U.S. Economic Outlook September 2018 · BBVA Research –U.S. Economic Outlook September 2018 / 9 Labor market: Opportunities continue to improve in nontrivial share of industries

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

U.S.

Economic OutlookSeptember 2018

Economic conditions remain consistent with high growth

and moderate inflation in 2018 & 2019

FOMC remains poised to raise rates at their upcoming meeting in September

and again in December. Baseline assumes three additional increases in ‘19

Labor market conditions remain auspicious: strong job growth, low

unemployment, rising wages and record-high job openings

Inflation continues to firm with core PCE set to surpass 2% YoY by end of

3Q18. Tailwinds from tariffs and rising nonlabor price pressures remain

Geopolitical uncertainty and trade tensions containing 10-year Treasury yields

The Treasury yield curve slope will continue to flatten

Oil prices to converge to long-run equilibrium despite short-term volatility

Economic Outlook


Economic activity

Real-Time Economic Momentum Heat Map

Source BBVA Research

Below Average Above Average

Soft indicators for manufacturing

sector remain upbeat

Momentum in O&G sector

slowing somewhat

Strong retail sales data suggests

another strong quarter for

consumption

Despite strong labor market

signals, labor force participation

declined

Home price growth continues, but

cost pressures putting a crimp in

demand

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: Consumer and industrial activity accelerating

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: Exports facing headwinds from

tariffs and dollar strength

Real Exchange Rates 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

Jul-2

018

Ma

y-2

018

Ma

r-2

018

Jan-2

018

No

v-2

017

Sep-2

017

Jul-2

017

Ma

y-2

017

Ma

r-2

017

Jan-2

017

No

v-2

016

Sep-2

016

Jul-2

016

Ma

y-2

016

Ma

r-2

016

Jan-2

016

No

v-2

015

Sep-2

015

Jul-2

015

Ma

y-2

015

Ma

r-2

015

Jan-2

015

Consumer Goods ex Food Food & Bev.

Industrial Supplies Autos

Other Cap Goods ex Autos

-10%

-5%

0%

5%

10%

15%

20%

dic

-2014

ma

r-2

015

jun-2

015

sep-2

015

dic

-2015

ma

r-2

016

jun-2

016

sep-2

016

dic

-2016

ma

r-2

017

jun-2

017

sep-2

017

dic

-2017

ma

r-2

018

jun-2

018

Real Trade Weighted FX Real Exports


Economic trends: Despite increased probability of slower growth

in 3Q, still on track for 2.8% in ‘18

Real GDP(QoQ SAAR, %)

Probability of Recession in 12 Months(%)

Source: BBVA Research, and ATL & NY Fed

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

5.00%

Q3-1

7

Q4-1

7

Q1-1

8

Q2-1

8

Baselin

e

Atl F

ed

NY

Fed

20

18

20

18-2

020

Forecast3Q18

Baeline

0

10

20

30

40

50

60

70

80

90

100

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Recession 12 months before the recession Probability


Consumer credit cycle: leverage metrics elevated, but standards

remain robust in post-crisis period

Personal Interest ExpenseYear-over-year %

New 30+ Day Consumer Delinquencies Rates%

Personal Interest Expense to Disp. IncomeRatio, %

Senior Loan Officers Lending Standards+ tightening / - loosening

1.4

1.6

1.8

2.0

2.2

2.4

2.6

2.8

3.0

3.2

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015-15.0

-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

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2011 2012 2013 2014 2015 2016 2017

Credit card

Autos

Consumer excl. credit cards

Source: BBVA Research, FRB, NY Fed & BEA

0

0.02

0.04

0.06

0.08

0.1

03 05 07 09 11 13 15 17

Mortgage HELOC

Auto CC

Student Other

Total

Labor Market

In August, nonfarm payrolls increased by 201K, supported

by solid gains in professional and business services (53K),

health care (33K), construction (23K), wholesale trade (22K), and

transportation and warehousing (20K)

The revisions to payroll for June and July implied 50K less jobs than originally

reported

The unemployment rate was unchanged at 3.9% while the employment-to-

population and participation rate edged down

Average hourly earnings increased 0.4% during the month and 2.9% YoY, in

what represents the largest increase since May 2009

We expect the UR to reach 3.7% by the end of the year, as our baseline

assumes average monthly job growth that is well above the amount needed

to absorb any remaining slack


Labor market: Opportunities continue to improve in nontrivial

share of industries

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

-5 0 5 10 15

Information Services

State Government

Federal Government

Local Government

Retail Trade

Financial Activities

Other Services

Leisure & Hospitality

Wholesale Trade

Education & Health Services

Manufacturing

Professional & Business Services

Transportation & Warehousing

Construction

Mining

Monthly Change Year-over-year


Labor market: Increasing wages and hours worked a reflection

of domestic momentum

Average Weekly Hours(number & 5mcma)

