NATIONAL OUTLOOK (CONSENSUS FORECASTING GROUP) J. MICHAEL JONES, - PDF document

1 NATIONAL OUTLOOK (CONSENSUS FORECASTING GROUP) J. MICHAEL JONES, PHD DECEMBER 17, 2019 Office of State Budget Director Key Differences in the IHS Markit Forecast 2  Real GDP Growth Lower in Near Term than October Presentation  FY2020 Growth Rate Lowered to 2.0% vs 2.1%  Private Domestic Final Sales Growth Lowered  Nonresidential Fixed Investment Lowered  Federal Reserve Expected to Hold Rates Constant  Housing Starts Forecast Increased  Export Growth Reduced  Oil Prices Lowered

Control Scenario (Probability – 55%) 3  Growth slows to 2.1% in FY2020  Reduced pace of inventory accumulation  Vehicle sales edge lower over next two fiscal year  Business fixed investment and output estimates reduced  Housing starts and residential fixed investment upgraded  Federal Reserve expected to hold Federal Funds rates at current levels  Decreases in Brent oil prices, as oil expected to be $64/bbl in calendar 2019 and fall back to $57/bbl by 2020 Optimistic Scenario (Probability – 10%) 4  Increases in Real GDP to 2.3% in CY19  Housing market fuels growth due to increased household formation among young adults  Lower nonaccelerating inflation rate of unemployment at 4.0%  Productivity growth averages 2.6% over CY19-22, 1.0% higher than the control forecast  On the demand side, higher incomes and low inflation support robust consumer spending of 2.8% in CY19 and 3.3% in CY20

Pessimistic Scenario (Probability – 35%) 5  Three quarter recession beginning in Q2 of FY21  Broad loss in confidence and growing risk aversion  Declines in wide range of investment and consumer spending categories  Current expansion ends after 138 consecutive months of growth  Real consumer spending in CY19 increases by 2.8%, then slows to 1.7% in CY20  Unemployment rate starts rising, reaching 5.8% by 2021  Stock market drops 4.9% during CY20 Real GDP (Billions of Chained 2012 Dollars, Annual Rate, BEA) 6 $22,000 Optimistic Pessimistic Control $21,000 $20,000 $19,000 $18,000 $17,000 $16,000 $15,000 $14,000 $13,000 $12,000 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22

Real GDP – Control Forecast (IHS Markit, Annual Growth Rates) 7 October December 3.0% 2.6% 2.6% 2.5% 2.2% 2.1% 2.1% 2.0% 2.0% 1.74% 1.71% 1.5% 1.0% 0.5% 0.0% FY2019 FY2020 FY2021 FY2022 Real GDP – Optimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 8 October December 3.5% 3.0% 3.0% 2.8% 2.6% 2.6% 2.5% 2.1% 2.1% 2.1% 2.0% 1.7% 1.5% 1.0% 0.5% 0.0% FY2019 FY2020 FY2021 FY2022

Real GDP – Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 9 October December 3.0% 2.6% 2.6% 2.5% 2.0% 2.0% 2.0% 1.8% 1.5% 1.0% 0.7% 0.5% 0.0% -0.3% -0.5% -1.0% -1.1% -1.5% FY2019 FY2020 FY2021 FY2022 U.S. Employment – Total Non-Farm Payrolls (Millions, BLS) 10 160.0 Optimistic Pessimistic Control 155.0 150.0 145.0 140.0 135.0 130.0 125.0 120.0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22

U.S. Employment – Total Non-Farm Payrolls Control Forecast (IHS Markit Forecast, Annual Growth Rates) 11 October December 2.0% 1.8% 1.7% 1.7% 1.6% 1.4% 1.3% 1.4% 1.2% 1.0% 0.99% 1.0% 0.8% 0.62% 0.60% 0.6% 0.4% 0.2% 0.0% FY2019 FY2020 FY2021 FY2022 U.S. Employment – Total Non-Farm Payrolls Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 12 October December 2.0% 1.7% 1.7% 1.5% 1.4% 1.2% 1.0% 0.5% 0.0% -0.01% -0.5% -0.5% -0.6% -1.0% -1.2% -1.5% FY2019 FY2020 FY2021 FY2022

U.S. Employment – Manufacturing (Millions, BLS) 13 14.5 Optimistic Pessimistic Control 14.0 13.5 13.0 12.5 12.0 11.5 11.0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22 U.S. Employment – Manufacturing Control Forecast (IHS Markit Forecast, Annual Growth Rates) 14 October December 2.5% 1.9% 1.9% 2.0% 1.5% 1.0% 0.5% 0.3% 0.2% 0.0% -0.3% -0.5% -1.0% -0.8% -1.5% -1.8% -2.0% -2.0% -2.5% FY2019 FY2020 FY2021 FY2022

U.S. Employment – Manufacturing Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 15 October December 3.0% 1.9% 1.9% 2.0% 1.0% 0.3% 0.2% 0.0% -1.0% -1.0% -2.0% -2.3% -3.0% -4.0% -4.1% -5.0% -4.8% -6.0% FY2019 FY2020 FY2021 FY2022 Housing Starts (Millions, Annual Rate, U.S. Bureau of the Census) 16 2.5 Optimistic Pessimistic Control 2.0 1.5 1.0 0.5 0.0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22

