THE ECONOMY I N 2017: MUCH LI KE 2016, I THI NK! Presented by: Elliot F . Eisenberg, Ph.D. President: GraphsandLaughs, LLC November 16, 2016 Madison, WI
The Economy is Stable! GDP = C+I+G+(X-M)
Households are Repairing their Balance Sheets Trillions in Net Worth Recovered, at a New Record Level
More Home Equity
Households are Repairing their Balance Sheets More Income to Spend Elsewhere
Households Deleveraging is Done!!!!!! Lack of income growth hurts, but debt is growing once again. Down 6.5% from peak
Home Equity Lines of Credit are Back in Fashion! Volume is double what is was at the trough in ‘09-’10-’11.
Households Deleveraging is Done!!!!!! Household delinquency rates are lower than before the recession but are no longer falling
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Household Delinquencies are Steadily Improving Total late and derogatory debt is lower now than in 2003! Steady improvement.
Conference Board Consumer Confidence is Fine Index is near its post-recession high.
Hotel Occupancy Rates are Excellent! Occupancy is superb as is the ADR and the RevPAR
As has Las Vegas The gamblers are back, the conventioneers a bit less so. Housing related?
US Light Vehicle Sales are Absolutely Fantastic!
Annual Y-o-Y Percent Change in PCE A solid growth rate of 2.75%
Oil Prices are a Huge Wildcard But cheaper oil is a huge benefit, and cheaper is better, but only in the long-run
The Ying and Yang of Natural Gas Prices One CF is (roughly) equal to 1,020 BTU’s
Milk Prices are in a Bear Market
Corn Prices are in a long Bear Market Corn prices have flat-lined at a level first reached in a decade ago.
Soybean Prices are in a Long Bear Market
Corporate Profits Grew Rapidly but have Stopped
Profits For Financial Firms are Flat
Bank Net Interest Margins Have Been Shrinking
OK. Now, Look at Capital Goods Orders! Minus Defense and Aircraft
Y-o-Y % Chng in Real Final Sales to Domestic Buyers Measures spending and investment by U.S. businesses and households. Strips out gov’t spending, inventory swings and exports. Steady if undramatic growth at 2.5%.
More of Us are Working in State and Local Gov’t! Employment is rising
Fiscal Policy Looks Increasingly Expansionary Defense, infrastructure, tax cuts will boost the deficit
The Dollar is Strengthening Against all Currencies It will hurt employment growth but will reduce inflation Strong Stronger Weak
Manufacturing Employment is Climbing Again Or is it falling? Strong dollar, weak global growth and weak energy prices are why.
The Trade Deficit is Improving The deficit in stuff (red) is finally flattening. Our shrinking petroleum deficit (black) helps.
Annual Y-o-Y Percent Change in GDP
GDP Growth Drivers – Fiscal Policy Uncertainty
No Real Volatility or Fear!
Best of All, No Recession is in the Cards! Designed to track real macroeconomic activity in real time
Best of All, No Recession is in the Cards! Yield Curve Inversion Test: 1-Year Treasury Yield – 10-Year Treasury Yield
Labor Markets: They’re on the mend
Great Job Growth!
You Want A Job, You Got A Job
We are All Quitters
Wage Growth is Weak, but Improving!
Wages Really Are Rising (But Slowly!)
I Really Mean It!
Changes in Median Wage Growth Looks Good! of those continuously full-time employed
Inflation? What Inflation!
Import Prices for all Commodities: Inflation!! Rising, but largely due to energy price increases
Export Prices for all Commodities: Inflation!! Rising nicely and due to general rise in all prices except agriculture commodities
Producer Prices Show Signs of Inflation!!
Inflation is Rising
By This Measure too!
Inflation Expectations? Rising of Late? 5 year and 10 year breakeven rates
Federal Reserve Behavior Rates Will Rise. But, How Fast?
Federal Reserve Behavior Lower bound estimates • Fed Funds is 0.375% • By 12/31/16: 0.625%. (90% Prob.) • By 12/31/17: 1.125%. • By 12/31/18: 1.875% • By 12/31/19: 2.875%
Fed Funds and 30-Yr Mortgage Rates The relationship is a very weak one
Housing? It’s Improving but In Fits and Starts!
