Download Economic Outlook

U.S. Economic Outlook
Mark Vitner, Managing Director & Senior Economist
January 30, 2015
Five Critical Questions About the Economic Outlook
Overall Growth
 How much of last year’s strong momentum will carry
over into 2015?
 Why have oil prices fallen so dramatically and what does
Oil Prices
Interest Rates
Housing
Global
Economy
Economic Outlook
it tell us about the global economy and U.S. economic
outlook?
 Will the global economic slowdown and deflation fears
pull interest rates lower and keep the Fed on hold?
 Will 2015 be the year the housing recovery finally gains
traction?
 Just how sluggish is the global economy and what will it
take to get Europe, Japan and China back on track?
2
Overall Growth
Economic Growth
U.S. Real GDP
Bars = CAGR
Line = Yr/Yr Percent Change
10%
10%
GDP - CAGR: Q3 @ 5.0%
8%
GDP - Yr/Yr Percent Change: Q3 @ 2.7%
6%
6%
Forecast
4%
Real GDP growth is expected to
average close to a 3 percent pace
over the next few years.
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
-8%
-8%
-10%
2000
-10%
2002
2004
2006
2008
2010
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economic Outlook
8%
4
2012
2014
2016
Employment Situation
Job growth appears to have ratcheted up over the past year but wage gains have not. The
improvement in job growth is evident across industries and regions.
Nonfarm Employment
Unemployment Rate
Nonfarm Employment Change
Unemployment and Wage Rates
Change in Employment, In Thousands
600
600
400
400
200
200
Wages for Production & Nonsupervisory Workers, SA
12%
12%
10%
0
0
-200
-200
-400
-400
-600
-600
-800
-800
10%
8%
8%
6%
6%
4%
4%
2%
2%
Unemployment Rate: Dec @ 5.6%
Hourly Earnings - Yr/Yr % Change: Dec @ 1.6%
Monthly Change: Dec @ 252K
-1,000
2007
-1,000
2008
2009
2010
2011
2012
2013
0%
2014
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economic Outlook
0%
65
5
70
75
80
85
90
95
00
05
10
15
Year-over-Year Percent Change in Personal Income: Q3 2014
WEST
MIDWEST
NORTHEAST
WA
5.1
ID
5.3
OR
4.7
ME
3.3
ND
4.6
MT
4.2
MN
2.5
WI
3.4
SD
1.8
WY
4.8
CA
4.2
UT
4.4
NV
4.0
CO
5.3
MI
4.5
IA
1.7
NE
0.5
IN
3.1
IL
2.7
KS
3.0
NY
3.8
MO
2.9
WV
3.1
VA
3.0
NM
4.5
OK
3.9
TX
5.6
GA
4.4
U.S. = 3.9%
LA
3.5
Less than 3.0%
3.0%–3.6%
AK
5.9
FL
4.5
SOUTH
HI
4.1
Economic Outlook
SC
4.4
AR
3.0
AL
2.7
DE
4.1
DC
4.2
MD
3.7
NC
3.7
TN
3.7
MS
0.7
MA
3.8
RI
CT 4.3
NJ 3.6
3.1
PA
3.5
OH
3.8
KY
4.1
AZ
4.0
VT
4.2 NH
4.4
6
3.7%–3.9%
4.0%–4.4%
Greater than 4.5%
California
California continues to add jobs at a rapid clip, Employment gains through early this year look
to have been slightly understated, suggesting we could see upward revisions early next year.
Employment
Unemployment
California Nonfarm Employment
California vs. U.S. Unemployment Rate
3-Month Moving Averages
8%
8%
6%
6%
4%
4%
2%
Seasonally Adjusted
14%
14%
12%
12%
2%
10%
10%
0%
0%
8%
8%
-2%
-2%
6%
6%
-4%
-4%
4%
4%
-6%
-6%
QCEW: Yr/Yr Pct. Change: Jun @ 2.9%
Nonfarm: Yr/Yr Pct. Change: Dec @ 2.2%
Household: Yr/Yr Pct. Change: Dec @ 2.8%
-8%
2%
-8%
-10%
0%
-10%
90
92
94
96
98
00
02
04
06
08
10
12
0%
90
14
Source: U.S. Department of Labor and Wells Fargo Securities, LLC
Economic Outlook
2%
California: Dec @ 7.0%
United States: Dec @ 5.6%
7
92
94
96
98
00
02
04
06
08
10
12
14
California
California Ports have posted strong gains over the past few years. The expansion of the Panama
Canal may make east coast ports more attractive to the busy California ports.
