The Comerica Economic Outlook Two Stories, One Economy Robert A. - - PowerPoint PPT Presentation

The Comerica Economic Outlook Two Stories, One Economy

Robert A. Dye Ph.D. January 15, 2019

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A Tale with Two Stories

Story #1 Most current economic indicators look good Story #2 Risk factors for 2019 and beyond are piling up

Appendix: Household are a source of stability

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Story #1 Most current economic indicators look good Labor Production Income Spending Profits Inflation

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Story #2 Downside risk factors are piling up Financial markets – stocks, bonds and the yield curve Housing – sales, construction, mortgage rates and affordability Rest of World – Europe and China looking cooler Corporate profits – potential for a squeeze Corporate debt market – quality is deteriorating Length of expansion Uncertainty – including political issues Trade Fiscal Cliff Oil

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Corporate Profits and Wages 1 2 3 4 5

• 40
• 20

20 40 60 80 '90 '95 '00 '05 '10 '15

Nonfinancial Corp Profits and Average Hourly Earnings

Source: BEA, BLS Nonfinancial Corp Profits, pchya Average Hourly Earnings, pchya

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Back to Story #1, It’s All About Productivity

• 4
• 2

2 4 6 8 '60 '66 '72 '78 '84 '90 '96 '02 '08 '14

Output per worker per hour, Nonfarm businesses, pchya

Source: BLS

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The Growing Labor Constraint

2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 '02 '04 '06 '08 '10 '12 '14 '16 '18

Job Openings Now Outnumber Available Workers

Source: BLS Job Openings, ths Unemployed workers, ths

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Business Investment Was Weak in 2018Q3

• 25
• 20
• 15
• 10
• 5

5 10 15 20 '15 '16 '17 '18

Real Business Fixed Investmeent, annpct

Total Structures Equipment Int Prop

Source: BEA

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Business Confidence and Commercial/Industrial Loans

• 20
• 15
• 10
• 5

5 10 15 20 80 85 90 95 100 105 110 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18

NFIB Bus. Confidence Index, C&I Loans pchya

Source: Federal Reserve, NFIB NFIB Index (L) C&I Loans, pchya (R)

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GDP Forecast: Moderation Ahead

• 9
• 7
• 5
• 3
• 1

1 3 5 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 U.S. Real GDP Growth, Annualized Percent Change

History Forecast

Sources: BEA, Comerica Bank

• 0.1 -2.5 2.6 1.6 2.3 1.8 2.5 2.9 1.6

2.2 2.9 2.8

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Job Growth Expected to Ease

3 4 5 6 7 8 9 10

• 800
• 600
• 400
• 200

200 400 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

+312k in December, U. Rate 3.9 Percent

Forecast

Payroll Employment, avg monthly diff, ths (L) Unemployment Rate, percent (R)

Sources: BLS, Comerica Bank

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The U.S. Unemployment Rate, What We Don’t See

3 4 5 6 7 8 9 10 11 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

U3 Unemployment Rate, percent

Source: BLS

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Interest Rate Outlook, Near Inversion

1 2 3 4 5 6 7 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Yield, percent

Fed Funds 10-Year Treasury Bond

Sources: Federal Reserve, Comerica Bank

30-Year FRM 2-Year Treasury Bond

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Forecast Risks, the 360 View …The 360 Vi

Downside Risks

• Stock market correction
• Trade Wars
• Political meltdown
• Consumers lose confidence
• Higher interest rates
• Housing stalls
• Higher inflation
• Global issues, N. Korea, China, Japan,

Europe/Brexit, Russia, MENA, Emerging markets Upside Risks

• Fiscal policy
• Corporate profits
• Business investment
• Consumer/business confidence
• Wealth effects
• Deregulation, including financial
• Trade
• Job growth stays strong
• Second leg for autos

Michigan Index from October

Payrolls + UI Claims + House Starts + House Prices + Ind Electricity + Auto Prod + Total trade – Hotel Occ + Sales Tax Rev –

95 100 105 110 115 120 125 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Michigan Index Historical Values

Robert A. Dye, Chief Economist Subscribe

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• r financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither

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