The U.S. and Michigan Outlook for 2016-2018 · 2016-01-13 · RSQE: January 2016 Latest Data •...
Transcript of The U.S. and Michigan Outlook for 2016-2018 · 2016-01-13 · RSQE: January 2016 Latest Data •...
RSQE: January 2016
The U.S. and Michigan Outlook for 2016-2018
Consensus Revenue Estimating ConferenceLansing, MichiganJanuary 14, 2016
University of MichiganRSQE
RSQE: January 2016
International Headwinds• Board-based declines in commodity prices
– The price of oil keeps sliding lower
– Many other key commodity prices are down sharply
– Domestic oil-related activity contracting
• Slowing growth in developing economies
• Sharp increase in the value of the dollar– Hurts domestic exports, industrial activity
RSQE: January 2016
30
40
50
60
70
80
90
100
110
120
130
140
2008 2009 2010 2011 2012 2013 2014 2015
Dollars per Barrel, Monthly
Price of Oil(West Texas Intermediate Crude)
RSQE: January 2016
International Headwinds• Board-based declines in commodity prices
– The price of oil keeps sliding lower
– Many other key commodity prices are down sharply
– Domestic oil-related activity contracting
• Slowing growth in developing economies
• Sharp increase in the value of the dollar– Hurts domestic exports, industrial activity
RSQE: January 2016
Trade-Weighted Value of the Dollar
90
100
110
120
130
2008 2009 2010 2011 2012 2013 2014 2015
Index, Jan 1997 = 100
RSQE: January 2016
Latest Data • 2015q3 real GDP growth at 2.0 percent
– 0.7pp drag from inventory correction
• Real GDP up 2.1 percent y-o-y in 2015q3– Net exports reduced y-o-y growth by 0.7pp
• Domestic Final Sales up 2.8 percent y-o-y• Labor Market keeps improving
– October-December payroll job gains averaged over 280,000
– Unemployment rate down to 5.0 percent
– Initial Unemployment Insurance claims very low
RSQE: January 2016
Latest Data • Light Vehicle Sales booming
– October-December averaged 17.8-million pace
– Annual sales averaged 17.3 million
– Just shy of a new record year
• Industrial Activity weak– Stronger dollar slowed manufacturing growth
– Mining-related activity down sharply, still falling
• Service Sector expanding at a solid pace
RSQE: January 2016
Light Vehicle Sales
8
9
10
11
12
13
14
15
16
17
18
19
20
2007 2008 2009 2010 2011 2012 2013 2014 2015
Units (Millions)
RSQE: January 2016
Latest Data • Light Vehicle Sales booming
– October-December averaged 17.8-million pace
– Annual sales averaged 17.3 million
– Just shy of a new record year
• Industrial Activity weak– Stronger dollar slowed manufacturing growth
– Mining-related activity down sharply, still falling
• Service Sector expanding at a solid pace
RSQE: January 2016
Monetary Policy• New federal funds target range: 25-50bps
• Weak inflation did not delay the rate increase
– FOMC thinks temporary factors are to blame
• Pace of future tightening is data-dependent
– Most consistent with our outlook:
25bps increase every other FOMC meeting
– Largely reflecting slow inflation
RSQE: January 2016
Market Interest Rates
0.40.1 0.1 0.0 0.1
1.2
2.1
3.1
2.32.7 2.8
2.3 2.22.6
3.03.5
4.04.3 4.4
4.0 3.94.3
4.65.1
0
2
4
6
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Actual Forecast
’13 2014 2015 2016 2017 2018
Percent
3-Month T-bill
10 Year T-Note
Conv. Mortgage
RSQE: January 2016
Fiscal Policy:• Bipartisan Budget Act of 2015
– Suspended debt ceiling through March 2017
– Sequestration partially fixed through FY 2017