Average Hourly Earnings(YoY% & 5mcma)


Prime Age Labor Force Participation(%)

Prime Age Employment-to-Population(%)

33.233.433.633.834.034.234.434.634.8

jul-

200

7

feb-2

008

sep

-200

8

abr-

20

09

nov-2

00

9

jun

-201

0

ene

-20

11

ago

-20

11

ma

r-2

012

oct-

201

2

ma

y-2

01

3

dic

-201

3

jul-

201

4

feb-2

015

sep

-201

5

abr-

20

16

nov-2

01

6

jun

-201

7

ene

-20

18

ago

-20

18

0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%

jul-

200

7

feb-2

008

sep

-200

8

abr-

20

09

nov-2

00

9

jun

-201

0

ene

-20

11

ago

-20

11

ma

r-2

012

oct-

201

2

ma

y-2

01

3

dic

-201

3

jul-

201

4

feb-2

015

sep

-201

5

abr-

20

16

nov-2

01

6

jun

-201

7

ene

-20

18

ago

-20

18

79.0

80.0

81.0

82.0

83.0

84.0

jul-

08

ene

-09

jul-

09

ene

-10

jul-

10

ene

-11

jul-

11

ene

-12

jul-

12

ene

-13

jul-

13

ene

-14

jul-

14

ene

-15

jul-

15

ene

-16

jul-

16

ene

-17

jul-

17

ene

-18

jul-

18

Pre-Crisis Avg.

72.073.074.075.076.077.078.079.080.0

jul-

08

ene

-09

jul-

09

ene

-10

jul-

10

ene

-11

jul-

11

ene

-12

jul-

12

ene

-13

jul-

13

ene

-14

jul-

14

ene

-15

jul-

15

ene

-16

jul-

16

ene

-17

jul-

17

ene

-18

jul-

18

Pre-Crisis Avg.


Labor market: Broader measures of labor market utilization strong

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

jul-08

en

e-0

9

jul-09

en

e-1

0

jul-10

en

e-1

1

jul-11

en

e-1

2

jul-12

en

e-1

3

jul-13

en

e-1

4

jul-14

en

e-1

5

jul-15

en

e-1

6

jul-16

en

e-1

7

jul-17

en

e-1

8

jul-18

Pre-Crisis Avg.

Inflation

Headline CPI accelerated to 2.9% year-over-year,

the highest in six years while core CPI surged to 2.3%

Core PCE growth at its highest since 2012

In July, probability of entering high-inflation regime was 0.8%

Diffusion index suggests bulk of personal consumption sub-components

remain in a stable price regime

Despite building price pressures in important categories such as OER and

healthcare, probabilities of a regime change in these categories remain low

With additional tailwinds from an expansionary fiscal policy and tit-for-tat

tariffs, core PCE will rise to 2.2% by 2019


Inflation: Headline CPI on track to exceed 3.0%

Consumer Price Inflation(12m change)

Core Inflation Measures(12m change)

Source: BBVA Research, BLS & BEA

-2%

0%

2%

4%

6%

8%

10%

12%

14%

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

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

ma

y-2

000

ab

r-2

001

ma

r-2

002

feb-2

00

3

en

e-2

00

4

dic

-2004

no

v-2

005

oct-

20

06

sep-2

007

ag

o-2

00

8

jul-20

09

jun-2

010

ma

y-2

011

ab

r-2

012

ma

r-2

013

feb-2

01

4

en

e-2

01

5

dic

-2015

no

v-2

016

oct-

20

17

Core CPI Core PCE Weighted Median


Inflation: Probability of shifting to high inflation

regime remains low

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


Inflation Regime Change Probability%

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

61 66 71 77 82 87 92 97 02 08 13 18

No Covariates Covariates

-0.2

0

0.2

0.4

0.6

0.8

1

59 64 69 74 79 84 90 95 00 05 10 15

Core PCE α- State1 α - State2


Inflation: Bulk of inflation subcomponents in low

inflation regime

High Inflation Regime Probability and Relative

Importance%

Source: BBVA Research

Inflation Regime Change Diffusion Index** 50+ = Bulk of Components in High Inflation State

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1

0

0.02

0.04

0.06

0.08

0.1

0.12

0.14

OE

R

Ho

sp

ita

l

Prc

hsd

Me

als

Re

nt

Physic

ian

Srv

s

Pharm

a

No

npro

fits

Fin

Srv

c F

ees

Para

me

dic

al S

rvc

Fin

Srv

c w

/o P

mt

Share Probability(rhs)

