global economic update€¦ · 6/5/2015 · global economic update tim quinlan, economist may,...
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Global Economic Update
Tim Quinlan, Economist
May, 2015
Economics 2
United States,87.4%
European Union,4.6%
Japan, 2.2%
DevelopingCountries, 3.9%
Other, 1.9%
Canadian Exports2000
Exports Then & Now
“When the United StatesSneezes…”
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics 3
United States,76.8%
European Union,7.4%
Japan, 2.0%
DevelopingCountries,
10.4%
Other, 3.4%
Canadian Exports2014
Exports Then & Now
Still true, but the picture ischanging
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics 4
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2000 2002 2004 2006 2008 2010 2012 2014 2016
U.S. Real GDPBars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q1 @ 0.2%
GDP - Yr/Yr Percent Change: Q1 @ 3.0%
Forecast
Real GDP Forecast
Shifting to full potential
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 5
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
Appropriate Pace of Policy FirmingTarget Federal Funds Rate at Year-End; Market Data as of Apr. 23
March 2015 Median Response
December 2014 Median Response
Futures Market Expectations
2015 2016 Longer Run2017
Pace of Policy Firming
The FOMC downshifted itsexpectations for the Federal
Funds rate path in the recentmeeting to 50-75 bps at the end
of 2015, which is more in linewith market expectations
Source: Federal Reserve Board, Bloomberg LP and Wells Fargo Securities, LLC
Economics 6
2%
4%
6%
8%
10%
12%
14%
16%
18%
2%
4%
6%
8%
10%
12%
14%
16%
18%
94 96 98 00 02 04 06 08 10 12 14
Unemployment RatesSeasonally Adjusted
FOMC Central Tendency for Longer Run
Unemployment Rate: Mar @ 5.5%
U-6 Unemployment Rate: Mar @ 10.9%
Unemployment
The labor market is steadilyfirming, although slack remains
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics 7
Labor Turnover
The recent pickup in job openings and quits are consistent with recently strong employmentgains, potential for moderation going forward
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
6.0
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Job Openings and HiresMillions of Workers SA, 3-Month Moving Average
Hires: Feb @ 5.05M
Total Job Openings: Feb @ 5.13M
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
SeparationsHiring
1.0
1.5
2.0
2.5
3.0
3.5
1.0
1.5
2.0
2.5
3.0
3.5
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Quits vs. LayoffsMillions of Workers SA, 3-Month Moving Average
Quits: Feb @ 2.73M
Layoffs: Feb @ 1.68M
Economics 8
88
92
96
100
104
108
112
116
88
92
96
100
104
108
112
116
2000 2002 2004 2006 2008 2010 2012 2014
Employment: Canada & United StatesTotal Payrolls, Index, 2005=100
Canada: Mar @ 111.9
United States: Mar @ 106.4
North American Employment Comparison
Canada’s labor market did nottake nearly as bad a hit during
the recession, but U.S. jobgrowth is now outpacing gains
in Canada
Source: U.S. Department of Labor , IHS Global Insight and Wells Fargo Securities, LLC
Economics 99
-2%
-1%
0%
1%
2%
3%
4%
5%
-2%
-1%
0%
1%
2%
3%
4%
5%
92 94 96 98 00 02 04 06 08 10 12 14
PCE Deflator vs. Core PCE DeflatorYear-over-Year Percent Change
PCE Deflator: Mar @ 0.3%
"Core" PCE Deflator: Mar @ 1.3%
Inflation
Falling oil prices will weigh onheadline inflation, but core
inflation should remain stable
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 10
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Housing StartsMillions of Units
Multifamily Starts
Multifamily Forecast
Single-family Starts
Single-family Forecast
Forecast
Housing Starts
Housing starts remain wellbelow historical levels, but are
expected to increase in thecoming years
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 11
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
2,500
66 70 74 78 82 86 90 94 98 02 06 10 14
U.S. Homeowners vs. RentersAnnual Change in Occupied Units, In Thousands
Renters: 2014 @ 1026.3 Thousand
Homeowners: 2014 @ -234.5 Thousand
Series Break1981
Housing: Emergence of Renters as Occupants
The number of renters has beengrowing steadily since 2007,while homeowners have been
declining
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 12
C$0
C$250
C$500
C$750
C$1000
C$1250
C$1500
C$1750
C$2000
C$2250
C$2500
0
250
500
750
1000
1250
1500
1750
2000
2250
2500
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
U.S. Housing Starts vs. Canadian Lumber ExportsThousands of Starts, Millions of CAD
Lumber Exports: Feb @ $1140.7 (Right Axis)
Housing Starts: Mar @ 926K (Left Axis)
U.S. Housing and Canadian Exports
Canadian lumber exports fell astaggering 70.5 percent as U.S.
