Transcript No Slide Title - Insurance Accounting and Systems Association

The 2016
Executive Education
Roundtable Series
It is The Eighth Year: The Zeros Have Left
The Building
San Antonio, Texas
June 13, 2016
John W. Mitchell
June 2016
 Month 84-only 3 Longer Postwar
 Six Years of Growth Near 2%
 Inflation Near 1%, Unemployment at 5%
 Oil Price Volatility $110-$25-$50- General Commodity Weakness
 Net Worth Up $2.6 Trillion in 2015- More than ½ Holding Gains on
Real Estate
 NIRP Enters the Vocabulary-Underwriting Pressure
 Grand Monetary Experiment Unfolding-None of Us have been
Through Before
Real GDP 2015-16 Commerce
Department (SAAR,%)
Q1-15
Q2-15
Q3 15
Q4-15
Q1-16
GDP
.6
3.9
2
1.4
.8
Consumption
1.8
3.6
3.0
2.4
1.9
Equipment
2.3
.3
9.9
-2.1
-9
Intell
Prop
7.4
8.3
-.8
-.2
-.1
Non-Res
-7.4
6.2
-7.2
-5.1
-8.9
Residential
10.1
9.3
8.2
10.1
17.1
Federal
1.1
0
.2
2.3
-1.6
State and Local
-.8
4.3
2.8
-1.2
2.9
Exports
-6
5.1
.7
-2
-2
Imports
7.1
3
2.3
-.7
-.2
Labor Market Data
To April
Monthly Change Payroll
Employment 2015-2016
Source: BLS
350000
300000
250000
200000
150000
100000
50000
0
 5.5 Million Jobs Above 1/08 Peak
and 14.2 Million Above 2/10
Trough
 Participation Rate 62.8%-Above
the Lows-Down for the Month
 All Super Sectors up except
Mining, Logging and
Manufacturing
 Part Time Economic Reasons
5.78 Million down by 589,000
Over the Year
 Hourly Earnings Growth-2.5%Moving up?
 Beige Book April, 2016 “Labor market conditions continued to
strengthen.”–”difficulty in filling certain positions in a number of
low and high skilled occupations.” Notably contacts reported
difficulty in finding quality retail workers, low skilled manufacturing
workers, construction workers and skilled professionals in
occupations such as information technology, accounting,
engineering and customers service.”
 NABE April Survey-Wage Pressures Highest in Transportation,
Utilities, Information and Communication
 Walking Around, Watching and Listening
Atlanta Fed Wage Growth Tracker
Median Change in Hourly Earnings Same People Over 12
Months
Consumer Prices
The Dollar
Inflation
 Always A Mix: Food at Home , Apparel, Used Cars, Energy Down over
the Year, Increases in Rent, Medical, Auto Insurance
 April CPI 1.1% and 2.1% Core
 Gasoline Down over 20.9% to March and 13.8% to April
 In April Import Prices rose .3% for the second consecutive month on a
3.3% Fuel Price- Year over Year -5.7% Year Fuel -36.4% and Other
Imports down 2%- Year over Year down Every Month Since July 2014
 Import Prices Falling from All Regions except France
 PCE March .8%, Core 1.6%
 Fed-Transitory Influence of Dollar and Oil- How Long?
Federal Funds Rate and 10 Year Treasury
Source: Treasury, Fed
7
6
5
4
3
2
1
0
Fed Funds
10 Year
Rates
 Sweden, Switzerland, Denmark, Japan, ECB-Negative Central Bank
Rates
 Applied to Central Bank Deposits-Not passed on in Negative Rates, but
Fees for Deposits, No Interest
 Try to Encourage Lending, Hold Down Currency, Try to Increase the
Rate of Inflation
 10 Year US 1.76%, Japan -.11%, Germany .17%, Canada 1.37%,
Denmark .48%
Switzerland -.31% (Economist 5/21)
 Mortgage Rates 5/20 3.58%
 Search for Yield-Monetary Policy and Asset Prices
Outlooks
(Note the Preponderance of 2’s)
 Consensus 1.8% in 2016 and 2.3% in 2017
 Inflation 1.2% in 2016 and 2.3% in 2017- The December to
December changes the last 2 years have been .8% and .7
 Fed Long Term Median 2016 2.2%, 2017 2.1% and 2018
2%, Longer Run 2% (March)
 Consensus Forecasts, OMB, CBO- Annual Projections
2018-2022-Average Between 2.3% and 2.1%
Other Long Cycles-End of Recession to Year
Seven Real GDP Growth
Source: BEA, NBER
8
7.3
6
4.6
4 4.2
