Transcript Mark Vitner`s presentation

U.S. Economic Outlook
Mark Vitner, Managing Director & Senior Economist
September 16, 2016
Five Key Themes
 Weaker real GDP over the past three quarters
Economic Outlook
Weaker Global
Growth
exaggerates the extent of the slowdown in the U.S.
economy. Growth is solid, albeit unspectacular.
 Brexit is weighing on global economic growth, pulling at
industries closely tied to it. With demand growing more
slowly, inflation will likely remain below 2 percent.
 The Fed’s more hawkish recent tone is aimed at avoiding
Monetary Policy
another taper tantrum. The economy is closer to full
employment than widely thought and the Fed will need
to raise interest rates modestly in coming quarters.
 Easier monetary policy has paved the way for a more
The Housing
Recovery
substantial housing recovery. Single-family construction
is gaining steam, while low rates continue to pull money
into private equity and keep the apartment boom going.
 Energy prices have stabilized, allowing drilling to rise.
The Mix of Growth
is Shifting
Economic Outlook
Farm incomes continue to struggle with low commodity
prices. Sluggish global growth and caution ahead of the
election continue to weigh on many manufacturers.
2
Economic Growth
Real GDP growth has been solid but unspectacular. Most of the recent volatility in growth has
been due to reductions in inventories, swings in international trade and the slowdown in
energy production. Private final domestic demand has also moderated but is growing solidly.
Real GDP Forecast
Real Private Final Sales
U.S. Real GDP
Real Private Final Sales to Domestic Purchasers
Bars = CAGR
Line = Yr/Yr Percent Change
Bars = CAGR
10%
10%
8%
8%
6%
Line = Yr/Yr Percent Change
8%
GDP - CAGR: Q2 @ 1.1%
8%
GDP - Yr/Yr Percent Change: Q2 @ 1.2%
6%
6%
Forecast
6%
4%
4%
4%
2%
2%
2%
2%
0%
0%
0%
0%
-2%
-2%
-2%
-2%
-4%
-4%
-4%
-4%
-6%
-6%
-6%
-6%
-8%
-8%
-8%
-8%
-10%
-10%
-12%
2000
Forecast
4%
-10%
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
Source: U.S. Department of Commerce and Wells Fargo Securities
Economic Outlook
3
Real Priv Fin Sales to Dom. Purch. - CAGR: Q2 @ 3.0%
Real Priv Fin Sales to Dom. Purch. - Yr/Yr Pct Chg: Q2 @ 2.3%
-10%
-12%
2002
2004
2006
2008
2010
2012
2014
2016
2018
Employment Situation
While the monthly data have been volatile, the employment data look much stronger than the
GDP data, which has raised questions about the quality and sustainability of economic growth.
The unemployment rate is now below 5 percent and local area labor markets are tightening.
Nonfarm Employment
Unemployment Rate
Unemployment and Wage Rates
Nonfarm Employment Change
Change in Employment, In Thousands
600
400
200
200
0
12%
600
400
Wages for Production & Nonsupervisory Workers, SA
12%
10%
10%
8%
8%
6%
6%
4%
4%
0
-200
-200
-400
-400
-600
-600
-800
-800
2%
2%
Unemployment Rate: Aug @ 4.9%
Hourly Earnings - Yr/Yr % Change: Aug @ 2.5%
Monthly Change: Aug @ 151K
-1,000
0%
-1,000
Source: U.S. Department of Labor and Wells Fargo Securities
Economic Outlook
0%
65
00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16
4
70
75
80
85
90
95
00
05
10
15
Oil Prices & Inventory
Oil prices have bounced off their recent lows but it is still too early to say that prices have
bottomed. There is still a great deal of oil in inventory around the world and production
remains strong overseas. The breakeven price for oil production in the U.S. has also fallen.
