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The US Economic
Outlook
Patrick Newport
[email protected]
Director of Long Term Forecasting, IHS
16 May 2013
The US economy continues its uneven expansion
• The economy’s fundamentals are improving, but fiscal policy headwinds will
restrain near-term growth.
• We expect the federal spending sequester to last through September, taking 0.4
percentage point off 2013 real GDP growth, compared with a no-sequester case.
• Housing markets will continue their resurgence, and business investment will
remain a driving force in US economic growth.
• Consumers will cautiously increase spending in response to gains in asset
values, employment, and income.
• The US energy boom is creating jobs, investment, and a competitive advantage.
• Real GDP growth is projected to pick up from 1.8% this year to 2.8% in 2014 and
a high of 3.2% in 2015. Growth will average 2.6% over the next 10 years.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
2
US real GDP growth and the unemployment rate
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
3
The Institute for Supply Management’s indexes signal
a spring slowdown
(Index, over 50 indicates expansion)
Source: Institute for Supply Management (ISM)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
4
Stock prices reach new peaks: S&P 500
(Index, 1941-43 = 10)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
5
A Three Speed World
Real GDP, annual change
Weak
Moderate
Strong
2010
2011
2012
2013
2014
Eurozone
1.9
1.5
-0.5
-0.7
0.4
Japan
4.7
-0.5
2.0
1.0
2.5
United States
2.4
1.8
2.2
1.8
2.8
China
10.5
9.3
7.8
7.8
8.0
India
10.5
6.3
4.2
6.1
6.9
Brazil
7.5
2.7
0.9
2.9
4.2
World
4.3
3.0
2.6
2.5
3.5
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
US economic growth by sector
(Percent change)
2012
2013
2014
2015
Real GDP
2.2
1.8
2.8
3.2
Consumption
1.9
2.1
2.5
2.5
12.1
14.9
18.3
20.9
8.0
4.8
6.8
6.7
Federal government
-2.2
-5.5
0.7
-1.6
State & local government
-1.4
-1.0
0.0
0.7
Exports
3.4
2.0
5.0
5.6
Imports
2.4
1.9
5.5
4.2
Residential investment
Business fixed investment
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
7
Other key US indicators
(Percent change unless noted)
2012
2013
2014
2015
Industrial production
3.6
3.1
3.2
3.3
Payroll employment
1.7
1.5
1.6
1.9
Light-vehicle sales (Millions)
14.4
15.3
15.7
16.2
Housing starts (Millions)
0.78
0.99
1.23
1.57
Consumer Price Index
2.1
1.4
1.6
1.7
Core CPI
2.1
1.9
2.1
1.9
Brent crude oil price ($/barrel)
101
93
86
86
Federal funds rate (%)
0.1
0.1
0.2
0.2
10-year Treasury yield (%)
1.8
1.9
2.5
2.9
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
8
US employment is steadily increasing and will regain its
January 2008 peak in mid-2014
(Percent change, annual rate)
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9
An uneven recovery in manufacturing production
(Percent change, annual rate)
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10
Interest rates will eventually rise from today’s low levels
(Percent)
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11
Consumer price inflation has subsided
(Year-over-year percent change)
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12
Industrial materials prices are retreating
(IHS Global Insight indexes, 2002:1=1)
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13
US crude oil and natural gas prices take different paths
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14
The boom in domestic oil and gas production is
providing stimulus to the US economy
(Quadrillion Btu, annual rate)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
15
Despite weak productivity growth, unit labor cost
increases will stay subdued
(Percent change, nonfarm businesses)
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16
Forces affecting consumer spending
Positive forces
Negative forces
• Pent-up demand
• Tax increases
• Rising employment
• High debt burdens
• Rising asset prices
• Weak wage gains
• Easing credit conditions
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
17
The consumer markets environment will slowly improve
(Percent change unless noted)
2012
2013
2014
2015
Real consumption
1.9
2.1
2.5
2.5
Real disposable income
1.5
1.0
3.4
3.1
Real household net worth
4.4
7.4
2.8
0.5
Payroll employment
1.7
1.5
1.6
1.9
Real wage rate
0.0
0.8
0.6
0.6
Consumption price deflator
1.8
1.0
1.4
1.5
Light-vehicle sales (Millions)
14.4
15.3
15.7
16.2
Home sales* (Millions)
4.50
4.93
5.68
6.19
* Single-family new and existing homes
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
18
Consumer spending growth depends on disposable
income gains, which will strengthen in 2014
(Percent change)
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19
Pent-up demand for durable goods and a housing market
recovery will support growth in consumer spending
(Percent change, chained 2005 dollars)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
20
US light-vehicle sales are recovering
(Millions of units, annual rates)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
21
Housing markets are rebounding
• Job growth is sparking a recovery in household formation.
• Record housing affordability is boosting demand.
• Despite some easing, credit standards remain relatively strict.
