2019 Midye a r E c onomic F ore c a st R obe r t M. Mc Na b a - PowerPoint PPT Presentation

2019 Midye a r E c onomic F ore c a st R obe r t M. Mc Na b a nd Vinod Ag a r wa l Dra g a s Ce nte r for E c onomic Ana lysis a nd Polic y Strome Colle g e of Busine ss Old Dominion Unive r sity May 21, 2019

Age nda for T oday I will c ove r e c onomic c onditions in the Unite d Sta te s and Vir ginia and the c halle nge s to g r owth. My c olle ague , Vinod Agar wal, will e xamine e c onomic c onditions in Hampton Roads and the pr ospe c ts for gr owth in 2019. All our pr e se ntation mate r ials c a n be found at our we bsite : www.c e apodu.c om

Pre se nting Sponsor Me dia Sponsor Othe r Sponsors

Our fore c asts and c omme ntary do not c onstitute offic ial vie wpoints of Old Dominion Unive rsity, its Pre side nt, John R. Brode ric k, the Board of Visitors, the Strome Colle ge of Busine ss, or the ge ne rous donors who support the ac tivitie s of the Dragas Ce nte r for E c onomic Analysis and Polic y. The data in this presentation are subject to revision. To our knowledge, all data used are accurate at the time of the presentation.

I n Me mo riam ▪ We honor the me mory of Ge orge Dragas, a tire le ss supporte r of the ac tivitie s of the Dragas Ce nte r. ▪ Mr. Dragas, se e king to improve the live s of all in Hampton R oads, was the primary ge ne sis of the State of the R e gion R e port. 5

Gr owth Continue s

Gr owth in Re al Gr oss Dome stic Pr oduc t Unite d State s, 2012 Q1- 2019 Q1 6% Annua lize d Qua rte rly Growth 5% 2.6% 4% 3% 2% 1% 0% -1% 2.1% -2% -3% 2012 2013 2014 2015 2016 2017 2018 2019 Oba ma (2012 Q1 - 2015 Q4) T rump (2016 Q1 - 2019 Q1) 7 Sourc e s: Bure au of Ec onomic Analysis and Dragas Ce nte r for Ec onomic Analysis and Polic y. Data on G DP inc orporate late st BEA re visions in April 2019. Data for 2019 Q 1 are the advanc e e stimate . CAG R G DP growth in horizontal bars. CAG R O bama = 2.1% , CAG R T rump = 2.6% .

Gr owth in Re al Gr oss Dome stic Pr oduc t Vir g inia , 2012 Q1- 2018 Q4 6% 2.4% Annua lize d Qua rte rly Growth 5% 4% 3% 2% 1% 0% -1% -2% -3% 0.6% -4% 2012 2013 2014 2015 2016 2017 2018 Oba ma (2012 Q1 - 2015 Q4) T rump (2016 Q1 - 2019 Q1) 8 Sourc e s: Bure au of Ec onomic Analysis and Dragas Ce nte r for Ec onomic Analysis and Polic y. Data on G DP inc orporate late st BEA re visions in May 2019. Data for 2018 Q 4 are the advanc e e stimate . CAG R G DP growth in horizontal bars.

Re c ove r y fr om the Gr e a t Re c e ssion Me a sur e d in T ota l Jobs Re stor e d, 2008-2019* 9.2% 10% 8% ost 6% Jobs Ga ine d or L 4% 6.7% 2% 0% -2% -4% -6% -8% 0 10 20 30 40 50 60 70 80 90 100 110 120 130 Months Sinc e Pre - R e c e ssion Pe a k United Sta tes Virg inia 9 Sourc e s: Bure au of L abor Statistic s and Dragas Ce nte r for Ec onomic Analysis and Polic y. Pe ak Pre - R e c e ssion Date s are January 2008 (Unite d State s), and April 2008 (Virginia). *Data through April 2019 for Virginia and the Unite d State s. US data are pre liminary the last two months. Virginia data are pre liminary for the last month. Se asonally adjuste d data.

Une mployme nt Ra te , Unite d Sta te s y 2007 – Apr Ja nua r il 2019 18% 16.8% 16% 14% 13.0% Une mployme nt Ra te 12% 9.2% 10% 6.7% 8% 6% 4.2% 4% 3.1% 2% 2007 2009 2011 2013 2015 2017 2019 Bla c k or Afric a n Ame ric a n Hispanic or L a tino White 10 Sourc e s: Bure au of L abor Statistic s and Dragas Ce nte r for Ec onomic Analysis and Polic y. Se asonally adjuste d data.

L a bor F or c e Pa r tic ipa tion Ra te , Unite d Sta te s y 2007 – Apr Ja nua r il 2019 69.4% 70% 69% 65.9% 68% orc e Pa rtic ipa tion 66.7% 67% 66% 65% 64.6% 64% 62.8% a bor F 63% L 62% 62.5% 61% 60% 2007 2009 2011 2013 2015 2017 2019 Bla c k or Afric a n Ame ric a n Hispa nic or L a tino White 11 Sourc e s: Bure au of L abor Statistic s and Dragas Ce nte r for Ec onomic Analysis and Polic y. Se asonally adjuste d data.