Oil Prices
Oil Inventory
U.S. Crude Oil Inventory
Baker-Hughes Rig Count vs. Oil Prices
Oil Rotary Rigs; USD per Barrel
1,800
1,600
580
$180
Oil Rig Count: Aug-26 @ 406 (Left Axis)
WTI: Aug-19 @ $48.5 (Right Axis)
$160
$140
1,200
$120
1,000
$100
550
550
520
520
490
490
460
460
430
430
400
400
370
370
340
340
310
800
$80
600
$60
400
$40
200
$20
310
$0
280
0
06
07
08
09
10
11
12
13
14
15
280
05
16
Source: Baker Hughes Inc., EIA and Wells Fargo Securities
Economic Outlook
580
Oil Inventory: Aug-26 @ 523.5 Million Barrels
1,400
05
4-Week Moving Average, Millions of Barrels
5
06
07
08
09
10
11
12
13
14
15
16
Home Sales
The pace of new and existing home sales remain at healthy levels. Home sales continue to be
supported by low mortgage rates
New Home Sales
10%
Existing Home Sales
New Home Sales vs. Mortgage Rates
Existing Home Sales
Seasonally Adjusted Annual Rate, In Thousands
Seasonally Adjusted Annual Rate, In Millions
1,750
7.5
7.5
Existing Home Sales: Jul @ 5.39M
9%
1,500
8%
1,250
7.0
7.0
6.5
6.5
6.0
6.0
7%
1,000
5.5
5.5
6%
750
5.0
5.0
4.5
4.5
5%
500
4.0
4.0
3.5
3.5
4%
250
Mortgage Rate: Jul @ 3.4% (Left Axis)
New Home Sales: Jul @ 654,000 (Right Axis)
3%
0
93
95
97
99
01
03
05
07
09
11
13
3.0
15
Source: U.S. Department of Commerce, National Association of Realtors, FHLMC and Wells Fargo Securities
Economic Outlook
3.0
04
6
05
06
07
08
09
10
11
12
13
14
15
16
Interest Rates
Appropriate Pace of Policy Firming
Target Federal Funds Rate at Year-End
5.0%
The Fed has consistently
delayed and scaled back their
timeline and the ultimate
magnitude for normalizing the
federal funds rate.
We expect the Fed to move
much more cautiously, raising
the federal funds rate a quarter
percentage point just once this
year and two times in 2017 and
2018, provided the economy
continues to grow steadily.
4.5%
4.0%
5.0%
June 2016 Median Response
March 2016 Median Response
December 2015 Median Response
December 2014 Median Response
Futures Market: September 5
4.5%
4.0%
3.5%
3.5%
3.0%
3.0%
2.5%
2.5%
2.0%
2.0%
1.5%
1.5%
1.0%
1.0%
0.5%
0.5%
0.0%
2016
2017
2018
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities
Economic Outlook
7
Longer Run
0.0%
Sovereign Yields
10-Year Government Bond Yields
Percent
5%
4%
Lower interest rates in other
developed economies continue
to hold down U.S. interest rates.
Negative interest rates do not
appear to be sparking business
investment or stronger growth
in Germany or Japan.
5%
Japan: Aug-25 @ -0.10%
United States: Aug-25 @ 1.58%
Germany: Aug-25 @ -0.14%
United Kingdom: Aug-25 @ 0.57%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
10
11
12
13
14
Source: Federal Reserve Board, IHS Global Insight and Wells Fargo Securities
Economic Outlook
4%
8
15
16
Regional Trends
Year-over-Year Employment Growth by State (July 2016)
Job growth has been
strongest in the Pacific
Northwest and
Southeast.
With its more diversified
economy, Texas has been
better able to withstand
the slide in energy prices
and cutback in oil and
gas exploration.
Source: U.S. Dept. of Labor, U.S. Dept. of Commerce and Wells Fargo Securities
Economic Outlook
10
Personal Income Growth Year-over-Year Percent Change Q1 2016
Incomes have risen the
fastest along the coasts
and have weakened the
most in North Dakota,
Wyoming and Oklahoma.
Source: U.S. Department of Commerce and Wells Fargo Securities
Economic Outlook
11
South Carolina Employment Growth by MSA
South Carolina Employment Growth: July 2016
Year-over-Year Percent Change, 3-Month Moving Average
Charleston, Myrtle Beach and
Charlotte have seen the
strongest employment growth
over the past year
3-Month Moving Average Percent Change
2.0%
Expanding
Recovering
Population Size
Less than 250,000
Charlotte
250,000-500,000
1.0%
Charleston
Augusta
Augusta Greenville
Columbia
Florence
0.0%
Spartanburg
Myrtle Beach
-1.0%
Sumter
Decelerating
Contracting
-2.0%
-1%
0%
1%
2%
3%
Year-over-Year Percent Change
Source: U.S. Department of Labor and Wells Fargo Securities
Economic Outlook
More than 500,000
12
4%
5%
South Carolina
South Carolina Gross State Product & U.S. GDP
Year-over-Year Percent Change
5%
South Carolina’s economy has
grown relatively in line with the
nation over the past three years.