– Increased Overseas Contingency Funding
• Fiscal 2016 spending bill– Several ACA-related taxes delayed
– Lifted oil export ban
• No tax reform on the horizon
RSQE: January 2016
Federal Budget, NIPA Basis(Billions of Dollars)
Forecast FY’14 FY’15 FY’16 FY’17 FY’18
Current receipts 3253.4 3392.0 3565.0 3755.4 3972.0% change 7.7 4.3 5.1 5.3 5.8
Current expenditures 3863.1 3988.2 4169.7 4341.0 4536.3% change 1.8 3.2 4.6 4.1 4.5Consumption 955.2 956.1 981.4 1016.4 1052.9% change -2.0 0.1 2.7 3.6 3.6
Transfer payments 2411.8 2537.0 2644.1 2751.8 2880.7% change 3.2 5.2 4.2 4.1 4.7
Surplus (+) or deficit (-) -609.7 -596.2 -604.7 -585.6 -564.3Percent of GDP -3.5 -3.3 -3.3 -3.0 -2.8
RSQE: January 2016
2.4
2.8
2.4 2.5 2.5
0.0
1.0
2.0
3.0
4.0
2014 2015 2016 2017 2018
Real GDP GrowthPercent
RSQE: January 2016
Growth Rate of Real GDP
2.5
0.6
3.8
-0.9
4.64.3
2.1
3.9
2.0 1.9 2.32.9
-2
-1
0
1
2
3
4
5
6
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4
Actual Forecast
’13 2014 2015 2016 2017 2018
2.5 2.5 2.1 2.8 2.7 2.3
4th Quarter to 4th Quarter Growth Rate of Real GDP (%)
Percent, AR
RSQE: January 2016
Nonfarm Payroll Employment Gainsand Unemployment Rate
253
126165
185
240203
284
219181
5.05.4
6.6
5.7
7.0
5.04.8
4.5 4.4
0
100
200
300
400
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 44
5
6
7
8Actual Forecast
’13 2014 2015 2016 2017 2018
PercentThousands of Jobs per Month
Unemployment Rate
Avg. Monthly Job Gains*
* 1/3 the change in quarterly value
2.5 2.9 2.7 2.5 2.1 1.74th Quarter to 4th Quarter Job Change (Millions)
RSQE: January 2016
2.12.02.01.81.71.5
0.1
2.3 2.4
1.6
-1
0
1
2
3
4
2014 2015 2016 2017 2018
Core All ItemsPercent
Consumer Price Inflation(CPI-U)
RSQE: January 2016
Housing Market
1.101.04
0.650.71
0.89
0.440.440.410.400.35
1.531.47
1.001.11
1.30
0.0
0.5
1.0
1.5
2.0
2014 2015 2016 2017 2018
Singles Multis Total
5.115.084.904.64
4.33
0
2
4
6
2014 2015 2016 2017 2018
A. Housing StartsUnits (Millions) Units (Millions)
B. Existing Home Sales*
*Single-family homes
RSQE: January 2016
7.57.67.57.7 7.6
10.68.7
9.8 10.3 10.5
18.117.917.316.418.1
0
4
8
12
16
20
24
2014 2015 2016 2017 2018
Autos Lt. Trucks TotalUnits (Millions)
Light Vehicle Sales
RSQE: January 2016
Risks to the Outlook:
• World Economic Growth• Commodity prices• Financial market volatility• Monetary policy
– Policy over-reaction to noisy data– Our assessment of Fed’s policy stance
• Abnormal Weather
0
5
10
15
20
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18
With data
U.S. Light Vehicle Sales, 1990–2018Millions
17
18
'91 '93 '95 '97 '99 '01 '03 '05 '07 '09 '11 '13 '15 '17
RSQE: January 2016
With data
2014 20162015 2017 2018
U.S. Light Vehicle SalesTotal vs. Detroit Three, 2014–18
Total
Millionsof Units
Detroit Three
7.3 7.6 7.9 8.0 8.0
02468
101214161820
16.417.3 17.9 18.1 18.1
Annual % Detroit Threemarket share
44.3 44.144.544.4
43.6
RSQE: January 2016
0
1
2
3
4
2.0 1.6 1.8 1.5 1.0
82.7 67.2 76.5 63.0 45.5
4th Quarter to 4th Quarter Growth Rate (%)
4th Quarter to 4th Quarter Change (Thousands)1.5
63.7
4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 42014 2015 2016’13 2017 2018
Annual Rate(%)
Michigan Job Growth
Actual Forecast
RSQE: January 2016
2.6
3.8
1.4
0.7
1.4 1.61.2
0.8
Change in Jobs by Industry Sector(Thousands of jobs)
2013q4to
2014q4
2014q4to
2015q4
2015q4to
2016q4
2016q4to
2017q4
2017q4to
2018q4
Total jobs
Government
Manufacturing
Private educ. &health svcs.
