U.S. Economic Outlook December 2018 · BBVA Research –U.S. Economic Outlook December 2018 / 9 Labor market: Job growth decelerates to more sustainable levels after strong growth

BBVA Research – U.S. Economic Outlook December 2018 / 1

U.S.

Economic OutlookDecember 2018

GDP growth outlook for 2019 and beyond tilted

to the downside

Models suggest rising risk of recession, qualitative analysis indicates

downside risks are also increasing

FOMC remains poised to raise rates in December. Likelihood for shallower

rate path in 2019 rising

Labor market slack minimal; unemployment rate trending near 50 year lows

Inflation pressures continue to ease in 4Q18, but tariffs and rising nonlabor

price pressures should support the inflation outlook over the medium-term

Upward trend in 10-year Treasury yields unexpectedly reversed in December

Analysts and future markets have lowered their expectations for oil prices

Economic Outlook


Economic activity

Real-Time Economic Momentum Heat Map

Source BBVA ResearchBelow Average Above Average

Industrial production momentum

slowing due to headwinds from

trade frictions and decreasing

commodity prices

Residential housing continues to

slow despite long-term rates

dropping

After strong gains early in the

year, prime-age participation

gains are slowing

Productivity remains subpar, but

in line with recent averages

Consumer and small business

confidence weakening

3-months

ago

2-months

ago

1-month

agoCurrent

ISM Manufacturing

Small Business Optimism

Industrial Production

IP-Manufacturing

IP-Mining

IP- Nonenergy High-Tech

Capital Goods ex Aircraft

Private Construction

Building Permits

Core Logic Home Prices

Consumer Confidence

Private Nonfarm Payrolls

Prime-Age Participation

Marginally Attached (PA)

Average Hourly Earnings

Real Disposable Income

Personal Savings Rate

Productivity


Industrial Production(Year-over-year %)

Retail Sales(Year-over-year %)

Economic trends: Industrial production and consumption moderating

Source: BBVA Research, FRB & BEA

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Oil & Gas High-Tech Motor Vechicles

Consumer Gds Biz Equip Headline (lhs)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Autos Health & P. Care Gas

Clothing Nonstore Food Servc

Headline (lhs)


Economic trends: Strong foreign demand buoying exports

Real Exchange Rate and Exports(Year-over-year %)

Real Exports(Contribution to year-over-year %)

Source: BBVA Research, FRB & Census

-6

-4

-2

0

2

4

6

8

10

Oct-

2018

Aug-2

018

Jun-2

018

Apr-

2018

Feb

-2018

De

c-2

017

Oct-

2017

Aug-2

017

Jun-2

017

Apr-

2017

Feb

-2017

De

c-2

016

Oct-

2016

Aug-2

016

Jun-2

016

Apr-

2016

Feb

-2016

De

c-2

015

Oct-

2015

Aug-2

015

Jun-2

015

Apr-

2015

Consumer Goods ex Food Food & Bev.

Industrial Supplies Autos

Other Cap Goods ex Autos

-10%

-5%

0%

5%

10%

15%

Ma

r-1

5

Jun-1

5

Sep-1

5

De

c-1

5

Ma

r-1

6

Jun-1

6

Sep-1

6

De

c-1

6

Ma

r-1

7

Jun-1

7

Sep-1

7

De

c-1

7

Ma

r-1

8

Jun-1

8

Sep-1

8

Real Trade Weighted FX Real Exports


Economic trends: Growth in 4Q18 to moderate, recession

probability up to 15% in next 12-months

Real GDP(QoQ SAAR, %)

Probability of Recession in 12 Months(%)

Source: BBVA Research, and ATL & NY Fed

0

10

20

30

40

50

60

70

80

90

100

81838586889092939597990002040607091113141618

Term Structure Only (10yr-6-month) 5-Factor Model

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Q4-1

7

Q1-1

8

Q2-1

8

Q3-1

8

BB

VA

Atl F

ed

NY

Fed

20

18

20

18-2

020

Forecast4Q18

Baseline


Consumer credit cycle: Small upticks in consumer delinquencies.

