The Comerica Economic Outlook Two Stories, One Economy · The opinions in this presentation are for...

The Comerica Economic Outlook

Two Stories, One Economy

Robert A. Dye Ph.D.

January 15, 2019

2

A Tale with Two Stories

Story #1 Most current economic indicators look good

Story #2 Risk factors for 2019 and beyond are piling up

Appendix: Household are a source of stability

3

Story #1 Most current economic indicators look good

Labor

Production

Income

Spending

Profits

Inflation

4

Story #2 Downside risk factors are piling up

Financial markets – stocks, bonds and the yield curve

Housing – sales, construction, mortgage rates and affordability

Rest of World – Europe and China looking cooler

Corporate profits – potential for a squeeze

Corporate debt market – quality is deteriorating

Length of expansion

Uncertainty – including political issues

Trade

Fiscal Cliff

Oil

5

Corporate Profits and Wages

0

1

2

3

4

5

-40

-20

0

20

40

60

80

'90 '95 '00 '05 '10 '15

Nonfinancial Corp Profits and Average Hourly Earnings

Source: BEA, BLS

Nonfinancial Corp Profits, pchya

Average Hourly Earnings, pchya

6

Back to Story #1, It’s All About Productivity

-4

-2

0

2

4

6

8

'60 '66 '72 '78 '84 '90 '96 '02 '08 '14

Output per worker per hour, Nonfarm businesses, pchya

Source: BLS

7

The Growing Labor Constraint

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

'02 '04 '06 '08 '10 '12 '14 '16 '18

Job Openings Now Outnumber Available Workers

Source: BLS

Job Openings, ths

Unemployed workers, ths

8

Business Investment Was Weak in 2018Q3

-25

-20

-15

-10

-5

0

5

10

15

20

'15 '16 '17 '18

Real Business Fixed Investmeent, annpct

Total Structures Equipment Int Prop

Source: BEA

9

Business Confidence and Commercial/Industrial Loans

-20

-15

-10

-5

0

5

10

15

20

80

85

90

95

100

105

110

'00 '02 '04 '06 '08 '10 '12 '14 '16 '18

NFIB Bus. Confidence Index, C&I Loans pchya

Source: Federal Reserve, NFIB

NFIB Index (L)

C&I Loans, pchya (R)

10

GDP Forecast: Moderation Ahead

-9

-7

-5

-3

-1

1

3

5

2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

U.S. Real GDP Growth, Annualized Percent Change

History Forecast

Sources: BEA, Comerica Bank

-0.1 -2.5 2.6 1.6 2.3 1.8 2.5 2.9 1.6 2.2 2.9 2.8

11

Job Growth Expected to Ease

3

4

5

6

7

8

9

10

-800

-600

-400

-200

0

200

400

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19

+312k in December, U. Rate 3.9 Percent

ForecastPayroll Employment, avg monthly diff, ths (L)

Unemployment Rate,

percent (R)

Sources: BLS, Comerica Bank

12

The U.S. Unemployment Rate, What We Don’t See

3

4

5

6

7

8

9

10

11

'60 '65 '70 '75 '80 '85 '90 '95 '00 '05 '10 '15

U3 Unemployment Rate, percent

Source: BLS

13

Interest Rate Outlook, Near Inversion

0

1

2

3

4

5

6

7

'08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

Yield, percent

Fed Funds

10-Year Treasury Bond

Sources: Federal Reserve, Comerica Bank

30-Year FRM

2-Year Treasury Bond

14

Forecast Risks, the 360 View …The 360 Vi

Downside Risks

• Stock market correction

• Trade Wars

• Political meltdown

• Consumers lose confidence

• Higher interest rates

• Housing stalls

• Higher inflation

• Global issues, N. Korea, China, Japan,

Europe/Brexit, Russia, MENA,

Emerging markets

Upside Risks

• Fiscal policy

• Corporate profits

• Business investment

• Consumer/business confidence

• Wealth effects

• Deregulation, including financial

• Trade

• Job growth stays strong

• Second leg for autos

Michigan Index from October

Payrolls +

UI Claims +

House Starts +

House Prices +

Ind Electricity +

Auto Prod +

Total trade –

Hotel Occ +

Sales Tax Rev –

95

100

105

110

115

120

125

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Michigan Index Historical Values

Robert A. Dye, Chief Economist

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