Prof. & bus. svcs.
Construction
Trade, trans., util.
67
-2
18
6
17
7
12
77
-7
21
18
15
9
5
63
1
7
6
15
9
11
64
0
4
4
17
12
12
46
1
-2
5
13
8
9
RSQE: January 2016
3,8003,9004,0004,1004,2004,3004,4004,5004,6004,7004,800
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
With data
Michigan Wage and Salary EmploymentFirst Quarter of 2000 to Fourth Quarter of 2018
Thousands of jobs
ForecastPeak ’00q2
Loss: ’00q2–’9q3 = 858,400
Trough ’9q3
’18q4
’15q3
Gain:’9q3–’18q4 = 624,700(73% of jobs lost)
RSQE: January 2016
Michigan Unemployment Rate2014–18
0%1%2%3%4%5%6%7%8%9%
10%
7.1
5.44.9 4.6 4.5
2014 2015 2016 2017 2018
RSQE: January 2016
6.5 5.0 4.8 4.5 4.54th Quarter Unemployment Rate
Detroit CPI
2014 2015 2016 2017
Michigan Inflation and Income Growth
1.1
– 1.3
1.52.4
2018
2.4
RSQE: January 2016
0%1%2%3%4%5%6%
–1%–2%
Personal Income
4.1 4.3 4.3 4.4 4.5
0%1%2%3%4%5%6%
–1%–2%
Real Disposable Income
2.7 2.71.8
5.1
1.8
0%1%2%3%4%5%6%
–1%–2%
RSQE Forecast – State Revenues by Fiscal Year (Millions of dollars)
Actual2015P
Forecast2016 2017 2018
GFGP revenue
(% change)
9,928
(10.1)
10,035
(1.1)
10,345
(3.1)
10,837
(4.7)
RSQE: January 2016
PPreliminary
RSQE Forecast – State Revenues by Fiscal Year (Millions of dollars)
Actual2015P
Forecast2016 2017 2018
GFGP revenue
(% change)
9,928
(10.1)
10,035
(1.1)
10,345
(3.1)
10,837
(4.7)
RSQE: January 2016
PPreliminary
Earmarked stateSAF revenue(% change)
11,766
(2.1)
12,175
(3.5)
12,610
(3.6)
13,059
(3.6)
Michigan Outlook Summary
The job recovery enters its seventh year, and adds 172,200 jobs from yearend 2015 to yearend 2018.
The continuing recovery is consistent with an expandingU.S. economy, strong vehicle sales, and continued improve-ment in the housing sector.
RSQE: January 2016
Job gains average 57,400 per year over that time span,a bit slower than the pace in recent years.
The top three job producers over the forecast period arethe professional and business services sector, the trade-transportation-utilities sector, and construction.
Michigan Outlook Summary
A key challenge will be diversifying sources of jobs growthas the manufacturing expansion matures.
The 9-year recovery through 2018 replenishes 73 percentof the jobs lost from mid-2000 to summer 2009 . . .
returning the state to the same job level posted at thebeginning of 2003.
RSQE: January 2016
Unemployment continues to decline, but more slowly asslack in the labor market continues to dissipate.Local prices begin to increase again as energy prices stopfalling and national inflation rises.