Charlie Dougherty, Vice President & Economist January 10, 2019 › downloads › documents ›...
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Economic Outlook Charlie Dougherty, Vice President & Economist January 10, 2019
Transcript of Charlie Dougherty, Vice President & Economist January 10, 2019 › downloads › documents ›...
Economic Outlook
Charlie Dougherty, Vice President & EconomistJanuary 10, 2019
Economic Outlook
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2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
U.S. Real GDP Bars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q3 @ 3.5%GDP - Yr/Yr Percent Change: Q3 @ 3.0%
Forecast
2
Economic Growth Will Remain Solid in 2019
Real GDP growth has upshifted recently and should end the year at
nearly a 3.0% pace. Growth will likely moderate in 2019, yet remain
solid.
Source: U.S. Department of Commerce and Wells Fargo Securities
Economic Outlook 3
What’s Behind Recent Volatility?
Sentiment in the manufacturing sector has weakened, however has
come off a near-euphoric level and is still consistent with above-trend
growth.
Source: Institute for Supply Management and Wells Fargo Securities
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ISM Manufacturing Index & Real GDPIndex, 3-Month Moving Average, Year-over-Year Percent Change
ISM Manufacturing Index: Dec @ 57.0 (Left Axis)Real GDP, Year-over-Year Percent Change: Sep @ 3.1% (Right Axis)
Economic Outlook 4
Oil Prices Have Also Dropped
The recent drop in oil prices may be good for consumers, but is
concerning for new energy-related investment.
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities
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Industrial Production vs. WTI Oil PricesYear-over-Year Percent Change, USD
IP: Nov @ 3.9 (Left Axis)WTI: Dec @ $52.17 (Right Axis)
Economic Outlook 5
The Housing Market Has Slowed Amid Rising Rates
A combination of rising home prices and higher mortgage rates has
restrained sales in 2018.
Source: National Association of Realtors, U.S. Department of Commerce and Wells Fargo Securities
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Mortgage Rate vs. Existing Single-Family Home SalesPercent, SAAR In Millions
30-Yr. Conventional Mortg. Rate: Oct @ 4.83% (Left Axis)SF Existing Home Sales: Oct @ 4.6M (Right Axis)
Economic Outlook 6
Employment Situation: Nearly 100 Straight Months of Job Gains
Labor market conditions remain incredibly strong. Low
unemployment and rising wages will be the driving force behind
consumer spending and overall economic growth in 2019.
Source: U.S. Department of Labor and Wells Fargo Securities
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U.S. Nonfarm Employment ChangeChange in Employment, In Thousands
Monthly Change: Dec @ 312K12-Month Average Change: Dec @ 220K
Raleigh-Durham Outlook
Economic Outlook 8
Southeast Employment Growth by MSA
Source: U.S. Department of Labor and Wells Fargo Securities
New Orleans
Nashville AtlantaHoustonSouth FL
Austin
Jacksonville
Charlotte
San Antonio
Orlando
Richmond
MemphisRaleigh
Dallas
Tampa
Greenville, SC
Charleston
Durham
Savannah
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Southeast Employment Growth by Metro3-Month Moving Averages, November 2018
Total PopulationLess than 600K600K - 1,500KMore than 1,500K
Recovering Expanding
Contracting Decelerating
Economic Outlook
North Carolina GDP
9
Economic growth throughout the state has been solid. North Carolina claims two of the 15 fastest growing metros, with Charlotte and Raleigh near the top of the list.
Economic Growth Fastest Growing Metros
Source: U.S. Department of Commerce and Wells Fargo Securities
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Real GDP Growth vs. U.S. Year-over-Year Percent Change
North Carolina: Q2 @ 2.4%United States: Q2 @ 2.9%
0% 1% 2% 3% 4% 5% 6% 7% 8%
San Jose, CAAustin, TX
San Antonio, TXNashville, TN
San Francisco, CADallas-Fort Worth, TX
Seattle, WARaleigh, NCAtlanta, GADenver, CO
Jacksonville, FLCharlotte, NC
Miami, FLLos Angeles, CA
Columbus, OH
Metro Area GDP Growth: Top 15Change in Real GDP, CAGR, 2011-2017
Economic Outlook
North Carolina Employment
10
North Carolina’s job growth moderated somewhat last year but has accelerated recently, with broad-based improvements across most industries and regions.
