Transcript Red Capital Group: Mid-East Region Economics and

MID-EAST REGION ECONOMIC AND
HOUSING TRENDS AND FORECASTS
Midwest Rural Housing Summit
May 3, 2016
Daniel J. Hogan, Director of
Research
RED CAPITAL GROUP
AGENDA
 Base Macroeconomic Outlook
 State GDP, Payroll Employment and
Personal income Trends and Forecasts
 5-state Home Price Appreciation Rates and
Forecasts
 Review of Some of the Faster Growing Nonmetropolitan Areas in the 5-state Region
 Ohio Oil & Gas Industry Conditions and
Outlook
Focus: Indiana, Kentucky, Michigan, Ohio and
West Virginia
Data: Personal Income Growth 2015, BEA
GDP Trends and Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
Year-on-year Nominal GDP
Growth
4.0%
Forecast
Consensus
3.5%
3.0%
2.9%
2.5%
2.5%
2.9%
2.7%
2.6%
2.1%
2.0%
1.9%
2.0%
1.5%
2.2%
1.4%
1.1%
1.0%
1.0%
0.5%
0.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Personal Consumption Expenditures, Industrial Production, Personal
Income and dPayroll growth down. Only dHPI positive predictive
Payroll Employment Trends and
Forecast
Sources: Bureau of Labor Statistics, RED Capital Research Forecasts
2.5%
History
Year-on-year Payroll Growth
2.2%
2.0%
2.0%
2.0%
Forecast
1.9%
1.8%
1.6%
1.5%
1.3%
1.1%
1.2%
1.0%
0.9%
0.7%
0.5%
0.0%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
6.0%
4.5%
Year-on-year PI Growth
5.0%
4.5%
4.0%
4.0%
3.3%
2.1%
3.0%
2.0%
Forecast
2.8%
3.0%
3.1%
-0.7%
1.7%
1.0%
0.0%
-1.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
3.2%
Regional Job Growth Performance
Sources: Bureau of Labor Statistics, RED Capital Research Forecasts
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
5-State
Region
Region
Forecast
-7%
1Q90 1Q93 1Q96 1Q99 1Q02 1Q05 1Q08 1Q11 1Q14 1Q17 1Q20
Regional Job Growth Performance
3%
2%
5-State
Region
Region
Forecast
1%
0%
-1%
1Q124Q123Q132Q141Q154Q153Q162Q171Q184Q183Q192Q20
Regional GDP Growth Performance
Source: BEA
6%
5-State Region
3%
0%
-3%
-6%
-9%
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15
Regional GDP Growth Performance
Source: BEA
20%
5-State Region
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%
1Q06 1Q07 1Q08 1Q09 1Q10 1Q11 1Q12 1Q13 1Q14 1Q15
Indiana Personal Income Trends and
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
7.0%
4Q14, 6.0%
6.0%
Year-on-year PI Growth
Forecast
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
-2.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variable: Payroll Growth Rate T-6 (+)
Kentucky Personal Income Trends and
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
6.0%
4Q14, 5.7%
5.0%
Forecast
Year-on-year PI Growth
Kentucky
Kentucky Forecast
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variable: Industrial Production T-1 (-)
Michigan Personal Income Trends and
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
6.0%
Forecast
5.0%
Year-on-year PI Growth
Michigan
Michigan Forecast
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: WTI (-) Baa yields (+)
Ohio Personal Income Trends and
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
History
6.0%
Forecast
5.0%
Year-on-year PI Growth
Ohio
Ohio Forecast
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: dPayroll Growth Rate, WTI
West Virginia Personal Income Trends and
Forecast
Sources: Bureau of Economic Analysis, RED Capital Research
Forecasts
6.0%
Year-on-year PI Growth
5.0%
4.0%
3.0%
2.0%
1.0%
0.0%
-1.0%
History
Forecast
-2.0%
West Virginia
WV Forecast
-3.0%
1Q13
1Q14
1Q15 1Q16f 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: GDP (-), delta payroll growth
(neutral)
Rankings for Income Growth
State
1990 – 2015
Average
Rank
2016 –
2020
Forecast
Rank
Indiana
4.2%
2
3.2%
1
Kentucky
4.6%
1
3.0%
2
Michigan
3.6%
5
2.6%
4
Ohio
3.8%
4
2.5%
5
West Virginia
4.0%
3
2.9%
3
U.S.A.