Consumer fundamentals remain strong

Personal Interest Expense

Year-over-year %

New 90+ Day Consumer Delinquencies Rates

%

Personal Interest Expense to Disp. Income

Ratio, %

Senior Loan Officers Lending Standards

+ tightening / - loosening

Source: BBVA Research, FRB, NY Fed & BEA

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

Jan-6

1

Aug-6

3

Ma

r-6

6

Oct-

68

Ma

y-7

1

De

c-7

3

Jul-7

6

Feb

-79

Sep-8

1

Apr-

84

No

v-8

6

Jun-8

9

Jan-9

2

Aug-9

4

Ma

r-9

7

Oct-

99

Ma

y-0

2

De

c-0

4

Jul-0

7

Feb

-10

Sep-1

2

Apr-

15

No

v-1

7

0

2

4

6

8

10

99 01 03 05 07 09 11 13 15 17

Mortgage HELOC Auto CC

Student Other Total

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2012 2013 2014 2015 2016 2017 2018

Credit card Autos Consumer excl. credit cards

Labor Market

In November, nonfarm payroll slowed to 155,000

from 237,000 in October

Major industry gains: professional business services (32K), health care (32K),

manufacturing (27K), and transportation and warehousing (25K)

Upward revision in September and downward revision in October resulted in

a net loss of 12,000 jobs over those months

The unemployment rate was unchanged for the third consecutive month at 3.7%

Both the labor force participation rate and the employment-to-population ratio

remained unchanged at 62.9% and 60.6%, respectively

We expect the UR to remain close to its current rate of 3.7%, as the pace of

employment growth eases in the 1H19


Labor market: Job growth decelerates to more sustainable

levels after strong growth in October

Nonfarm Payrolls(Monthly Change, K)

Industry Employment (Annualized % change)

Source: BBVA Research & BLS

-1000

-800

-600

-400

-200

0

200

400

600

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Actual Forecast

-6 -4 -2 0 2 4 6 8 10

Information Services

State Government

Federal Government

Retail Trade

Local Government

Other Services

Financial Activities

Wholesale Trade

Leisure & Hospitality

Education & Health Services

Manufacturing

Professional & Business Services

Transportation & Warehousing

Construction

Mining

Monthly Change Year-over-year


Labor market: Average hourly earnings continue to

rise while hours worked decline

Average Weekly Hours(number & 5mcma)

Average Hourly Earnings(YoY% & 5mcma)


Prime Age Labor Force Participation(%)

Prime Age Employment-to-Population(%)

33.2

33.4

33.6

33.8

34.0

34.2

34.4

34.6

34.8

Oct-

07

Ma

y-0

8

Dec-0

8

Jul-

09

Fe

b-1

0

Se

p-1

0

Ap

r-11

Nov-1

1

Jun

-12

Jan

-13

Au

g-1

3

Ma

r-1

4

Oct-

14

Ma

y-1

5

Dec-1

5

Jul-

16

Fe

b-1

7

Se

p-1

7

Ap

r-18

Nov-1

8

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Oct-

07

Ma

y-0

8

Dec-0

8

Jul-

09

Fe

b-1

0

Se

p-1

0

Ap

r-11

No

v-1

1

Jun

-12

Jan

-13

Au

g-1

3

Ma

r-1

4

Oct-

14

Ma

y-1

5

Dec-1

5

Jul-

16

Fe

b-1

7

Se

p-1

7

Ap

r-18

Nov-1

8

79.0

80.0

81.0

82.0

83.0

84.0

Oct-

08

Ap

r-09

Oct-

09

Ap

r-10

Oct-

10

Ap

r-11

Oct-

11

Ap

r-12

Oct-

12

Ap

r-13

Oct-

13

Ap

r-14

Oct-

14

Ap

r-15

Oct-

15

Ap

r-16

Oct-

16

Ap

r-17

Oct-

17

Ap

r-18

Oct-

18

Pre-Crisis Avg.

72.073.074.075.076.077.078.079.080.081.0

Oct-

08

Ap

r-09

Oct-

09

Ap

r-10

Oct-

10

Ap

r-11

Oct-

11

Ap

r-12

Oct-

12

Ap

r-13

Oct-

13

Ap

r-14

Oct-

14

Ap

r-15

Oct-

15

Ap

r-16

Oct-

16

Ap

r-17

Oct-

17

Ap

r-18

Oct-

18

Pre-Crisis Avg.