0

10

20

30

40

50

60

70

80

90

100

en

e-5

9

ag

o-6

1

ma

r-6

4

oct-

66

ma

y-6

9

dic

-71

jul-74

feb-7

7

sep-7

9

ab

r-8

2

no

v-8

4

jun-8

7

en

e-9

0

ag

o-9

2

ma

r-9

5

oct-

97

ma

y-0

0

dic

-02

jul-05

Weighted Most Important Categories


Inflation: Inflation expectations rooted, outlook remains for

inflation to trend towards Fed 2% target

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-2

000

ma

y-2

001

jul-20

02

sep-2

003

no

v-2

004

en

e-2

00

6

ma

r-2

007

ma

y-2

008

jul-20

09

sep-2

010

no

v-2

011

en

e-2

01

3

ma

r-2

014

ma

y-2

015

jul-20

16

sep-2

017

no

v-2

018

en

e-2

02

0

ma

r-2

021

ma

y-2

022

Core Headline

The FOMC to raise target range of the federal funds

from 2.0% to 2.25% at their September meeting

Increasing concerns on protectionism, “…a major escalation in trade disputes,

the complex nature of trade issues, including the entire range of their effects on

output and inflation, presented a challenge in determining the appropriate

monetary policy response.”

The discussion on the effective lower bound (ELB) in the minutes implies

committee aware of high chances of reaching ELB again and structural risks

associated with frequent or extended episodes at the ELB

Yield curve inversion remains a source of concern for some members, but there

is a divide on how to interpret or respond to such signal

We continue to expect that the committee will raise rates again in December

and three more times in 2019

Monetary Policy: Federal Reserve


Fed: No change to outlook, two rate increases this year

and 3 rate increases next

1

1.5

2

2.5

3

3.5

4

4.5

2018 2019 2020 L-Term

Median-2018 Median-2017

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


Monetary policy: markets finally starting to price in

2019 overshooting

Fed Funds Implied Probability(%)

Fed Funds Futures & BBVA Baseline(%)

Source: BBVA Research & Bloomberg

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

3/1

5/1

8

3/2

9/1

8

4/1

2/1

8

4/2

6/1

8

5/1

0/1

8

5/2

4/1

8

6/7

/18

6/2

1/1

8

7/5

/18

7/1

9/1

8

8/2

/18

8/1

6/1

8

8/3

0/1

8

September (2.25%) December(2.5%)

0.5

0.75

1

1.25

1.5

1.75

2

2.25

2.5

2.75

3

3.25

3.5

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

FFR + BBVA Forecast 2/26/2018

4/23/2018 7/16/2018

9/10/2018


Interest rates: Fed Funds and Repo rates trading within target

range, balance sheet attrition picking up

Fed Funds & Repo Rates(%)

Balance Sheet Attrition(US$bn, Cumulative)

Source: BBVA Research & FRB

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

nov-14 jun-15 ene-16 ago-16 mar-17 oct-17 may-18

Upper Bound Lower Bound

Effective SOFR

0

20

40

60

80

100

120

140

160

180

200

ene-18 feb-18 mar-18 abr-18 may-18 jun-18 jul-18

U.S Govt Securities MBS

Short-term rates to continue upward trend after FOMC

raises Federal Funds rates in September

Recent progress on NAFTA, reduced histrionics and strong domestic

growth and inflation help to modestly decompress term-premium

Lower emerging market volatility helping to lift long-term rates

Baseline assumes 10-year Treasury yield at 3.1% by year-end 2018 and

3.6% by year-end 2019, amid ongoing risks to the downside

The Treasury yield curve slope to flatten further but remain positive

Interest Rates


Interest rates: Slight decompression in term premium

allows 10-year to resume upward trend

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: Forecast is for 10-year treasury yield to reach 3.1%

by year-end 2018 and 3.6% year-end 2019

10-Year Treasury Yield(%)

