The Economic Outlook May 2018 Focus on the South Bay Christopher - PowerPoint PPT Presentation

The Economic Outlook May 2018 Focus on the South Bay Christopher Thornberg, PhD Founding Partner, Beacon Economics Director, UC Riverside Center for Economic Forecasting and Development Beacon Economics

The Good, Bad, and Ugly § Meet the new economy, same as the old economy — 2017 solid year for growth: looked a lot like 2013-2014 — 2018 likely to be better: good momentum with fiscal stimulus even after a slow start — Still a low chance of recession in next 24 months § Brakes and Imbalances — Labor and housing shortages — Recent market froth / volatility / rising long term rates — Aggressive Fed: rising rates, flattening yield curves — Sharp growth in government deficits coming — Consumer savings rate declining — Global trade / security worries § Politics going in the wrong direction — Little effort to deal with underinvestment in infrastructure, rising wealth and income inequality, healthcare cost inflation, pension and entitlement issues, etc etc etc — The great disconnect between economic realities and political discourse Beacon Economics Beacon Economics 2

Now the 2 nd longest expansion Its not ‘when’, its ‘why’ Length of Expansions (Months) WSJ Next Recession Poll March 1991(I) 2018 June 2009 (II) 2019 February 1961 (I) November 1982 (IV) 2020 June 1938 (II) 2021 November 2001 (IV) March 1975 (I) 2022 March 1933 (I) 2023 October 1949 (IV) 0.0% 20.0% 40.0% 60.0% 80.0% 0 20 40 60 80 100 120 140 Beacon Economics Beacon Economics 3

GDP Growth: Almost back to 3% 2018 Y-o-Y Growth Real Output 2014 2015 2016 2017 q1 6.0% 5.0% GDP 2.73 2.00 1.85 2.73 2.30 FD 3.45 2.70 2.19 2.79 1.67 4.0% 3.0% PCE 2.40 2.04 1.93 1.95 0.73 2.0% Fixed Inv 0.95 0.40 0.18 0.86 0.76 Struct 0.26 -0.28 0.10 0.07 0.34 1.0% Equip 0.24 0.21 -0.22 0.52 0.27 0.0% IPP 0.26 0.13 0.21 0.20 0.14 Res 0.20 0.35 0.09 0.08 -0.00 -1.0% 1994Q1 1995Q2 1996Q3 1997Q4 1999Q1 2000Q2 2001Q3 2002Q4 2004Q1 2005Q2 2006Q3 2007Q4 2009Q1 2010Q2 2011Q3 2012Q4 2014Q1 2015Q2 2016Q3 2017Q4 Invent -0.15 -0.02 -0.02 -0.11 0.43 Net exports -0.57 -0.68 -0.31 0.05 0.20 Government 0.09 0.28 0.07 0.12 0.20 Beacon Economics Beacon Economics 4

0.0 1.0 2.0 3.0 4.0 5.0 6.0 Jan-10 Consumer Spending / Retail Sales Jun-10 Nov-10 Apr-11 Sep-11 Y-o-Y Growth Retail Sales Feb-12 Jul-12 Dec-12 May-13 Oct-13 Mar-14 Aug-14 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Feb-17 Jul-17 Dec-17 10.0 0.0 1.0 2.0 3.0 4.0 5.0 6.0 7.0 8.0 9.0 Jan-90 Jul-91 Personal Savings Rate (Share DPI) Jan-93 Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Beacon Economics Beacon Economics Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15 Jan-17 5

No Debt Overhang Newly Delinquent Debt (Share) Household Debt / DPI Ratio 16.00 1.2 14.00 1.15 12.00 1.1 10.00 1.05 8.00 1 6.00 0.95 0.9 4.00 0.85 2.00 0.8 0.00 0.75 03:Q1 04:Q1 05:Q1 06:Q1 07:Q1 08:Q1 09:Q1 10:Q1 11:Q1 12:Q1 13:Q1 14:Q1 15:Q1 16:Q1 17:Q1 18:Q1 0.7 03:Q1 03:Q4 04:Q3 05:Q2 06:Q1 06:Q4 07:Q3 08:Q2 09:Q1 09:Q4 10:Q3 11:Q2 12:Q1 12:Q4 13:Q3 14:Q2 15:Q1 15:Q4 16:Q3 17:Q2 18:Q1 AUTO CC MORTGAGE STUDENT LOAN Beacon Economics Beacon Economics 6

Housing Markets: Steady Case Shiller National HPI Y-o-Y Ch Consumer Debt Growth (Y-o-Y) 20.0% 25.0% 20.0% 15.0% 15.0% 10.0% 10.0% 5.0% 5.0% 0.0% 0.0% -5.0% -5.0% -10.0% -10.0% 04:Q1 04:Q4 05:Q3 06:Q2 07:Q1 07:Q4 08:Q3 09:Q2 10:Q1 10:Q4 11:Q3 12:Q2 13:Q1 13:Q4 14:Q3 15:Q2 16:Q1 16:Q4 17:Q3 -15.0% Jul-94 Jan-96 Jul-97 Jan-99 Jul-00 Jan-02 Jul-03 Jan-05 Jul-06 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15 Jan-17 All Mortgage Beacon Economics Beacon Economics 7

