Old Dominion University 2016 National Economic Forecast...Jan 26, 2016 · 2015 Q3 Forecast 2015 Q3...
Transcript of Old Dominion University 2016 National Economic Forecast...Jan 26, 2016 · 2015 Q3 Forecast 2015 Q3...
Old Dominion University2016 National Economic Forecast
January 27, 2016
Larry “Chip” FilerAssociate Professor of Economics
Strome College of Business
www.odu.edu/forecasting
• 2015 Scorecard
• Recap of 2015
• How Quickly Things Change
• 2016 Forecast
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Presentation Outline
2015 Scorecard(Macroeconomic Fundamentals)
2015 Q1 Forecast
2015 Q1Actual
2015 Q2Forecast
2015 Q2Actual
2015 Q3Forecast
2015 Q3Actual
Real Gross Domestic Product (GDP)
3.04% 0.64% 3.52% 3.92% 2.7% 1.98%
CPI Inflation 0.8% 0.0% 1.3% 0.03% 1.5% 0.13%
CPI - Core 1.6% 1.7% 1.8% 1.8% 1.6% 1.8%
EmploymentGrowth (thousands)
926 778 683 610 604 623
Unemployment Rate
5.6% 5.6% 5.6% 5.4% 5.5% 5.2%
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3
2015 Scorecard(Interest Rates)
2015 Q1 Forecast
2015 Q1Actual
2015 Q2Forecast
2015 Q2Actual
2015 Q3Forecast
2015 Q3Actual
3-Month Treasury Bill Rate
0.02% 0.03% 0.02% 0.02% 0.03% 0.04%
10-Year Treasury Bond Rate
2.27% 1.97% 2.32% 2.16% 2.45% 2.22%
AAA Corporate Bond Yield
3.83% 3.57% 3.74% 3.90% 3.71% 4.09%
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Growth in Real GDP (2000-present)
Gross Domestic Product, (Bil. Ch. 2009 USD, SAAR) for United States
0.00
2.00
4.00
6.00
8.00
-2.00
-4.00
-6.00
-8.00
2002Q4 2005Q4 2008Q4 2011Q4 2014Q4
2015 Q1 0.64%
2015 Q2 3.92%
2015 Q3 1.98%
Source: Bureau of Economic Analysis.
-3
-2
-1
0
1
2
3
4
2014 Q4 2015 Q1 2015 Q2 2015 Q3
Consumption Fixed Investment Net Exports Government
Contributions to GDP Growth(Last 5 Quarters)
5Source: Bureau of Economic Analysis.
Annualized Percent Change
The Labor Market Had a Really Good 2015
6
Nonfarm Employment Continued Its Strong Growth
7Source: Bureau of Labor Statistics.
Employment: Total Nonfarm, (Ths. #, SA) for United States
130000.00
131000.00
132000.00
133000.00
134000.00
135000.00
136000.00
137000.00
138000.00
139000.00
140000.00
141000.00
142000.00
143000.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Measures of Unemployment Continued to Decline(Headline=Black, U6=Red)
8Source: Bureau of Labor Statistics.
4.00
5.00
6.00
7.00
8.00
9.00
10.00
11.00
12.00
13.00
14.00
15.00
16.00
17.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Headline U6
Peak 10% 17%
Dec. 2015 5% 10%
Private Wage Growth(Percent Growth from Same Month in Previous Year)
9
Median usual weekly earnings (second quartile): Wage and salary workers full time, (USD, NSA) for United States
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
5.00
5.50
6.00
6.50
7.00
2001Q2 2002Q4 2004Q2 2005Q4 2007Q2 2008Q4 2010Q2 2011Q4 2013Q2 2014Q4
Private wage growth in 2015 Q4Jumped 3.25% over 2014 Q4
Source: Bureau of Labor Statistics.
Labor: Labor market conditions index [LMCI], (Index points, SA) for United States
0.00
5.00
10.00
-5.00
-10.00
-15.00
-20.00
-25.00
-30.00
-35.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Labor Market Conditions Index
10Source: Board of Governors of the Federal Reserve System
Actual vs Projected Labor Force Participation Rates(Annual Percent, 1970-2015)
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58
59
60
61
62
63
64
65
66
67
68
197
0
197
2
197
4
197
6
197
8
198
0
198
2
198
4
198
6
198
8
199
0
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
201
4
201
6
201
8
202
0
202
2
Actual BLS Projections
Still Outpacing the Projections!
Source: Bureau of Labor Statistics.
Labor Force Flows from Prior Month
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Dec 2014 Aug 2015 Sep 2015 Oct 2015 Nov 2015 Dec 2015
Unem. To NLF 2243 2019 2006 1916 1805 1834
Emp. To NLF 4464 4717 4440 4377 4463 4304
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Down 18% from Dec. 2014
Down 4% from Dec. 2014
Source: Bureau of Labor Statistics
A Bad 2015 Q4 is Looming
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InJanuary
In April In JulyIn
OctoberToday
Real GDP(AnnualizedGrowth)
2.73% 1.75% 2.06% 2.58% 0.64%
2015 Q4 Forecasts Deteriorated as 2015 Evolved
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As data for October-December came inprojections of 2015 Q4 worsened substantially
Industrial Production: Total index, (Index 2012=100, SA) for United States
0.00
2.00
4.00
6.00
8.00
-2.00
-4.00
-6.00
-8.00
-10.00
-12.00
-14.00
-16.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Industrial Activity Slowed From October-December(Percentage Change in Industrial Production from Year Ago)
15Source: Board of Governors of the Federal Reserve System
Small Business Optmism Index: Net percent of firms expecting the economy to improve over the next 6 months, (%, SA) for United States
0.00
10.00
20.00
30.00
40.00
50.00
-10.00
-20.00
-30.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Firms Expecting “Better” or “Worse” Conditions in 6 Months(Net Percent Responding “Better” In 6 Months)
16Source: National Federation of Independent Business.