4%
4%
3%
3%
2%
2%
1%
1%
0%
0%
-1%
-1%
-2%
-2%
-3%
-3%
-4%
U.S. GDP: 2015 @ 2.4%
South Carolina GDP: 2015 @ 1.9%
-5%
-4%
-5%
98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Source: U.S. Department of Commerce and Wells Fargo Securities
Economic Outlook
5%
13
South Carolina - Employment Situation
South Carolina employment rose a steady 2.4 percent over the year. The professional &
business services sector saw the largest payroll gains. The unemployment rate continues to
decline, but remains slightly higher than the national average.
Nonfarm Employment
Unemployment Rate
South Carolina Nonfarm Employment
South Carolina vs. U.S. Unemployment Rate
Seasonally Adjusted
3-Month Moving Averages
6%
12%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
12%
South Carolina: Jul @ 5.2%
United States: Aug @ 4.9%
10%
QCEW: Yr/Yr Pct. Change: Mar @ 2.7%
Nonfarm: Yr/Yr Pct. Change: Jul @ 2.4%
Household: Yr/Yr Pct. Change: Jul @ 2.7%
-8%
-10%
92
94
96
98
00
02
04
06
08
10
12
14
8%
6%
6%
4%
4%
2%
16
2%
90
Source: U.S. Department of Labor and Wells Fargo Securities
Economic Outlook
8%
-8%
-10%
90
10%
14
92
94
96
98
00
02
04
06
08
10
12
14
16
South Carolina – Housing Market
Housing Permits
Home Prices
South Carolina Housing Permits
Core Logic HPI: SC vs. U.S.
Thousands of Permits, Annual Rate
60
60
Single-Family: Jul @ 23,088
Single-Family, 12-MMA: Jul @ 24,401
Multifamily, 12-MMA: Jul @ 5,941
50
50
Single-Family Average (1998-2003): 26,279
40
40
30
30
20
20
10
10
Year-over-Year Percent Change
20%
Thousands
Thousands
The housing market in South Carolina has seen solid recovery in comparison to other states.
Single-family permits continue to post gains and are at their highest post-recession level.
South Carolina’s home prices have risen in line with the nation in recent years.
16%
16%
12%
12%
8%
8%
4%
4%
0%
0%
-4%
-4%
-8%
-8%
-12%
-12%
United States: Jul @ 6.0%
South Carolina: Jul @ 5.7%
-16%
0
0
90
92
94
96
98
00
02
04
06
08
10
12
14
-16%
-20%
16
-20%
90
Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities
Economic Outlook
20%
15
92
94
96
98
00
02
04
06
08
10
12
14
16
Employment Growth by County
Lancaster County has seen impressive job growth at 9.2 percent year over year. Cabarrus,
Mecklenburg and Iredell counties have also recorded notable employment gains, each up more
than 3.5 percent over the year. Unemployment has declined across counties.
Nonfarm Employment
Unemployment Rates
Charlotte Employment Growth by County
Charlotte Unemployment Rate by County
QCEW, Year-over-Year Percent Change 3-Month Moving Avg.