• Multifamily housing led the upturn; single-family housing has followed.
• Baby boomers are downsizing.
• Young adults are delaying homeownership.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
22
Housing starts and home prices are rising
* Purchase-only index
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23
Affordability is near a record high but will deteriorate as
home prices and mortgage rates rise
(Index, higher values = better affordability*)
* A value of 1.0 indicates a household earning the median income can afford a median-priced
single-family home.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
24
A rebound in household formation will support
substantial increases in housing starts in 2013-15
(Millions)
* The introduction of new population controls led to a discontinuity in household data in
2011. This chart shows the previous estimate of household formation for 2011.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
25
New orders for business equipment are rising
(Nondefense capital goods exc. aircraft, 3-month moving avg., billion $)
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26
Business fixed investment growth has slowed
(Year-over-year percent change, 2005 dollars)
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27
Growth in real business equipment and software
investment by category
(Percent change, 2005 dollars)
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28
Real private investment in industrial structures is led
by energy projects
(Billions of 2005 dollars)
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29
Fiscal policy background and assumptions
• The American Taxpayer Relief Act of 2012 took effect in January 2013.
• Bush tax cuts expired for individuals earning over $400,000 and couples
•
•
•
•
earning over $450,000.
Top tax rates on dividends and capital gains rose from 15% to 20% (plus the
3.8% Medicare surcharge under the Affordable Care Act).
The 2% payroll tax cut was not extended.
Emergency unemployment insurance benefits are extended through 2013 and
then phased out over three years.
The 50% bonus depreciation is extended through 2013, then ended.
• Automatic spending cuts remain in effect through September and are then
replaced by a combination of income tax increases (through restrictions on
deductions) and cuts to entitlements and nondefense discretionary spending.
• This temporary sequester cuts actual spending by $57 billion in calendar 2013.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
30
US federal budget gap: Action expected on both sides
of the ledger
(Percent of GDP, fiscal years, unified budget)
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31
Government spending on Social Security and
healthcare will continue to rise
(Percent of GDP)
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32
US federal government debt is expected to stabilize
near 80% of GDP
(Publicly held debt as a percent of GDP)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
33
Global economic growth is stabilizing
• After a two-year slowdown, global growth is stabilizing.
• The stage has been set—through monetary stimulus and deleveraging—for a
modest acceleration in the world economy in late 2013 and 2014.
• The US and Asian economies will drive the acceleration.
• The Eurozone’s sovereign-debt crisis has abated, but problems are unresolved.
• Threats from North Korea and conflicts in the Middle East and Africa pose risks.
• China must contend with an inflating property market.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
34
Asia-Pacific leads all regions in real GDP growth
(Annual percent change)
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35
Real export and import growth have slowed
(Year-over-year percent change, 2005 dollars)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
36
The US current-account deficit will eventually narrow
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37
The dollar’s real exchange value will stay competitive
(Real trade-weighted dollar index, 2005 = 1.00)
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38
Risks to the US forecast
Scenario
Characteristics
Recovery stalls
(Probability = 20%)
• Policy gridlock damages confidence and stock prices.
• Stagnating employment causes a housing market relapse.
• The Eurozone recession deepens, Greece exits, financial
strains increase, and Spain must restructure its debt.
• China and emerging markets experience weaker growth.
Recovery reignites
(Probability = 15%)
• Progress is made toward a long-term fiscal plan.
• Confidence revives, leading to more spending and hiring.
• Housing markets rebound more quickly.
• The Eurozone remains fully intact and takes steps towards
banking and fiscal union that stabilize markets.
Baseline forecast
(Probability = 65%)
• Automatic spending cuts, in effect through September, are
replaced by tax increases (through limits on deductions)
and reductions in entitlements and nondefense spending.
• Monetary policies remain accommodative into 2015.
• Housing markets steadily recover in 2013-15.
• Greece exits the Eurozone in 2014 with minimal damage.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
39
Real GDP growth in alternative scenarios
(Percent change, annual rate)
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40
Light-vehicle sales in alternative scenarios
(Millions of units, annual rate)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
41
Housing starts in alternative scenarios
(Millions of units, annual rate)
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
42
Bottom line for the US economy
• The most likely outcome is moderate economic growth.
• The federal spending sequester has slowed growth in the spring quarter.
• Real GDP growth will pick up in 2014 and 2015, led by strengthening housing
markets and business investment.
• Consumer spending is supported by gains in employment and asset values, but
restrained by tax increases and heavy debt burdens.
• Credit availability and demand are gradually improving.
• Inflation has subsided and is not a threat to economic growth.
• US and global economic risks are now tilted to the downside.
© 2013, IHS Inc. No portion of this presentation may be reproduced, reused, or otherwise distributed in any form without prior written consent.
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Thank you!
Sara Johnson
Senior Research Director, Global Economics
[email protected]