CUNA Economic Update May 2019 Mike Schenk Chief Economist
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Abbreviated China Trade War Chronology January 22 nd 2018: U.S. imposes 30% tariff on foreign solar panels (China is the world • leader in solar panel manufacture) and 20% tariff on washing machines (in 2016 China exported $425 million worth of washers to U.S.) July 6 th 2018: U.S. imposes 25% tariff on $34 billion in Chinese goods • • China retaliates with tariffs on U.S. goods of similar value August 23 rd 2018: U.S. imposes 25% tariff on additional $16 billion in Chinese goods • • China retaliates with tariffs on U.S. goods of similar value September 17 th 2018: U.S. announces beginning September 24 th , an additional $200 • billion of Chinese goods would be subject to 10% tariff - increasing to 25% by year-end. Threatens tariffs on an additional $267 billion worth of imports if China retaliates September 18 th 2018: China retaliates, imposing a 10% tariff on $60 billion in • U.S. goods December 1 st 2018: Planned increase in U.S. tariffs (from 10% to 25%) is delayed • May 5 th , 2019: China reportedly backtracks on previously negotiated trade concessions • causing President Trump to announce that the previous 10% tariffs levied on $200 billion in Chinese goods would be raised to 25% on Friday, May 10 th .
Consumer Confidence: Close to a 20-Year High Source: Conference Board 160 140 120 100 80 60 40 20 0 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
Annual Increases in Non-Farm Employment Millions of Employees. Source: BLS 3.01 2.73 2.68 2.62 2.32 2.30 2.17 2.15 2.08 1.04 2010 2011 2012 2013 2014 2015 2016 2017 2018 YOY 4/19
U.S. Unemployment Rate (%) (Source: BLS and CUNA) 12 11 10.0 10 9 8 7 6 5 4 4.4 3.8 3.6 3 2 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
S&P 500 Monthly Average (Source: S&P) 5/8/19 = 2,879.4 3000 Recession 2500 Nominal Real 2000 1500 1000 500 0 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
Household Consumer & Mortgage Debt As a % of Disposable Household Income // Source: Federal Reserve 130 124.2 120 110 100 90.8 90 Actually a bit lower 80 than 95% and 70 trending down! 60 50 Jan-80 Jan-86 Jan-92 Jan-98 Jan-04 Jan-10 Jan-16
More spending and lower taxes will present more obvious challenges Total Deficits & Surpluses Total Debt Held by the Public Percent of GDP. Source: CBO. Percent of GDP. Source: CBO. 4 100 93 90 2 78 80 0 70 -2 60 -4 50 -4.2 -4.7 40 -6 32 30 -8 20 -10 10 -12 0 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028
Yikes! Discretionary Non-Defense Spending Net Interest Outlays Percent of Total Outlays. Source: CBO. Percent of Total Outlays. Source: CBO. 16 25 14 13.2 20 12 15.6 10 15 Education/retraining • 7.9 Infrastructure/transportation • 8 10.8 Veterans benefits • Income security 10 • 6 Medical research/health • International affairs • 4 Agriculture • 5 Science/space/technology • Community/regional development • 2 0 0 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025 2028
The Long-Term Deficit Problem Current Fiscal Policy: • Fueling economic activity at a time the Fed is trying to slow. • Limiting options for fiscal intervention in a down economy. • Contributing to a massive debt build-up. • Increasing the government’s interest costs and limiting future funding for infrastructure spending, education spending. • Reducing national saving and income in the long term. • It Gets Worse: Next Decade’s Deficits: • Rising from 4% to nearly 5% of GDP • Annual Deficit Consistent with Stable or Falling Debt to GDP Ratio: ~2% of GDP • So must reduce future deficits by ~3% of GDP • 3% of GDP is about equal to: • All defense spending • All discretionary-non-defense spending • What to do? Decrease spending? Increase taxes? • Failure to act shifts more spending to debt service and limits choices/ policy options in the future •
Foregone Federal Income Tax Reve nue Arising from Tax Status & 2017 Tax Reform Millions of Dollars. Source: FDIC, JCT, NCUA, CUNA. $29,952 $2,340 $1,800 $257 $83 US Banks US CUs- JCT Est. US CUs - OMB Est. FL Banks FL CUs
Total U.S. Fines & Settlements for the 18 Largest Domestic and European Banks Billions of Dollars. Source: Barclays and Capital Performance Group. Totals include only fines of $50 Million+ $65 $260.4 Billion since 2009! $46 $44 $32 $31 $22 $11 $3 $3 $3 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018Q1
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