Lancaster
Percent
Chester
9.2%
Cabarrus
Lancaster
4.6%
Mecklenburg
Rowan
3.8%
Iredell
Cleveland
3.6%
Rowan
York
3.3%
Union
Gaston
3.1%
York
Iredell
3.0%
Cleveland
2.7%
Lincoln
Stanly
2.3%
Gaston
Mecklenburg
2.0%
Stanly
Lincoln
1.5%
Chester
March 2016
0.4%
0%
2%
4%
6%
8%
10%
July 2016
Union
July 2015
3%
Source: U.S. Department of Labor and Wells Fargo Securities
Economic Outlook
Cabarrus
16
4%
5%
6%
7%
8%
9%
10%
Population Growth by County
Charlotte Population Growth by County
Year-over-Year Population Change in Thousands
Mecklenburg
22.1
York
6.1
Cabarrus
4.8
Union
4.4
Iredell
3.0
Lancaster
Mecklenburg County continues
to account for the bulk of the
region’s population gains
2.7
Gaston
2.4
Lincoln
1.2
Rowan
0.5
Stanly
0.1
Chester
-0.1
Cleveland
-0.1
-5
0
2015
5
Source: U.S. Department of Commerce and Wells Fargo Securities
Economic Outlook
17
10
15
20
25
U.S. Forecast
Wells Fargo U.S. Economic Forecast
q 3 2 01 6
Actual
2 01 6
Forecast
2016
2017
Actual
2014
2015
2018
2016
Forecast
2017
2018
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
0.8
1.1
3.1
2.4
2.1
2.2
2.1
2.0
2.1
2.2
2.2
2.2
2.4
2.6
1.5
2.2
2.1
1.6
4.4
3.8
2.5
2.3
2.6
2.5
2.2
2.5
2.5
2.5
2.5
2.9
3.2
2.8
2.7
2.5
-3.4
-0.9
3.2
3.3
3.2
3.3
3.0
3.1
2.9
3.1
3.2
3.0
6.0
2.1
-0.5
2.9
3.0
Equipment
-9.5
-3.7
3.0
3.5
3.0
2.7
2.2
2.2
2.1
2.2
2.3
2.2
5.4
3.5
-2.0
2.4
2.2
Intellectual Property Products
3.8
8.6
4.3
3.5
3.7
4.3
4.0
4.2
4.2
4.1
4.2
4.0
3.9
4.8
4.9
4.2
4.1
Structures
0.1
-8.4
2.0
2.5
2.8
3.0
3.2
3.5
3.5
3.5
3.5
3.5
10.3
-4.4
-4.9
2.0
3.3
Residential Construction
7.8
-7.7
0.0
7.5
7.5
7.5
7.0
7.0
6.0
6.0
6.0
6.0
3.5
11.7
5.3
5.4
6.4
Government Purchases
1.6
-1.5
0.9
1.2
1.2
1.0
1.0
0.9
1.2
1.0
0.9
0.9
-0.9
1.8
0.9
0.9
1.0
0.0
0.1
0.0
-0.6
-0.6
-0.5
-0.6
-0.5
-0.5
-0.4
-0.4
-0.3
-0.1
-0.7
-0.2
-0.5
-0.5
-0.4
-1.3
0.3
0.4
0.2
0.1
0.1
0.2
0.0
0.0
0.0
0.0
-0.1
0.2
-0.4
0.1
0.1
196
146
200
170
165
160
155
150
150
145
145
140
251
229
178
158
145
4.9
4.9
4.9
4.7
4.7
4.6
4.6
4.5
4.4
4.4
4.3
4.3
6.2
5.3
4.8
4.6
4.4
1.1
1.1
1.1
1.4
2.1
2.1
2.3
2.3
2.4
2.4
2.4
2.4
1.6
0.1
1.2
2.2
2.4
Real Gross Domestic Product
Personal Consumption
1
Business Fixed Investment
Net Exports
Inventories
2
2
Nonfarm Payroll Change
3
Unemployment Rate
Consumer Price Index
4
5
Quarter-End Interest Rates
Federal Funds Target Rate
0.50
0.50
0.50
0.75
0.75
1.00
1.00
1.25
1.25
1.50
1.50
1.75
0.25
0.27
0.56
1.00
1.50
Conventional Mortgage Rate
3.69
3.57
3.58
3.59
3.61
3.62
3.66
3.69
3.73
3.82
3.85
4.02
4.17
3.85
3.61
3.65
3.86
2 Year Note
0.73
0.58
0.74
0.84
0.93
1.13
1.20
1.36
1.44
1.59
1.64
1.88
0.46
0.69
0.72
1.16
1.64
10 Year Note
1.78
1.49
1.53
1.56
1.59
1.62
1.68
1.73
1.78
1.88
1.92
2.10
2.54
2.14
1.59
1.66
1.92
Forecast as of: September 7, 2016
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
Percentage Point C ontribution to GDP
4
Year-over-Year Percentage C hange
5
Annual Numbers Represent Averages
3
Average Monthly C hange
Source: IHS Global Insight and Wells Fargo Securities
Economic Outlook
18
Issues to Watch
Technological Shifts
Monetary Policy
Income Inequality
Presidential Election
Compensation Costs
Manufacturing Activity
Fallout from Bursting
Asset Bubbles
Economic Outlook
Brexit Impacts on
Global Growth
19
Appendix
Economic Outlook Group Publications
A Sampling of Our Recent Special, Regional & Industry Commentary
a
Recent Special Commentary
Date
To join any of our research
distribution lists please visit:
http://www.wellsfargo.com/
economicsemail
Economic Outlook
Authors
U.S. Macro
What's a Good Print for Payrolls?
