ON THE ECONOMIC, BUSINESS AND POLITICAL CLIMATE Roger Tutterow, Ph.D. Coles College of Business Kennesaw State University rtuttero@kennesaw.edu Business Outlook Breakfast January 30, 2018 Atlanta, GA
Question #1: Halfway through the 9 th year of the recovery normal has clearly arrived, but are we getting dated??
Expansion Getting Tired? (Source: National Bureau Economic Research Peak Trough Contraction Expansion February 1945(I) October 1945 (IV) 8 80 November 1948(IV) October 1949 (IV) 11 37 July 1953(II) May 1954 (II) 10 45 August 1957(III) April 1958 (II) 8 39 April 1960(II) February 1961 (I) 10 24 December 1969(IV) November 1970 (IV) 11 106 November 1973(IV) March 1975 (I) 16 36 January 1980(I) July 1980 (III) 6 58 July 1981(III) November 1982 (IV) 16 12 July 1990(III) March 1991(I) 8 92 March 2001(I) November 2001 (IV) 8 120 December 2007 (IV) June 2009 (II) 18 73??? 103 Average, all cycles: 1945-2009 (11 cycles) 11.1 58.4
1Q-07 3Q-07 1Q-08 3Q-08 1Q-09 3Q-09 1Q-10 3Q-10 1Q-11 3Q-11 1Q-12 3Q-12 1Q-13 3Q-13 1Q-14 3Q-14 1Q-15 3Q-15 1Q-16 3Q-16 1Q-17 3Q-17 6% GDP vs. Final Sales (Source: Bureau of Economic Analysis) 4% 2% 0% -2% -4% -6% GDP Final Sales -8% -10%
Contributions To GDP Growth (Source: Bureau of Economic Analysis) GDP = Consumption Gross Investment Net Exports Government 2016: Q2 2.2% 2.57% -0.45% 0.28% -0.16% 2016: Q3 2.8% 1.92% 0.40% 0.36% 0.09% 2016: Q4 1.8% 1.99% 1.34% -1.61% 0.03% 2017: Q1 1.2% 1.32% -0.20% 0.22% -0.11% 2017: Q2 3.1% 2.28% 0.64% 0.21% -0.03% 2017: Q3 3.2% 1.49% 1.19% 0.36% 0.12% 2017: Q4 2.6% 2.58% 0.60% -1.13% 0.50% Gross Investment = Nonresidential Residential Inventory 2016: Q2-0.45% 0.41% -0.18% -0.67% 2016: Q3 0.40% 0.42% -0.18% 0.16% 2016: Q4 1.34% 0.02% 0.26% 1.06% 2017: Q1-0.20% 0.86% 0.41% -1.46% 2017: Q2 0.64% 0.82% -0.30% 0.12% 2017: Q3 1.19% 0.58% -0.21% 0.79% 2017: Q4 0.60% 0.84% 0.42% -0.67%
Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Jul-16 Apr-17 65 ISM s PMI (Source: Institute of Supply Management) 60 55 50 45 40 35 30 25
Jan-02 Oct-02 Jul-03 Apr-04 Jan-05 Oct-05 Jul-06 Apr-07 Jan-08 Oct-08 Jul-09 Apr-10 Jan-11 Oct-11 Jul-12 Apr-13 Jan-14 Oct-14 Jul-15 Apr-16 Jan-17 Oct-17 120 Foreign Exchange: Trading Partners (Source: Board of Governors of the Federal Reserve System) 110 100 90 80 70 60
Jan-98 Jul-98 Jan-99 Jul-99 Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Consumer Sentiment (source: University of Michigan, Survey Research Center) 115 110 105 100 95 90 85 80 75 70 65 60 55
Jan-96 Dec-96 Nov-97 Oct-98 Sep-99 Aug-00 Jul-01 Jun-02 May-03 Apr-04 Mar-05 Feb-06 Jan-07 Dec-07 Nov-08 Oct-09 Sep-10 Aug-11 Jul-12 Jun-13 May-14 Apr-15 Mar-16 Feb-17 Retail Sales (source: U.S. Bureau of the Census, annual rate of growth) 12% 9% 6% 3% 0% -3% -6% -9% RS Total RS ex-auto -12%
Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04 Jul-04 Jan-05 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 14 13 12 Car & Truck Sales H & I Effect (Source: Department of Commerce, in millions) Auto Light Truck 11 10 9 8 7 6 5 4
Jul-04 Dec-04 May-05 Oct-05 Mar-06 Aug-06 Jan-07 Jun-07 Nov-07 Apr-08 Sep-08 Feb-09 Jul-09 Dec-09 May-10 Oct-10 Mar-11 Aug-11 Jan-12 Jun-12 Nov-12 Apr-13 Sep-13 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Mar-16 Aug-16 Jan-17 Jun-17 Leading Economic Indicators (source: Conference Board, % change in last 6 months) 9% 6% 3% 0% -3% -6% -9% -12% -15%
Question #2: Have labor market concerns shifted to availability issues?
Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-16 Jul-17 600 Change in Payroll Employment (Source: Bureau of Labor Statistics) 400 200 0-200 -400-600 -800-1000
North Dakota Alaska District of Col South Dakota Texas Nebraska West Virginia New York Louisiana Massachusetts Iowa Oklahoma New Hampshire Vermont Pennsylvania Montana Maine Kansas Arkansas Virginia Wyoming Minnesota Missouri Maryland New Mexico Colorado Washington Wisconsin New Jersey Kentucky Rhode Island Mississippi Connecticut Illinois Hawaii Indiana Utah Delaware Tennessee Alabama Ohio North Carolina South Carolina Georgia California Oregon Idaho Michigan Florida Arizona Nevada 15% 12% 9% 6% 3% 0% -3% -6% -9% -12% -15% State Employment (Jobs Lost) (source: Bureau of Labor Statistics)
Oregon Florida Washington Nevada Utah Georgia Missouri District of Col Massachusetts Hawaii California North Carolina Idaho Colorado Texas Michigan New Hampshire South Carolina Tennessee Minnesota South Dakota Arizona Virginia New York Maryland Wisconsin Alabama Montana Indiana Ohio Rhode Island Vermont Nebraska Kentucky Delaware Pennsylvania Iowa Illinois Arkansas New Jersey New Mexico West Virginia Maine Connecticut Louisiana Oklahoma Kansas Mississippi Alaska North Dakota Wyoming 6% 5% 4% 3% 2% 1% 0% -1% -2% -3% -4% State Employment (L12M) (source: Bureau of Labor Statistics)
Total Mining Const Manuf T T & Util Info Fin Prof & Biz Ser Educ & HC Leis & Hosp Other Serv Govt US Employment Shift by Sector: L5Yr (Source: Bureau of Labor Statistics) 5% 4% 3% US GA 2% 1% 0% -1% -2% -3% -4%
Question #3: Oil prices have pulled back again. Okay, gas is cheaper, but is it good or bad for growth?... and, are the inflation worries on or off the table?
Prices: Still talk of Deflation/Inflation? (source: Bureau of Labor Statistics) CPI was up by 0.1% in December after having been up by 0.4% and 0.1% in November and October. Core CPI rose 0.3% in December after rising by 0.1% and 0.2% in two previous months. Overall CPI up 2.1% over last 12 months. Core up 1.8% over same period. Energy component was down 1.2% last month and up by 6.9% over the last 12 months
Jan-04 Sep-04 May-05 Jan-06 Sep-06 May-07 Jan-08 Sep-08 May-09 Jan-10 Sep-10 May-11 Jan-12 Sep-12 May-13 Jan-14 Sep-14 May-15 Jan-16 Sep-16 May-17 Crude Oil: West Texas Intermediate (Source: US Energy Information Administration) 140 120 100 80 60 40 20
Agricultural Prices (Source: USDA)
Inputs to Construction Inputs to Nonres Construct Plumb Fixtures and Fittings Fabric Struct Metal Products Iron and Steel Steel Mills Products Nonferrous Wire and Cable Softwood Lumber Concrete Products Prepared Asphalt Crude Petroleum Natural Gas Unproc Energy Materials 16% 14% 12% 10% 8% 6% 4% 2% 0% -2% -4% M/M Y/Y Construction Cost (Source: BLS PPI & ABC)
Question #4: After twisting and tapering, the Fed finally hikes will higher rates kill the party?... and what about financial institution balance sheets?... and are consumers still deleveraging?
