Economic Outlook Fastener Tech 19 William Strauss Rosemont, IL - - PowerPoint PPT Presentation
Economic Outlook Fastener Tech 19 William Strauss Rosemont, IL Senior Economist June 5, 2019 and Economic Advisor Federal Reserve Bank of Chicago GDP expanded by 3.2% over the past year Real gross domestic product percent 8 6 4 2 0
William Strauss Senior Economist and Economic Advisor Federal Reserve Bank of Chicago Fastener Tech ‘19 Rosemont, IL June 5, 2019
GDP expanded by 3.2% over the past year
2 4 6 8
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Real gross domestic product
percent
Quarterly change (saar) Percent change from a year earlier
0.0 1.0 2.0
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Monthly
Chicago Fed National Activity Index
Three month average
The Chicago Fed National Activity Index 3-month average in April 2019 was well below trend
The stock market has recovered nearly all of the losses experienced in the final quarter of last year
50 100 150 200 250 300 350 400 450 500
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Real S&P 500 stock index
Index: 1990 = 100
The Federal Open Market Committee (FOMC) expects GDP to grow just above trend in 2019; and around trend in 2020 and 2021
1 2 3 4 5 6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Real gross domestic product
percent change from a year earlier FOMC
FOMC Central Tendency (March 2019) 2019 1.9 – 2.2 2020 1.8 – 2.0 2021 1.7 – 2.0 Longer run 1.8 – 2.0
The probability of a recession over the next two quarters has moved higher, but remains low
10 20 30 40 50 60
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Probablility of a recession - two quarters ahead (Survey of Professional Forecasters)
percent
The Index of Leading Economic Indicators has continued to move higher through April
20 40 60 80 100 120
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Composite Index of 10 Leading Indicators
Index (2016=100)
Employment increased by over 2.6 million jobs
2 4 6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Total employment
percent
Monthly change (saar) Percent change from a year earlier
3 4 5 6 7 8 9 10 11
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Unemployment rate
percent
The unemployment rate fell to a very low 3.6% in April, the lowest reading since 1969
3 4 5 6 7 8 9 10 11
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Unemployment rate
percent FOMC
The FOMC forecasts that the unemployment rate will be below the natural rate through 2021
FOMC Central Tendency (March 2019) 2019 3.6 – 3.8 2020 3.6 – 3.9 2021 3.7 – 4.1 Longer run 4.1 – 4.5
Wages and benefit costs continue to increase at a moderate rate, although it may finally be picking up some its pace
1 2 3 4 5 6 7 8
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Employment cost index
percent change from year ago
benefit costs wages and salaries
There is a very strong correlation between 9-month lead NFIB: planning to raise compensation and Employment Cost Index: wages and salaries
1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5 10 15 20 25
1986 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Employment cost index - wages and salaries and NFIB: Companies planning to raise wages and salaries
% of frims
ECI: wages and salaries (private industry workers) - right scale NFIB: Companies planning to raise worker compensation (9 month lead) -left scale
% y/y
Correlation = 0.84
Slow productivity growth over the past nine years helps explain why relatively strong employment growth has not translated into higher wages
1 2 3 4 5
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Productivity
percent change (20-qtr rate)
A large part of the weakness in productivity growth has been the weak pace of investment, although it has been increasing at a strong pace beginning in 2017
10 20
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Real private nonresidential fixed investment
percent
Quarterly change (saar) Percent change from a year earlier
This may help explain the productivity growth improvement over the past couple of years
1 2 3 4 5 6 7 8
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Productivity
percent change from a year earlier
5 10 15 20
1950 '55 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Unit labor cost
percent
Quarterly change (saar) Percent change from a year earlier
Improving productivity growth is helping to keep unit labor cost growth down even with compensation rising
50 100 150 200
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Nonfinancial corporate profits
percent
Quarterly change (saar) Percent change from a year earlier
Corporate profits continue to improve
1 2 3 4 5 6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Personal consumption expenditure - chain price index
percent change from a year earlier
Inflation is below the Fed target of 2%
