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ECONOMIC OUTLOOK
BETTER SOFT DATA WITH TRUMP,
BUT HARDER DATA IS LAGGING
Augustine Faucher
Chief Economist
April 19, 2017
HIGHER INTEREST RATES WITH THE ELECTION…
Interest rate, %
0.8
2.6
0.7
2.4
0.6
2.2
10-year Treasury bond (R)
0.5
2.0
0.4
1.8
3-month Treasury bill (L)
0.3
0.2
1.4
J'16
F
Source: Federal Reserve
2
1.6
M
A
M
J
J
A
S
O
N
D
J'17
F
M
A
…AND BETTER CONFIDENCE
130
108
125
Small business optimism index,
1986=100 (R)
120
104
115
110
100
Consumer confidence index,
1985=100 (L)
105
100
96
95
90
92
J'15
A
Sources: The Conference Board, NFIB
3
J
O
J'16
A
J
O
J'17
THIS EXPANSION ALREADY MUCH LONGER THAN
RECENT AVERAGE
Length of expansion, months, by starting date of recovery
140
120
100
80
120
60
92
40
20
36
Source: NBER
4
65
12
0
11/70
73
58
94
3/75
7/80
11/82
3/91
11/01
6/09
Average
(excl.
current)
GROWTH BOUNCES BACK IN SECOND HALF OF
2016…
Real, annualized % change
6
4
2
0
Gross domestic product
Gross domestic income
-2
'13
Source: BEA
5
'14
'15
'16
…AND JOB GROWTH REMAINS NEAR 200,000 PER
MONTH
Payroll employment, change, 3 mo. moving average, ths
300
250
200
150
100
50
J'13
Source: BLS
6
A
J
O
J'14
A
J
O
J'15
A
J
O
J'16
A
J
O
J'17
U.S. IS LEADING THE GLOBAL ECONOMY
7
LIMITED FALLOUT FROM BREXIT…
Exports, 2015, % of U.S. GDP
2.5
2.0
1.5
1.0
0.5
0.0
Japan
Source: BEA, Census
8
UK
China
Mexico
Canada
Eurozone
…BUT RECENT DOLLAR STRENGTHENING COULD
PULL EXPORTS DOWN FURTHER
15
-15
-10
10
-5
5
0
0
5
-5
10
-10
Broad U.S. $ index,
% change year ago,
reverse axis (R)
Real U.S. exports,
% change year ago (L)
15
-15
20
'00
'01
'02
Sources: BEA, Federal Reserve
9
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
HISTORIC ENERGY BOOM MATTERS FOR LONG RUN,
BUT WAS A DRAG IN 2016
16
12
Natural gas price,
6-mo. moving average,
$ per mmbtu (R)
12
10
Oil and gas extraction,
6-mo. moving average,
% change year ago (L)
8
4
8
6
0
4
-4
2
-8
-12
0
'80
'85
Sources: Federal Reserve, NYMEX
10
'90
'95
'00
'05
'10
'15
PRIVATE SERVICE INDUSTRIES, CONSTRUCTION
DRIVING JOB GROWTH…
3.5
Payroll employment, change year ago, mil
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
'11
Source: BLS
11
'12
Government
All other private
Manufacturing, mining
Total
'13
'14
'15
'16
'17
CONSUMERS BENEFITTING FROM JOB GAINS, LACK
OF TAX HIKES…
Real, % change year ago
8
Personal disposable income
6
4
2
Consumer
spending
0
-2
-4
-6
'12
Source: BEA
12
'13
'14
'15
'16
'17
…AND WAGE GROWTH WILL CONTINUE TO PICK UP
Quit rate, % of employment,
3-quarter lead (L)
2.4
4.0
Average hourly earnings,
all private-sector workers,
% change year ago (R)
2.2
3.5
2.0
3.0
1.8
2.5
Private-sector wages,
ECI, % change year ago (R)
1.6
2.0
1.4
1.5
1.2
1.0
'02
Source: BLS
13
'03
'04
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
Hundreds
LOWER GASOLINE PRICES SAVING HOUSEHOLDS
$150 BILLION A YEAR
4.50
450
Consumer spending on
gasoline, annualized, $ bil (R)
4.00
400
3.50
350
3.00
300
2.50
250
2.00
200
Price of unleaded gasoline,
$ per gallon (L)
1.50
150
1.00
100
'00
'02
Sources: Oil Price Information Service, BEA
14
'04
'06
'08
'10
'12
'14
'16
PUT IT ALL TOGETHER, 2015 WAS A GREAT YEAR
FOR REAL INCOMES
Real median household income, % change
6
4
2
0
-2
-4
'76
Source: Census Bureau
15
'80
'84
'88
'92
'96
'00
'04
'08
'12
CONSUMER BALANCE SHEETS IN GREAT SHAPE
% of disposable income
7.5
18.5
7.0
18.0
Financial obligations ratio (R)
17.5
6.5
17.0
6.0
16.5
5.5
16.0
Mortgage debt
service ratio (L)
5.0
15.5
4.5
15.0
4.0
14.5
'90
'92
Source: Federal Reserve
16
'94
'96
'98
'00
'02
'04
'06
'08
'10
'12
'14
'16
ANOTHER RECORD YEAR FOR THE AUTO INDUSTRY,