housing starts saw a remarkablysimilar peak-to-trough decline
of 79.0 percent.
As U.S. homebuilding has comeback (starts are up 88 percent
from the April 2009 low),Canadian lumber exports haverisen in lock step, providing anearly identical recovery from
the May 2009 low.
Source: U.S. Department of Commerce, IHS Global Insight and Wells Fargo Securities, LLC
Economics 13
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Real Personal Consumption ExpendituresBars = CAGR Line = Yr/Yr Percent Change
PCE - CAGR: Q4 @ 4.4%
PCE - Yr/Yr Percent Change: Q4 @ 2.9%
Forecast
Real PCE Forecast
Consumer spending is set toremain steady above 2 percent
over the forecast horizon
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 14
55%
60%
65%
70%
75%
80%
85%
90%
95%
55%
60%
65%
70%
75%
80%
85%
90%
95%
2000 2002 2004 2006 2008 2010 2012 2014
Household Debt: Canada & United StatesTotal Household Debt as a Percent of GDP
U.S. Household Debt/GDP: Q4 @ 71.7%
Canadian Household Debt/GDP: Q4 @ 90.3%
Consumer Debt Dynamics
Rather stunning reversal
Source: IHS Global Insight, U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 15
-60%
-40%
-20%
0%
20%
40%
-60%
-40%
-20%
0%
20%
40%
98 00 02 04 06 08 10 12 14
Manufacturers' New OrdersSeasonally Adjusted, 3-Month Moving Averages
3-Month Annual Rate: Mar @ -11.6%
Year/Year Percent Change: Mar @ -3.8%
Capital Spending
Despite robust survey data,manufacturers’ new orders arefalling. However, orders datacan be notoriously volatile—
what happens if we look at corefigures?
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 16
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
04 05 06 07 08 09 10 11 12 13 14 15
Nondefense Capital Goods Orders, Ex-AircraftSeries Are 3-Month Moving Averages
3-Month Annual Rate: Mar @ -9.4%
Year-over-Year Percent Change: Mar @ 0.1%
Core Capital Spending
Weakness in core capital goodsorders has not been as
pronounced, but we have seensix declines in five months
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 1717
-6%
-4%
-2%
0%
2%
4%
6%
8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2010 2011 2012 2013 2014 2015
PPI Final DemandSeasonally Adjusted
Year-over-Year: Mar @ -0.8%
3-Month Annualized Rate: Mar @ -4.3%
Inflation
Although factory orders haveshown considerable weakness inrecent months, much of this canbe attributed to price declines,
particularly in the energy sector,as orders are reported in
nominal terms
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economics
Anecdotes from the Frontlines
18
Source: ISM, Federal Reserve Board, Reuters and Wells Fargo Securities, LLC
Economics 19
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
-60%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
2000 2002 2004 2006 2008 2010 2012 2014 2016
Real Equipment InvestmentBars = CAGR Line = Yr/Yr Percent Change
Equipment Investment - CAGR: Q4 @ 0.6%
Equipment Investment - Yr/Yr Percent Change: Q4 @ 5.3%
Forecast
Business Spending
We anticipate modest growth incapital expenditures
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economics 20
U.S. Forecast
Wells Fargo U.S. Economic Forecast