Port Volume
Port Volume Growth
California Port Activity
California Port Activity
$700
$700
Imports: 2012 @ 387.9B
Exports: 2012 @ 191.8B
$600
$600
$500
$500
$400
$400
$300
$300
$200
$200
Year-over-Year Percent Change
60%
Thousands
Thousands
Billions of Dollars
60%
% Change: 2012 @ 3.6%
50%
50%
40%
40%
30%
30%
20%
20%
10%
10%
0%
$100
$0
-10%
-10%
$100
-20%
-20%
$0
-30%
-30%
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
1970 1974 1978 1982 1986 1990 1994 1998 2002 2006 2010
Source: California Department of Finance and Wells Fargo Securities, LLC
Economic Outlook
0%
8
California
California income growth slowed in 2013, although per capita income growth is still outpacing
the nation. The sluggish pace of income growth has been a major drag on the economy.
Per Capita Income
Disposable Income
Real Per Capita Personal Income Growth
Real Per Capita Disposable Personal Income Growth
Year-over-Year Percent Change
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
Year-over-Year Percent Change
California : 2013 @ 0.7%
United States: 2013 @ 0.1%
-6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
Per capita: 2013 @ 0.0%
-4%
-6%
-4%
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012
Source: California Department of Finance and Wells Fargo Securities, LLC
Economic Outlook
6%
9
California
The early prevalence of investor home buyers pulled housing prices higher in California.
Prices have subsided more recently as investors have pulled back.
Home Prices
Housing Permits
California Housing Permits
Core Logic HPI: CA vs. U.S.
30%
Thousands
30%
240
240
Single-Family: Nov @ 31,584
Single-Family, 12-MMA: Nov @ 37,341
Multifamily, 12-MMA: Nov @ 46,638
20%
20%
200
10%
10%
160
160
0%
120
120
0%
-10%
-20%
200
Single-Family Average (1998-2003): 109,729
-10%
80
80
-20%
40
40
-30%
0
United States: Nov @ 5.5%
California: Nov @ 7.6%
-30%
90
92
94
96
98
00
02
04
06
08
10
12
Source: U.S. Department of Commerce, CoreLogic and Wells Fargo Securities, LLC
Economic Outlook
0
90
14
10
92
94
96
98
00
02
04
06
08
10
12
14
Thousands
Thousands of Permits, Seasonally Adjusted Annual Rate
Year-over-Year Percent Change
California Housing Market
Higher home prices have hurt housing affordability in California, particularly given tighter
mortgage qualifications and income documentation requirements.
Existing Home Sales
Housing Affordability
CAR Housing Affordability Index
California Existing Single-Family Home Sales
% of Households That Can Afford Median Priced/Entry-Level Home
In Thousands, SAAR
650
80%
80%
600
600
70%
70%
550
550
60%
60%
500
500
50%
50%
450
450
40%
40%
400
400
30%
30%
350
350
300
300
20%
20%
250
250
650
Existing Home Sales: Dec @ 366.0k
200
10%
0%
200
00
01
02
03
04
05
06
07
08
09
10
11
12
13
14
0%
00
15
Source: California Association of Realtors and Wells Fargo Securities, LLC
Economic Outlook
10%
First-Time Homebuyer: Q3 @ 54.0%
Traditional Single-Family: Q3 @ 30.0%
11
01
02
03
04
05
06
07
08
09
10
11
12
13
14
California Agriculture
California Cash Farm Receipts
$USD in Billions, Percent
$50
$45
18%
Crops
Share of US
$40
The drought will likely take a
toll on California’s agricultural
sector in 2014. Many farmers
are reducing acreage devoted to
fruits and replace them with
nuts, which are much less labor
intensive.
