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Economic Update
Chicago Region 2016 Banker Workshop Series
Rob Vilim
Senior Financial Analyst, Chicago Region
Division of Insurance and Research
Federal Deposit Insurance Corporation
The views expressed are those of the presenter and do not necessarily reflect official positions of the
Federal Deposit Insurance Corporation. Some of the information used in the preparation of this
presentation was obtained from publicly available sources that are considered reliable. However, the
use of this information does not constitute an endorsement of its accuracy by the Federal Deposit
Insurance Corporation.
1
Moderate GDP growth is expected to continue, despite recent weakness.
GDP beats expectations in Q3.
•
Real GDP increased at an annual rate of 2.9%
in third quarter 2016
•
Blue Chip consensus forecast for the same
period was 2.7%
•
Post-recession GDP growth averaged 2.1%
compared with 3.0% average annual growth
between 1980 and 2007
Personal consumption expenditures should
continue to support growth.
•
Inventories’ contribution to GDP increase was
substantial from negative in Q2 to 0.61 Q3
•
Residential fixed investment should return to
being a positive contributor – had been a
positive contributor for 9 quarters
•
Private fixed investment in equipment may
be a persistent drag
•
Exports’ contribution may be temporary
according to analysts
2
Volatility in the global economy is supporting a strong dollar, putting
pressure on U.S. exports and manufacturing activity.
As the world’s safe haven currency, the dollar
strengthened again on the Brexit vote.
•
The strength of the U.S. dollar puts pressure
on exports
•
Commodity producers and export-oriented
manufacturers suffer
•
IHS/Markit forecasts the dollar peaking in
4Q2016
Manufacturing production measures flirt
with contraction.
•
Manufacturing production was unchanged
in September compared to a year ago
•
The ISM index slipped recently, but
remains in expansion territory
•
The strong dollar and reduced energy
exploration activity will weigh on US
exports
3
Labor markets are also slowly improving.
Both headline and broader measures of
unemployment are improving.
•
The U.S. added 156,000 jobs in September
after very strong growth in the summer
•
The pace of job growth has slowed, averaging
181,500 in 2016, compared with average
monthly gains of 229,000 in 2015
•
The U-6 unemployment rate, at 9.7% in third
quarter 2016, remains above pre-recession
levels of 8.4%
Declining labor force participation aids falling
unemployment rates, but the participation
rate has been falling for some time.
•
The participation rate peaked in 2000
•
The rate of decline accelerated during the
recession, but may have stabilized
•
As the U.S. adds jobs, the employment to
population ratio is increasing – indicating
improving labor market fundamentals
4
Income growth remains weak, indicating potential ongoing slack in the
labor market; inflation remains below FOMC targets.
Compared to pre-recession, income growth
has been moderate.
•
Personal income grew 5.2% on average prerecession, compared with 3.6% postrecession
•
Average hourly earnings increased 2.6% from
Q3 2015 to Q3 2016
•
Personal income increased 3.2% during the
same time period
Both the total and core personal
consumption expenditure deflator measures
remain below the FOMC target of 2%.
•
Falling energy prices caused inflation
measures to decline, but measures recently
increased
•
In August, core PCE (less food & energy)
increased 1.7% year over year
•
In August, total PCE increased 0.9% year over
year
5
Global forecasts expect weak growth in most developed countries.
Blue Chip International Concensus Forecasts
Real GDP
Inflation (% Change)
Interest Rates
2015
2016(F)
2017(F)
2015
2016(F)
2017(F)
2016(F)
2017(F)
United States
2.6
1.5
2.2
0.1
1.2
2.3
0.32
0.81
Canada
1.1
1.2
2.0
1.1
1.6
2.0
0.75
1.01
Mexico
2.5
2.2
2.4
2.7
2.9
3.3
4.38
5.08
Japan
0.6
0.6
0.8
0.7
-0.2
0.4
-0.05
-0.02
South Korea
2.6
2.7
2.6
0.7
0.9
1.5
1.32
1.34
United Kingdom
2.2
1.8
0.6
0.0
0.7
2.1
0.34
0.38
Germany
1.5
1.7
1.4
0.1
0.4
1.4
-0.26
-0.14
France
1.2
1.3
1.1
0.1
0.3
1.2
-0.26
-0.14
Euro Zone
1.6
1.6
1.4
0.0
0.2
1.2
-0.26
-0.14
Brazil
-3.8
-3.3
0.9
9.0
8.6
5.7
13.91
11.60
Russia
-3.7
-0.7
1.1
15.5
7.2
5.3
10.34
8.04
China
6.9
6.6
6.2
1.4
2.0
2.0
2.83
2.86
India
7.6
7.5
7.6
4.9
5.3
5.3
6.81
6.66
•
U.S. growth is projected to be stronger than most of our largest trading partners in 2017
•
U.S. inflation expectations are subdued
•
Chinese growth is expected to continue on its path of moderation
•
Russia and Brazil are expected to exit recession in 2017
Source: Blue Chip Economic Indicators, Oct. 10, 2016.
6
Michigan Conditions
Contributors
Drag
• Labor Markets
• Manufacturing (long term)
• Housing Markets
• Demographics
• Manufacturing (last 6 yrs.)
• Municipal Fiscal Issues
• Energy markets (recently)
7
Michigan’s demographics pose long-term economic risk.