2012 2013 2014 2015 2016
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product1 -2.1 4.6 5.0 2.2 0.2 2.0 2.9 2.9 2.3 2.2 2.4 2.3 2.8
Personal Consumption 1.2 2.5 3.2 4.4 1.9 2.8 3.0 3.0 1.8 2.4 2.5 3.0 2.8
Inflation Indicators2
PCE Deflator 1.1 1.6 1.5 1.1 0.3 0.2 0.3 0.9 1.8 1.2 1.3 0.4 2.0
Consumer Price Index 1.4 2.1 1.8 1.2 -0.1 -0.1 0.2 1.0 2.1 1.5 1.6 0.2 2.4
Industrial Production1 3.9 5.7 4.1 4.6 -1.0 1.6 3.5 3.1 3.8 2.9 4.2 2.4 3.3
Corporate Profits Before Taxes2 -4.8 0.1 1.4 -0.2 4.8 5.0 4.9 4.7 11.4 4.2 -0.8 4.8 4.2
Trade Weighted Dollar Index3 76.9 75.9 81.3 85.1 92.1 92.8 94.0 95.3 73.5 75.9 78.5 93.5 98.3
Unemployment Rate 6.6 6.2 6.1 5.7 5.6 5.4 5.3 5.2 8.1 7.4 6.2 5.4 5.0
Housing Starts4
0.93 0.99 1.03 1.06 0.97 1.13 1.21 1.24 0.78 0.92 1.00 1.12 1.22
Quarter-End Interest Rates5
Federal Funds Target Rate 0.25 0.25 0.25 0.25 0.25 0.25 0.50 0.75 0.25 0.25 0.25 0.44 1.56
Conventional Mortgage Rate 4.34 4.16 4.16 3.86 3.77 3.95 4.15 4.23 3.66 3.98 4.17 4.03 4.51
10 Year Note 2.73 2.53 2.52 2.17 1.94 2.19 2.35 2.41 1.80 2.35 2.54 2.22 2.66
Forecast as of: May 1, 20151 Compound Annual Growth Rate Quarter-over-Quarter2 Year-over-Year Percentage Change3 Federal Reserve Major Currency Index, 1973=100 - Quarter End4 Millions of Units5 Annual Numbers Represent Averages
Actual
2014
ForecastActual
2015
Forecast
Economics 21
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
2002 2004 2006 2008 2010 2012 2014 2016
Canadian Real GDPBars = Compound Annual Rate Line = Yr/Yr % Change
Compound Annual Growth: Q4 @ 2.4%
Year-over-Year Percent Change: Q4 @ 2.6%
Forecast
Canadian Real GDP Forecast
The recent strength may havebeen overstated by inventories
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics 22
0%
1%
2%
3%
4%
5%
6%
7%
8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
00 02 04 06 08 10 12 14
Central Bank Policy Rates
U.S. Target Rate: Apr @ 0.25%
Bank of Canada: Apr @ 0.75%
Monetary Policy
The Bank of Canada hasadopted a more dovish stance; isthis a one-and-done or are more
rate cuts in the offing?
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics 23
100
150
200
250
300
350
400
450
5000.9
1.0
1.1
1.2
1.3
1.4
1.5
1.6
1.7
2000 2002 2004 2006 2008 2010 2012 2014
Canadian Exchange Rate and CRBCAD per USD (Inverted), Index
CAD per USD: May @ 1.216 (Left Axis)
CRB: May @ 228.0 (Right Axis)
Exchange Rate
In the past year, the Canadiandollar has lost about 11 percent
of its value against the U.S.dollar, although CAD has rallied
in recent weeks
Source: IHS Global Insight and Wells Fargo Securities, LLC
Economics 24
70
80
90
100
110
120
130
140
150
70
80
90
100
110
120
130
140
150
Jan 2012 Jul 2012 Jan 2013 Jul 2013 Jan 2014 Jul 2014 Jan 2015
Exchange Rates Relative to CADIndex, Jan 2012 = 100
USD per CAD: May-8 @ 84.89
EUR per CAD: May-8 @ 96.84
JPY per CAD: May-8 @ 132.60
Varying Degrees of Depreciation
Although the Canadian dollarhas weakened against the
U.S. dollar, ECB easing hascaused CAD to strengthen
against the euro.
Source: Bloomberg LP and Wells Fargo Securities, LLC
Economics
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