Ohio Tax 2018 Economic Forecast & Outlook for U.S. & Ohio - - PDF document
27th Annual Tuesday & Wednesday, January 2324, 2018 Hya Regency Columbus, Columbus, Ohio Ohio Tax 2018 Economic Forecast & Outlook for U.S. & Ohio Businesses Jeffrey Korzenik. Senior Vice President & Chief Investment
27th Annual
Tuesday & Wednesday, January 23‐24, 2018
Hya Regency Columbus, Columbus, Ohio
2018 Economic Forecast & Outlook for U.S. & Ohio Businesses
Jeffrey Korzenik. Senior Vice President & Chief Investment Officer Fifth Third Bank Chicago
Wednesday, January 24, 2018 1:00 p.m. to 2:00 p.m.
Biographical Information
Jeff Korzenik, Chief Investment Strategist & Senior Vice President Fifth Third Investment Management Group 222 S. Riverside Plaza, Chicago, IL 60606 Jeff Korzenik is Chief Investment Strategist for Fifth Third Bank, where he is responsible for the Bank’s overall client investment strategy. For more than 30 years, Jeff has been a thought leader in the investment
and public policy have been published in The Chicago Tribune, The Boston Globe, Forbes and other periodicals. He has been quoted in publications including The New York Times, The Wall Street Journal and Barron’s. In addition to regular speaking appearances at conferences and public events, Jeff was invited to testify on Capitol Hill as an expert witness on the use of commodity indexes by pensions and other institutional investors. Jeff earned both a Bachelor of Arts degree in Economics and a Certificate of Proficiency in Near Eastern Studies from Princeton University in Princeton, N.J. Professional and Civic A passionate supporter of cultural organizations, Jeff serves as a Trustee of the Harris Theater for Music and Dance, and as an Overseer of the Peabody Essex Museum.
Four Considerations for 2018: Do Worry, Be Happy!
Jeff Korzenik Chief Investment Strategist
2
Four Considerations for 2018: Do Worry, Be Happy!
3
this…and it won’t.
4
The world economy has never been in better shape.
5 10 15 20 25 30 35 40 45 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 # of Countries Expanding Contracting
Source: Organisation for Economic Co-Operation and Development, as of 9/23/2017; note: expanding indicates countries with positive GDP growth rates year over year and contracting indicates negative GDP growth year over year; includes 35 OECD countries and 10 non- OECD countries
5
U.S. small business optimism is at decade highs.
6
Earnings have been boosted by easy year-over-year comps…
0.0% 2.0% 4.0% 6.0% 8.0% 10.0% 12.0% $0.0 $20.0 $40.0 $60.0 $80.0 $100.0 $120.0 $140.0 $160.0 2015 2016 2017 2018 Expected S&P 500 EPS Growth Rate S&P 500 EPS
S&P 500 Earnings Trends
S&P 500 EPS S&P 500 EPS Growth Rate
Source: FactSet
7
…and an unexpectedly weaker dollar.
8
9
Tax policy is set to support higher growth this year.
Credit: Cornerstone Macro
10
The deregulatory tone has been set.
50 100 150 200 250 300 350 400 450 500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Number of Regulations Finalized
(40,000,000) (20,000,000)
40,000,000 60,000,000 80,000,000 100,000,000 120,000,000 140,000,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Paperwork Hours
0.0 50.0 100.0 150.0 200.0 250.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Total Finalized Cost (in billions)
Source: American Action Forum Regulation Rodeo
11
Global central banks are moving towards removal of accommodation…
0% 20% 40% 60% 80% 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YoY Change in Global Central Bank Balance Sheets YoY Change in MSCI ACWI
Source: Bloomberg; balance sheets include the European Central Bank, The Bank of Japan and the Federal Reserve
12
…and they are running out of securities to purchase.
Credit: Deutsche Bank Research
13
The Fed continues to normalize policy and officials are predicting three rate hikes in 2018.
Source: Federal Reserve
14
The yield curve continues to flatten from peak steepness.
Normal curve Inverted curve
15
problem; reentry is our biggest labor
16
Is the economy running out of labor?
17
The opioid epidemic continues to worsen.
10,000 20,000 30,000 40,000 50,000 60,000 70,000
Total Drug Overdose Deaths in the U.S.
Source: Centers for Disease Control and Prevention
A study from Princeton economist Alan Kreuger suggests the rise in opioid prescriptions from 1999 to 2015 could account for 20 percent of the decline in the male labor force participation rate during the same period, or a loss of more than 1.4 million men from the labor force.
18
Reentry is our biggest labor opportunity.
2,392,589 7,304,910 19,000,000 70,000,000 10,000,000 20,000,000 30,000,000 40,000,000 50,000,000 60,000,000 70,000,000 80,000,000 Currently In Prison or On Parole Currently or Formerly In Prison
Current or Past Felony Supervision Interaction with the Law
Source: University of Georgia, National Employment Law Project
19
Second chancers are our biggest labor opportunity.
