ket Update 19, 25 PFM Asset Management LLC 3 South Orange Avenue Suite 1170 Orlando, FL 328 (407) 648-2208 (407) 648-1323 fax
The Economy: Solid Growth GDP grew at 3.1% in the first quarter Follows 3.9% growth in 20 Preliminary number lower than expected Trade deficit reduced output Business investment and spending slowed Forecasts for first half of 25 reduced to + 3% Purchasing Manager Survey Shows Cooling Trend ISM Index has declined to 53.3 in il 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% 65.0 60.0 55.0 50.0 45.0 97 Annualized GDP (Quarterly Change) ch 17 ch 25 97 ISM Manufacturing Index il 19 il 25 Measures over 50 signal expansion 40.0 35.0 2
Retail Sales Appear Strong After Small Spring Dip Retail sales growing at 8-9% yearover-year in recent months Retail Sales Year-Over-Year Change il 19 il 25 ch dip followed by strong il Underlying growth excluding autos also at 8-9% High oil prices skew recent data 9.0% 7.0% 5.0% 3.0% 1.0% -1.0% -3.0% Personal income growing at + 6% year over year Microsoft dividend distorted recent data Robust tax collections are strong 10.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.% Personal Income Year-Over-Year Change ch 19 ch 25 3
Housing Sector Remains Solid Strong in 4 th Quarter followed by solid Spring ch Housing Starts down 18% from strong February number, but il rebounded 23 22 21 20 19 18 17 16 15 14 13 12 Annualized Housing Starts (in Thousands) il 19 il 25 New and existing home sales for ch set records, suggesting continued strong demand Economists continue to ask if there is a housing bubble 15 14 13 12 11 10 9 8 7 6 Annualized New Home Sales (in Thousands) ch 19 ch 25 4
Labor ket Growth Has Slowed Recently Payrolls grew at 210,0/month in first 4 months of 25 Change in Non-Farm Payrolls (in thousands) il 19 il 25 3 This is same as pace in 20 when economy added 2.2 million jobs 1-1 -3 Revisions to first quarter reports suggest underlying strength -5 The unemployment rate remains at or near 5.2% Unemployment Rate il 19 il 25 6.0% Work week remains steady, hourly earnings on the rise 5.0% 4.0% 3.0% 5
Fed Cautions About Risk of Inflation; although Current Indicators Are Mild Core CPI up 2.2% on a yearover-year basis; overall CPI +3.5% PPI on a rising trend (+4. 8% over the last year) 2.75% 2.50% 2.25% 2.% 1.75% 1.50% 1.25% 1.% 0.75% Consumer Prices Excluding Food & Energy (Year-Over-Year) il 19 il 25 Energy prices are the main factor placing pressure on prices Many commodity prices hit highest levels in a decade in the 1 st quarter 55. 50. 45. 40. 35. 30. 25. 20. 15. Aug Feb Price of Crude Oil ($/barrel) August 20 25 Aug Feb Aug Feb 6
Dollar Has Stabilized After Losing Significant Value; Trade Deficit have Stabilized As Well Dollar lost significant value in past year; recent signs of slower growth have led to dollar recovery 150. 140. 130. 120. Trade Weighted Dollar uary 14, 25 Weaker dollar could lead to liquidation of securities by foreign accounts, pushing up yields 110. 1. 90. 80. 94 94 95 96 96 97 Trade deficit at record level, but ch report was better than expected -15.0% -30.0% U.S. Trade Balance of Payments uary 19 ch 25 (Billions of $) U.S. goods and services more competitive, imported goods more expensive -45.0% -60.0% -75.0% 7
Stock ket Had Poor First Quarter After Strong 20 Performance S&P 5 Index uary 20 25 S&P lost 3% in first quarter after 11% rise in 20 12 11 10 9 Rising energy and commodity prices dampen investor enthusiasm 8 7 Jul Nov Jul Nov Quarterly Profits (in $billions) e 17 ember 20 Corporate profits remain high, but investors are focused on rising interest rates, possible economic slow down 10 9 8 7 6 5 97 97 8
Yield Curve Continues to Flatten Reflects expectation of mild inflation and measured rate increases U.S. Treasury Yield Curve ember 31, 20 vs. 17, 25 9
Intermediate-Term Interest Rates Are Off Recent Highs But Much Higher Than A Year Ago 4.% 3.50% 3.% 2.50% 2.% 1.50% 1.% Yield on Two-Year Treasury uary 20, 25 0.50% Jul Nov Jul Nov Rates responded to strong signs of economic growth early in the year and recent concerns about slow down 10
Federal Funds Futures Contracts Imply Continued Program Of Measured Increases In Overnight Rates FOMC meets e 30, 25 Investors expect Fed Funds rate of 3.50% by Fall Fed Funds Futures Contracts for ober 25 February 9, 25 5, 25 11
Short-term Rates Continue To Reflect Expectation of Higher Rates Agencies Fed Funds Yield on 180-Day Federal Agencies vs. Fed Funds Rate uary 2, 20 17, 25 Short-term rates continue to reflect actual and expected future Fed tightening 12