Source: BBVA Research, ACM & Haver Analytics

0

1

2

3

4

5

6

7

en

e.2

007

ma

y.2

00

7

se

p.2

00

7

en

e.2

008

ma

y.2

00

8

sep.2

00

8

en

e.2

009

ma

y.2

00

9

sep.2

00

9

en

e.2

010

ma

y.2

01

0

sep.2

01

0

en

e.2

011

ma

y.2

01

1

sep.2

01

1

en

e.2

012

ma

y.2

01

2

sep.2

01

2

en

e.2

013

ma

y.2

01

3

sep.2

01

3

en

e.2

014

ma

y.2

01

4

sep.2

01

4

en

e.2

015

ma

y.2

01

5

sep.2

01

5

en

e.2

016

ma

y.2

01

6

sep.2

01

6

en

e.2

017

ma

y.2

01

7

sep.2

01

7

en

e.2

018

ma

y.2

01

8

sep.2

01

8

en

e.2

019

ma

y.2

01

9

sep.2

01

9

en

e.2

020

ma

y.2

02

0

sep.2

02

0

en

e.2

021

ma

y.2

02

1

sep.2

02

1

en

e.2

022

ma

y.2

02

2

sep.2

02

2

Historic Baseline upside Downside Risk NABE (EOP)

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


Interest rates: Baseline scenario continues to assume

no yield curve inversion

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)


0.0

0.5

1.0

1.5

2.0

2.5

en

e-2

01

5

jul-20

15

en

e-2

01

6

jul-20

16

en

e-2

01

7

jul-20

17

en

e-2

01

8

jul-20

18

en

e-2

01

9

jul-20

19

en

e-2

02

0

jul-20

20

en

e-2

02

1

jul-20

21

en

e-2

02

2

jul-20

22

30Yr-10yr 10Yr-1Yr


Macroeconomic Outlook


*Forecasts subject to change

2011 2012 2013 2014 2015 2016 2017 2018 (f) 2019 (f) 2020 (f) 2021 (f) 2022 (f)

Real GDP (% SAAR) 1.6 2.2 1.8 2.5 2.9 1.6 2.2 2.8 2.8 2.5 2.3 2.1

Real GDP (Contribution, pp)

PCE 1.3 1.0 1.0 2.0 2.5 1.9 1.8 1.9 1.8 1.5 1.4 1.4

Gross Investment 0.9 1.6 1.1 0.9 0.8 -0.2 0.8 0.8 1.0 1.0 1.0 0.8

Non Residential 1.0 1.2 0.5 0.9 0.3 0.1 0.7 1.1 1.1 0.9 0.8 0.7

Residential 0.0 0.3 0.3 0.1 0.3 0.2 0.1 0.0 0.1 0.2 0.1 0.1

Exports 0.9 0.5 0.5 0.6 0.1 0.0 0.4 0.6 0.6 0.7 0.7 0.7

Imports -0.9 -0.5 -0.3 -0.9 -1.0 -0.3 -0.8 -0.7 -0.8 -0.9 -0.9 -0.9

Government -0.7 -0.4 -0.5 -0.2 0.3 0.3 0.0 0.3 0.3 0.2 0.1 0.1

Unemployment Rate (%, average) 8.9 8.1 7.4 6.2 5.3 4.9 4.4 3.9 3.7 4.0 4.3 4.3

Avg. Monthly Nonfarm Payroll (K) 174 179 192 250 226 195 182 206 183 158 125 107

CPI (YoY %) 3.1 2.1 1.5 1.6 0.1 1.3 2.1 2.5 2.6 2.6 2.4 2.3

Core CPI (YoY %) 1.7 2.1 1.8 1.7 1.8 2.2 1.8 2.3 2.4 2.4 2.4 2.3

Fiscal Balance (% GDP, FY) -8.4 -6.8 -4.1 -2.8 -2.4 -3.2 -3.5 -4.4 -4.6 -4.5 -4.8 -5.2

Current Account (bop, % GDP) -2.9 -2.6 -2.1 -2.1 -2.2 -2.3 -2.3 -2.3 -2.4 -2.4 -2.5 -2.5

Fed Target Rate (%, eop) 0.25 0.25 0.25 0.25 0.50 0.75 1.50 2.50 3.25 3.00 3.00 3.00

Core Logic National HPI (YoY %) -2.9 4.0 9.7 6.8 5.3 5.5 5.9 6.5 5.5 5.4 5.7 5.9

10-Yr Treasury (% Yield, eop) 1.98 1.72 2.90 2.21 2.24 2.49 2.40 3.07 3.65 3.77 3.97 4.13

Brent Oil Prices (dpb, average) 111.3 111.7 108.7 99.0 52.4 43.6 54.3 72.3 70.3 64.9 60.9 60.0