A True Second Chance Society
Private Sector
Employers willing to employ second chancers and provide support for needs typical to that community
Government
Reduction of barriers to employment of second chancers and support for employers who hire them
Non-profits
Preparation and referral of workforce, supplemental employee support, respecting the needs of employers
20
Inaction comes at a cost…
Annual shortfall of workers at full employment:
Average payroll growth minus natural demographic and immigration contribution
= 1.248 million 5-year re-arrest rate (~76.6%) x Number of people released from jails and prison annually (~1.5 million) = 1.149 million Number of people reportedly misusing prescription opioids = 12.5 million Cost of each year of potential growth lost: GDP of $19 trillion x ~2% real growth = $380 billion
Source: Fifth Third, University of Georgia, U.S. Department of Health & Human Services, Bureau of Justice Statistics; Note: all numbers are estimates, estimated 2017 GDP data used
21
It’s not the debt, it’s the liability.
22
The state pension funding gap is climbing.
Source: The Pew Charitable Trusts
Tracking State Pension Assets and Liabilities, FY 1997-2015
23
How well-funded are pension plans in your state?
Source: Tax Foundation Funded ratio of public pension plans as of 2014
24
Investment Implications
even though fundamentals argue for higher rates
runaway inflation
25
Disclosures & Definitions
GDP (Gross Domestic Product) is the total market value of all final goods and services produced in a country in a given year, equal to total consumer, investment and government spending, plus the value of exports, minus the value of imports. The NFIB Small Business Optimism Index is an index derived from 10 components using monthly surveys from a large sample of respondents drawn from the membership files of the National Federation of Independent Business. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy. The U.S. Dollar Spot indicates the general international value of the USD. The index does this by averaging the exchange rates between the USD and major world currencies. The Federal Register is the official daily publication for rules, proposed rules, and notices of Federal agencies and organizations, as well as executive orders and other presidential documents. The MSCI ACWI Index, or the All Country World Index, is a free-float weighted equity index that includes both emerging and developed world markets. The Federal Funds Rate is the short-term interest rate targeted by the Federal Reserve’s Open Market Committee (FOMC) as part of its monetary policy. The U.S. 10-Year Treasury Yield is the pre-tax yield to maturity on Generic United States on-the-run government bill/note/bond indices. U-3 Unemployment Rate is the total unemployed as a percentage of the civilian labor force. U-6 Unemployment Rate is the total unemployed, plus all persons marginally attached to the labor force, plus total employed part time for economic reasons, as a percent of the civilian labor force plus all persons marginally attached to the labor force. The Labor Force Participation Rate refers to the number of people who are either employed or are actively looking for work. The number of people who are no longer actively searching for work would not be included in the participation rate. The BofA Merrill Lynch US 3-Month Treasury Bill Index tracks the performance of USD-denominated U.S. Treasury Bills publicly issued in the U.S. domestic market with a remaining term to final maturity of less than 3 months. The Barclays Intermediate Gov/Credit Index measures the investment grade, USD-denominated, fixed- rate, taxable corporate and government related bond markets. The Barclays Global Aggregate ex-USD Index is a measure of investment grade debt from 24 local currency markets, including treasury, government-related, corporate and securitized fixed-rate bonds from both developed and emerging market issuers. The Barclays US Corporate High Yield Index measures the USD-denominated, high yield, fixed-rate corporate bond market. The Barclays US Treasury Inflation-Linked Bond Index measures performance of the US Treasury Inflation Protected Securities (TIPS) market. The S&P 500 Index is a capitalization-weighted index of 500 stocks designed to measure performance of the broad domestic economy. The Russell 2500 Index is comprised of the smallest 2500 securities in the Russell 3000 Index and is designed to measures the small to mid-cap segment of the U.S. equity universe. The MSCI EAFE Index is a free-float weighted equity index covering developed market countries in Europe, Australasia, Israel, and the Far East. The MSCI Emerging Markets Index is a free-float weighted equity index that captures large and mid cap representations across Emerging Market countries. The MSCI US REIT Index is a free float-adjusted market capitalization index comprised of equity Real Estate Investment Trusts. The Alerian MLP Infrastructure Index is a composite of energy infrastructure Master Limited Partnerships (MLPs) in a capped, float-adjusted, capitalization-weighted index. The HFRX Global Index is designed to be representative of the overall composition of the hedge fund universe.
26
Disclosures & Definitions
Opinions are provided by Fifth Third Private Bank. This information is intended for educational purposes only and does not constitute the rendering of investment advice or a specific recommendation on investment activities and trading. The mention of any specific security does not constitute a solicitation or an offer to buy or sell any security. This information is current as of the date of this presentation and is subject to change at any time, based on market and other conditions. Asset Allocation, Diversification, Alternative Investment and Hedging strategies are intended to mitigate the overall risk within your portfolio. Some strategies may be subject to a higher degree of market risk than others. There are no guarantees that any strategy presented will perform as intended. The Standard & Poor's 500 Stock Index is a composite of the 500 largest companies in the United States and it used as a measure of the overall U.S. stock market. Indexes are unmanaged and do not incur investment management fees. You cannot invest directly in an index. Past performance is no guarantee of future results. Fifth Third Private Bank is a division of Fifth Third Bank offering banking, investment and insurance products and services. Fifth Third Bancorp provides access to investments and investment services through various subsidiaries. Investments, investment services and insurance: Insurance Products are made available through Fifth Third Insurance Agency, Inc. Are Not FDIC Insured Offer Not Bank Guaranteed May Lose Value Are Not Insured by Any Federal Government Agency Are Not a Deposit