3.6
4
2.5
2.7
2.2
1.6
2
3.5
2.7
3.8
3.5
2.4
4.5
4.2
2.4
1.5
0
-0.1
2009
-2
2010
2011
2012
2013
2014
-1.9
-2.8
-4
June, 2009
November, 1982
March, 1991
2015
The No Show Acceleration
 Tsunami, Weather, West Coast Port Disruptions
 Budget Conflicts/Shutdown/Debt Ceiling/Episodes
 Old Oil Shocks-New Oil Shocks (US Production in 2010 5.5 MBD
in 2015 9.7 MBD)
 Global Weakness and the Dollar
 Permanent Effect of Recession/Policy (Hysteresis)
 Something More Fundamental-Secular Stagnation? Old Idea
Back in the News
Labor Productivity Growth in The Business
Sector 1947-2015
Source: Bureau of Labor Statistics, Beyond the
Numbers
3.50%
3.00%
2.50%
2.00%
1.50%
1.00%
0.50%
0.00%
1947-73
1973-1979
1979-90
1990-2000 2000-2007 2007-2013 2013-2015
Source: Bureau of Labor Statistics, Beyond the Numbers
BLS December, 2015 Labor Force
Employment Projections
Distribution
2004
Distribution
2014
Distribution
2024
Total
19942004
AGR
2004-14 2014-24
AGR
AGR
1.2%
.6%
.5%
16-24
15.1%
13.7%
11.3%
.3
-.4
-1.4
25-54
69.3
64.6
63.9
.8
-.1
.4
55Older
15.6
21.7
24.8
4
3.9
1.8
Blip-Trend-Leftover?
 Robert Gordon “The Rise and Fall of American Growth” 2016Headwinds
 Demographics-Aging Population
 Educational System
 Inequality-Holding Down Median
 More Limited Impact of Technical Advances
Others
 Leftovers from Great Recession
 Excess Savings Limiting Monetary Policy
 Regulatory/Policy Mix
 Measurement Problem
Monetary Policy
 4/27/16 “labor market conditions have improved as
growth in economic activity appears to have slowed”
“household spending moderated”, “housing sector has
improved further, but business fixed investment and net
exports have been soft.” “Inflation continued to run
below ..objective, partly reflecting earlier declines in
energy prices and falling prices of non-energy imports.”
 “The Committee continues to closely monitor inflation
indicators and global economic and financial
developments.”
 Inflation “ to rise to 2 percent over the medium term as
the transitory effects of the declines in energy prices and
import prices dissipate and the labor market strengthens
further.”
When the next downturn arrives, what
happens?
 Rate Cuts, Forward Guidance, Quantitative
Easing, Negative Rates- Bernanke (2016)
 Helicopter Money-An Expansionary Fiscal
Policy financed by an increase in the Money
Supply
Fiscal Policy
 Two Year Budget Deal late in 2015-Kick the Can
 CBO(2016) Budget Deficit Increase for the first Time in 6 Years as a
Share of GDP
 7% Increase in Mandatory, 3% Discretionary and 14% Increase in Net
Interest
 Health Care Related 11%- 60% of the Increase in Mandatory
 Squeeze on Discretionary
 CBO makes its Usual Warnings
 Non-Issue at the Moment
 55-60% of Federal Spending Increases to 2040-Attibutable to Aging of
the Population ( Olivia Mitchell, Business Economics 1/2016)
Residential Permits- (,000) A Long Road
A 12% Increase in 2015 and 2.9% to April, 2016
Source: Census
2500
2000
1500
1000
500
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Census
Housing Questions
 Millennial Behavior-Apartments or Houses (TV Commercial)
 Employment Growth, Household Formation Gain, Ease in Lending
Standards
 Capacity to Produce-Workers-Permits-Lots-Backlog of Permits Not
Started Increasing
 Homeownership Rate Ticking Up
 Negative Equity down to 10.7% in Q4-CoreLogic Nevada High at 18.7%,
Texas 2.1%
 Case-Shiller-February National 5.3%-Prices Back to Winter 2007Portland, Seattle, Denver and San Francisco at the top of the List
 FHFA House Price Index up All States other than Vermont Q1 2016
Job Growth Update March 2016 Data
Year over Year Change – 43 States Up
Source: BLS, ASU
 North Carolina 16