Cor por ate Pr ofits as Pe r c e nt of GDP Unite d Sta te s, 1950 - 2018 14% 9.3% 12% Profits a s Pe rc e nt of GDP 10% 6.9% 8% 6% 4% 2% 0% 12 Sourc e : Bure au of Ec onomic Analysis and O ld Dominion Unive rsity Ec onomic F ore c asting Proje c t. Corporate Profits Afte r T ax Without Inve ntory Adjustme nt

Cyc lic ally Adjuste d Pr ic e / E a r nings Ra tio Standard and Poor’s Composite Price Index y 1881 – May 2019* Januar 50 44.2 45 40 30.2 32.6 35 a tio 30 R 25 16.96 P/ E 20 15 10 5 0 1881 1885 1889 1893 1897 1901 1906 1910 1914 1918 1922 1926 1931 1935 1939 1943 1947 1951 1956 1960 1964 1968 1972 1976 1981 1985 1989 1993 1997 2001 2006 2010 2014 2018 13 Sourc e : R obe rt Sc hille r, Ir r ational E xube r anc e . Pric e s and e arnings are in January 2000 dollars. *Data as May 6, 2019 marke t c lose . Ave rage P/ E ratio = 16.96 ove r the pe riod.

Re por te d Divide nds and Buybac ks for S&P 500 Cor por ations 2013 – 4th Quar 1st Quar te r te r 2018 $223.0 $250 Billions of Nomina l Dolla rs $200 $150 $119.8 $100.0 $100 $50 $70.9 $0 2013 2013 2014 2014 2015 2015 2016 2016 2017 2017 2018 2018 Divide nds Buyba c ks 14 ax Cuts and Jobs Ac t of 2017. 4 th quarte r 2018 buybac ks are the c urre nt Sourc e : S&P Dow Jone s Indic e s, Marc h 2019. T he ye llow bar re pre se nts the pe riod afte r the passage of the T historic al re c ord. 2018 share buybac ks we re 55.6% highe r than 2017.

Unive rsity of Mic higa n, Consume r Se ntime nt a nd E xpe c ta tions y 2009 – Ma y 2019* Januar 110 99.3 100 Inde x (1966 = 100) 90 80 58.7 90.7 70 60 50 49.6 40 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 E xpec ta tions Sentime nt 15 Sourc e : Unive rsity of Mic higan, Surve y of Consume r Se ntime nt, May 2019. *T hre e - month moving ave rage

2018-2019: T he Good ▪ Pric e and wage inflation re main mode rate , and inte re st rate s c ontinue to be historic ally low. ▪ Consume r se ntime nt and e xpe c tations are high, howe ve r, c onsume r spe nding shows signs of slowing. ▪ T he 2017 T ax Cuts and Jobs Ac t inc re ase d share buybac ks and divide nds, boosting e quity pric e s and pe r- share pe rformanc e . ▪ Inc re ase s in fe de ral disc re tionary spe nding inc re ase d growth in Virginia, e spe c ially in Northe rn Virginia and Hampton Roads. 16

F e de r a l Spe nding

F e de r a l Outla ys a s Pe r c e nt of GDP 1968 - 2029 14.8% 16% 13.1% 14% 12% Pe rc e nt of GDP 10% 8% 4.9% 6% 5.5% 4% 2% 3.0% 1.2% 0% 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 Disc r e tiona ry Ma nda tory Ne t Inte re st 18 Sourc e s: Congre ssional Budge t O ffic e (2019), Budge t and Ec onomic O utput: 2019 to 2029 and Dragas Ce nte r for Ec onomic Analysis and Polic y.

Congr e ssional Budg e t Offic e : Pr oje c te d F e de r a l De fic it F Y 2018 - F Y 2029 $0 -$500 Billions of Dolla rs $782 -$1,000 $897 $1,018 -$1,500 $1,366 $1,592 -$2,000 $2,075 -$2,500 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 CBO Ba se line Alte r native F isc al Sc enario 19 Sourc e : Congre ssional Budge t O ffic e (2018), Budge t and Ec onomic O utput: 2018 to 2029 and Dragas Ce nte r for Ec onomic Analysis and Polic y. F e de ral de fic its in nominal dollars. T he alte rnative fisc al sc e nario assume s that appropriations are not c onstraine d by the Budge t Control Ac t of 2011, and many provisions of the 2017 tax law be c ome pe rmane nt.

Ne t Inte r e st E xpe nditur e s on F e de r al De bt Y 2017 – F Unite d Sta te s, F Y 2029 $1,200 $1,040 $965 $1,000 $889 $823 Billions of Dolla rs $714 $763 $800 $658 $595 $600 $528 $462 $383 $400 $325 $263 $200 $0 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 CBO Ba se line Alte r native F isc al Sc enario 20 Sourc e : Congre ssional Budge t O ffic e (2018), Budge t and Ec onomic O utput: 2018 to 2029 and Dragas Ce nte r for Ec onomic Analysis and Polic y. F e de ral de fic its in nominal dollars. T he alte rnative fisc al sc e nario assume s that appropriations are not c onstraine d by the Budge t Control Ac t of 2011, and many provisions of the 2017 tax law be c ome pe rmane nt.

De par tme nt of De fe nse Appr opr iations Y 17 – F F Y 20 $750 $718 $690 $685 $700 Billions of Nomina l Dolla rs $671 $650 $606 $600 $550 $500 $450 $400 F Y 17 F Y 18 F Y 19 F Y 20 (Pr e sBud) F Y 20 (House) Ba se OCO BOCO E me r g e nc y Y 2020 Pre side ntial Budge t, and House Appropriations Committe e – 302b alloc ations as of 07 21 Sourc e s: Dragas Ce nte r for Ec onomic Analysis and Polic y, O SD (Comptrolle r), F May 2019, House Appropriations Committe e Markup 14 May 2019 ($622.1 base , +15.6 billion from F Y 19). BCA implie d c ap for DoD base is $545 billion.