Positive values mean respondents expect conditions
to be “better” in 6 months
Positive values meanrespondents expect conditions
to be “worse” in 6 months
Value of construction put in place: Private - Total, (Mil. $, SAAR) for United States
Value of construction put in place: Private - Nonresidential - Commercial, (Mil. $, SAAR) for United States
0.00
10.00
20.00
-10.00
-20.00
-30.00
-40.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
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Construction in Q4 Was Also Very Slow(Percentage Change from Year Ago)
Very rare forcommercial constructionto experience no growth
without a recession following!
Source: Bureau of Economic Analysis
• Positive
– $1000 per household
– Equivalent to a $100 billion tax cut
• Negative
– Global contraction?
– Perhaps a .2 to .5 % decrease in fixed investment
– Certain regions may feel the squeeze
• Timing matters
– 2015 impact undoubtedly positive
– Positive impacts deteriorate in future years
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Impact of Cheap Oil(Slide from Last January)
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Oil Spot Prices
Source: United States Energy Information Administration.
West Texas Intermediate Spot: Cushing, (FOB $ per Barrel, NSA) for United States
20.00
30.00
40.00
50.00
60.00
70.00
80.00
90.00
100.00
110.00
120.00
130.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Feb. 2009 –$39.09
Jan. 19th –$28.47
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The Tipping Point on Oil Prices(Percentage Change from Year Ago)
Industrial Production: Crude petroleum and natural gas extraction [211111], (Index 2012=100, SA) for United States
Industrial Production: Drilling oil and gas wells [213111], (Index 2012=100, SA) for United States
0.00
20.00
40.00
60.00
-20.00
-40.00
-60.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
Source: Board of Governors of the Federal Reserve System
10.2%
6.8%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
2011Q1
2011Q2
2011Q3
2011Q4
2012Q1
2012Q2
2012Q3
2012Q4
2013Q1
2013Q2
2013Q3
2013Q4
2014Q1
2014Q2
2014Q3
2014Q4
2015Q1
2015Q2
2015Q3
2015Q4
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China’s Economic Slowdown
Source: China National Bureau of Statistics
3.36%
2.31%
-0.50%
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
2012 Q4 2013 Q1 2013 Q2 2013 Q3 2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3
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Europe Continues to Grow Erratically(Real GDP Growth in EU 19)
Source: Eurostat, European Commission
Dow Jones: Composite Average - Price daily close, (Index, Average, NSA) for United States
Stock Price Index: S&P 500, (Index, NSA) for United States
0.00
10.00
20.00
30.00
40.00
50.00
-10.00
-20.00
-30.00
-40.00
2001M8 2003M4 2004M12 2006M8 2008M4 2009M12 2011M8 2013M4 2014M12
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… And Markets Become Volatile
Source: S&P Dow Jones Indices, LLC
• 2015 started off with a poor Q1
– This was consistent with previous years
• Most economic indicators were strong through the summer
• There has been a significant weakening of the economy in Q4.
• I expect a little chaos when the GDP figures for 2015 Q4 are given on Friday, but most are expecting a weak Q4.
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2015 Recap
A Look Ahead to 2016
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• 2015 Q4 illustrates why the Fed did not “commit” to any path for normalization.
• The Fed has flexibility
• The Fed is unlikely to raise rates at every meeting during 2016.
• We are forecasting 4 increases during 2016 putting the Fed Funds Rate in the 1.25% - 1.50% range by the end of 2016.
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The Fed in 2016
0.34
0.495
0.505
0.595
0 0.1 0.2 0.3 0.4 0.5 0.6 0.7
January 2016
July 2016
August 2016
December 2016
27
The Fed Funds Futures Market is “Bearish”
Source: CME Group
0
1
2
3
4
5
6
7
8
September 2015 December 2015
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The Federal Reserve Governors are More Hawkish(Projected Median Federal Funds Rate for 2016)
Source: Board of Governors of the Federal Reserve System
• Expect oil prices to remain low
– Should end the year in the $50-$55
– This could put additional pressure on banks that have financed the massive growth in energy related cap ex. over the last 10 years.
• We just had a major snowstorm, so expect some weakness in 2016 Q1 again.
– That could lead to some pessimism for the near term
• Given the dynamics of the economy, 2%-2.5% real GDP growth should be our expectation.
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Overview of 2016
Historical Forecast
2013 2014 2015 2016
Real Gross Domestic Product 1.49% 2.42% 2.38% est. 2.03%
Employment Growth 1.70% 1.90% 2.11% 1.50%
Unemployment Rate 7.4% 5.6% 5.3% 5.1%
Consumer Price Index 1.22% 0.70% 0.13% 1.34%
CPI - Core 1.71% 1.60% 1.83% 2.03%
3-Month Treasury Bill (end of year) 0.06% 0.03% 0.05% 1.25%
10-Year Treasury Bond 2.35% 2.55% 2.14% 3.15%
30-Year Conventional Mortgage Rate 3.98% 4.17% 3.85% 4.25%
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National Economic Outlook for 2016
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