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

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 2

Story #1 Most current economic indicators look good Labor Production Income Spending Profits Inflation 3

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 4

Corporate Profits and Wages Nonfinancial Corp Profits and Average Hourly Earnings 80 5 Nonfinancial Corp Profits, pchya 60 4 40 3 20 2 0 1 -20 Average Hourly Earnings, pchya -40 0 '90 '95 '00 '05 '10 '15 Source: BEA, BLS 5

Back to Story #1, It’s All About Productivity Output per worker per hour, Nonfarm businesses, pchya 8 6 4 2 0 -2 -4 '60 '66 '72 '78 '84 '90 '96 '02 '08 '14 Source: BLS 6

The Growing Labor Constraint Job Openings Now Outnumber Available Workers 16,000 Unemployed workers, ths 14,000 12,000 10,000 8,000 6,000 4,000 Job Openings, ths 2,000 0 '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: BLS 7

Business Investment Was Weak in 2018Q3 Real Business Fixed Investmeent, annpct 20 15 10 5 0 -5 -10 -15 -20 Total Structures Equipment Int Prop -25 '15 '16 '17 '18 Source: BEA 8

Business Confidence and Commercial/Industrial Loans NFIB Bus. Confidence Index, C&I Loans pchya 110 20 C&I Loans, pchya (R) 15 105 10 100 5 95 0 -5 90 -10 NFIB Index (L) 85 -15 80 -20 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 Source: Federal Reserve, NFIB 9

GDP Forecast: Moderation Ahead U.S. Real GDP Growth, Annualized Percent Change 5 History Forecast 3 1 -1 -3 -5 -7 -0.1 -2.5 2.6 1.6 2.3 1.8 2.5 2.9 1.6 2.2 2.9 2.8 -9 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Sources: BEA, Comerica Bank 10

Job Growth Expected to Ease +312k in December, U. Rate 3.9 Percent 400 10 Payroll Employment, avg monthly diff, ths (L) Forecast 9 200 8 0 7 -200 6 -400 Unemployment Rate, 5 percent (R) -600 4 -800 3 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 Sources: BLS, Comerica Bank 11

The U.S. Unemployment Rate, What We Don’t See U3 Unemployment Rate, percent 11 10 9 8 7 6 5 4 3 '60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15 Source: BLS 12

Interest Rate Outlook, Near Inversion Yield, percent 7 6 30-Year FRM 5 4 10-Year Treasury Bond 3 2 2-Year Treasury Bond 1 Fed Funds 0 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 Sources: Federal Reserve, Comerica Bank 13

Forecast Risks, the 360 View …The 360 Vi Upside Risks Downside Risks • • Fiscal policy Stock market correction • • Corporate profits Trade Wars • • Business investment Political meltdown • • Consumer/business confidence Consumers lose confidence • • Wealth effects Higher interest rates • • Deregulation, including financial Housing stalls • • Trade Higher inflation • • Job growth stays strong Global issues, N. Korea, China, Japan, Europe/Brexit, Russia, MENA, • Second leg for autos Emerging markets 14

Michigan Index from October Michigan Index Historical Values Payrolls + 125 UI Claims + House Starts + 120 House Prices + Ind Electricity + 115 Auto Prod + Total trade – 110 Hotel Occ + Sales Tax Rev – 105 100 95 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Robert A. Dye, Chief Economist Subscribe www.comerica.com/insights Follow on Twitter @Comerica_Econ The opinions in this presentation are for general information only, are subject to change, and are not intended to provide specific investment, legal, tax or other advice or recommendations. The information contained herein reflects the thoughts and opinions of the noted authors only, and such information does not necessarily reflect the thoughts and opinions of Comerica or its management team. We are not offering or soliciting any transaction based on this information. We suggest that you consult your attorney, accountant or tax or financial advisor with regard to your situation. Although information has been obtained from sources we believe to be reliable, neither the authors nor Comerica guarantee its accuracy, and such information may be incomplete or condensed. Neither the authors nor Comerica shall be liable for any typographical errors or incorrect data obtained from reliable sources or factual information.