Nonfarm Employment Nonfarm Employment
Source: U.S. Department of Labor and Wells Fargo Securities
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North Carolina Nonfarm EmploymentYear-over-Year Percent Change, 3-MMA
United States: Nov @ 1.7%North Carolina Yr/Yr Pct. Change: Nov @ 2.1%QCEW: Yr/Yr Pct. Change Jun @ 2.2%
November 2018
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Nat. Res. & Mining
Information
Other Services
Construction
Financial Activities
Leisure and Hospitality
Manufacturing
Prof. & Bus. Svcs.
Educ. & Health Services
Government
Trade, Trans. & Utilities
Total Nonfarm
North Carolina Employment Growth By IndustryYear-over-Year Percent Change, 3-MMA
Number of Employees
Less
More
Economic Outlook 11
Metro Area Employment Growth
Charlotte and Raleigh-Durham have seen a rapid recovery and expansion of payrolls. However outside of those areas, employment growth has been
more subdued.
Source: U.S. Department of Labor and Wells Fargo Securities
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North Carolina Regional Job RecoveryNonfarm Payroll Employment, SA, Index, Dec. 2007 = 100
North Carolina: Nov @ 109.0Raleigh+Durham: Nov @ 118.8Charlotte: Nov @ 118.1Rest of State: Nov @ 101.5
Economic Outlook 12
North Carolina Employment by MSA
Source: U.S. Department of Labor and Wells Fargo Securities
Asheville
Rocky Mount
Raleigh-Cary
Wilmington
Greensboro
Hickory
Goldsboro
Jacksonville
Durham-Chapel Hill
Winston-Salem
Charlotte
Greenville
Burlington
Fayetteville
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North Carolina Job Growth by MetroYear-over-Year Percent Change, 3-Month Moving Average, Nov 2018
Population SizeLess than 200,000200,000-500,000More than 500,000
Recovering Expanding
Contracting Decelerating
Economic Outlook 13
Raleigh-Durham Employment Growth
Payrolls in Raleigh are growing at a robust pace, backed by a booming tech industry. Durham has seen more moderate growth, but the
metro’s key sectors are performing well.
Source: U.S. Department of Labor and Wells Fargo Securities
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Nonfarm Employment
United States: Dec @ 1.7%
Durham, NC: Nov @ 2.0%
Raleigh, NC: Nov @ 3.2%
Year-over-Year Percent Change, 3-Month Moving Averages
Economic Outlook 14
Triangle Employment Outlook
After growing 2.8% in 2018, we expect another strong year of 2.4%
job growth in 2019, a pace well ahead of the national rate.
Source: U.S. Department of Labor and Wells Fargo Securities
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Raleigh-Durham-Chapel Hill CSA Job Gain by CountyYear-over-Year Level Change in Annual Averages, Thousands
Wake Durham Orange Other
Forecast
Economic Outlook 15
Labor Market Tightness
Raleigh-Durham’s low unemployment rate has led to a
rising wages, which has benefited all areas of the local economy.
The Triangle has more room to run, as the area has seen unemployment
dip even lower.
Source: U.S. Department of Labor and Wells Fargo Securities
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Raleigh CSA Unemployment vs. Avg. Hourly Earnings
Raleigh-Durham-Chapel Hill CSA Unemployment: Nov @ 3.1%Average Hourly Earnings: Nov @ 4.7%
Non Seasonally Adjusted, 12-MMA Year-over-Year Percent Change
Economic Outlook 16
Raleigh-Durham Population
North Carolina had the 10th fastest growing population in the country in
2018.
Population growth in Raleigh-Durham continues to be boosted by an influx of retirees and job-seekers
from out of state, which helps reinforce the organic economic
growth experienced throughout the region.
Source: U.S. Census Bureau and Wells Fargo Securities
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Components of Population Change: Raleigh-Durham CSAIn Thousands
Natural Increase: 2017 @ 12KInternational Migration: 2017 @ 7.2KDomestic Migration: 2017 @ 22.5K
Economic Outlook 17
Home Prices
Home sales have also lost momentum alongside higher
mortgage rates and years of price appreciation.
As a result of softer sales, price appreciation in Raleigh has
decelerated somewhat over the past year. By contrast, home values in
relatively more affordable Durham continue to gain steam.
Source: CoreLogic and Wells Fargo Securities
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CoreLogic Home Price IndexYear-over-Year Percent Change
United States: Nov @ 5.1%Raleigh, NC: Nov @ 4.7%Durham: Nov @ 6.5%
Economic Outlook 18
Housing Permits
Single-family home building has moderated recently amid slowing
overall home sales and higher mortgage rates.
