ON THE ECONOMIC, BUSINESS AND POLITICAL CLIMATE Roger Tutterow, Ph.D. Coles College of Business Kennesaw State University rtuttero@kennesaw.edu 2018 Winter Forum March 6, 2018 Greenville, SC
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??? 105 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 2.5% 2.58% 0.59% -1.13% 0.49% 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 0.59% 0.82% 0.47% -0.70%
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 Jan-18 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
Comments from Curtin (source: Richard Curtin, Director of Survey of Consumers, February 2017) the gain represents the result of an unprecedented partisan divergence, with Democrats expecting recession and Republicans expecting robust growth overall gain in the Expectations Index was due to self-identified Independents, who were much closer to the optimism of the Republicans than the pessimism of the Democrats the February Expectations Index was 55.5 among Democrats, 120.1 among Republicans, and 89.2 among Independents
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 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 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 State Employment (Job Loss) (source: Bureau of Labor Statistics) 4% 2% 0% -2% -4% -6% -8% -10% -12% -14% -16%
North Dakota Texas Utah District of Col Colorado Washington Massachusetts New York California Oregon South Dakota Idaho Tennessee Florida Georgia South Carolina Nebraska Minnesota Alaska Hawaii North Carolina Virginia Montana Delaware Maryland Iowa New Hampshire Kentucky Oklahoma Indiana Michigan Vermont Louisiana Wisconsin Arkansas Ohio Missouri Pennsylvania Arizona Nevada Rhode Island Illinois Kansas New Jersey West Virginia Connecticut Maine Alabama New Mexico Mississippi Wyoming 21% State Employment (Net Change) (source: Bureau of Labor Statistics) 18% 15% 12% 9% 6% 3% 0% -3% -6%
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 (Source: Bureau of Labor Statistics) 10% 8% 6% L12M L5Yr 4% 2% 0% -2% -4% -6%
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 0.5% in January after having been up by 0.2% and 0.3% in December and November. Core CPI rose 0.3% in January after rising by 0.2% and 0.1% in two previous months. Overall CPI up 2.1 over last 12 months. Core up 1.8% over same period. Energy component was up 3.0% last month and up by 5.5% 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 Jan-18 Crude Oil: West Texas Intermediate (Source: US Energy Information Administration) 140 120 100 80 60 40 20
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)
Agricultural Prices (Source: U.S. Department of Agriculture)
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%
90% 80% 70% 60% 50% 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 40% 30% 20% 10% 0% 3/21/2018 5/2/2018 6/13/2018 8/1/2018 9/26/2018 11/8/2018 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 Jan-18 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
1997 - Q1 1997 - Q3 1998 - Q1 1998 - Q3 1999 - Q1 1999 - Q3 2000 - Q1 2000 - Q3 2001 - Q1 2001 - Q3 2002 - Q1 2002 - Q3 2003 - Q1 2003 - Q3 2004 - Q1 2004 - Q3 2005 - Q1 2005 - Q3 2006 - Q1 2006 - Q3 2007 - Q1 2007 - Q3 2008 - Q1 2008 - Q3 2009 - Q1 2009 - Q3 2010 - Q1 2010 - Q3 2011 - Q1 2011 - Q3 2012 - Q1 2012 - Q3 2013 - Q1 2013 - Q3 2014 - Q1 2014 - Q3 2015 - Q1 2015 - Q3 2016 - Q1 2016 - Q3 2017 - Q1 2017 - Q3 900 800 700 600 MBA Mortgage Activity: Purchase & Refinance (Source: Mortgage Bankers Association) Purch Refi 500 400 300 200 100 0
2013 Q4 2014 Q1 2014 Q2 2014 Q3 2014 Q4 2015 Q1 2015 Q2 2015 Q3 2015 Q4 2016 Q1 2016 Q2 2016 Q3 2016 Q4 2017 Q1 2017 Q2 2017 Q3 CRE Loan Standards: Net Tightening (Source: Federal Reserve System, Senior Officers Lending Survey) 50 40 30 20 ADC Non-Res Multifam 10 0-10 -20
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 #5: Historically, residential and commercial real estate have been important parts of the economy, is the ongoing recovery sustainable??
Jan-2003 Jul-2003 Jan-2004 Jul-2004 Jan-2005 Jul-2005 Jan-2006 Jul-2006 Jan-2007 Jul-2007 Jan-2008 Jul-2008 Jan-2009 Jul-2009 Jan-2010 Jul-2010 Jan-2011 Jul-2011 Jan-2012 Jul-2012 Jan-2013 Jul-2013 Jan-2014 Jul-2014 Jan-2015 Jul-2015 Jan-2016 Jul-2016 Jan-2017 30% 20% 10% -10% -20% Construction Spending: By Sector (Source: U.S. Bureau of Census) 0% -30% -40% Residential Non-Residential -50%
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 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 Home Prices & CPI (Source: S&P Case-Shiller & Bureau of Labor Statistics) 210 190 170 150 130 110 90 CPI Case-Shiller 70 50
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 San Francisco Boston Charlotte National-US Atlanta Composite-20 Los Angeles San Diego Minneapolis Cleveland Detroit New York Washington Tampa Chicago Miami 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
2017 Migration (source: NAMS Report)
Question #7: Fiscal cliffs have faded (or not)? If so, where do we head politically?
Tax Reform: Some Headlines Corporate tax rates cut 35% to 21% - changes value of loss carry forwards, but lower cost of capital Preferential treatment for pass-through. Individual rate lowered in some brackets. Standard deduction increase, but exemption disappear and limits on SALT and other preferred items will more than offset for some. AMT fillers reduced. Global taxation reduces inversion and encourages repatriation. ACA individual mandate disappears.
More 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. Amazon HQ2 Local: RE valuation and revenues rising, fiscal distress moderating
Election 2016: What Did Everyone Miss? (Source: Iowa Electronic Markets)
ON THE ECONOMIC, BUSINESS AND POLITICAL CLIMATE Roger Tutterow, Ph.D. Coles College of Business Kennesaw State University rtuttero@kennesaw.edu 2018 Winter Forum March 6, 2018 Greenville, SC