Residential Fixed Investment Slowly Rises! Up 4.4% Y-o-Y. Non-residential up 3%, public down 17%, Residential down 33% from peaks
Household Formation is Finally on the Move
Credit is Generally Very Hard to Get It was getting easier, but now not so much!
Subprime Credit is Available Elsewhere consumer loans, auto loans, credit cards, personal loans etc….
Change in Wealth by Median Household 2003 -2013 Credit Source: Russell Sage Foundation
Price Growth Appears to Finally be Slowing. Prices rise faster than wages! Y-o-Y prices up 4.2% 5.1% or 5.1% depending on the measure
Existing Home Inventory and Duration Move Together! Every 300K change in units equals 1 month of inventory
Bigger Houses Continue to Get Built
New Home Prices Are Recovering Too Nicely
Apartment Vacancy Rates MF vacancy decline is over. Appreciation may be starting to wind down. Vacancy rate is up 3 quarters in a row, 1 st time since Q4/09. Too much building. Rents still rise, but more slowly.
Apartment Vacancy Rates The multifamily party is winding down especially at the upper end! S > D. Rent growth should slow and vacancy rates will rise. 4 quarters in a row below 50
Single-Family and Multifamily Starts from 2005 Forward
Residential Remodeling – Slowly Rising Owner-Occupied Improvements. Expected slight slowdown late in 2015
Existing Home Sales 1st-time buyers remain largely MIA. Distressed sales are just 6% of total. Where is inventory? TRID was the reason for the 14% November decline.
Recent Existing Home Sales Slow steady improvement. Taper tantrum is the reason for the 15% decline in 2013, TRID was the reason for the 14% November decline.
Purchase Application Activity
Refinance Activity Growth Is Done
Delinquencies & Foreclosures Continue Falling 30 and 60 day delinquencies are below normal!
Cash Sales are Down from Peak Cash sales were 29.7% in 7/16, down 190 BP Y-o-Y. Resales are 80% of all sales. Historically cash sales are 25%. Peak was 46.5% in 1/11. At lowest level since 2007
Negative Equity is Less and Less of a Problem Percent of Loans in Negative Equity Situation
Demographics Will Start to Really Help Beginning to approach the Peak. Chase Millennials, move-up buyers and Boomers
What About Things Here?
Things May Not Be Great, But they Are O.K.
The Future Looks Better than the Present
State Unemployment Rates Significant differences exist: However, unemployment is below 7% everywhere!
Population Growth within the Madison, WI MSA Dane County grows fastest, while the remaining counties converge on the state rate
State of Wisconsin Real GSP After bottoming in 2009 it has been rising nicely since.
Unemployment Rates in Wisconsin MSAs Madison, Appleton, and GB are #1, #2, #3. Milwaukee, J’ville Racine follow. J’ville improves!
Labor Force Growth Rates Around Wisconsin All are rising!!!! Jamesville is on the move! Madison and Appleton are very good. Elsewhere, growth is 1% or slower. Racine is weak.
Non-Farm Payroll Growth Around Wisconsin Janesville is super. Madison & Appleton are OK, GB and Milwaukee are fair. Racine is weak.
Per Capita Personal Income in Wisconsin MSAs Madison and Milwaukee on top. GB and Appleton are next, Racine and Janesville suffer.
Let’s Do this Without A Lawyer, Thank You! Foreclosure inventory is 1% of homes with mortgage, still double the historic average.
House Price Recovery Rates around Wisconsin Vary Madison is tops. Appleton is good. GB, J’ville, and Milwaukee are recovering. Racine….
Madison, WI MSA Housing Starts Single-family, is at the level of 1997 but, multifamily rocks!
ANY QUESTI ONS? Elliot F . Eisenberg, Ph.D. Cell : 202.306.2731 elliot@graphsandlaughs.net www.econ70.com Do you want to get my daily 70 word economics email? Please give me your business card or text “bowtie” to 22828 Thank YOU all very very much! @ECON70
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