Labor market: Further downward adjustments in the UR

becoming more difficult with increased labor force inflows

U-6(%)

Unemployment Rate(%)


2

3

4

5

6

7

8

9

10

11

00 02 04 06 08 10 12 14 16 18 20 22

0

2

4

6

8

10

12

14

16

18

Oct-

08

Apr-

09

Oct-

09

Apr-

10

Oct-

10

Apr-

11

Oct-

11

Apr-

12

Oct-

12

Apr-

13

Oct-

13

Apr-

14

Oct-

14

Apr-

15

Oct-

15

Apr-

16

Oct-

16

Apr-

17

Oct-

17

Apr-

18

Oct-

18

Pre-Crisis Avg.

Inflation

Core and headline CPI converged to 2.2% in November, as

gains in shelter and medical care prices offset energy price

declines

Core PCE inflation trending below target, after soft reading

The probability of entering high-inflation regime remains remote

Implied 5-year and 10-year inflation expectations have declined to 1.6% and

1.8%, respectively; their lowest level in more than 12 months

Downside risks to inflation growing as tailwinds from an expansionary fiscal

policy remain absent and pass-through from rising input costs remain muted


Inflation: Although core CPI remains stable,

headline drops due to decline in energy prices

Consumer Price Inflation(12m change)

Core Inflation Measures(12m change)

Source: BBVA Research, BLS & BEA

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Aug-0

0

Jul-0

1

Jun-0

2

Ma

y-0

3

Apr-

04

Ma

r-0

5

Feb

-06

Jan-0

7

De

c-0

7

No

v-0

8

Oct-

09

Sep-1

0

Aug-1

1

Jul-1

2

Jun-1

3

Ma

y-1

4

Apr-

15

Ma

r-1

6

Feb

-17

Jan-1

8

Core CPI Core PCE Weighted Median

-1%

0%

1%

1%

2%

2%

3%

3%

4%

4%

0 10 20 30 40 50 60 70 80 90 100

Relative Importance

Comm. ex

Food/

Energy

Food

Rent

Energy

Med

Services

Edu &

Comm.

Services

Trans.

Services

Other

Services

OER

Food


Inflation: Probability of high inflation regime

declining

Core PCE Price Index & Inflation RegimesMonth-over-month %

Inflation Regime Change Probability%


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Jan-7

0

Jul-7

2

Jan-7

5

Jul-7

7

Jan-8

0

Jul-8

2

Jan-8

5

Jul-8

7

Jan-9

0

Jul-9

2

Jan-9

5

Jul-9

7

Jan-0

0

Jul-0

2

Jan-0

5

Jul-0

7

Jan-1

0

Jul-1

2

Jan-1

5

Jul-1

7

-0.2

0

0.2

0.4

0.6

0.8

1

70 74 78 82 86 90 94 98 02 06 10 14 18

Core PCE Low Inflaiton Regime

High Inflaiton Regime


Inflation: Baseline remains for modest overshooting in 2019,

but increasing risks of faster convergence to 2%

Inflation Expectations(%)

Headline & Core CPI(Year-over-year %)

Source: BBVA Research & Haver Analytics

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

10 11 12 13 14 15 16 17 18

5Y Implicit 5Y Forward

-2

-1

0

1

2

3

4

5

6

Ma

r-0

0

Ma

y-0

1

Jul-0

2

Sep-0

3

No

v-0

4

Jan-0

6

Ma

r-0

7

Ma

y-0

8

Jul-0

9

Sep-1

0

No

v-1

1

Jan-1

3

Ma

r-1

4

Ma

y-1

5

Jul-1

6

Sep-1

7

No

v-1

8

Jan-2

0

Ma

r-2

1

Ma

y-2

2

Core Headline

The Fed is poised to raise rates for the fourth time this year,

bringing the benchmark target to 2.25-2.50%

The Fed is trying to calibrate the remaining stretch of its normalization path in

order to ensure a soft-landing amidst an uptick in market volatility and growing

concerns about financial stability

Post-meeting communication will likely signal a greater willingness to pause in

the short-run in an effort to allow the economy to absorb the removal of policy

accommodation over the past 24 months

Markets still pricing in high probability of December rate hike

The probability of 3+ rate hikes in 2019 has decreased significantly (~5%)

