the economic outlook: the us and us. · •houston –hurricane harvey, august 2017 • upwards of...

The Economic Outlook:

The US and Us.

Dr. Adam Jones

Starting with the US

2018 Has Been a Good Year

• Growth in 2018 has been 3-1/4 percent

• Up from growth in this expansion of 2-1/4

percent

• But is it sustainable?

© 11/13/2018 Swain Center All Rights Reserved

What is GDP?

• GDP is the market value of all the “stuff” we

make in the US, in a given period

• To make “stuff” we need:

• Labor

• Capital

• Natural Resources (inputs)

• Will we be able to make more “stuff” next year?


The Labor Market

Growth Has Tightened Labor Markets

3

4

5

6

7

8

9

10

11

Perc

ent

Unemployment Rate


“Shadow Unemployment” has Declined Too

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

Perc

ent

Part Time for Economic Reasons


Symptom of a Tight Jobs Market:

More Openings than Unemployed

0

2

4

6

8

10

12

14

16

18

Num

ber

(mill

ions)

Openings


Unemployed

Usually, Tight Labor Markets Inflation

0

2

4

6

8

10

12

Perc

ent


Core PCE

Inflation

Unemployment

Fed Target

Labor Costs Still Subdued


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Perc

ent

Employment Cost Index• But growing reports

of nonwage

compensation -

bonuses and flex

hours

• Also incurring costs

of training lesser-

skilled workers

Business Investment

Capital Goods Orders Are Still High

40

45

50

55

60

65

70

75

Bill

ions o

f $


Mixed Picture for Business Spending• Cut in corporate tax rate and expensing

provision raised returns

• Regulatory rollback also improving incentives

to invest

• Financing conditions remain favorable

• Optimism generally high, especially among

smaller businesses

• But trade war leading to uncertainty and

caution


Recall…

• Labor

• Tight markets – low unemployment

• Capital

• Business investment has picked up again

• May take time to show up in numbers

• Natural Resources

• Oil market not yet tight

• Trade war may have effects here


Looking Ahead, Growth Slows

• Federal Reserve sees growth slowing

• But forecasts were recently revised upward

and growth could be stronger than they project


2018 2019 2020

3-1/4 percent 2-1/2 percent 2 percent

Tension at the Fed

• % Growth ≈ % Δ Labor + % Δ Productivity

• Many estimates are ~2% as sustainable

• Tightening labor markets “should” push

inflation upward

• Fed is targeting 2%

Will have to raise rates to slow the economy


What the Fed “Thinks” it Will Do

• Trying to balance inflation target and growth

• Will need to raise the funds rate


Year-end federal

funds rate

2018 2019 2020

Fed 2.4 percent 3.1 percent 3.4 percent

Market 2.4 percent 2.9 percent 3.0 percent

Markets Not Yet Concerned About Inflation

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

Perc

ent

5-yr, 5-yr Forward Inflation Expectations


Should We Fear an Inverted Yield Curve?

• Yield curve moving toward inversion

• Previous inversions preceded recessions

• Under well-executed policy, this should not happen


-3.00

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

Perc

ent

10 yr minus 2 yr Treasury

Turning to Us

A few brief comments

• Pre-storm we were on track

• Storm disruptions

• Post-storm outlook is clear – for a little while


Growth Was Settling In

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

8.0

% G

row

th

Gross Domestic Product Growth

Wilmington MSA (Current Series) Wilmington MSA (Prior Release)


Employment Gap Closed

130

140

150

160

170

180

190

Em

plo

ym

ent

(000s)

Employment


Regional

Employment

Estimated

Full Employment

Employment Gap Closed

0

2

4

6

8

10

12

14

16

Unem

plo

ym

ent

Rate

(S

A)

Unemployment

New Hanover Brunswick Pender


Room Occupancy Taxes

0

2

4

6

8

10

12

14

Annual G

row

th R

ate

Room Occupancy Taxes


Retail Sales Growth Normalizing

02468

10121416

Perc

ent

Gro

wth

Sales Tax Collections

Region New Hanover Brunswick Pender


Wage Growth was Showing Signs of an Upswing…

-20

-15

-10

-5

0

5

10

15

20

Perc

ent

Change (

YoY

)

Separations and Wage Growth


Wage Growth (6m MA)

Separations (6m MA)

…Early Next Year

-20

-15

-10

-5

0

5

10

15

20

Perc

ent

Change (

YoY

)

Separations and Wage Growth


Wage Growth

18 Months in the Future (6m MA)

Separations (6m MA)

Home Prices Showing Signs of Break Out

0

50

100

150

200

250

Index

FHFA Home Price Index


Home Prices Showing Signs of Break Out

-12.0

-7.0

-2.0

3.0

8.0

Perc

ent

(YoY

)

Home Price Increases


How Fast

is too Fast?

Increases reasonable compared to income

0.7

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1.5

1.6

Ratio

Home Price Index / Income Index


Watching:

No Alarms Yet

The Outlook was Sunny…


Source: wtkr.com

…Then it Went Dark

Hurricane Florence

• Property Damage

• Mostly due to water damage

• Business Disruptions

• Low intensity strikes ~1% of regional GDP

• Likely closer to 2% for Florence

• Outside Perceptions

• Home prices suffer after multiple strikes

• Recover quickly after last in series


What to expect going forward

• Other Storms

• Houston – Hurricane Harvey, August 2017

• Upwards of 60 inches of rain

• Baton Rouge – Flooding, August 2016


• New Orleans – Hurricane Katrina, August 2005

• Upwards of 10 inches of rain, levy breaches, winds

• Atlantic City – Hurricane Sandy, October 2012


Unemployment Recovers Quickly

0

0.5

1

1.5

2

2.5

3

3.5

Local R

ate

–N

ational R

ate

Months Pre and Post Storm


Baton RougeHouston

New Orleans

Atlantic City

Nonfarm Employment Resilient

50

60

70

80

90

100

110

120

Em

plo

ym

ent

Index


Total Employment


Baton RougeHouston

New Orleans

Atlantic City

Retail Employment Likely to Hold Up

50

60

70

80

90

100

110

120

Em

plo

ym

ent

Index


Retail Trade Employment


Baton Rouge

Houston

New Orleans

Atlantic City

Manufacturing Employment Largely Unaffected

50

60

70

80

90

100

110

120

Em

plo

ym

ent

Index


Manufacturing Employment


Baton RougeHouston

New Orleans

Atlantic City

Leisure and Hospitality

50

60

70

80

90

100

110

120

Em

plo

ym

ent

index


Leisure and Hospitality Employment


Baton Rouge

Houston

New Orleans

Atlantic City

Construction Employment is Likely to Rise

65

75

85

95

105

115

125

135

Index


Construction Employment


Baton Rouge

Houston

New Orleans

Housing Permits Will Increase as Well

0

20

40

60

80

100

120

140

160

180

200

Index


Housing Permits


Houston

New Orleans

Home Prices Likely to Increase and then Normalize Again

115

135

155

175

195

215

235

255

275

Index (

1995 =

100)


Home Prices


Baton Rouge

Houston

New Orleans

Looking Forward• Likely to see a boost to “measured” gross

domestic product for 2019

• Expect:

• Home prices to rise over the next year, then slow

• Construction employment to increase, on the order of 20%

• Tourism sector to continue moderate growth*

• Loss of wealth, time, and leisure not in traditional economic statistics

• Risks of “hard landing” and policy uncertainty


Soon But Not Soon Enough…


Thank you.

the economic outlook: the us and us. · •houston –hurricane harvey, august 2017 • upwards of...

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