ALTHOUGH JOB GROWTH HAS SLOWED
20
20
Employment, motor vehicles and parts,
3-mo. moving average, change, ths (L)
10
18
0
16
Cash for clunkers
-10
14
-20
12
Light vehicle sales,
SAAR, mil (R)
-30
10
-40
-50
8
'07
'08
Sources: AutoData, BLS
17
'09
'10
'11
'12
'13
'14
'15
'16
'17
STILL ROOM FOR IMPROVEMENT IN
HOMEBUILDING…
2,400
3,500
Residential construction
employment, ths (R)
2,000
3,250
3,000
1,600
2,750
2,500
1,200
2,250
800
400
Housing starts,
SAAR, 3-month
moving average, ths (L)
'05
Sources: Census, BLS
18
'06
'07
'08
'09
2,000
1,750
'10
'11
'12
'13
'14
'15
'16
'17
…AND HOUSE PRICE GROWTH RUNNING AT A
SUSTAINABLE PACE…
110
0
REO and short sale share of total existing
single-family sales, reverse axis, % (R)
5
100
10
Case-Shiller house price
index, peak=100 (L)
90
15
20
80
25
70
30
60
35
'02
'03
'04
'05
Sources: S&P/Case-Shiller, CoreLogic, PNC
19
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
'17
…BUT BIG JUMP IN MORTGAGE RATES AFTER
ELECTION A DOWNSIDE RISK FOR HOUSING
30-year fixed mortgage rate, %
4.4
4.2
4.0
3.8
3.6
3.4
J'15
Source: Freddie Mac
20
A
J
O
J'16
A
J
O
J'17
SMALL BUSINESSES HIRING INTENTIONS REMAIN
SOLID INTO 2017
Expectations of own hiring, % of respondents
120
Decrease
Same
Increase
100
80
60
40
20
0
'04
Source: PNC
21
'05
'06
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
SMALL BUSINESSES HIRING INTENTIONS REMAIN
SOLID INTO 2017
Real business fixed investment, 2009$ bil
2,500
Intellectual property
Equipment
Structures
2,000
1,500
1,000
500
0
'08
Source: PNC
22
'09
'10
'11
'12
'13
'14
'15
'16
GOVERNMENT IS NOW NEUTRAL FOR GROWTH
Real GDP, contribution to annualized growth, ppt
6
Government
Excluding Government
5
4
3
2
1
0
-1
-2
'11
Source: BEA
23
'12
'13
'14
'15
'16
INTEREST RATE OUTLOOK DEPENDS ON
INFLATION…
Personal consumption expenditures price index, % change year ago
2.4
FOMC’s 2% target
2.0
Excluding food
and energy
1.6
1.2
0.8
Overall
0.4
0.0
'13
Sources: BEA, PNC
24
'14
'15
'16
'17F
'18
…AND INFLATION EXPECTATIONS HAVE SOARED
5-year, 5-year forward inflation expectations, %
2.2
2.1
2.0
1.9
1.8
1.7
1.6
1.5
1.4
J'15
A
J
Sources: Federal Reserve, Moody’s Analytics, PNC
25
O
J'16
A
J
O
J'17
A
SOLID ECONOMIC GROWTH THROUGH 2017, WITH
FULL EMPLOYMENT SOON
Real GDP, % change year ago (L)
3.5
8
3.0
7
2.5
2.0
6
1.5
5
1.0
Unemployment rate, % (R)
0.5
4
'13
Sources: BEA, BLS, PNC
26
'14
'15
'16
'17F
'18F
SOFTER GROWTH IN COMMODITY, AUTO STATES…
27
…BUT THAT DRAG SHOULD LIFT LATER THIS YEAR
28
STRUCTURAL SLOWDOWN IN PRODUCTIVITY
GROWTH COULD BE BAD NEWS
Productivity, nonfarm business sector, 4-quarter MA, % change year ago
5
4
3
2
1
0
-1
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Source: BLS
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A NEW, BIG RISK
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President Trump
↓ Trade
↑ Fiscal policy
↑ Jobs/income/confidence
↓ Strong $
↓ Monetary policy/interest rates
↑ Regulatory reform
↑ Stock market
↓ Immigration
↓ Brexit/Europe
↕ China/emerging economies
↕ Energy
↕ Housing market
↑ Commercial construction
↑ State budgets
↕ Healthcare
↓ Terrorism
PNC ECONOMIC OUTLOOK
Q&A
For more information from PNC Economics:
www.pnc.com/economicreports
Twitter:
@GusFaucherPNC
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Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a
recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice.
Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an
investment professional to tailor a financial plan to your particular needs.
©2017 The PNC Financial Services Group, Inc. All rights reserved.
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