Given that the risk balance is tilting to the downside, our outlook for the Fed has

also shifted downwards

Monetary Policy: Federal Reserve


Fed: External headwinds and financial volatility

bias 2019 outlook to the downside

BBVA & Dealers Projections of Fed Funds(%, Effective)

FOMC Projections of Fed Funds(Year-over-year %, Mid-point)

Source: BBVA Research & FRB

0

1

2

3

4

5

6

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

BBVA-Baseline Median 75th Percentile

25th Percentile BBVA-Upside BBVA-Downside

1

1.5

2

2.5

3

3.5

4

4.5

2018 2019 2020 2021 L-Term

Median-2018 Median-2017


Monetary policy: Market probability of additional increase in

Dec remains priced in, 3+ hikes in 2019 down significantly

Fed Funds Implied Probability(%)

Fed Funds Futures & BBVA Baseline(%)

Source: BBVA Research & Bloomberg

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

14

-Jun

-18

28

-Jun

-18

12

-Jul-

18

26

-Jul-

18

9-A

ug-1

8

23

-Aug

-18

6-S

ep-1

8

20

-Sep

-18

4-O

ct-

18

18

-Oct-

18

1-N

ov-1

8

15

-Nov-1

8

29

-Nov-1

8

December (2.5%) 3+ Rate Hikes in 2019

0.5

0.75

1

1.25

1.5

1.75

2

2.25

2.5

2.75

3

3.25

Oct-

16

Jan-1

7

Apr-

17

Jul-1

7

Oct-

17

Jan-1

8

Apr-

18

Jul-1

8

Oct-

18

Jan-1

9

Apr-

19

Jul-1

9

Oct-

19

Jan-2

0

Apr-

20

Jul-2

0

Oct-

20

Effective Fed Funds Rate 5/28/2018

7/23/2018 10/15/2018

12/10/2018


Monetary Policy: Balance sheet attrition gaining

momentum with over $310B in run-off to date

Fed Funds & Repo Rates(%)

Balance Sheet Attrition(US$bn, Cumulative)

Source: BBVA Research & FRB

0

50

100

150

200

250

Jan-1

8

Feb

-18

Ma

r-1

8

Apr-

18

Ma

y-1

8

Jun-1

8

Jul-1

8

Aug-1

8

U.S Govt Securities MBS

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

Feb-15 Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18

Upper Bound Lower Bound

Effective SOFR

Continued upward momentum in short end of the yield curve,

but tepid outlook for Fed implies lower terminal levels

10-yr Treasury yields below 3.0%, a drop of 35bp from recent peak

Downward pressure on term premium renewed due to increased

uncertainty, flight-to-safety and rebalancing of expectations

Although baseline still assumes 10-year Treasury yields will edge higher,

the bias continues tilting to the downside

Yield curve will likely flatten further, but remain positive in our baseline

scenario

Nonetheless, periods of an inverted yield curve could be more frequent

under the new normal

Interest Rates


Interest rates: Term premium decompression short-lived,

as 10-year Treasury dips below 3.0%

10-Year Treasury Yield Decomposition(%)

Source: BBVA Research, ACM & Haver Analytics

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

12 13 14 15 16 17 18

Real Rate Term Premium Inflation Expectations Yield


Interest rates: Greater clarity on domestic policy

making and monetary policy support modest upside

10-Year Treasury Yield(%)

Source: BBVA Research, ACM & Haver Analytics

0

1

2

3

4

5

6

7

Jan-0

7

Ma

y-0

7

Sep-0

7

Jan-0

8

Ma

y-0

8

Sep-0

8

Jan-0

9

Ma

y-0

9

Sep-0

9

Jan-1

0

Ma

y-1

0

Sep-1

0

Jan-1

1

Ma

y-1

1

Sep-1

1

Jan-1

2

Ma

y-1

2

Sep-1

2

Jan-1

3

Ma

y-1

3

Sep-1

3

Jan-1

4

Ma

y-1

4

Sep-1

4

Jan-1

5

Ma

y-1

5

Sep-1

5

Jan-1

6

Ma

y-1

6

Sep-1

6

Jan-1

7

Ma

y-1

7

Sep-1

7

Jan-1

8

Ma

y-1

8

Sep-1

8

Jan-1

9

Ma

y-1

9

Sep-1

9

Jan-2

0

Ma

y-2

0

Sep-2

0

Jan-2

1

Ma

y-2

1

Sep-2

1

Jan-2

2

Ma

y-2

2

Sep-2

2

Historic Baseline upside Downside Risk NABE (EOP)

