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CUNA Economic Update
August 2019 Mike Schenk Chief Economist
Update August 2019 Mike Schenk Chief Economist CUNA Economic - - PowerPoint PPT Presentation
Update August 2019 Mike Schenk Chief Economist CUNA Economic - - PowerPoint PPT Presentation
CUNA Economic Update August 2019 Mike Schenk Chief Economist CUNA Economic Update is sponsored by Flight to safety pushing yields down! Ten-Year U.S. Treasury Yields (Percent) // Source: Federal Reserve 2.02 1.90 1.86 1.75 1.74 1.73
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2.02 1.90 1.86 1.75 1.73 1.71 1.72 1.74 1.65 1.68 1.59 1.52 1.55 1.57
Flight to safety pushing yields down!
Ten-Year U.S. Treasury Yields (Percent) // Source: Federal Reserve
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2.25 1.57 2 4 6 8 10 12 14 16 18 20
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Percent
Recession Looming?
Market Interest Rates and Recessions // Source: Federal Reserve and NBER Recession Fed Funds (% left axis) 10-Yr Treasury (% left axis)
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- 2
2 4 6 8 10 12 14 16
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Percent
Tame U.S. Inflation
Year-over-year changes in CPI – All Urban Consumers SA // Source: Federal Reserve and NBER
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2.25 2.87 2 4 6 8 10 12 14 16 18 20
'60 '62 '64 '66 '68 '70 '72 '74 '76 '78 '80 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Percent
Adjusted for Fed Quantitative Easing?
Market Interest Rates and Recessions // Source: Federal Reserve and NBER Recession Fed Funds (% left axis) 10-Yr Treasury (% left axis)
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- 0.4
0.1 0.6 1.1 1.6 2.1 2.6 3.1 3.6
Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
Unemployment Rate Gap
Percentage point difference between current unemployment rate and the low reading of the 3-month centered moving average over the past 12 months // Source: BLS and NBER
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- 0.3
- 0.2
- 0.1
0.0 0.1 0.2 0.3
Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
Unemployment Rate Gap - A Closer View
Percentage point difference between current unemployment rate and the low reading of the 3-month centered moving average over the past 12 months // Source: BLS and NBER
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50 60 70 80 90 100 110 120
Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
Consumer Sentiment
1966 Q1 = 100 // Source: University of Michigan and NBER
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37 38 39 40 41 42 43
Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12 Jan-16
Average Hourly Workweek
Production & non-supervisory employees // Source: BLS
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100 200 300 400 500 600 700 800 900 80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
S&P 500 Monthly Average
(Source: S&P)
Recession Real
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2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 6.5 7.0 Jan-60 Jan-66 Jan-72 Jan-78 Jan-84 Jan-90 Jan-96 Jan-02 Jan-08 Jan-14
Residential Investment
As a % of GDP // Source: BEA and NBER
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0.5 1 1.5 2 2.5 3 3.5 4
'82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Percent
Leading Economic Indicators
Philadelphia Fed Index // Source: Moody’s, Federal Reserve Bank of Philadelphia and NBER
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- 1.25%
- 0.75%
- 0.25%
0.25% 0.75% 1.25% 90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
Credit Union “Loan Gap”
Monthly loan growth minus savings growth // Source: CUNA Monthly Estimates and NBER
Note: I forgot to present this perspective in my video comments! CU monthly loan growth dipped below savings growth prior to each of the past three
- recessions. It also dipped below savings growth in 1997-1998 (a false positive).
In my view, the current situation is similar to the 1997-1998 experience. In both cases the yield curve inversion was caused by a flight to safety (i.e., falling bond yields) rather than by an overly-aggressive Federal Reserve attempting to slow the economy (as is normally the case). In this regard, I don’t think the negative CU Loan Gap is signaling impending economic contraction.
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Recession Indicators
Yield curve inverted? YES! Yield curve inverted due to Fed rate increases? NO! Unemployment Gap > 0.2? NO! Consumer Sentiment > 10-point decline recently? NO! Avg Hourly Workweek (Manufacturing) declining? YES ISM Manufacturing Index Below 43? NO! Stock Market Broadly Declining? NO? Sharply declining Residential Investment (as a % of GDP)? NO! Leading Indicators: ~2% decline over 6 months NO! CU Loan Gap (Mo. Loan Growth < Savings Growth) YES?
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