Transcript U.S. Cyclical Indicators Emerging Market Monetary Policy

Perspectives on U.S. and Global Economy
Houston Region Economic Outlook
Houston Economics Club and
Greater Houston Partnership
Omni Houston Hotel
December 11, 2014
Ellen Hughes-Cromwick
Ross School of Business
Views expressed in this presentation are those of Ellen Hughes-Cromwick and are
in no way attributable to the Ross School of Business at the University of Michigan
Key Points Today
•
U.S. economy in sustained economic expansion with growth in 3% range next
year; global growth at 4%
•
Key factors underpinning outlook include improved job and income
fundamentals, a pickup in investment, low inflation, and a favorable policy mix
•
Global economy – especially several major emerging markets – will benefit from
the drop in commodity prices
•
Risks and opportunities are balanced – expect more import competition given
weak currencies among major exporters
1
2015 Outlook Summary
•
Strongest sectors of U.S. economy in 2015 likely to be:
− Capital goods
− Exports
− Consumer spending on services
•
Oil price decline to provide better growth prospects for net importers – China
and India
•
Euro area growth to improve from 2014 pace
•
U.K. strength this year to remain in 3% growth range
2
Global GDP
Global GDP
% Chg Over Prior Year
5
4.0
4.1
4.0
4.0
4
2.9
3
2
2.4
2.5
2.6
2012
2013
2014
1.5
1
0
-1
-2
-2.0
-3
2006
2007
2008
2009
2010
2011
2015 Proj.
Note: Global growth rate, inflation adjusted, at market exchange; historical data are IMF World Economic Outlook (October 2014); author’s estimate for 2015 outlook
3
Emerging Market Monetary Policy
•
•
Several emerging market central banks have adopted conventional monetary policy principles and strategies (e.g., India, Brazil)
Others have struggled with adopting monetary policy objectives which focus on price stability at the expense of short-term economic
growth (e.g., Turkey)
India
•
Inflation has declined from over 10% in 2013 to 5.5% as of October 2014
•
Governor Rajan has led Reserve Bank of India to keep policy interest rates at 8%
•
Likely to keep interest rates high until inflation can be brought to implicit target of 5%
Brazil
•
Inflation remains elevated; central bank holding interest rates at the highest level of any EM
•
Weak currency has contributed to sticky inflation as wage growth remains high even though the economy is in recession and
labor productivity growth is challenged
Turkey
•
Persistently high inflation in the 9% range has contributed to currency weakness: central bank lowered the policy interest rate
from 10% to 8.25% even as inflation remains high
•
Political economic forces prevail and could impact long term growth potential
China
•
Incremental policy changes to help bank liquidity in the context of a housing correction; recent reduction in deposit and lending
rates are modest adjustments
4
U.S. Business Cycle Monitors
•
BEA’s National Income and Product Accounts
•
Billions of chained (2009) dollars
•
Time series since WWII*
•
Calculate cumulative % change from trough for each of the 9 business cycles
•
Compare average performance of the 9 cycles to current cycle performance
•
In the following slides, the blue line is the current expansion and the green dashed line is the
average of prior cycles
•
The data are measured from 6 quarters prior to the trough and 21 quarters beyond the
trough
* For detailed components of consumer spending on services, used 6 prior business cycles
5
U.S. Real GDP
Real GDP
Cumulative % Change From Trough Quarter
25
20
Average
$1.6 Trillion Below Average
15
10
5
Current
0
Quarters Before and After the Business Cycle Trough
-5
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
6
U.S. Consumer Spending on
Durable Goods
Real Consumer Spending on Durable Goods
Cumulative % Change From Trough Quarter
45
40
Average
35
30
25
Current
20
15
10
5
0
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
7
U.S. Consumer Spending on Services
Real Consumer Spending on Services
Cumulative % Change From Trough Quarter
25
20
Average
15
10
Current
5
0
-5
-10
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
8
U.S. Capital Spending
Nonresidential Investment Spending
Cumulative % Change From Trough Quarter
Nonresidential Construction Spending
Cumulative % Change From Trough Quarter
35
25
Average
30
20
Average
15
25
10
5
20
Current
15
0
-5
10
-10
5
-15
Current
-20
0
-25
-5
-30
6
2
2
6
10
14
18
6
2
2
6
10
14
18
9
U.S. Residential Construction and
Business Equipment Spending
Residential Construction Spending
Cumulative % Change From Trough Quarter
Equipment Investment Spending
Cumulative % Change From Trough Quarter
60
70
50
60
Average
40
Current Expansionary Pace Exceeds Cyclical
Average
50
Current
30
40
Current
20
30
Average
10
20
0
10
-10
0
6
3
Trough
3
6
9
12
15
18
21
6
3
Trough
3
6
9
12
15
18
21
10
U.S. Exports
Exports
Cumulative % Change From Trough Quarter
40
35
Current
30
25
20
Average
15
10
5
0
-5
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
11
U.S. Consumer Spending on
Housing Services
Consumer Spending on Services -- Housing and Utilities
Cumulative % Change From Trough Quarter
25
20
Average
15
10
5
Current
0
-5
-10
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
12
U.S. Consumer Spending on
Health Care Services
Consumer Spending on Services --- Health Care
Cumulative % Change From Trough Quarter
30
25
Average
20
15
10
5
Current
0
-5
-10
6
4
2
Trough
2
4
6
8
10
12
14
16
18
20
13
In Closing – Thank You!!
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Global economy entering period well beyond financial crisis and 6 years of
expansion in the U.S.
•
Acceleration in growth likely next year
•
Expect global GDP gains to be above trend
•
U.S. economy has several strengths centered in energy, capital goods, IT, and
healthcare
•
Secular stagnation not likely
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