SPF(EOP) Blue Chip(Yr. Avg) OMB (Yr.Avg) CBO(Yr. Avg)


Interest rates: Threat of yield curve inversion rises, but

slope remains positive in baseline scenario

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

10-Year Average 2016 2017

2018 (f) 2019 (f) 2020 (f)

Yield Curve Slope(Bp)

Yield Curve(%, eop)

Source: BBVA Research

0.0

0.5

1.0

1.5

2.0

2.5

Jan-1

5

Jul-1

5

Jan-1

6

Jul-1

6

Jan-1

7

Jul-1

7

Jan-1

8

Jul-1

8

Jan-1

9

Jul-1

9

Jan-2

0

Jul-2

0

Jan-2

1

Jul-2

1

Jan-2

2

Jul-2

2

30Yr-10yr 10Yr-1Yr

OPEC+ managed to contain the downfall, but risks are

still tilted to the downside

U.S. production remains strong and is expected to reach a record 12 million b/d

threshold next year

Robust demand supported by China, India and the U.S.; however, global

economic growth will most likely decelerate in the following years

Prices could move between $60 and $70 in 2019, but may decelerate further in

2020. We maintain our forecasts of convergence to long-term equilibrium around

$60/b

Elevated uncertainty around long-term equilibrium: lagged effect of subpar global

CAPEX, protectionism, alternative energy sources, EM convergence, EVs,

climate change, efficiency and technology

Oil Prices


Oil prices are 30% below their previous peak

Source: BBVA Research and Haver Analytics

Crude oil prices July to December 2018($ per barrel, 2018)

50

55

60

65

70

75

80

85

90

Jul Aug Sep Oct Nov Dec

WTI Brent

August 6

First set of U.S. sanctions

against Iran come back

into full effect

September 23

OPEC and allies

agree not to further

increase oil

production

September 25

India may cut imports of

Iranian oil to zero in

November

October 8-12

Stock market chaos.

Concerns on weaker

demand emerge

November 2

U.S. issue waivers to

Iran’s oil buyers

November 6

EIA expects U.S. crude oil

production to surpass 12

million b/d by 2019

November 12

OPEC lowers oil

demand growth

forecasts and

anticipates

oversupply

December 6

OPEC hints a lower than

expected cut

December 7

OPEC+ decide to cut

output by 1.2 Mb/d


Temporary sanction waivers to eight importers of Iranian crude

oil took the market by surprise

Source: BBVA Research, Haver Analytics, and Bloomberg

Iran: exports of crude oil(million barrels per day)

Crude oil production(million barrels per day)

Brent and net long positions($ per barrel and thousands)

0

10

20

30

40

50

60

70

80

90

0

100

200

300

400

500

600

700

5-S

ep-1

7

5-O

ct-

17

5-N

ov-1

7

5-D

ec-1

7

5-J

an-1

8

5-F

eb-1

8

5-M

ar-

18

5-A

pr-

18

5-M

ay-1

8

5-J

un-1

8

5-J

ul-18

5-A

ug-1

8

5-S

ep-1

8

5-O

ct-

18

5-N

ov-1

8

Brent net-long positions (thous., lhs)

Brent crude oil prices (rhs)

0.0

0.5

1.0

1.5

2.0

2.5

2015 2016 2017 2018

Other China India Turkey South Korea Japan Europe

-1000

-800

-600

-400

-200

0

200

400

600

800

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

Saudi Arabia Iraq


In the meantime, U.S. production reached record heights


-20

-15

-10

-5

0

5

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

WTI Midland-Cushing differential ($/b)

8000

8400

8800

9200

9600

10000

10400

10800

11200

11600

12000

2015 2016 2017 2018

U.S. Estimated crude oil production (Thousand barrels/day)

U.S. Crude oil inventories (Excluding SPR, million barrels)

U.S. Real private investment in E&P (yoy $billion )

-150

-100

-50

0

50

100

150

0

20

40

60

80

100

120

140

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Milla

res

WTI (lhs) Investment (rhs)

0

100

200

300

400

500

600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 Average 5-yr high 5-yr low


Demand remains supported by China, India and the U.S.