Apartment construction has ramped back up as demand has held firm despite a wave on new deliveries.
Source: U.S. Department of Commerce and Wells Fargo Securities
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Raleigh-Durham CSA Housing Permits
Single-family: Oct @ 16,013Single-family 12-MMA: Oct @ 15,454Multifamily 12-MMA: Oct @ 8,067
Single-family average 1998-2003: 15,536
Thousands of Permits, Seasonally Adjusted Annual Rate
Economic Outlook 19
Commercial Real Estate
New and expanding businesses have spurred demand for commercial
properties and pushed vacancy rates lower over the course of the
expansion.
Source: CoStar and Wells Fargo Securities
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Raleigh Vacancy RatesBy Property Type, Percent
Apartment Vacancy: Q3 @ 7.4%Office Vacancy: Q3 @ 5.0%Retail Vacancy: Q3 @ 2.9%Industrial Vacancy: Q3 @ 3.1%
Economic Outlook 20
Apartment Market
The Triangle has seen a deluge of apartments come to market in recent
years. However, demand has reignited amid softening single-
family fundamentals, reversing the trend in higher vacancy rates.
Source: CoStar and Wells Fargo Securities
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Raleigh Apartment Supply & DemandPercent, Thousands of Units
Apartment Net Absorption: Q3 @ 1,119.0 (Right Axis)Apartment Completions: Q3 @ 829.0 (Right Axis)Apartment Vacancy: Q3 @ 7.4% (Left Axis)
Appendix
Economic Outlook 22
Raleigh-Durham Employment Forecast
2012 2013 2014 2015 2016 2017 2018 2019 2020North Carolina 70,200 71,200 83,050 100,775 100,650 73,900 91,067 89,000 85,000
Yr/Yr Percent Change 1.8% 1.8% 2.0% 2.4% 2.4% 1.7% 2.1% 2.0% 1.8%Raleigh-Durham CSA 22,081 18,261 25,212 29,167 30,001 19,795 28,044 24,300 21,200
2.6% 2.1% 2.9% 3.2% 3.2% 2.1% 2.8% 2.4% 2.0%Raleigh-Cary MSA 15,526 16,904 18,107 22,723 19,852 14,222 20,180 18,010 16,010
3.1% 3.3% 3.4% 4.2% 3.5% 2.4% 3.3% 2.9% 2.5%Durham-Chapel Hill MSA 5,747 1,493 7,134 3,927 7,955 4,095 7,040 6,201 5,142
2.2% 0.6% 2.6% 1.4% 2.8% 1.4% 2.4% 2.1% 1.7%Wake County 14,227 17,810 16,550 21,049 19,094 12,996 19,100 17,100 14,100
3.2% 3.9% 3.5% 4.3% 3.7% 2.4% 3.5% 3.0% 2.4%Durham County 5,228 (604) 5,022 2,201 4,417 3,659 4,770 4,170 3,250
2.9% -0.3% 2.7% 1.2% 2.3% 1.9% 2.4% 2.0% 1.6%Orange County 774 2,065 1,869 1,315 3,301 373 2,505 1,750 1,720
1.3% 3.3% 2.9% 2.0% 4.9% 0.5% 3.5% 2.4% 2.3%All Other Counties in CSA 1,852 (1,010) 1,771 4,602 3,189 2,767 1,669 1,280 2,130
1.2% -0.6% 1.1% 2.9% 1.9% 1.6% 1.0% 0.7% 1.2%0 0 0 0 0 0 0 0Sources: U.S. Department of Labor and Wells Fargo SecuritiesForecast as of: January 08, 2019
Actual
Raleigh-Durham Employment Outlook: Total Additions to PayrollsForecast
Economic Outlook 23
North Carolina Economic Forecast
2012 2013 2014 2015 2016 2017 2018 2019 2020Real Gross Domestic Product by State, $ Millions 439,571 445,361 453,629 467,913 473,034 484,308 496,900 511,310 522,559Annual Rate 0.1% 1.3% 1.9% 3.1% 1.1% 2.4% 2.6% 2.9% 2.2%