Jan-80 Sep-81 May-83 Jan-85 Sep-86 May-88 Jan-90 Sep-91 May-93 Jan-95 Sep-96 May-98 Jan-00 Sep-01 May-03 Jan-05 Sep-06 May-08 Jan-10 Sep-11 May-13 Jan-15 Sep-16 Federal Funds Rate Short Rates Finally Start Moving (Source: Board of Governors of Federal Reserve System) 25% 20% 15% 10% 5% 0%
100% 90% 80% 70% 60% Market s FFR Outlook (Source: CME Group) 125-150 bps 150-175 bps 175-200 bps 200-225 bps 225-250 bps 250-275 bps 275-300 bps 50% 40% 30% 20% 10% 0% 1/31/2018 3/21/2018 5/2/2018 6/13/2018 8/1/2018 9/26/2018 11/8/2018 12/19/2018 12/19/2018
Jan-00 Nov-00 Sep-01 Jul-02 May-03 Mar-04 Jan-05 Nov-05 Sep-06 Jul-07 May-08 Mar-09 Jan-10 Nov-10 Sep-11 Jul-12 May-13 Mar-14 Jan-15 Nov-15 Sep-16 Jul-17 10-Year Treasury Bonds (Source: Board of Governors of Federal Reserve System) 7% 6% 5% 4% 3% 2% 1% 0%
14% 12% 10% 8% 6% PIIGS Revisited (Source: European Central Bank) Mar-15 Jun-15 Nov-15 Feb-16 May-16 Oct-16 Jun-17 Sep-17 4% 2% 0% Portugal Ireland Italy Greece Spain
Large Scale Asset Purchases (source: Federal Reserve System) QE1 (March 2009) $1.25 T in MBS $200B in Agencies $300M in Treasuries QE2 (November 2010) $600B in Treasuries Operation Twist Swapped $667B in longs for shorts QE3 (September 2012) $85B/month agency MBS & Treasuries Taper begins December 2012
1/7/04 7/7/04 1/7/05 7/7/05 1/7/06 7/7/06 1/7/07 7/7/07 1/7/08 7/7/08 1/7/09 7/7/09 1/7/10 7/7/10 1/7/11 7/7/11 1/7/12 7/7/12 1/7/13 7/7/13 1/7/14 7/7/14 1/7/15 7/7/15 1/7/16 7/7/16 1/7/17 7/7/17 Fed: Securities Held Outright 4500000 4000000 3500000 3000000 2500000 2000000 1500000 1000000 500000 0
Jan-91 Mar-92 May-93 Jul-94 Sep-95 Nov-96 Jan-98 Mar-99 May-00 Jul-01 Sep-02 Nov-03 Jan-05 Mar-06 May-07 Jul-08 Sep-09 Nov-10 Jan-12 Mar-13 May-14 Jul-15 Sep-16 Charge Off Rates at Commercial Banks (source: Board of Governors of the Federal Reserve System) 3.5% 3.0% 2.5% 2.0% Biz CRE 1.5% 1.0% 0.5% 0.0% -0.5%
90+ Days Delinquent by Loan Type (source: Federal Reserve Bank of New York Credit Panel/Equifax)
Question #6: Historically, residential and commercial real estate have been important parts of the economy, is the ongoing recovery sustainable??
Lodging Office Commercial Health care Educational Religious Public safety Amuse & Rec Transportation Communication Power Highway and street Sewage & waste disp Water supply Conserv and develop Manufacturing Non-Residential Construction (Source: U.S. Bureau of Census) 50% 40% 30% 20% 10% 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 0% -10% -20% -30%
Jan-98 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16 Jul-17 US Housing Permits: SF and Total (source: U.S. Bureau of Census) 2300 2000 1700 1400 Total SF 1100 800 500 200
Jan-98 Oct-98 Jul-99 Apr-00 Jan-01 Oct-01 Jul-02 Apr-03 Jan-04 Oct-04 Jul-05 Apr-06 Jan-07 Oct-07 Jul-08 Apr-09 Jan-10 Oct-10 Jul-11 Apr-12 Jan-13 Oct-13 Jul-14 Apr-15 Jan-16 Oct-16 Jul-17 US Housing Permits: Multi-family (Source: U.S. Bureau of Census) 600 500 400 300 200 100 0
The Demographics: Boom & Bust (Source: CDC, US Bureau of Census)
22 The Demographics: Life Expectancy at 60 (Source: CDC, US Bureau of Census) 20 18 16 14 12 10 1930 1940 1950 1960 1970 1980 1990 2000 2010
Jan-00 Aug-00 Mar-01 Oct-01 May-02 Dec-02 Jul-03 Feb-04 Sep-04 Apr-05 Nov-05 Jun-06 Jan-07 Aug-07 Mar-08 Oct-08 May-09 Dec-09 Jul-10 Feb-11 Sep-11 Apr-12 Nov-12 Jun-13 Jan-14 Aug-14 Mar-15 Oct-15 May-16 Dec-16 Home Prices & CPI (Source: S&P Case-Shiller & Bureau of Labor Statistics) 210 190 170 150 130 110 90 70 50 CPI Case-Shiller