20%
Livestock
16%
$35
14%
$30
12%
$25
10%
$20
8%
$15
6%
$10
4%
$5
2%
$0
0%
1980
1984
1988
1992
1996
2000
Source: U.S. Department of Commerce and Wells Fargo Securities, LLC
Economic Outlook
12
2004
2008
2012
California
California Employment Growth: December 2014
Year-over-Year Percent Change, 3-Month Moving Average
3-Month Moving Average Percent Change
2.5%
Expanding
Recovering
Redding
Population Size
2.0%
Less than 200,000
San Jose
200,000-500,000
1.5%
Santa Barbara
More than 500,000
Bakersfield
1.0%
San Francisco
Sacramento Santa Rosa
Oakland
Modesto
Santa Cruz
0.5%
San Diego
Fresno
Oxnard
Napa
Stockton
0.0%
Riverside
-0.5%
-1.0%
Hanford
Madera
-1.5%
Contracting
-2.0%
-2.0%
-1.0%
Decelerating
0.0%
1.0%
2.0%
3.0%
Year-over-Year Percent Change
Source: US Department of Labor and Wells Fargo Securities, LLC
Economic Outlook
13
4.0%
5.0%
California
California Employment Growth by Industry
3-Month Moving Averages, December 2014
6%
Recovering
Expanding
Percent of Total Employees
3-Month Annualized Percent Change
5%
Less than 5%
Leisure and Hospitality
5 % to 10%
Prof. & Bus. Svcs.
More than 10%
4%
Trade, Trans.
& Utilities
Construction
3%
Nat. Res.
& Mining
2%
Educ. & Health Svcs.
Manufacturing
1%
Information
0%
Financial
Activities
-1%
Government
Other Services
Contracting
-2%
-2%
-1%
Decelerating
0%
1%
2%
3%
Year-over-Year Percent Change
Source: US Department of Labor and Wells Fargo Securities, LLC
Economic Outlook
14
4%
5%
6%
Sacramento
Even though office employment growth has been relatively solid in recent years, demand for
office space has been fairly muted. The office vacancy rate remains relatively high.
Office Employment
Office Commercial Real Estate
Sacramento MSA Nonfarm Employment
Sacramento Office Supply & Demand
Year-over-Year Percent Change
12%
12%
10%
10%
8%
8%
6%
6%
4%
4%
2%
2%
0%
0%
-2%
-2%
-4%
-4%
-6%
-6%
Office Employment: Dec @ 4.2%
Non-office Employment: Dec @ 1.5%
-8%
-8%
-10%
Percent, Thousands of Square Feet
22%
20%
500
18%
250
16%
0
14%
-250
12%
-500
10%
Office Completions: Q3 @ 0 SF (Right Axis)
Office Net Absorption: Q3 @ -36,000 SF (Right Axis)
Office Vacancy Rate: Q3 @ 20.8% (Left Axis)
-10%
91
93
95
97
99
01
03
05
07
09
11
13
8%
Source: U.S. Department of Labor, Reis, Inc. and Wells Fargo Securities, LLC
15
-750
-1,000
2007
Economic Outlook
750
2008
2009
2010
2011
2012
2013
2014
Sacramento
Manufacturing employment has risen solidly over the past year, which has helped fuel demand
for industrial space. Vacancy rates have recently fallen below 10 percent.
Employment by Industry
Industrial Commercial Real Estate
Sacramento MSA Employment Growth By Industry
Sacramento Warehouse Supply & Demand
Year-over-Year Percent Change, 3-MMA
Percent, Thousands of Square Feet
15%
Total Nonfarm
Government
More
1,800
14%
1,200
13%
600
12%
0
11%
-600
10%
-1,200
Trade, Trans. & Utilities
Prof. & Bus. Svcs.