4.8%
3.4%
Although the region still is likely to underperform the U.S. average, relative
performance
Will be better than the 26-year historical average.
Indiana Payroll Employment Trends
and Forecast
Sources: Bureau of Labor Statistics, RED Capital Research
Forecasts
Year-on-year Payroll Growth
2.5%
History
2.0%
Forecast
1.5%
1.0%
0.5%
0.0%
1Q13
1Q14
1Q15
1Q16
1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: Negative constant, GDP (-) vs. 10year UST yield (+)
Kentucky Payroll Employment Trends and
Forecast
Sources: Bureau of Labor Statistics, RED Capital Research Forecasts
Year-on-year Payroll Growth
2.5%
History
2.0%
Forecast
1.5%
1.0%
0.5%
0.0%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: Positive constant
Michigan Payroll Employment Trends
and Forecast
Sources: Bureau of Labor Statistics, RED Capital Research
Forecasts
History
Year-on-year Payroll Growth
2.5%
Forecast
2.0%
1.5%
1.0%
0.5%
0.0%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: Positive constant, industrial production
(+)
Ohio Payroll Employment Trends and
Forecast
Sources: Bureau of Labor Statistics, RED Capital Research
Forecasts
History
3%
Year-on-year Payroll Growth
Forecast
Ohio
2%
Ohio Forecast
2%
1%
1%
0%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: Positive constant, industrial production
(+)
W.V. Payroll Employment Trends and
Forecast
Sources: Bureau of Labor Statistics, RED Capital Research
Forecasts
History
2.5%
2.0%
Year-on-year Payroll Growth
Forecast
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
Critical Variables: Coal (+) and Industrial Production (+)
are statistically significant, both near term negatives.
Rankings for Job Growth
Highest to Lowest Left to Right
80
70
2013
60
2014
2015
50
2016
40
2017
30
2018
20
2019
10
2020
(10)
Kentucky Michigan
Ohio
Indiana
West
Virginia
Kentucky is best positioned to weather a coming slowdown due to strongest current
momentum, highest positive constant and lowest statistical exposure to GDP & IP.
Kentucky Payroll Forecast
Sources: BLS, RCR Forecasts
Net Jobs
(000)
30
27.1
27.2
25
20
22.0
19.4
19.0
15.3
15
11.9
10
7.9
5
0
2013
2014
2015
2016
2017
2018
2019
2020
Michigan Payroll Forecast
Sources: BLS, RCR Forecasts
Net Jobs
(000)
76.0
80
72.3
70
61.7
60
60.6
54.1
50
45.2
40
33.9
30
16.7
20
10
0
2013
2014
2015
2016
2017
2018
2019
2020
Supported by state’s above average personal income growth and positive statistical
correlation to the rate of change of U.S. payroll growth and neg. correlation to NGDP.
Ohio Payroll Forecast
Sources: BLS, RCR Forecasts
Net Jobs
(000)
90
77.2
80
70
77.2
65.0
59.0
57.4
60
45.6
50
40
29.5
30
16.0
20
10
0
2013
2014
2015
2016
2017
2018
2019
2020
Like Michigan, Ohio is supported by positive statistical correlation to the rate of
change of U.S. payroll growth and neg. correlation to NGDP.
Indiana Payroll Forecast
Sources: BLS, RCR Forecasts
Net Jobs
(000)
60
50
40
54.3
42.5
35.9
27.6
30
27.0
19.4
20
13.5
10
4.0
0
2013
2014
2015
2016
2017
2018
2019
2020
Indiana benefits from positive correlation to home price appreciation and a negative
correlation to systemic credit risk, but relatively underperforms during period when
productivity rises.
