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Peak Economy?

Brian Lewandowski

Associate Director

Business Research Division

Leeds School of BusinessMay 5, 2016

2016 Boulder Economic Summit

Business Research Division | Leeds School of Business | University of Colorado Boulder

10

12

14

16

18

20

22

2000 2002 2005 2008 2011 2013 2016 2019 2022 2024

Trillions, USD

Rec

essi

on

18

Mo

nth

s

Rec

essi

on

8 M

on

ths

Real GDP

Actual Projected

Source: Congressional Budget Office, Budget and Economic Outlook, Fiscal Years 2015 to 2025.

Real GDP and Potential GDP

Potential GDP

Business Research Division | Leeds School of Business | University of Colorado Boulder

National Employment

Sources: Bureau of Labor Statistics (Seasonally Adjusted), National Bureau of Economic Research, Moody’s Analytics, and the BRD.

-900

-700

-500

-300

-100

100

300

500

2000 2002 2004 2006 2008 2010 2012 2014 2016

Thousands, Month-over-Month

Rec

essi

on 1

8 M

onth

s

Rec

essi

on 8

Mon

ths

3-Month Moving Average

Business Research Division | Leeds School of Business | University of Colorado Boulder

Employment GrowthYear-over-Year Percentage Change to March 2016

Source: Bureau of Labor Statistics (Seasonally Adjusted).

Business Research Division | Leeds School of Business | University of Colorado Boulder

Business Cycles

Business Research Division | Leeds School of Business | University of Colorado Boulder

Business Cycle

Sources: National Bureau of Economic Research and the Business Research Division.

1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016

Financial

Tech

Savings

and Loan

Oil

Embargo

Interest

Rates

OPECEnd of

WWII

Peace

Time

End of

Korean War

Steel Strike

Monetary Policy

Monetary

Policy

Business Research Division | Leeds School of Business | University of Colorado Boulder

Employment Losses and Recovery

0 20 40 60 80

Peak to Trough Months to Recovery

Sources: Bureau of Labor Statistics (Seasonally Adjusted), National Bureau of Economic Research, and the Business Research Division.

1948-1949

1953-1954

1957-1958

1960-1961

1969-1970

1973-1975

1980

1981-1982

1990-1991

2001

2007-2009

-8% -6% -4% -2% 0%

Percentage Change Number of Months

Business Research Division | Leeds School of Business | University of Colorado Boulder

National Unemployment

Sources: Bureau of Labor Statistics (Seasonally Adjusted), National Bureau of Economic Research, and the Business Research Division.

0

2

4

6

8

10

12

1944 1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016

Unem

plo

ym

ent

Rate

Financial Tech Savings

and Loan

Oil

Embargo

Interest

RatesOPECEnd of

WWII

Peace

Time

End of

Korean War

Steel Strike

Monetary Policy Monetary Policy

Business Research Division | Leeds School of Business | University of Colorado Boulder

S&P 500

Sources: Bloomberg and the National Bureau of Economic Research.

0

500

1,000

1,500

2,000

2,500

1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010 2016

S&

P 5

00

Financial Tech Savings

and Loan

Oil

Embargo

Interest

RatesOPECEnd of

WWII

Peace

Time

End of

Korean War

Steel Strike

Monetary Policy Monetary Policy

Business Research Division | Leeds School of Business | University of Colorado Boulder

Economic Growth and Recessions

Sources: Bureau of Economic Analysis, the National Bureau of Economic Research, and the Business Research Division.

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

2000 Q1 2004 Q1 2008 Q1 2012 Q1 2016 Q1

Percent Change Fixed Business Investment

SAAR

Year-over-Year

-6

-4

-2

0

2

4

6

8

2000 Q1 2004 Q1 2008 Q1 2012 Q1 2016 Q1

Percent Change Personal Consumption Expenditures

SAAR

Year-over-Year

-25

-20

-15

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Goods Exports

-10

-8

-6

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Government Spending

SAAR

Year-over-Year

Business Research Division | Leeds School of Business | University of Colorado Boulder

The Underlying Cause???

90

95

100

105

110

115

120

125

130

135

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR Broad Dollar Index

0

2

4

6

8

10

12

14

16

2000 2002 2004 2006 2008 2010 2012 2014 2016

SAAR China Real GDP

2000 2002 2004 2006 2008 2010 2012 2014 2016

0

500

1,000

1,500

2,000

2,500

Rig Count Baker Hughes Rig Count

Gas Wells

Sources: Bureau of Economic Analysis, International Monetary Fund, Baker-Hughes, BofA Merrill Lynch, BofA Merrill Lynch US High

Yield Option-Adjusted Spread, National Bureau of Economic Research.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

Percent Interest Rates

30-Year Fixed Mortgage

10-Year Treasury

3-Month Treasury

Oil Wells

Business Research Division | Leeds School of Business | University of Colorado Boulder

Recession OutlookWith a volatile and challenging first quarter almost in the books, the probability of a recession over the next six months is about 26 percent based on our preferred model.