Number of
Employees
Educ. & Health Services
Leisure and Hospitality
Less
Financial Activities
Manufacturing
Construction
Other Services
-6% -4% -2%
0%
2%
4%
6%
8%
Warehouse Completions: Q3 @ 199,000 SF (Right Axis)
Warehouse Net Absorption: Q3 @ 999,000 SF (Right Axis)
Warehouse Vacancy Rate: Q3 @ 9.8% (Left Axis)
9%
December 2014
Information
10% 12%
8%
-2,400
2005
Source: U.S. Department of Labor, CoStar Portfolio Strategy and Wells Fargo Securities, LLC
Economic Outlook
16
-1,800
2006
2007
2008
2009
2010
2011
2012
2013
2014
Sacramento
Sluggish wage and salary growth and increased competition from online retailers has
restrained retail sales. Demand for retail space has strengthened modestly in Sacramento
Retail Sales
Retail Commercial Real Estate
U.S. Retail Sales
Sacramento Retail Supply & Demand
Month-over-Month and Year-over-Year Percent Change
40%
4%
Percent, Thousands of Square Feet
14%
400
Retail Sales: Dec @ -0.9% (Right Axis)
Year-over-Year Percent Change: Dec @ 3.2% (Left Axis)
30%
3%
20%
2%
10%
1%
0%
0%
-10%
-1%
-20%
-2%
12%
200
10%
0
8%
-200
6%
-30%
Retail Completions: Q3 @ 0 SF (Right Axis)
Retail Net Absorption: Q3 @ 90,000 SF (Right Axis)
Retail Vacancy Rate: Q3 @ 11.2% (Left Axis)
-3%
-40%
-4%
07
08
09
10
11
12
13
4%
14
Economic Outlook
-600
2007
Source: U.S. Department of Commerce, Reis, Inc. and Wells Fargo Securities, LLC
17
-400
2008
2009
2010
2011
2012
2013
2014
Sacramento
New home construction has been slow to recover despite stronger home sales, rising home
prices, increased apartment occupancy and higher rents.
Permits
Apartments
Sacramento MSA Housing Permits
Sacramento Apartment Supply & Demand
28
28
Single-Family: Nov @ 3,060
Single-Family, 12-MMA: Nov @ 3,602
Multifamily, 12-MMA: Nov @ 348
24
24
Single-Family Average (1998-2003): 14,169
20
20
16
16
12
12
8
8
4
4
0
0
Percent, Thousands of Units
9.0%
Thousands
Thousands
Thousands of Permits, Seasonally Adjusted Annual Rate
8.0%
0.60
7.0%
0.30
6.0%
0.00
5.0%
-0.30
4.0%
-0.60
3.0%
90
92
94
96
98
00
02
04
06
08
10
12
14
-0.90
Apartment Completions: Q3 @ 0 Units (Right Axis)
Apartment Net Absorption: Q3 @ 146 Units (Right Axis)
Apartment Vacancy Rate: Q3 @ 2.4% (Left Axis)
2.0%
-1.20
2007
Source: U.S. Department of Commerce, Reis, Inc. and Wells Fargo Securities, LLC
Economic Outlook
0.90
18
2008
2009
2010
2011
2012
2013
2014
Our Forecast
Wells Fargo U.S. Economic Forecast
Actual
2014
Real Gross Domestic Product
Personal Consumption
Inflation Indicators
PCE Deflator
1
Forecast
2015
Actual
2012
2013
Forecast
2014
2015
2016
1Q
2Q
3Q
4Q
1Q
2Q
3Q
4Q
-2.1
4.6
5.0
3.2
2.7
2.6
2.8
2.9
2.3
2.2
2.5
3.2
2.9
1.2
2.5
3.2
4.1
3.0
2.7
2.7
2.6
1.8
2.4
2.5
3.1
2.6
1.1
1.6
1.5
1.1
0.8
0.7
0.9
1.4
1.8
1.2
1.3
1.0
2.0
1.4
2.1
1.8
1.2
0.7
0.4
0.7
1.6
2.1
1.5
1.6
0.9
2.4
2
Consumer Price Index
Industrial Production
1
Corporate Profits Before Taxes
Trade Weighted Dollar Index
Unemployment Rate
2
3
3.9
5.7
4.1
5.6
4.7
4.9
3.5
3.1
3.8
2.9
4.3
4.6
3.6
-4.8
0.1
1.4
1.5
3.7
3.6
4.1
4.6
11.4
4.2
-0.4
4.0
5.2
76.9
75.9
81.3
85.1
86.8
88.0
89.3
90.5
73.5
75.9
78.5
88.6
92.9
6.6
6.2
6.1
5.7
5.5
5.4
5.3
5.2
8.1
7.4
6.2
5.4
5.0
0.92
1.01
1.17
1.28
0.93
0.99
1.03
1.07
1.06
1.13
1.21
1.24
0.78
0.25
0.25
0.25
0.25
0.25
0.50
0.75
1.00
0.25
0.25
0.25
0.63
2.00
Conventional Mortgage Rate
4.34
4.16
4.16
3.86
3.60
3.72
3.87
3.89
3.66
3.98
4.17
3.77
4.56
10 Year Note
2.73
2.53
2.52
2.17
1.99
2.21
2.29
2.30
1.80
2.35
2.54
2.20
2.82
Housing Starts
4
Quarter-End Interest Rates 5
Federal Funds Target Rate
Forecast as of: January 23, 2015
1