Silvia, Iqbal & House
Are Grocery Store Sales Making a Comeback?
Alemán
August-24
Global Influences on U.S. Growth and Employment
Bryson & House
August-18
Will U.S. Export Growth Stregthen Anew
Bryson & Pershing
August-17
Dragging Anchor
Quinlan & House
August-30
New Jersey Economic Outlook: August 2016
Vitner, Feik
August-26
Washington, D.C. Looks to Leverage Its Global Ties
Vitner & Batcheller
August-24
Global Influences Help Fuel Orange County's Growth
Vitner & Batcheller
August-24
Global Economic Headwinds Slow Colorado's Exports
Vitner & Batcheller
August-23
Kansas City Strives to Expand Its Global Reach
Vitner & Batcheller
August-30
August-29
To view any of our past research
please visit:
http://www.wellsfargo.com/
economics
Title
U.S. Regional
Global Econom y
September-09
Global Chartbook: September 2016
Byrson, House, Causey & Pershing
September-07
RBA on Hold as Aussie GDP Growth Slows Slightly
Quinlan & Causey
September-07
Chile's Economic Weakness Persists in July
Alemán
September-06
Brazilian Economic Prospects Improve a Bit
Alemán
September-06
Strong Swiss GDP Growth, Weak Fundamentals
Bryson & Pershing
September-07
Is the Fed Hogging All the Treasuries
Silvia & Pugliese
August-31
All Growth Can Be Divided into Threet Parts
Silvia & Iqbal
August-24
If Not Normal, Where Are We in the Cycle? Late
Silvia
August-17
Normal as an Evolving Target
Silvia
August-10
Managing Expectations to Avoid Another Tantrum
Silvia & Vitner
August-11
Real Estate
Commercial Real Estate Chartbook: Q2
Khan, Causey & Tysinger
July-06
International Home Buying: 2016
Vitner, Khan & Batcheller
June-28
Brexit Vote Could Pump More Dollars into U.S. CRE
Khan
June-01
Housing Chartbook: June 2016
Vitner, Khan & Batcheller
May-20
Commercial Real Estate Chartbook: Q1
Khan & Causey
Interest Rates/Credit Market
21
Wells Fargo Securities Economics Group
Global Head of Research and Economics
Economists
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
Eric J. Viloria, Currency Strategist
……
Sarah House, Economist
[email protected]
Michael A. Brown, Economist
Chief Economist
[email protected]
[email protected]
Jamie Feik, Economist
John E. Silvia
[email protected]
[email protected]
Economic Analysts
Senior Economists
Erik Nelson, Currency Analyst
Mark Vitner, Senior Economist
[email protected]
Jay H. Bryson, Global Economist
…[email protected]
Sam Bullard, Senior Economist
[email protected]
Nick Bennenbroek, Currency Strategist
Anika R. Khan, Senior Economist
Eugenio J. Alemán, Senior Economist
Misa Batcheller, Economic Analyst
Michael Pugliese, Economic Analyst
[email protected]
Julianne Causey, Economic Analyst
[email protected]
E. Harry Pershing, Economic Analyst
[email protected]
May Tysinger, Economic Analyst
[email protected]
[email protected]
[email protected]
[email protected]
[email protected]
Administrative Assistants
[email protected]
Azhar Iqbal, Econometrician
[email protected]
Donna LaFleur, Executive Assistant
[email protected]
Tim Quinlan, Senior Economist
[email protected]
Dawne Howes, Administrative Assistant
[email protected]
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Economic Outlook
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