Housing Starts - Control Forecast (IHS Markit Forecast, Annual Growth Rates) 17 October December 5.0% 4.1% 4.0% 3.0% 1.8% 2.0% 1.3% 1.0% 0.5% 0.3% 0.0% -1.0% -1.0% -2.0% -2.5% -2.6% -3.0% FY2019 FY2020 FY2021 FY2022 Housing Starts - Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 18 October December 20.0% 13.6% 15.0% 10.0% 6.28% 5.0% 1.63% 0.0% -2.51% -2.57% -5.0% -6.0% -10.0% -15.0% -20.0% -22.0% -25.0% -23.42% -30.0% FY2019 FY2020 FY2021 FY2022

Real Personal Income (Billions of Chained 2012 Dollars, Annual Rate, BEA) 19 $19,000 Optimistic Pessimistic Control $18,000 $17,000 $16,000 $15,000 $14,000 $13,000 $12,000 $11,000 $10,000 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22 Real Personal Income - Control Forecast (IHS Markit Forecast, Annual Growth Rates) 20 October December 3.5% 3.3% 3.3% 3.0% 2.8% 2.6% 2.5% 2.3% 2.23% 2.19% 2.0% 2.0% 1.5% 1.0% 0.5% 0.0% FY2019 FY2020 FY2021 FY2022

Real Personal Income - Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 21 October December 3.5% 3.3% 3.3% 3.0% 2.6% 2.6% 2.5% 2.0% 1.5% 1.3% 1.0% 0.5% 0.3% 0.4% 0.0% -0.3% -0.5% FY2019 FY2020 FY2021 FY2022 Real Consumer Spending (Excluding Food and Energy) (Billions of 2012 Dollars, Annual Rate, BEA) 22 $14,000 Optimistic Pessimistic Control $13,000 $12,000 $11,000 $10,000 $9,000 $8,000 $7,000 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22

Real Consumer Spending (Excluding Food and Energy) Control Forecast (IHS Markit Forecast, Annual Growth Rates) 23 October December 3.5% 3.0% 2.9% 2.9% 2.9% 3.0% 2.8% 2.7% 2.6% 2.5% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% FY2019 FY2020 FY2021 FY2022 Real Consumer Spending (Excluding Food and Energy) Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 24 October December 3.5% 2.9% 2.9% 3.0% 2.85% 2.80% 2.5% 2.0% 1.6% 1.6% 1.5% 1.3% 1.0% 1.0% 0.5% 0.0% FY2019 FY2020 FY2021 FY2022

Real Consumer Spending on Durable Goods (Billions of 2012 Dollars, Annual Rate, BEA) 25 $2,300 Optimistic Pessimistic Control $2,100 $1,900 $1,700 $1,500 $1,300 $1,100 $900 $700 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22 Real Consumer Spending on Durable Goods Control Forecast (IHS Markit Forecast, Annual Growth Rates) 26 October December 7.0% 6.0% 6.0% 5.2% 4.9% 5.0% 4.6% 4.4% 4.4% 4.3% 4.3% 4.0% 3.0% 2.0% 1.0% 0.0% FY2019 FY2020 FY2021 FY2022

Real Consumer Spending on Durable Goods Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 27 October December 7.0% 5.7% 6.0% 5.0% 4.5% 4.4% 4.4% 4.0% 3.0% 3.0% 2.0% 1.0% 0.7% 0.2% 0.0% -0.6% -1.0% FY2019 FY2020 FY2021 FY2022 Nominal Consumption of Gasoline and Oil (Billions of Dollars, Annual Rate, BEA) 28 $500 Optimistic Pessimistic Control $450 $400 $350 $300 $250 $200 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22

Nominal Consumption of Gasoline and Oil Control Forecast (IHS Markit Forecast, Annual Growth Rates) 29 October December 6.0% 4.1% 4.1% 4.0% 2.7% 2.3% 2.0% 0.0% -0.5% -1.1% -2.0% -2.4% -4.0% -6.0% -8.0% -7.5% -10.0% FY2019 FY2020 FY2021 FY2022 Nominal Consumption of Gasoline and Oil Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 30 October December 6.0% 4.1% 4.1% 4.0% 2.5% 1.9% 2.0% 0.0% -2.0% -1.9% -3.1% -4.0% -4.6% -6.0% -8.0% -10.0% -10.7% -12.0% FY2019 FY2020 FY2021 FY2022

Unit Sales of New Light Vehicles (Millions, Annual Rate, BEA) 31 20.0 Optimistic Pessimistic Control 18.0 16.0 14.0 12.0 10.0 8.0 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22 Unit Sales of New Light Vehicles Control Forecast (IHS Markit Forecast, Annual Growth Rates) 32 October December 0.0% -0.5% -0.6% -0.7% -0.9% -1.0% -1.0% -1.1% -1.3% -1.5% -1.5% -2.0% -2.3% -2.5% FY2019 FY2020 FY2021 FY2022

Unit Sales of New Light Vehicles Pessimistic Forecast (IHS Markit Forecast, Annual Growth Rates) 33 October December 2.0% 1.3% 1.0% 0.0% -1.0% -1.0% -1.1% -1.3% -2.0% -1.8% -3.0% -3.1% -4.0% -5.0% -6.0% -7.0% -6.9% -7.0% -8.0% FY2019 FY2020 FY2021 FY2022 Real Gross Private Fixed Investment (Billions of Chained 2012 Dollars, Annual Rate, BEA) 34 $4,000 Optimistic Pessimistic Control $3,500 $3,000 $2,500 $2,000 $1,500 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY 22