20 40 60 80 100 120 140 160
1970 '75 '80 '85 '90 '95 '00 '05 '10 '15
Real West Texas Intermediate oil price
dollars per barrel, 2018 dollars
In large part inflation has been following the pattern of energy prices
3 4 5 6 7 8 9 10
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Energy goods and services expenditures as a share of total consumption
percent
Expenditures on energy remain well below the historical average
3 4 5 6 7 8 9 10
1960 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15
Energy goods and services expenditures as a share of total consumption
percent
60s 70s 80s 90s 00s 1960-2018 10s
1 2 3 4 5
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Personal consumption expenditure - less food and energy - chain price index
percent change from a year earlier
Removing the volatile food and energy components from the PCE, “core” inflation is below 2%
The FOMC anticipates that PCE inflation will be around its two percent target through 2021
1 2 3 4 5 6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Personal consumption expenditure - chain price index
percent change from a year earlier FOMC
FOMC Central Tendency (March 2019) 2019 1.8 – 1.9 2020 2.0 – 2.1 2021 2.0 – 2.1 Longer run 2.0
1 2 3 4 5
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Personal consumption expenditure - less food and energy - chain price index
percent change from a year earlier FOMC
The FOMC anticipates that “core” PCE inflation will also remain around two percent through 2021
FOMC Central Tendency (March 2019) 2019 1.9 – 2.0 2020 2.0 – 2.1 2021 2.0 – 2.1
Inflation Exchange Rate Real GDP % change Against Interest Rates % change Annual US Dollar 3-Month Annual Consumer Prices End of Year End of Year 2018 2019 2020 2018 2019 2020 2019 2020 2019 2020 United States 2.9 2.6 1.9 2.4 1.9 2.2
2.39 Canada 1.8 1.6 1.7 2.3 1.9 2.0 1.31 1.30 1.92 2.11 Mexico 2.0 1.6 1.8 4.9 3.9 3.7 19.90 20.15 8.09 7.64 Japan 0.8 0.7 0.5 1.0 0.9 1.2 109.1 107.9
South Korea 2.7 2.3 2.4 1.5 1.1 1.7 1,125 1,104 1.94 2.11 United Kingdom 1.4 1.2 1.4 2.5 2.0 2.0 1.34 1.39 0.93 1.20 Germany 1.5 0.9 1.4 1.9 1.6 1.7 1.16 1.21
France 1.6 1.3 1.4 2.1 1.3 1.5 1.16 1.21
Euro Zone 1.8 1.2 1.4 1.8 1.4 1.5 1.16 1.21
Brazil 1.1 1.9 2.5 3.7 3.9 4.0 3.84 3.79 6.26 6.79 Russia 2.3 1.5 1.7 2.9 4.9 4.0 66.01 64.71 7.40 7.05 China 6.6 6.3 6.1 2.1 2.3 2.4 6.73 6.69 2.91 2.99 India 7.4 7.1 7.2 3.9 4.2 4.7 70.19 69.92 6.63 6.64 Blue Chip Economic Indicators Forecast May 10, 2019
Blue Chip International Consensus Forecasts
Jun-18 Jul-18 Aug-18 Sep-18 Oct-18 Nov-18 Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Global 53.0 52.8 52.6 53.2 52.0 52.0 51.5 50.8 50.6 50.6 50.4 49.8 United States 55.4 55.3 54.7 55.6 55.7 55.3 53.8 54.9 53.0 52.4 52.6 50.5 Canada 57.1 56.9 56.8 54.8 53.9 54.9 53.6 53.0 52.6 50.5 49.7 50.0 Mexico 52.1 52.1 50.7 51.7 50.7 49.7 49.7 50.9 52.6 49.8 50.1 50.1 Eurozone 54.9 55.1 54.6 53.2 52.0 51.8 51.4 50.5 49.3 47.5 47.9 47.7 Germany 55.9 56.9 55.9 53.7 52.2 51.8 51.5 49.7 47.6 44.1 44.4 44.3 France 52.5 53.3 53.5 52.5 51.2 50.8 49.7 51.2 51.5 49.7 50.0 50.6 Italy 53.3 51.5 50.1 50.0 49.2 48.6 49.2 47.8 47.7 47.4 49.1 49.7 Spain 53.4 52.9 53.0 51.4 51.8 52.6 51.1 52.4 49.9 50.9 51.8 50.1 UK 54.4 53.8 53.0 53.6 51.1 53.6 54.2 52.8 52.1 55.1 53.1 49.4 Russia 49.5 48.1 48.9 50.0 51.3 52.6 51.7 50.9 50.1 52.8 51.8 49.8 Japan 53.0 52.3 52.5 52.5 52.9 52.2 52.6 50.3 48.9 49.2 50.2 49.8 China 51.0 50.8 50.6 50.0 50.1 50.2 49.7 48.3 49.9 50.8 50.2 50.2 India 53.1 52.3 51.7 52.2 53.1 54.0 53.2 53.9 54.3 52.6 51.8 52.7 Brazil 49.8 50.5 51.1 50.9 51.1 52.7 52.6 52.7 53.4 52.8 51.5 50.2
Manufacturers’ Purchasing Managers Indexes
More open countries have had better growth
U.S. tariffs used to be much higher
Tariffs: U.S. versus other countries
Tariffs: U.S. versus other countries
Tariffs: Recent tariffs have now pushed the U.S. much higher
Tariffs: U.S. trade with Mexico is mainly intra-company trade
Tariffs: Significant amount of U.S. exports consists of imports from other countries, especially for the auto industry
Tariffs: The auto industry dominates the import story
The Blue Chip forecast projects a continuing deterioration in the balance of trade
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Net exports
billions of chained 2012 dollars (saar)
Q1-2019 Blue Chip Forecast
500 1,000 1,500 2,000 2,500
1980 '85 '90 '95 '00 '05 '10 '15 '20
Housing starts
thousands
Blue Chip Housing Starts Forecast (thousands) Actual Forecast 2018 2019 2020 1,249 1,234 1,261
The Blue Chip Forecast calls for a continuation
Manufacturing output growth has slowed to zero
10 20 30 40
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Industrial production - manufacturing
percent
Monthly change (saar) Percent change from a year earlier
62 64 66 68 70 72 74 76 78 80 82 84 86
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Capacity utilization - manufacturing