Michigan had negative population growth
from 2005-2015.
•
Michigan’s current population is 1.3% below
its pre-recession peak
•
Michigan has experienced slow growth for
decades, growing only 7% since 1990. The
national average was 29% for the same time
period
•
Michigan and Rhode Island were the only
states to see population loss from 2005-2015
Michigan also has a relatively high median
population age.
•
With a median age of 39.7, Michigan has one
of the oldest populations in the Region and
the county
•
The US median age is 37.7, two years
younger than Michigan’s
•
Many of Michigan’s youth have migrated
south or to neighboring states such as Illinois
and Indiana
8
Michigan job growth tops Region growth, picks up pace from last
year.
Michigan's job growth picks up pace.
•
Michigan added over 84,900 jobs during the
year ending September 2016, a 2% increase
•
During the prior year period, Michigan added
more than 59,300 jobs, a 1.4% increase
•
Despite above average job growth, Michigan
has yet to reach pre-recession employment
levels. Michigan has regained 86% of jobs lost
during the recession, the only state in the
Region below 100%.
Michigan’s unemployment rate ticked down
in Q3 2016.
•
At 4.5%, Michigan's unemployment rate is
below the national and regional average
•
The unemployment rate has risen in the US
as job seekers reenter the labor force faster
than the economy adds jobs
•
Michigan’s low unemployment rate may be
due to a smaller labor force caused by
discouraged workers or net-out-migration
9
Strong job growth across many sectors.
Michigan’s job growth has been broad based.
•
The professional and business services
sector; and Finance, Insurance, and Real
Estate led job growth.
•
Declining commodity prices are affecting
mining employment
Nationally, automotive sales and
employment may have plateaued.
•
Automotive manufacturing jobs nationally
increased as vehicle sales rose, but jobs and
sales appear to have plateaued.
10
Auto manufacturing has yet to fully recover despite increased
output.
Michigan’s auto manufacturing employment
is far from pre-recession levels.
•
Michigan’s automotive manufacturing
employment underperforms compared to
Regional post-recession job growth
•
In 2015, Michigan’s automotive
manufacturing employment was 28% below
2005 level
Despite sluggish employment recovery, auto
production increases nationally.
•
Auto manufacturing has increased without
commensurate growth in auto manufacturing
employment
•
Production has rebounded quicker than auto
employment, suggesting an increase in the
sector’s efficiency
11
Northern Michigan’s labor markets struggle.
Source: Bureau of Labor Statistics, Haver Analytics (Q2 2016).
12
Housing market fundamentals have improved markedly.
Michigan's housing market continues to
improve.
•
Michigan’s home prices increased 5.3% over
the last year, compared to national growth of
5.6%
•
As of second quarter 2016, Michigan’s home
prices were 2.9% below the 2005 peak.
Illinois is the only other state in the Region
that has yet to reach the pre-recession peak
Other housing market fundamentals are
showing significant improvement.
•
Michigan’s foreclosure inventories have
fallen; the percent of loans in foreclosure fell
from 4.6% at peak to just 0.7% currently
•
Michigan’s foreclosure starts are below prerecession levels at 0.8% compared with a
recession peak of 1.7%
•
Past due mortgages are also below prerecession levels and were 4.7% in June,
compared with a pre-recession peak of 7.6%
13
State Fiscal Situation
Michigan’s debt per capita is below the
national and regional average.
•
Lower debt per capita reduces long term
fiscal risks.
•
In the Region, only Indiana has a lower debt
per capita
Unfunded Pension liabilities.
•
Michigan has amassed a much smaller
unfunded pension liability than the two worst
states in the Region, Kentucky and Illinois.
•
Michigan’s unfunded pension liabilities are,
however, above the US average and far from
the Region’s best preforming state, Wisconsin
14
Local fiscal distress persists in many communities.
Municipalities and School Districts in Financial Emergency
Municipalities
Allen Park
Detroit
Ecorse
Flint
Hamtramck
Lincoln Park
Pontiac
Royal Oak Township
School Districts
Benton Harbor Area Schools
Detroit Public Schools
Highland Park School District
Pontiac Public Schools
Muskegon Heights School District
Status
Receivership-Transition Advisory Board
Financial Review Commission
Receivership-Transition Advisory Board
Receivership-Transition Advisory Board
Receivership-Transition Advisory Board
Receivership-Transition Advisory Board
Receivership-Transition Advisory Board
Consent Agreement
Status
Consent Agreement
Emergency Manager
Emergency Manager
Consent Agreement
Emergency Manager
Michigan has many distressed municipalities
and school districts.
•
The vast majority of municipalities and school
districts in financial emergency are located
within the Detroit Metropolitan Area
Source: State of Michigan, Emergency Financial Manager/Emergency Manager Appointment
History.
Contacts
Eric Robbins, Regional Manager, DIR Chicago
[email protected]
312-382-7545
Rob Vilim, Senior Financial Analyst, DIR Chicago
[email protected]
312-382-6547
Miguel Hasty, Senior Financial Analyst, DIR Chicago
[email protected]
312-382-7581
Stefan Spong, Economic Analyst, DIR Chicago
[email protected]
312-382-7582
Tyler Hienkel, Economic Assistant, DIR Chicago
[email protected]
312-382-6808
16