Nominal Personal Income, $ Millions 379,031 375,057 397,411 419,889 433,766 454,307 476,114 500,395 526,916Nominal Personal Income, Percent Change 7.0% -1.0% 6.0% 5.7% 3.3% 4.7% 4.8% 5.1% 5.3%Real Median Household Income, $ 44,446 48,840 48,490 52,559 54,920 50,343 51,400 52,634 53,634Population, Thousands 9,749 9,844 9,934 10,033 10,157 10,271 10,384 10,496 10,605Change in thousands 92 94 90 99 124 114 113 113 109Percent Change 1.0% 1.0% 0.9% 1.0% 1.23% 1.1% 1.1% 1.1% 1.0%
Nonfarm Employment, Thousands 3,985 4,057 4,140 4,240 4,341 4,415 4,506 4,595 4,680Change in thousands 70 71 83 101 101 74 91 89 85Percent Change 1.8% 1.8% 2.0% 2.4% 2.4% 1.7% 2.1% 2.0% 1.8%
Unemployment Rate, Annual Average 9.3% 8.0% 6.3% 5.7% 5.1% 4.6% 4.1% 3.8% 3.6%Total Housing Permits 47,828 50,787 50,642 53,512 57,090 65,009 67,821 66,215 65,797Single-Family Permits 29,564 34,941 35,456 37,465 41,174 46,500 48,128 49,475 50,564Multi-Family Permits 18,264 15,846 15,186 16,047 15,916 18,509 19,694 16,740 15,233FHFA Home Price Index, Percent Change
-1.6% 0.9% 2.4% 4.5% 5.4% 6.1% 7.2% 6.3% 4.9%
Sources: National Association of Realtors, Federal Housing Finance Authority, U.S. Department of Commerce, U.S. Department of Labor, Moody's Analytics & Wells Fargo SecuritiesForecast as of: January 08, 2019
Actual
North Carolina Economic OutlookForecast
Economic Outlook 24
U.S. Economic Forecast
Wells Fargo U.S. Economic Forecastq42018
2018
2016 2017 2018 20191Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product 1 2.2 4.2 3.4 2.5 2.2 2.4 2.4 2.4 2.3 2.1 1.7 1.7 1.6 2.2 2.9 2.6Personal Consumption 0.5 3.8 3.5 3.6 2.4 2.6 2.5 2.4 2.2 2.1 1.8 1.7 2.7 2.5 2.7 2.9Business Fixed Investment 11.5 8.7 2.5 5.2 2.6 3.5 4.2 4.0 3.7 3.6 2.9 2.8 0.5 5.3 6.9 3.9
Equipment 8.5 4.6 3.4 5.3 0.3 2.3 3.7 3.1 2.7 2.6 2.1 2.0 -1.5 6.1 7.4 2.9Intellectual Property Products 14.1 10.5 5.6 6.5 5.8 5.3 4.7 4.6 4.7 4.6 3.7 3.6 7.5 4.6 7.3 5.9Structures 13.9 14.5 -3.4 3.0 2.5 3.5 4.5 5.0 4.5 4.0 3.5 3.5 -5.0 4.6 5.4 3.1
Residential Construction -3.4 -1.3 -3.6 -3.0 -1.5 2.0 1.8 1.5 1.5 1.5 1.0 1.0 6.5 3.3 -0.2 -0.8Government Purchases 1.5 2.5 2.6 2.8 2.3 2.3 1.7 1.2 0.7 0.7 0.3 0.1 1.4 -0.1 1.7 2.3
Net Exports 2 0.0 1.2 -2.0 -0.9 -0.2 -0.1 -0.1 -0.1 0.1 0.0 -0.1 0.0 -0.4 -0.4 -0.3 -0.5Inventories 2 0.3 -1.2 2.3 0.1 0.0 -0.2 -0.2 0.0 0.0 0.0 0.0 0.0 -0.6 0.0 0.1 0.2
Nominal GDP 1 4.3 7.6 4.9 3.8 3.5 4.8 4.9 4.8 4.6 4.4 3.6 3.6 2.7 4.2 5.2 4.5Corporate Profits Before Taxes 3 5.9 7.3 10.4 7.0 7.3 4.9 3.9 1.9 0.6 1.0 -1.4 -1.0 -1.1 3.2 7.7 4.4
Forecast as of: January 8, 20191 Compound Annual Growth Rate Quarter-over-Quarter 2 Percentage Point Contribution to GDP 3 Year-over-Year Percentage Change
Forecast2020
Actual2018 2019
ForecastActual
Economic Outlook
Wells Fargo Securities Economics Group
25
Jay H. Bryson, Global Economist …[email protected] Vitner, Senior Economist [email protected] Bullard, Senior Economist [email protected] Bennenbroek, Macro [email protected] Iqbal, Econometrician [email protected] Quinlan, Senior Economist [email protected] House, Senior Economist [email protected]
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Erik Nelson, Macro Strategist [email protected]
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