percent
Capacity utilization has been falling
Manufacturing employment increased by 204,000 workers over the past 12 months
5 10 15
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Manufacturing employment
percent
Monthly change (saar) Percent change from a year earlier
Year-to-date light vehicle sales are 16.8 million units in 2019, 1.7% below the comparable period from a year earlier
8 9 10 11 12 13 14 15 16 17 18 19 20 21 22
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Light vehicle sales
millions of units (saar)
Year-to-date 2019 light truck sales were 1.6% higher, while year-to-date 2019 passenger car sales were 8.8% lower
3 4 5 6 7 8 9 10 11 12 13
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Passenger car and light truck sales
millions of units (saar)
light trucks passenger cars
Light truck market share is at a record high
30 35 40 45 50 55 60 65 70 75
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Light truck share of light vehicle market sales
percent
Alternative powered vehicles (including hybrids) are a very small fraction of total vehicle sales
10 20 30 40 50 60 70 80 90 100
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Power-Type
percent of total sales
Alternative Gasoline and Diesel
Alternative powered vehicles (including hybrids) market share remains below 5%
1 2 3 4 5 6
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Alternative Powered Vehicles
percent of total sales
Blue Chip forecasts vehicle sales to move lower this year and in 2020
10 11 12 13 14 15 16 17 18
1980 '85 '90 '95 '00 '05 '10 '15 '20
Vehicle sales
millions of units
Blue Chip Light-Vehicle Sales Forecast Actual Forecast 2018 2019 2020 17.2 16.7 16.4
The industrial sector’s output growth had been solid during 2018
Manufacturing Industries Activity Chart
Growth (3-month moving average) compared with the most recent 5-year trend
Current 3 Month Moving Average Growth is: Above Trend and Accerating Above Trend and Decelerating Below Trend and Accelerating Below Trend and Decelerating Contracting but Improving Contracting and Deteriorating
5-year Trend
2014 2015 2016 2017 2018 2019 Manufacturing 0.7% Wood Products 3.0% Nonmetallic Mineral Products 2.1% Primary Metals
Fabricated Metal Products 0.1% Machinery
Computer and Electronic Components 2.9% Electrical Eqpt, Appliances & Components
Motor Vehicles and Parts 1.8% Aerospace & Misc. Transport Equip
Furniture and Related Products 0.9% Miscellaneous Durable Goods 0.8% Food, Beverages, and Tobacco 1.3% Textile and Product Mills
Apparel and Leather Goods
Paper
Printing and Related Support Activities
Chemicals 1.3% Petroleum and Coal Products 0.5% Plastics and Rubber Products 1.2%
The supply managers’ composite index has been moving lower
30 35 40 45 50 55 60 65
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Purchasing managers' index - composite
net percent reporting increases
5 10
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
Total industrial production
percent
Quarterly change (saar) Percent change from a year earlier Q1-2019 Blue Chip CPI Forecast Actual Forecast 2018 2019 2020 4.0 1.2 1.5
Industrial production is forecast to rise at a slower pace this year and in 2020
Credit spreads between Corporate High Yield securities and Corporate Aaa securities increased towards the end of last year, although it has pulled back this year
The yield curve has flattened
1 2 3 4
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Yield curve - 10-year Treasury note yield minus 3-month Treasury bill yield
percent
1 2 3 4
2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20
10-year T-Note to 3-month T-Bill spread
percent
Q1 -2019
percent
Blue Chip Forecast
Blue Chip does not expect the yield curve to invert
1 2 3 4 5 6 7 8 9
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Fed Funds rate
percent
The Federal Reserve increased the Federal Funds rate by 2.25% since December 2015
1 2 3 4 5 6 7 8 9
1990 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20
Target Federal Funds Rate
percent FOMC
The Federal Funds Rate is expected to be just below the neutral range in 2019 and at the bottom end of the neutral range in 2020 and 2021
FOMC Central Tendency (March 2019) 2019 2.4 – 2.6 2020 2.4 – 2.9 2021 2.4 – 2.9 Longer run 2.5 – 3.0
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000 4,500
Assets of the Federal Reserve
Billions of dollars
Term Auction Credit
Securities Held Outright
Central Bank Swaps Maiden Lane II & III Commercial Paper Facility
2007 '08 '09
Term Asset-Backed Securities Loan Facility AIG Support Maiden Lane
'10 '11 '12 '13 '14 '15 '16 '17 '18
The Fed’s balance sheet has been falling since October 2017 and will end the balance sheet reduction in September 2019
just above trend in 2019 and close to trend in 2020 and 2021
unemployment rate remaining very low
slower pace in 2019 and 2020