C ompound Annual Growth Rate Quarter-over-Quarter
2
Year-over-Year Percentage C hange
3
Federal Reserve Major C urrency Index, 1973=100 - Quarter End
4
Millions of Units
5
Annual Numbers Represent Averages
Economic Outlook
19
Appendix
Wells Fargo Economics Group Publications
A Sampling of Our Recent Special, Regional & Industry Commentary
Selected Recent Economic Reports
Date
Title
Authors
U.S. Macro
To view any of our past research
please visit:
http://www.wellsfargo.com/
economics
To join any of our research
distribution lists please visit:
http://www.wellsfargo.com/
economicsemail
January-12
The Open U.S. Economy and Newtons Third Law
Silvia & Griffiths
January-06
Making Sense of Household Formations
Vitner & Khan
December-15 Profits: Understanding Why and How of Cyclical Variation
Silvia & Iqbal
December-15 Just Another Final Hour Budget Deal
Silvia & Brown
U.S. Regional
January-09
Minnesota Economic Outlook: January 2015
Vitner, Wolf & Moehring
January-05
Pennsylvania 2015 Economic Outlook
Vitner, Wolf & Moehring
December-30 Florida Consumers Getting Better All the Time
Vitner & Wolf
December-30 Colorado Economic Outlook: December 2014
Vitner & Moehring
January-15
January-12
January-06
January-02
Global Econom y
Swiss National Bank Cuts Its Currency Loose
Mexican Industrial Production Still Weak in November 2014
Argentina's Economy Continued to Deteriorate in Q3 2014
Real GDP Growth in Singapore Ends Year on Weak Note
January-07
Are Higher Rates a Liability for Households?
Interest Rates/Credit Market
Silvia, Vitner & Brown
December-17 FOMC Patiently Lays Groundwork
Bullard & Brown
December-17 A Look Ahead to 2015: A Flatter Yield Cure, Refinancing Risk
Silvia, Vitner & Brown
December-10 Fed Tightening Cycles and Yield Spreads: Flatter
Silvia, Vitner & Brown
January-08
December-23
December-17
December-16
Economic Outlook
Bryson & Viloria
Alemán
Alemán
Bryson
Real Estate
Housing Data Wrap-Up: January 2015
Nonresidential Construction Recap: December 2014
Housing Chartbook: December 2014
Dodge Momentum Index Inches Higher in November
21
Vitner & Khan
Khan
Vitner & Khan
Khan
Wells Fargo Securities, LLC Economics Group
Global Head of Research and Economics
Economists
Azhar Iqbal, Econometrician………………… ……………[email protected]
Diane Schumaker-Krieg
………………… …[email protected]
Global Head of Research & Economics
……
Tim Quinlan, Economist …………………… ……………[email protected]
Eric J. Viloria, Currency Strategist
Chief Economist
Sarah Watt House, Economist
John E. Silvia …
...................... …
[email protected]
.
Michael T. Wolf, Economist
.
…………… …………[email protected]
Michael A. Brown, Economist ……………… …
Senior Economists
Mark Vitner, Senior Economist……………....………. .
[email protected]
………………… …
[email protected]
.
[email protected]
Economic Analysts
[email protected]
Zachary Griffiths, Economic Analyst
[email protected]
Jay H. Bryson, Global Economist …………………....…… …[email protected]
Mackenzie Miller, Economic Analyst
[email protected]
Sam Bullard, Senior Economist
Erik Nelson, Economic Analyst
[email protected]
Alex Moehring, Economic Analyst
Nick Bennenbroek, Currency Strategist ……[email protected]
Administrative Assistants
Eugenio J. Alemán, Senior Economist… …………[email protected]
Anika R. Khan, Senior Economist …
[email protected]
[email protected]
Donna LaFleur, Executive Assistant.
. [email protected]
Cyndi Burris, Senior Administrative Assistant
[email protected]
[email protected]
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Economic Outlook
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