Texas South Dakota Oklahoma Alaska Iowa Kentucky North Dakota West Virginia Nebraska Louisiana Kansas Vermont Indiana Colorado Wyoming New York Pennsylvania District of Col Arkansas Maine Montana Mississippi Tennessee Wisconsin North Carolina Missouri Alabama South Carolina Ohio Massachusetts New Mexico Virginia Connecticut New Jersey New Hampshire Minnesota Delaware Illinois Maryland Utah Georgia Hawaii Washington Rhode Island Oregon Michigan Idaho Florida California Alaska Nevada House Prices: Loss 0% -10% -20% -30% -40% -50% -60% -70%
Nevada Alaska District of Col California Florida Colorado Oregon Idaho Washington Utah North Dakota Michigan Georgia Hawaii Texas Tennessee Minnesota South Carolina Nebraska Montana South Dakota North Carolina Massachusetts New Hampshire Ohio Missouri Oklahoma Kansas Rhode Island Kentucky Indiana Iowa Wisconsin Alabama Louisiana Maryland Illinois Virginia Arkansas Maine Wyoming Alaska Pennsylvania New Mexico West Virginia Mississippi New York Vermont Delaware New Jersey Connecticut House Prices: Recovery 120% 100% 80% 60% 40% 20% 0%
District of Col Colorado North Dakota Texas South Dakota Nebraska Tennessee Oklahoma Kentucky Iowa Oregon Kansas Louisiana Washington Montana Indiana Utah Alaska South Carolina North Carolina West Virginia Georgia Wyoming Missouri Idaho Hawaii Arkansas Ohio Massachusetts Wisconsin Pennsylvania Minnesota Maine Vermont New York Alabama Michigan Mississippi New Hampshire Virginia New Mexico Illinois Maryland California Florida Rhode Island Alaska New Jersey Delaware Connecticut Nevada House Prices: Net 60% 50% 40% 30% 20% 10% 0% -10% -20% -30%
Denver Dallas Seattle Portland Charlotte Boston San Francisco National-US Atlanta Los Angeles Composite-20 San Diego Composite-10 Cleveland Minneapolis Detroit New York Washington Tampa Miami Chicago Phoenix Las Vegas CS/S&P Home Price Index (Source: S&P Case Shiller) 60% 40% 20% 0% -20% -40% -60% Bust Net -80%
Jan-00 Oct-00 Jul-01 Apr-02 Jan-03 Oct-03 Jul-04 Apr-05 Jan-06 Oct-06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Jan-12 Oct-12 Jul-13 Apr-14 Jan-15 Oct-15 Household RE Equity (Source: Board of Governors of Federal Reserve System) 14000 12000 10000 8000 6000 4000 2000
Question #7: Fiscal cliffs have faded (or not)? If so, where do we head politically? How is shared governance working?... or is another DC showdown ahead?
Election 2016: What Did Everyone Miss? (Source: Iowa Electronic Markets)
Currents Issues in Fiscal Affairs Federal: Government default avoided in 2011, 2013 & 2015 where from here? Back in Play: Affordable Care Act (Mandate gone), Keystone, Dodd- Frank, EPA, NLRB Now in Play: Tax Reform (done for now), Infrastructure Always was in Play: SCOTUS. New Play: Revising Trade» Bilateral vs Multilateral» Lumber deals and tariffs States: Tax Reform Initiatives in other States Recent gains in manufacturing facilities due to reshoring SE states domination biz location ranking, but not exclusive. Local: RE valuation and revenues rising, fiscal distress moderating
ON THE ECONOMIC, BUSINESS AND POLITICAL CLIMATE Roger Tutterow, Ph.D. Coles College of Business Kennesaw State University rtuttero@kennesaw.edu Business Outlook Breakfast January 30, 2018 Atlanta, GA