Download Dye Presentation 01-09-15

The Comerica Economic Outlook
The Mid-Cycle U.S. Economy in a Multi-Speed World
Robert A. Dye
Chief Economist, Comerica Bank
January 2015
Hits and Misses from 2014
Hits
Misses
• U.S. endogenous growth
• Oil prices
• GDP expansion
• Eurozone weaker
• Falling unemployment rate
• Long-term rates lower
• Consumer re-emerges
• Housing metrics subdued
• Low inflation
• Monetary policy unwind
2
The U.S. and Global Economies in 2015,
Many Moving Parts
• The U.S. economy is mid-cycle
• Labor metrics are improving
• Manufacturing conditions remain favorable
• However, U.S. economic growth remains hindered by wealth
destruction, risk aversion and tight housing credit
• Housing metrics remain range bound
• Oil prices have eased, creating winners and losers
• Inflation remains well contained
3
Global Momentum Slowed in 2014H2
• Global growth challenged by Europe, China and Japan
• Europe data softer, some leading indicators improving
• China vulnerable to credit bubble and weaker exports
• Japan still struggling for sustained lift-off
• Russia faces recession and possible default
4
The End of an Era for Global Monetary Policy
2007-2014
Globally coordinated extraordinary monetary policy
Very low interest rates
Special programs
Expanded currency swap lines
Asset purchases
2015-
De-synchronization
Bank of Japan aggressive easing, beginning late 2012
U.S. Federal Reserve pivots
Bank of England tightens
European Central Bank doubles down
5
Foreign Exchange Rates Moved by Monetary Policy
The Dollar, the Euro and the Yen
0.82
0.80
0.78
0.76
0.74
0.72
Euro/$ (L)
0.70
Yen/$ (R)
0.68
2011
2012
2013
125
120
115
110
105
100
95
90
85
80
75
$
2014
6
Fed Policy: Countdown to Interest Rate Lift-off
• Labor market metrics are improving
• Fiscal drag easing
• Strong consensus for solid 2015 GDP growth
• Falling oil prices and rising dollar complicate inflation outlook
• Next step in Fed pivot…forward guidance, started in December
• Yellen brackets lift-off…April-December 2015
• Interest rate lift-off around mid-year 2015
• Shallow trajectory, rates may not “normalize” before next recession
7
Recent Job Growth is Strong
+252k in December, U. Rate 5.6 Percent
400
Payroll Employment, avg monthly diff, ths (L)
10
200
9
0
8
-200
7
Unemployment Rate, percent (R)
-400
6
-600
5
-800
4
'07
'08
'09
'10
'11
'12
'13
'14
'15
'16
Forecast
8
Potential For Wage Inflation
Sub-5.5 Percent Unemployment Rate Associated with
Accelerating Wages
12
10
Unemployment Rate, percent
8
6
4
2
Avg Hourly Earnings, Prod Workers, pchya
0
'70
'80
'90
'00
'10
9
U.S. Oil Production and Consumption
Shale Revolution Contributing to Global Glut
1.8
3.8
U.S. petroleum consumption, quadrillion btu (R)
3.6
1.6
3.4
1.4
3.2
1.2
3.0
1.0
2.8
0.8
2.6
U.S. crude oil production, quadrillion btu (L)
0.6
'90
'92
'94
'96
'98
'00
'02
'04
'06
2.4
'08
'10
'12
'14
10
Falling Crude Oil Prices Complicate Inflation Outlook
And Pose a Downside Risk for Oil Producing Regions
WTI Crude Price Through October 2014
160
140
120
100
80
60
40
20
Average Active Rotary Rigs, Total Number U.S. (R)
2000
1500
1000
WTI Crude Oil Spot Price at Cushing, $/barrel (L)
500
'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14
11
Lower Gasoline Prices Boost Auto Sales
U.S. Auto Sales, total SAAR
18,000,000
17,000,000
16,000,000
15,000,000
14,000,000
13,000,000
12,000,000
11,000,000
10,000,000
9,000,000
History
2008
2009
2010
2011
2012
2013
2014
Forecast
2015
12
Home Sales Supported by Job Growth, Low Rates
New and Existing Home Sales
5,500,000
700,000
600,000
5,000,000
500,000
New Home Sales, (R)
4,500,000
400,000
300,000
4,000,000
Existing Home Sales, (L)
200,000
3,500,000
100,000
3,000,000
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
1
3
GDP Forecast Through 2015, Ongoing Moderate
Expansion
U.S. Real GDP Growth, annualized rate
5
3
1
(1)
(3)
(5)
(7)
(9)
History
2008
2009
2010
2011
2012
2013
Forecast
2014
2015
14
Interest Rates Face Upward Pressure with Monetary
Policy Unwind
Yield, percent
5
4
3
10-Year Treasury Bonds
2
1
Fed Funds
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
15
Forecast Risks
Downside Risks
Upside Risks
•
Crude oil prices
•
Lower gasoline and product prices
•
China, Japan, Eurozone, Russia, MENA
•
Consumer/Business confidence surges
•
Consumer spending languishes
•
Strong job growth
•
Housing market stalls
•
Households unleash pent-up demand
•
Job growth weakens
•
Easing underwriting for home mortgages
•
Strong dollar hurts exports
•
Increased defense spending
•
Monetary policy stumbles
•
Manufacturing renaissance
•
Fiscal policy failure, rating downgrade
•
Europe and Japan turn the corner
16
Michigan Labor Markets Are Improving
15
Unemployment Rate, percent,
U.S. Michigan (L)
10
5
Job Growth, y/y percent,
U.S. Michigan (L)
0
-5
4,300
4,200
4,100
4,000
Payroll employment, ths, Michigan (R)
-10
2008 2009 2010 2011 2012 2013 2014
3,900
3,800
1
7
Robert A. Dye
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