Wells Fargo, April 26, 2016

According to our model, the risk of recession is below the historical average in most of the major countries, including the US, the Euro area, and the UK, which benefit from good growth momentum, continued spare capacity, and declining debt/GDP ratios.

Goldman Sachs, February 5, 2016

Most NABE Outlook Survey panelists do not expect the next U.S. business cycle peak to occur until 2018 or later. Specifically, 26% of respondents expect the peak to occur in 2018, 22% expect it in 2019, and 15% expect it in 2020 or beyond. Only 13% of panelists expect a peak in 2017, 2% indicate the peak will occur in the second half of 2016, and 2% believe it already occurred in 2015. One-fifth of panelists are unsure when the peak will occur.

National Association of Business Economics, March 28, 2016

Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.

International Monetary Fund, January 19, 2016

Several factors are converging to cause the marked slowdown in revenue growth this fiscal year, including the deep contraction in the oil and gas sector that has reduced spending and income in the state, a continued tepid stock market, and global economic pressures that are reducing corporate profits.

Colorado Office of State Planning and Budgeting

Business Research Division | Leeds School of Business | University of Colorado Boulder

Recession OutlookWith a volatile and challenging first quarter almost in the books, the probability of a recession over the next six months is about 26 percent based on our preferred model.

Wells Fargo, April 26, 2016

According to our model, the risk of recession is below the historical average in most of the major countries, including the US, the Euro area, and the UK, which benefit from good growth momentum, continued spare capacity, and declining debt/GDP ratios.

Goldman Sachs, February 5, 2016

Most NABE Outlook Survey panelists do not expect the next U.S. business cycle peak to occur until 2018 or later. Specifically, 26% of respondents expect the peak to occur in 2018, 22% expect it in 2019, and 15% expect it in 2020 or beyond. Only 13% of panelists expect a peak in 2017, 2% indicate the peak will occur in the second half of 2016, and 2% believe it already occurred in 2015. One-fifth of panelists are unsure when the peak will occur.

National Association of Business Economics, March 28, 2016

Risks to the global outlook remain tilted to the downside and relate to ongoing adjustments in the global economy: a generalized slowdown in emerging market economies, China’s rebalancing, lower commodity prices, and the gradual exit from extraordinarily accommodative monetary conditions in the United States. If these key challenges are not successfully managed, global growth could be derailed.

International Monetary Fund, January 19, 2016

Several factors are converging to cause the marked slowdown in revenue growth this fiscal year, including the deep contraction in the oil and gas sector that has reduced spending and income in the state, a continued tepid stock market, and global economic pressures that are reducing corporate profits.

Colorado Office of State Planning and Budgeting

Business Research Division | Leeds School of Business | University of Colorado Boulder

Business Cycles and Colorado

Business Research Division | Leeds School of Business | University of Colorado Boulder

Colorado and Boulder

Sources: Bureau of Labor Statistics (NSA), Federal Housing Finance Agency, Bureau of labor Statistics, U.S. Census Bureau, and BRD.

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

9.0

10.0

1990 1995 2000 2005 2010 2015

Unemployment

Boulder MSA

Colorado

Percent

-8

-6

-4

-2

0

2

4

6

8

1990 1995 2000 2005 2010 2015

Employment

Boulder MSA

Colorado

Percent

1991 1997 2003 2009 2015

-10

-5

0

5

10

15

20FHFA Home Price Index

Boulder MSA

Colorado

Percent

1996 2002 2008 2014

-80

-60

-40

-20

0

20

40

60

80

100

120Building Permits

Boulder MSA

Colorado

Percent

Business Research Division | Leeds School of Business | University of Colorado Boulder

Boulder

0

2

4

6

8

10

12

14

16

Q2 07 Q2 09 Q3 10 Q4 11 Q1 13 Q2 14 Q3 15

NGKF Commercial Vacancy RatesPercent

Warehouse

Office

Retail

Flex

0

50

100

150

200

250

300

350

400

450

500

Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 Q1 15

Boulder County ForeclosuresNumber

Sales

Filings

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000

$800,000

$900,000

$1,000,000

2001 2003 2005 2007 2009 2011 2013 2015

BARA Boulder Median Single-Family Home Price

50,000,000

60,000,000

70,000,000

80,000,000

90,000,000

100,000,000

110,000,000

2003 2005 2007 2009 2011 2013 2015

City of Boulder Retail Sales Tax

Sources: Newmark Grubb Knight Frank, Colorado Division of Housing, City of Boulder, Boulder Area Realtors Association (Thru 4/16).

Business Research Division | Leeds School of Business | University of Colorado Boulder

City of Boulder SWOT Analysis

Business Research Division | Leeds School of Business | University of Colorado Boulder

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