US Economic Outlook Factors Shaping Manufacturing Growth

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1 US Economic Outlook Factors Shaping Manufacturing Growth Patricia Buckley, Managing Director for Economics, Deloitte PRESENTED BY Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 1

2 Trends that will continue to impact US and world growth Low oil prices High value of the US dollar Slower World Growth Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 2

3 Shale producers effectively cap oil prices $ per barrel (WTI) Source: Energy Information Agency and FRED Graph Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 3

4 Production follows price changes $ per barrel (WTI): IP, Oil and Gas Well Drilling: Source: Energy Information Agency and FRED Graph Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 4

5 The high dollar will continue to be a challenge to exporters Trade-weighted value of the $ Source: Federal Reserve Board of Governors and FRED Graph Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 5

6 World growth is slowing Annual Percent Change in World GDP Growth Source: International Monetary Fund, World Economic Outlook Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 6

7 The economy is fairly healthy: GDP growth has averaged 2.1% over the last 4 years Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 7

8 Supported by growing employment and cheaper oil and imports, consumer spending has been a driving force Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 8

9 The economy is fairly healthy Source: Bureau of Labor Statistics Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 9

10 However not all sectors are gaining to the same extent Employment change by selected industry Source: Bureau of Labor Statistics Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 10

11 Even though manufacturing employment remains far below pre-recession levels, output has mostly recovered Manufacturing output: Manufacturing employment: Source: Bureau of Labor Statistics and FRED Graph Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 11

12 And not all individuals are gaining to the same extent Top 1 Percent income share by decade, Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 12

13 In 2016, business investment subtracted from growth for the first time since 2008 Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 13

14 Business investment in equipment and structures has been declining in recent quarters Contributions to percent change in GDP Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 14

15 Productivity growth has been lagging Output per hour, business sector. Percent change, year ago average = 2.9% average = 1.6% average = 0.6% Source: BLS/Fred Charts Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 15

16 When combined with slow population growth, the growth potential of the US economy is limited Growth in the US working age population US working age population growth rate Percent average= average = Source: Census/Haver Analytics Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 16

17 Residential construction is not keeping up with household formation Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 17

18 The housing market recovery has been an anomaly Housing permits Source: US Census Bureau Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 18

19 The housing market recovery has been an anomaly Homeowners rates Source: US Census Bureau Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 19

20 Slower world growth and a high dollar are hitting exports hard Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 20

21 Slower world growth and a high dollar are hitting exports hard Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 21

22 But what happened in Q1? Only 0.7% Growth Contributions to percent change in GDP Source: Bureau of Economic Analysis Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 22

23 The US economy is growing faster than our major trading partners Change in real GDP Source: Eurostat and Trading Economics Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 23

24 Unemployment remains a major issue for many Eurozone countries Unemployment rate Source: Eurostat Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 24

25 And youth unemployment is a particularly critical issue Youth unemployment rate (under 25) Source: Eurostat Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 25

26 Japan faces structural issues 90 Retiree Dependency Ratio Population 65 and above as a percent of 100 Population Japan Germany China US Source: US Census Bureau Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 26

27 China slowdown appears to be moderating Percent Change in China's Real GDP Year over Year Source: China National bureau of Statistics/Haver Analytics Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 27

28 Looking forward Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 28

29 So what next? Possible policy changes in the US While the formulation and timing remain uncertain, some version of the following will likely be debated and maybe even enacted in the near term: Repeal and replacement of Obamacare Regulatory reform across agencies Infrastructure spending program Corporate and personal income tax reform Increased immigration enforcement and border enforcement Review of existing trade deals and a move towards bilateral enforcement Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 29

30 Where do US exports go? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 30

31 Where do US imports come from? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 31

32 Where do Canadian exports go? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 32

33 What does Canada export to the United States? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 33

34 What does Canada export to the United States? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 34

35 Where do Mexican exports go? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 35

36 What does Mexico export to the United States? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 36

37 What does Mexico export to the United States? Source: Observatory of Economic Complexity Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 37

38 So what next? In the US moderate growth should continue but maybe with some inflation Five year forward inflation expectations rate Source: Federal Reserve Board Copyright 2017 Deloitte Development LLC. All rights reserved Americas Global Employer Services Conference 38

39 Q & A Copyright 2017 Deloitte Development LLC. All rights reserved. Presentation title 39 [To edit, click View > Slide Master > Slide master1]

40 This presentation contains general information only and the respective speakers and their firms are not, by means of this presentation, rendering accounting, business, financial, investment, legal, tax, or other professional advice or services. This presentation is not a substitute for such professional advice or services, nor should it be used as a basis for any decision or action that may affect your business. Before making any decision or taking any action that may affect your business, you should consult a qualified professional advisor. The respective speakers and their firms shall not be responsible for any loss sustained by any person who relies on this presentation. About Deloitte Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a detailed description of DTTL and its member firms. Please see for a detailed description of the legal structure of Deloitte LLP and its subsidiaries. Certain services may not be available to attest clients under the rules and regulations of public accounting. Copyright 2017 Deloitte Development LLC. All rights reserved. 36 USC

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