West Virginia Payroll Forecast
Sources: BLS, RCR Forecasts
Net Jobs
(000)
0
-1
-2
(1.4)
-3
-4
-5
-6
-7
-8
-9
-10
2013
(2.5)
(3.5)
(3.6)
(4.9)
(5.1)
(7.0)
(9.0)
2014
2015
2016
2017
2018
2019
2020
West Virginia is highly correlated to the pace of US payroll and Industrial Production
growth and to the global price of coal. None will help in a slow growth domestic
environment.
House Price Index Trends and
Forecast
Sources: Federal Housing Finance Agency HPI, RED Capital
Research Forecasts
Year-on-year Payroll Growth
9%
8%
MICHIGAN us_inc () Baa (+)
7%
6%
5%
KENTUCKY
inc (+)
4%
INDIANA
3%
2%
1%
OHIO / WEST VIRGINIA pr inc coal prices
0%
-1%
1Q13
1Q14
1Q15
1Q16 1Q17f 1Q18f 1Q19f 1Q20f
5-State Region Micropolitan Area Gazelles
Overview
Sources: Census Bureau
Population
Growth
2010-2015
Indiana
Kentucky
Michiga
n
Ohio
West
Virginia
Total
=> 2%
3
5
1
0
0
9
0% - 2%
8
1
4
5
1
19
<0%
13
1
6
22
2
44
Total
24
7
11
27
3
72
Micropolitan Area Gazelles: Greensburg,
Indiana
(Decatur County/SE Indiana)
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
25,79
1
26,521
2.8%
26,511
0.0%
Payrolls
11,18
1
13,520
20.9%
13,489
0.2%
Growth Drivers:
auto)
Manufacturing (Engineering intensive,
Cincinnati/Indianapolis
Interstate-74 linking
Micropolitan Area Gazelles: Washington,
Indiana
(Daviess County/SW Indiana)
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
31,74
4
32,906
3.7%
32,745
0.5%
Payrolls
10,44
1
11,246
7.7%
10,980
1.1%
Growth Drivers: Machinery and homebuilding products
Lake / Lifestyle tourism
Access to I-69
Indianapolis/Louisville/St. Louis
Micropolitan Area Gazelles: RichmondBerea, Kentucky
(Madison, Rockcastle Counties/Bluegrass Country)
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
100,26
2
104,766
4.5%
103,522
1.2%
Payrolls
32,921
37,041
12.5%
36,884
1.0%
Growth Drivers:
MSA
Higher Education (EKU, Berea College)
Spillover from fast growing Lexington
Micropolitan Area Gazelles: Mt. Sterling,
Kentucky
Bath, Menifee, Montgomery Counties/Bluegrass Country
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
44,522
46,222
3.8%
45,834
0.8%
Payrolls
12,676
13,625
7.4%
13,162
3.5%
Growth Drivers:
Proximity to Lexington
Rural community cost advantages
Access to large city amenities
Michigan
(Benzie, Grand Traverse, Kalkaska, Leelanau Counties/Lake
Michigan Beach Area)
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
143,31
5
148,334
3.5%
147,563
0.5%
Payrolls
56,838
62,464
9.9%
61,422
1.7%
Economic Drivers:
branches)
Family/sporting tourism
Financial services
Small business development
Higher Education (WMU, CMU
Micropolitan Area Gazelles: Wooster,
Ohio
(Wayne County, OH
Sources: Census Bureau, Bureau of Labor Statistics
2010
2015
% Chg
2014
% Chg
Population
22,422
23,137
3.1%
22,854
1.2%
Payrolls
41,622
45,279
8.8%
44,253
1.0%
Growth Drivers:
Wooster
Selection
Consumer Food production
Higher Education: College of
Business expansions/4th ranked Site
Oil & Gas Country: Carroll, Harrison,
Noble Counties
Sources: Census Bureau, Bureau of Labor Statistics
Carroll County
Population
Payrolls
2010
2015
% Chg
2014
% Chg
28,825
27,811
-3.5%
28,209
-1.4%
5,486
6,874
25.3%
6,766
1.6%
Economic Drivers: Oil & Gas Industry
Noble County
Population
Payrolls
2010
2015
% Chg
2014
% Chg
14,645
14,326
-2.2%
14,377
-0.4%
2,975
3,156
6.1%
3,261
-3.2%
Economic Drivers: Oil & Gas Industry