1000 1200 1400 1600 1800 2000 200 400 600 800 0 Pace of Construction Jan-92 Jul-93 Jan-95 SF Starts Jul-96 Jan-98 Sales and Starts Jul-99 Jan-01 Jul-02 SF Sales Jan-04 Jul-05 Jan-07 Jul-08 MF Starts Jan-10 Jul-11 Jan-13 Jul-14 Jan-16 Jul-17 0.5 1.5 2.5 3.5 0 1 2 3 1969 Housing Starts per New Household 1972 1975 1978 1981 1984 1987 1990 1993 1996 Beacon Economics Beacon Economics 1999 2002 2005 2008 2011 2014 8

1.00 1.50 2.00 2.50 3.00 3.50 Rising Rates? 2013-05-16 2013-08-16 2013-11-16 2014-02-16 10 Year Bond Rate (daily) 2014-05-16 2014-08-16 2014-11-16 2015-02-16 2015-05-16 2015-08-16 2015-11-16 2016-02-16 2016-05-16 2016-08-16 2016-11-16 2017-02-16 2017-05-16 2017-08-16 2017-11-16 2018-02-16 30.0% 35.0% 40.0% 45.0% 50.0% 55.0% 60.0% 65.0% 70.0% Jan-93 Aug-94 Mar-96 US Housing Buy In Ratio Oct-97 May-99 Dec-00 Jul-02 Feb-04 Sep-05 Beacon Economics Beacon Economics Apr-07 Nov-08 Jun-10 Jan-12 Aug-13 Mar-15 9 Oct-16

-20.0 -15.0 -10.0 Industrial activity 10.0 -5.0 0.0 5.0 Jan-01 Jan-02 Y-o-Y Growth Industrial Production Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17 Jan-18 1000 1200 1100 600 700 800 900 2005I 2005IV Real Manufacturing Output (VA) 2006III 2007II Durables 2008I 2008IV 2009III 2010II 2011I Non Durables 2011IV 2012III 2013II Beacon Economics Beacon Economics 2014I 2014IV 2015III 2016II 2017I 2017IV 10

10000 12000 The New Energy Boom 11000 2000 3000 4000 5000 6000 7000 8000 9000 1/6/84 1/6/87 US Oil Production (MBD) 1/6/90 1/6/93 1/6/96 1/6/99 1/6/02 1/6/05 1/6/08 1/6/11 1/6/14 1/6/17 100 120 140 20 40 60 80 0 Jan-02 Feb-03 Mar-04 Apr-05 US Drilling Activity (Production Index) May-06 Jun-07 Jul-08 Aug-09 Sep-10 Beacon Economics Beacon Economics Oct-11 Nov-12 Dec-13 Jan-15 Feb-16 Mar-17 11

Rising Prices? Oil Prices (WTI) 120 100 80 60 40 20 0 Beacon Economics Beacon Economics 12

100 110 50 60 70 80 90 Domestic Energy Glut 1990 Energy Consumption / Real GDP 1992 1994 1996 Petroleum 1998 Indexes 2000 2002 2004 Electricity 2006 2008 2010 2012 2014 100.0 70.0 75.0 80.0 85.0 90.0 95.0 1977-04-01 1979-09-01 US Utilities Capacity Utilization 1982-02-01 1984-07-01 1986-12-01 1989-05-01 1991-10-01 1994-03-01 1996-08-01 1999-01-01 Beacon Economics Beacon Economics 2001-06-01 2003-11-01 2006-04-01 2008-09-01 2011-02-01 2013-07-01 13 2015-12-01

Exports Nominal Trade 2018 Y-o-Y Gr US Real Exports Flows Q1 $Bil 2400 Exports 2471.8 7.7% 2200 Industrial supplies 507.6 14.8% 2000 Travel 224.4 6.6% Consumer goods 208.8 4.4% 1800 Automotive 171.3 6.1% 1600 Petroleum 159.9 25.8% Foods, feeds 136.3 2.4% 1400 Charges for IP 123.9 1.0% 1200 Civilian aircraft 121.2 5.7% 1000 Transport 90.2 5.5% 2004Q1 Q4 Q3 Q2 2007Q1 Q4 Q3 Q2 2010Q1 Q4 Q3 Q2 2013Q1 Q4 Q3 Q2 2016Q1 Q4 Q3 Computers 48 9.3% Beacon Economics Beacon Economics 14

Global Growth IMF Global Forecast: 3.9% $US: Broad Index, Real 115.0 United East Latin 110.0 States Asia America China EU World 105.0 2009 9.2 -2.8 -4.3 4.4 -1.8 -0.1 100.0 2010 10.6 2.5 2.1 8.8 6.1 5.4 95.0 2011 9.5 1.6 1.8 6.7 4.7 4.3 90.0 2012 7.9 2.2 -0.4 5.8 3 3.5 2013 7.8 1.7 0.3 6 2.9 3.5 85.0 2014 7.3 2.6 1.8 5.5 1.2 3.6 80.0 2015 6.9 2.9 2.3 5.3 0.1 3.4 75.0 Jan-02 Dec-02 Nov-03 Oct-04 Sep-05 Aug-06 Jul-07 Jun-08 May-09 Apr-10 Mar-11 Feb-12 Jan-13 Dec-13 Nov-14 Oct-15 Sep-16 Aug-17 2016 6.7 1.5 2 5.2 -0.9 3.2 2017 6.8 2.2 2.3 5.4 1.2 3.6 Beacon Economics Beacon Economics 15