-500

0

500

1000

1500

2000

2500

-1000

-500

0

500

1000

1500

2000

2500

3000

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

Western Europe United States China

India Total World (rhs)

Oil product demand: total world (Thousand barrels per day, yoy change)

Oil product demand (Million barrels per day)

43

44

45

46

47

48

49

50

30

35

40

45

50

55

Aug-0

8

Feb

-09

Aug-0

9

Feb

-10

Aug-1

0

Fe

b-1

1

Aug-1

1

Feb

-12

Aug-1

2

Feb

-13

Aug-1

3

Fe

b-1

4

Aug-1

4

Feb

-15

Aug-1

5

Feb

-16

Aug-1

6

Feb

-17

Aug-1

7

Feb

-18

Aug-1

8

non-OECD OECD (rhs)


The strength of the dollar is having a negative impact on

net importers

Source: BBVA Research and Bloomberg

0

50

100

150

200

250


US Dollars Indian Rupees

Turkish Lira Chinese Yuan

Brent crude oil prices in different currencies(Jan-2018 = 100)

2400

2500

2600

2700

2800

2900

3000

930

980

1030

1080

1130

1180

1230

1280

1330


MSCI Emerging Markets (lhs) S&P 500 (rhs)

Stock market indicators(2018)


Our forecasts point to slower demand growth

Source: BBVA Research Source: BBVA Research

Oil product demand (YoY change, million b/d)

Oil product demand (million b/d)

99.6100.9

102.0103.2

104.5105.7

80

85

90

95

100

105

110

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

Actual BBVA Research forecasts

1.31

1.28

1.16

1.20

1.25 1.26

1.00

1.05

1.10

1.15

1.20

1.25

1.30

1.35

2018 2019 2020 2021 2022 2023

BBVA Research forecasts Average


Short-term risks are now tilted to the downside…

*Brent crude prices. Source: BBVA Research

>=

$70/b*

<=

$60/b*

• OPEC+ implements further cuts to production

• U.S. waivers expired and are not renewed

• OPEC+ is perceived incapable of offsetting the gap left by

Iran and Venezuela

• Additional negative supply shocks (e.g. Libya, Nigeria)

• Stronger-than-expected global demand

• Takeaway issues prevent U.S. crude to reach global

markets

• Weaker global outlook after turbulence in emerging

markets (e.g. Turkey, Argentina)

• Escalation of protectionism

• Dollar appreciation

• President Trump’s pressure on OPEC

• Limited enforcement of Iranian sanctions

• Higher-than-expected crude oil production in the U.S.


Future markets have lowered their expectations

Source: BBVA Research and Bloomberg

Brent Futures($ per barrel)

40

45

50

55

60

65

70

75

80

1 3 5 7 9 11131517192123252729313335373941434547

$U

SD

/bb

l

Months Ahead

12/14/18 1 month ago

3 months ago 6 months ago

40

45

50

55

60

65

70

75

1 3 5 7 9 11131517192123252729313335373941434547

$U

SD

/bb

l

Months Ahead

12/14/18 11/13/18

3 months ago 6 months ago

WTI Futures($ per barrel)


DISCLAIMER

This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) BBVA Research U.S. on

behalf of itself and its affiliated companies (each BBVA Group Company) for distribution in the United

States and the rest of the world and is provided for information purposes only. Within the US, BBVA

operates primarily through its subsidiary Compass Bank.

The information, opinions, estimates and forecasts contained herein refer to the specific date and are

subject to changes without notice due to market fluctuations. The information, opinions, estimates and

forecasts contained in this document have been gathered or obtained from public sources, believed to be

correct by the Company concerning their accuracy, completeness, and/or correctness. This document is

not an offer to sell or a solicitation to acquire or dispose of an interest in securities.


U.S.

Economic OutlookDecember 2018

Documents

U.S. Economic Outlook December 2018 · BBVA Research –U.S. Economic Outlook December 2018 / 9 Labor market: Job growth decelerates to more sustainable levels after strong growth