Economic ScenariosProbability (%) Current Previous

Upside 15 10

Baseline 60 65

Downside 25 25

Macro Scenarios

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

GDP 1.8 2.5 2.9 1.6 2.2 2.8 2.8 2.5 2.3 2.1

Upside 1.8 2.5 2.9 1.6 2.2 3.0 3.7 3.3 3.1 3.0

Downside 1.8 2.5 2.9 1.6 2.2 2.2 -1.5 0.1 1.2 1.4

UR 7.4 6.2 5.3 4.9 4.4 3.9 3.7 4.0 4.3 4.3

Upside 7.4 6.2 5.3 4.9 4.4 3.9 3.2 2.9 3.0 3.0

Downside 7.4 6.2 5.3 4.9 4.4 4.0 4.6 6.6 7.0 5.7

CPI 1.5 1.6 0.1 1.3 2.1 2.5 2.6 2.6 2.4 2.3

Upside 1.5 1.6 0.1 1.3 2.1 2.6 3.4 3.5 3.7 3.7

Downside 1.5 1.6 0.1 1.3 2.1 2.4 1.3 1.0 0.7 0.6

Fed [eop] 0.25 0.25 0.50 0.75 1.50 2.50 3.25 3.00 3.00 3.00

Upside 0.25 0.25 0.5 0.75 1.5 3 5 5.5 5.5 5.5

Downside 0.25 0.25 0.5 0.75 1.5 1.25 0.25 0.25 0.25 0.25

10-Yr [eop] 2.9 2.21 2.24 2.49 2.4 3.07 3.65 3.77 3.97 4.13

Upside 2.9 2.21 2.24 2.49 2.4 3.6 5.2 5.6 5.9 5.9

Downside 2.9 2.21 2.24 2.49 2.4 2.7 2 1.6 1.5 1.4

*Forecasts subject to change

U.S. sanctions on Iran, concerns on OPEC spare capacity

and the potential trade war will influence oil

prices through the rest of the year

Even though U.S. O&G activity remains strong, takeaway challenges in the

Permian Basin have widened the gap between WTI and Brent

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

Prices are expected to converge to long-term equilibrium as demand growth

returns to trend and U.S. export capacity increases

The main uncertainty to oil prices arises from the effect of subpar global

CAPEX on supply

Energy Prices


Energy Prices: WTI has been less sensitive to global developments

28

Crude oil prices (2018, $ per barrel)

Source: BBVA Research and Haver Analytics

Brent-WTI Differential(2018, $ per barrel)

0

2

4

6

8

10

12

1/1

1/1

5

1/2

9

2/1

2

2/2

6

3/1

2

3/2

6

4/9

4/2

3

5/7

5/2

1

6/4

6/1

8

7/2

7/1

6

7/3

0

8/1

3

8/2

7

9/1

0

50

55

60

65

70

75

80

85

1/1

1/1

5

1/2

9

2/1

2

2/2

6

3/1

2

3/2

6

4/9

4/2

3

5/7

5/2

1

6/4

6/1

8

7/2

7/1

6

7/3

0

8/1

3

8/2

7

9/1

0

WTI Brent


Energy Prices: differentials highlight takeaway issues

Source: BBVA Research and Haver Analytics 29

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-20

-15

-10

-5

0

5

Jan-1

7

Fe

b-1

7

Ma

r-1

7

Apr-

17

Ma

y-1

7

Jun-1

7

Jul-1

7

Aug-1

7

Sep-1

7

Oct-

17

No

v-1

7

De

c-1

7

Jan-1

8

Feb

-18

Ma

r-1

8

Apr-

18

Ma

y-1

8

Jun-1

8

Jul-1

8

Aug-1

8

Sep-1

8

WTI Midland-Cushing differential ($/b)

8000

8400

8800

9200

9600

10000

10400

10800

11200

2015 2016 2017 2018

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

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

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Oct-

15

De

c-1

5

Feb

-16

Apr-

16

Jun-1

6

Aug-1

6

Oct-

16

De

c-1

6

Feb

-17

Apr-

17

Jun-1

7

Aug-1

7

Oct-

17

De

c-1

7

Feb

-18

Apr-

18

Jun-1

8

U.S. Crude oil exports (Million barrels/day)


Our forecasts continue signaling convergence to

long-term equilibrium

Source: BBVA Research and Bloomberg

30

Oil prices forecast (Brent, $/b)

67.1

65.1

61.2

58.0 57.7

50

55

60

65

70

75

80

2018 2019 2020 2021 2022

BBVA Research (September)*

Bloomberg (September)

EIA (STEO, September)

Source: BBVA Research and Bloomberg

* Preliminary, unofficial

WTI Futures($ per barrel)

40

45

50

55

60

65

70

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47

$U

SD

/bb

l

Months Ahead

09/10/18 08/10/18

3 months ago 6 months ago


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 OutlookSeptember 2018

Documents

U.S. Economic Outlook September 2018 · BBVA Research –U.S. Economic Outlook September 2018 / 9 Labor market: Opportunities continue to improve in nontrivial share of industries