Pennsylvania 34
 Maryland 17

Alabama 35
 Idaho 1
 Arkansas 18

Indiana 36
 Oregon 2
 Michigan 19

Missouri 37
 Utah 3
 Kentucky 20

Iowa 38
 Tennessee 4
 Rhode Island 21

Maine 39
 Arizona 5
 New Jersey 22
 Washington 6

Connecticut 40
 Ohio 23
 Georgia 7

South Dakota 41
 Massachusetts 24
 Florida 8

Montana 42
 New Hampshire 25
 Virginia 9

New Mexico 43
 Mississippi 26
 Colorado 10

 Vermont 27
Kansas 44

Oklahoma 45

Alaska 46

Louisiana 47

West Virginia 48

Wyoming 49

North Dakota 50
 South Carolina 11
 Wisconsin 28
 Nevada 12
 New York 29
 California 13
 Hawaii 14
 Delaware 15
 Texas 30
 Nebraska 31
 Illinois 32
 Minnesota 33
Texas Job Growth
Year to April, 2016
(1.6%)
Source: Workforce Commission
187,500
Total
33,500
9,500
62,700
63,400
24,000
500
15,300
Government
Other Services
Leisure & Hosp.
Ed. and Health
Prof. Services
TP,W and Util
Finance
Information
-1,100
54,700
15,000
Trade
Construction
-50,500
Manufacturing-39,500
Mine & Log
-100,000
0
100,000
200,000
California Job Growth
Year to April, 2016 (2.8%)
Source: EDD
452,499
Total
Government
Other Services
Leisure & Hosp.
Ed. and Health
Prof. Services
TP,W and Util
Finance
Information
Trade
Construction
54,200
7,600
70,900
93,600
82,600
17,100
14,700
14,000
55,500
50,400
-4,300
Manufacturing-3,900
Mine & Log
-100,000
100,000
300,000
500,000
North Dakota Job Growth
Year to April 2016 (-3.7%)
Source: ND Workforce
Total
-16,700
2,700
700
Government
Other Services
Leisure & Hosp.
-100
2,100
Ed. and Health
Prof. Services
TP,W and Util
Finance
-300
-4,200
-700
0
Information
Trade
Construction
Mine & Log
Manufacturing
-3,400
-4,100
-8,000
-1,300
-20,000-15,000-10,000-5,000
0
5,000
2016 Themes
 National Expansion Should Continue
 Risks-Slow Growth/Shock –Carl Dietz Theory-Robert Shiller”Basically, global recessions begin when newly popular narratives
reduce individuals motivation to spend money. Psychology
matters a great deal.” (May 1 NYT) Opening Weeks of 2016
 Tightening Labor Markets
 Inflation Pick Up- As Transitory Events Pass-Energy Adjustments
 Tech Sector Strength
 Residential Markets Improving
 Implications of Overseas Events
 Gradual Rate Increases-Data Driven –Volatility
 Regions float on a global sea, buffeted by local tides and winds.
Before You Go To Sleep
 Is 2% Growth the New Normal? Will There Be A Policy
Response?
 Will We Be Able to Enhance Mobility and Enable Potential To Be
Realized?
 How Do Expansions End?
 How Long Do They Last? (Netherlands 26 Years, Australia 25
Years and Still Going, Economist 5/21) Prime Rate Formula