Transcript Economic Update

TECHNOMIC FOODSERVICE
p l a n n i n g
p r o g r a m
Macroeconomic Update
Arjun Chakravarti, Ph.D.
IIT Stuart School of Business
Mid-2015: Assessing Tradeoffs
Expected some lift-off
above 3% growth this year
We expected some reversion in Q1…
…but Q1 growth significantly underperforming:
• 1% forecasted versus -0.7% actual
What is going on and what do we expect for the end of the year?
2
U.S. Consumer Situation Hasn’t
Changed Since January…
Consumer Confidence Accelerates
Index level
110
90
70
50
May ’15
88.6
Expansionary trend
Recessionary trend
2001
2007
2015
Solid increase in consumer spending to end 2014 but early 2015
numbers have been soft (foodservice outperforming).
4
Unemployment Rate Falling
18
16
14
Under
10.9%
12
10
8
6
Unemp
5.5%
“Full” Employment?
Jan-15
Sept-14
May-14
Jan-14
Sept-13
May-13
Jan-13
Sept-12
May-12
Jan-12
Spet-11
May-11
Jan-11
Sept-10
May-10
Jan-10
Sept-09
May-09
0
Jan-09
4
1
April employment slows as export market drags hurt energy
and manufacturing jobs. Job quality remains an issue but
underemployment trends further down.
Source: Federal Reserve, Labor Department
5
Real DPI Creeping Up but Way Off Trend
(000s)
39
38
37
36
35
34
33
32
31
30
2003
2007
2011
2014
Wages up 2.1% in 2014, but median wage ($24) is still about $3.16
off prior trend. Income growth expectations still haven’t recovered
since recession.
Source: Labor Department, UMich Sentiment survey
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Y-Y Percent Change
Inflation Rates Declining
5
4
3
2
1
0
-1
-2
-3
CPI Apr
-0.2%
PCE Apr
0.1%
2009
2011
2014
Inflation levels have fallen to dangerously low levels. Low oil prices
do not sufficiently account for this drop. Fed likely delays raising
interest rates.
Source: Federal Reserve, Labor Department
7
Personal Savings Ticking Up
14
12
10
8
6
4
Feb ’15
5.6%
2
0
1980
1987
2000
2005
2015
Aggregate savings reveal fluctuations in income savings of top 10%.
Bottom 90% may be slightly pocketing gas savings.
Source: Federal Reserve
8
High Monthly Income/Consumption Volatility
Range of Monthly Volatility
in Income and Consumption
30
20
10
0
-10
-20
-30 Top 20%
income
 Monthly income
volatility is much higher
than thought (yellow)
 Consumption volatility is
even higher (gray)
Bottom 20%
income
Most middle income households have $3,000 in cash available but
need $4,800 to withstand 15% income volatility. Credit tight.
Note: Data is upwardly biased toward sample of 2.5 M credit card holders
Source: JP Morgan Chase
Credit Card Data
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Is Q1 an Aberration
or Should We Worry?
Contributors Q1 Growth (0.2%)
Net exports -1.25
Fixed investment
State govt
Federal govt
Inventory change
Pers consumption
-1.5
Export losses outweigh
consumption gains
-0.4
-0.17
0.02
0.74
1.31
-1
-0.5
0
0.5
1
1.5
Large business originally recovered faster than small on exports.
Trade deficits hurting corporate earnings.
Source: Bureau of Economic Analysis
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Q1 GDP Has Become Slower in General
1980s
Q1 Exceeds
other quarters
Other Q1
1990s
Other
Q1
2000s
Q1 Less than
other quarters
2010 to
Present
1%
2%
3%
4%
GDP Growth
Possibly all measurement error but since 1985 Q1 growth has been
underestimated 80 % of the time. No one is quite sure why.
Source: Justin Wolfers, Bureau of Economic Analysis
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Other Measures Suggest It’s Not As
Bad As We Thought … But Not Great
MEASURE
GDP
Total
Definition
expenditures
Trend
-0.7%
GDI
Total
income
1.4%
Take the average:
GDI emphasizes
employee income
whereas GDP better
accounts for net exports
GDI should equal GDP, but GDI has been more accurate since the
recession. Economy likely growing but very slowly.
Source: Justin Wolfers, Bureau of Economic Analysis
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Foodservice Outpacing Other Spend
Electronics
All retail & F/S
Clothing
Food home
Sporting
Home furnish
Personal care
Building supply
Auto
Foodservice
Percent change 3 month
average change since 2014
Note: Gas down 24%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
Overall retail sales stagnant since Jan. Consumers are pocketing
gas savings… but foodservice is a significant exception.
Source: Commerce Dept., April 2015
14
Looking Ahead
to End-2015/Early 2016
A 2014-like Late Year
Comeback Is Needed
Weather an Issue but Dollar Strength Is Key
Oil prices
• Gas prices should increase but not significantly
• Significant supply volatility expected in 2016
• Weather probably overstated as an effect.
Lower gas bills more likely to be saved than spent if volatility
occurs. Real wage increases are needed to accelerate the U.S.
economy and are yet to be seen.
Source: Energy Information Administration, Baker-Hughes North America Rig Counts
16
Housing Growing But Not Quickly
 Some markets very high (Florida, Colorado, Seattle, CA)
 Substitution toward larger homes
 Household income isn’t keeping pace with home price
growth
 41% don’t expect to buy a home in foreseeable future
Housing growth not pushing economy forward as in 2013.
Many rent without expectation to buy, pressuring rental costs.
Source: Gallup, Commerce Dept.
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Risk: Time to Keep an Eye on the Globe
CHINA
 Official Growth Rate:
7%, possibly low as 4.5%
 Falling investments
 Consumer spend underperforms
 Housing sector default risk
U.S. industrial output has been slipping for 9 months as
manufacturers grapple with the gas/dollar tradeoff and its
relationship to global demand.
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Risk: Time to Keep an Eye on the Globe
EUROPE / JAPAN
 Continued weakness
 Default risk in Greece
International demand for dollars as
a safe haven and to pay commodity
bills suggest that dollar strength is
entrenched in the short run.
Solid U.S. recovery depends either on export-rebalancing or wage
growth in the U.S. The two are increasingly related but dollar
strength may temper 2015 growth.
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Federal Reserve Policy in 2015
Fed Claims Rate Increases Possible this Summer
• Unlikely given dollar
strength and deflation risk
• Futures market suggests
Sept to Dec 2015
for increase
Export losses are having a bigger impact than we thought. We still
expect growth on par or slightly above 2014, but “escape velocity”
looks less likely.
Source: Federal Reserve, Labor Department
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Conclusions
Slow Improvement over 2014 Barring Global Risk
• Downward guidance: U.S. economy
3% looks more like
is global leader. . .
the high end in U.S.
. . .but not strong enough
GDP growth
yet to sustain dollar
•
Foodservice outpacing
retail by 2x
strength/export losses
Wage and housing growth in the U.S. are still 1-2 years away as the
economy is improving but dollar strength keeps it off trend.
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