Free Domestic private sector debt-to-gdp ratio 3.00 2.75 2.50 2.25 2.00 1.75 1.50 1.25 1.00 70 75 80 85 90 95 00 05 10 15 Sources: Federal Reserve Board, Moody s Analytics Trend 6

Will Corporate Tax Reform Add Up? Change in corporate tax revenue over 10 yrs, $ bil 0-500 -1,000-1,500 Net Impact on Revenue Border Adjustment Base Broadening Deemed Repatriation Territorial System Capex/Interest 20% Corporate Rate -2,000-2,500 Sources: Tax Policy Center, Moody s Analytics 7

Monetary Policy Normalization Could Be Messy % 1.00 ECB Deposit Rate 0.75 Federal Funds Rate 0.50 0.25 0.00-0.25-0.50 10 11 12 13 14 15 16 17 Sources: ECB, Federal Reserve, Moody s Analytics 8

Economy Needs More Immigration, Not Less Contribution to working age population growth, ppt, 5 yr avg 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0-0.2-0.4 Net International Migration Natural Growth Total 90-94 95-99 00-04 05-09 10-14 15-19 20-24 25-29 Sources: Census Bureau, Moody s Analytics 9

Posing Greatest Risk to Northeast Net international migration, per 1,000 Residents, 0.05 2.39 2.39-4.82 > 4.82 Sources: Census Bureau, Moody s Analytics 10

Back Tracking on Globalization Will be Painful Participation in global value chains, % India Brazil Australia Mexico U.S. Spain Canada Taiwan Japan Thailand Italy Russia Saudi Arabia China Switzerland Korea France Germany Malaysia Sweden HK Netherlands UK Belgium Singapore Foreign value added used in country's exports (upstream) plus value added supplied to other countries' exports (downstream), divided by total exports. 20 40 60 80 Sources: UNCTAD-Eora GVC Database, Barclays Research, Moody s Analytics 11

Balance of Trade Favors Ag Commodity Areas Net merchandise exports, % share of GSP 2015 U.S. = -3.9 > 0.2 Near avg < -5.1 Sources: BEA, Census Bureau Foreign Trade Division, Moody s Analytics 12

Productivity Slump Could Continue Annualized growth, %, 4-yr MA 4.0 3.5 Productivity (L) 3.0 Info processing eq., 4-yr lag (R) 2.5 2.0 25 20 15 10 1.5 1.0 0.5 0.0 Correlation coefficient =.94 95 00 05 10 15 20 5 0-5 Sources: BLS, Moody s Analytics 13

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