Harrison County
Population
Payrolls
2010
2015
% Chg
2014
% Chg
15,864
15,450
-2.6%
15,567
-0.8%
3,275
3,868
18.1%
4,068
-4.9%
Economic Drivers: Oil & Gas Industry
Ohio Oil & Gas Industry
Sources: Independent Petroleum Association of America
Marcellus Shale
(mostly dry gas)
Utica Shale (dry gas,
condensates, some
crude)
Ohio Oil Gas & Coal Mining Payrolls
Sources: BLS
Total Jobs
3,500
3,000
2,759
2,875
3,086
2,500
2,002
2,325
1,989
2,000
1,500
1,000
500
0
2010
2011
2012
2013
2014
3Q15
Ohio Oil & Gas Production
Sources: Ohio Division of Oil & Gas Resources
Oil Production (brls
in millions
350
6.2
Oil brls
300
7
6
250
302.5 5
200
4
150
3
100
2
50
1
0
0
1Q13
3Q13
1Q14
3Q14
1Q15
3Q15
Gas expressed in thousand cubic feet (mcf) measurements, oil in millions of
barrels.
Millions
Millions
Gas Production
(mcf in millions)
Industry Conditions and
Outlook
 The Ohio O&G industry is at an early stage
 Last year production increased at fastest
rate of any U.S. shale oil and gas play
 May be the most economically
advantageous natural gas field in America
due to:




Size
Cost of extraction
Proximity to residential and industrial users
Quality and concentration of condensates like
ethane
 But sharply lower prices have radically
altered the landscape
Oil, Gas & Coal Prices
Sources: Federal Reserve St. Louis, RCR Forecasts
80%
60%
40%
Oil
Oil Forecast
Gas
Gas Forecast
Coal
Coal Forecast
20%
0%
-20%
-40%
-31.2%
-31.0%
-31.0%
-60%
1Q12 1Q13 1Q14 1Q15 1Q16 1Q17 1Q18 1Q19 1Q20
Gas expressed in thousand cubic feet (mcf) measurements, oil in millions of
barrels.
Industry Conditions and
Outlook Cont.
 But sharply lower prices have radically
altered the landscape
 Henry Hub Prices dropped to $2.43/btu last
year, a decline of -41% from 2014 and the
lowest in 16 years.
 Prices now so low that the cost of
separating previously prized condensates to
form dry gas offsets profit that can be
derived from the sale of dry and liquid gas
products
 Drillers have reduced exploration to
minimum levels required to maintain
existing fields and meet legal obligations
under previously negotiated leases
Industry Outlook
 The near term outlook is cloudy as pricing is





expected to remain under supply pressure
indefinitely.
But the intermediate term outlook remains
promising
The principal benefit to the state of Ohio
remains the job and revenue growth that will
accompany mid-stream (pipeline) and end user
(gas fired electric power and distillate cracking
plants) that ultimately will be constructed to
take advantage of the quality, diversity and
volume of the Utica and Marcellus shale output
Cracking plants and utilities remain only in the
early planning stages
Time horizons run from 5- to 10-years.
Long-term benefit to region in cheaper, more
diversified sources of energy for residential,
Thanks, lets move on to Andrew
and the rural housing market
conditions …
Large Metro Apartment Occupancy
Performance and Forecasts
Sources: Reis Histories and RCR Forecasts
98%
97%
96%
95%
94%
93%
Cincinnati
1Q13
1Q14
Cleveland
1Q15
1Q16
Columbus
1Q17
Detroit
1Q18
Indianapolis
1Q19
1Q20
Large Metro Apartment Effective Rent
Performance and Forecasts
Sources: Reis Histories and RCR Forecasts
5%
4%
3%
2%
1%
Cincinnati
0%
1Q13
1Q14
Cleveland
1Q15
1Q16
Columbus
1Q17
Detroit
1Q18
Indianapolis
1Q19
1Q20