Worcester Business Journal February 2016 Karin Kimbrough Head of Macro and Economic Policy, Investment Management & Guidance We re better when we re connected
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3 Questions Where does the economy go from here? Labor force and demographic trends? What is the Fed going to do?
U.S. - Still Growing After All These Years 4.0 Forecast 3.0 2.0 % 1.0 0.0-1.0-2.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016F 2017F Source: BEA as of November 23, 2015. The economic forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved.
U.S. Consumers Have Delivered Source: Bloomberg. Data as of December 31, 2015. *Household debt service ratio is the ratio of total required household debt payments to total disposable income. Financial obligations ratio is the ratio of mortgage payments, credit cards, property tax, lease payments, homeowner s insurance and rental payments, to total disposable income.
U.S. Housing Market is Picking Up Source: Bloomberg. Data as of December 31, 2015.
Consumers OK, Firms Less So Consumers Are Still Spending Companies Are Not Source: Bloomberg. Data as of December 31, 2015.
An Industrial Sector Recession ISM manufacturing is weak Industrial sector share of the economy is shrinking Shaded Bars are NBER recessions. Source: Institute for Supply Management and Bank of America Merrill Lynch Global Research. Data as of January 22, 2016.
Where the Jobs Are and Aren t Source: BLS. Data as of October 15, 2015.
A Declining Labor Force Participation Rate 68 Peak in 1999 67 66 65 64 63 62 61 Baby Boomers and Women join labor market en masse Youth go back to school Boomers retiring, but living longer Women having fewer children 60 1986 1994 2002 2010 Source: Both slides: Bureau of Labor Statistics, Merrill Lynch GWRS. Data as of October 2015.
Inflation Still Low Source: Bloomberg. Data as of Dec 31, 2015. CPI Consumer Price Inflation, PCE Personal Consumption Expenditure. Core inflation measures (CPI and PCE) exclude food and energy prices.
Fed Expected to Raise Rates EXTREMELY Gradually Source: BofAML Global Research. The chart plots the fed funds rate target after the first hike. Overnight Index Swap (OIS) rate has been used for the upcoming hiking cycle. Data as of January 11, 2016. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved.
Rates to stay low for longer 18 % 16 14 12 10YR Treasury Yield 10 8 6 4 2 0 1953 - Apr 1956 - Dec 1960 - Aug 1964 - Apr 1967 - Dec 1971 - Aug 1975 - Apr 1978 - Dec 1982 - Aug 1986 - Apr 1989 - Dec 1993 - Aug 1997 - Apr 2000 - Dec 2004 - Aug 2008 - Apr 2011 - Dec 2015 - Aug % 4.5 4.0 3.5 Forecast 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2010 - Jan 2011 - Jan 2012 - Jan 2013 - Jan 2014 - Jan 2015 - Jan 2016 - Jan Source: U.S. Treasury and Haver. Data as of November 23, 2015. The market and economic forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved.
USD Could Strengthen Further 180 140 160 130 140 120 120 110 100 100 80 Dollar Index 90 US Broad Trade Weighted Dollar 60 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 80 1995 2000 2005 2010 2015 Dollar Index = U.S. Dollar Spot Index; US Broad Trade Weighted Dollar = a US Dollar index comprised of a basket of the U.S. trading partners, including emerging markets Source: Bloomberg, Federal Reserve, and ML GWM Investment Management & Guidance. Data as of February 4, 2016.
TINA Still in Effect ( there is no alternative ) 2500 Forecast: 2200 by end 2016 2000 1500 1000 500 S&P 500 0 1980 1985 1990 1995 2000 2005 2010 2015 Source: Bloomberg, IMG. Data as of January 12, 2016. The economic and market forecasts presented are for informational purposes as of the date of this report. There can be no assurance that the forecasts will be achieved.
We re better when we re connected