CUNA Economic Update August 2019 Mike Schenk Chief Economist
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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 1.72 1.71 1.68 1.65 1.59 1.57 1.55 1.52
Recession Looming? Market Interest Rates and Recessions // Source: Federal Reserve and NBER 20 18 Recession 16 Fed Funds (% left axis) 10-Yr Treasury (% left axis) 14 12 Percent 10 8 6 4 2.25 2 1.57 0 '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
Tame U.S. Inflation Year-over-year changes in CPI – All Urban Consumers SA // Source: Federal Reserve and NBER 16 14 12 10 Percent 8 6 4 2 0 -2 '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
Adjusted for Fed Quantitative Easing? Market Interest Rates and Recessions // Source: Federal Reserve and NBER 20 18 Recession 16 Fed Funds (% left axis) 10-Yr Treasury (% left axis) 14 12 Percent 10 8 6 4 2.87 2 2.25 0 '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
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 3.6 3.1 2.6 2.1 1.6 1.1 0.6 0.1 -0.4 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 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
Consumer Sentiment 1966 Q1 = 100 // Source: University of Michigan and NBER 120 110 100 90 80 70 60 50 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 43 42 41 40 39 38 37 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
S&P 500 Monthly Average (Source: S&P) 900 800 Recession Real 700 600 500 400 300 200 100 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
Residential Investment As a % of GDP // Source: BEA and NBER 7.0 6.5 6.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 2.0 Jan-60 Jan-66 Jan-72 Jan-78 Jan-84 Jan-90 Jan-96 Jan-02 Jan-08 Jan-14
Leading Economic Indicators Philadelphia Fed Index // Source: Moody’s, Federal Reserve Bank of Philadelphia and NBER 4 3.5 3 2.5 Percent 2 1.5 1 0.5 0 '82 '84 '86 '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
Credit Union “Loan Gap” Monthly loan growth minus savings growth // Source: CUNA Monthly Estimates and NBER 1.25% 0.75% 0.25% -0.25% 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 -0.75% 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 t his regard, I don’t think the negative CU Loan Gap is signaling impending economic contraction. -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
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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