The indicative Versus The indicative The subjunctive Versus.
Business Forecast - University of Arkansas · Past Performance Is Not Necessarily Indicative Of...
Transcript of Business Forecast - University of Arkansas · Past Performance Is Not Necessarily Indicative Of...
Business ForecastPresented by: Center for Business and Economic Research
Sam M. Walton College of Business
Center for Business & Economic Research
Business ForecastPresented by: Center for Business and Economic Research
AEP SWEPCOFriday, Eldredge and Clark LLP
HoganTaylor LLPJ.B. Hunt Transport Services, Inc.
McKee FoodsRegions Bank
Regions InsuranceCity of West Memphis
Wright, L indsey & Jennings LLP
Center for Retai l ing Excel lenceGreenwood Gearhart Inc.
Walmart /Sam’s Club
Walton Business Partners
Walton Academic Partners
Walton Presenting Partner
SPONSORS
Walton corporate PartnersDil lard’s
Frost, PLLCReece Moore Pendergraft LLP
Smith Hurst PLCTyson Foods, Inc.
Celebrate ArkansasNorthwest Arkansas Democrat Gazette
Talk Business & Pol i t ics
Walton Media Partners
Business Forecast 2016 Friday, January 29, 2016
11:30 a.m. - 1:30 p.m. Schedule of Events
Welcome and Special Remarks Matt Waller, Interim Dean
Sam M. Walton College of Business, University of Arkansas
2015 Contest Awards Kathy Deck, Director Center for Business and Economic Research Sam M. Walton College of Business, University of Arkansas Introduction of Moderator Matt Waller Introduction of Panelists Bill Dillard, III
Vice President Dillards, Inc.
Presentations
Global Forecaster Michael Drury Chief Economist McVean Trading & Investments LLC
Domestic Forecaster Kevin Kliesen
Business Economist Federal Reserve Bank of St. Louis
Regional Forecaster Kathy Deck
Panel Discussion Bill Dillard, Michael Drury, Kevin Kliesen, Kathy Deck Recognitions and Announcements Matt Waller
Business Forecast 2016 is in association with the National Association for Business Economics (NABE).
Please use Twitter hashtag #BF2016 for this event.
Bill Dillard, III is vice president at Dillard's Inc., based in Little Rock, Arkansas, with responsibilities for the Beauty, Home and Accessories areas of the business. He is entering his 22nd year in the retail/fashion industry. Since joining Dillard's in 1994, he has served in several areas, including area selling management, buying, product and merchandising. He also lived and worked in Hong Kong, working directly with overseas manufacturers as an agent for fashion retailers. He serves on the boards of eStem Public Charter Schools, Arkansans for Education Reform Foundation, St. Vincent Health Systems, Young Life and Search Ministries. Dillard received his bachelor's degree from the University of Texas at Austin. He also received a master's degree in business administration from the J.L. Kellogg Graduate School of Management at Northwestern University in Evanston, Illinois, in 1999. Michael Drury is chief economist for McVean Trading & Investments LLC. He joined the firm in 1992, after serving for five years as senior economist with Allen Sinai at Shearson Lehman Brothers and its successor firms. Drury began his career in New York in 1982 as senior economist at A. Gary Shilling and Co. He assesses global macroeconomic developments to help develop hedging strategies using futures markets in interest rates, currencies and industrial materials. Drury is chairman for the Global Interdependence Center, serves on the executive board of the National Association for Business Economics, is the founder and first president of the Mid-South Association for Business Economics (a chapter of National Association for Business Economics), works as a member of the National Business Economic Issues Council and a non-resident member of the American Chamber of Commerce in Beijing, and is the author of McVean Trading's "Weekly Economic Update.” Drury received his bachelor of science in economics from the Georgia Institute of Technology and did his graduate work at the University of Wisconsin-Madison.
Kevin Kliesen is a business economist and bank officer in the Research Division at the Federal Reserve Bank of St. Louis. He joined the bank in 1988. In his position, he analyzes current U.S. macroeconomic and financial market developments. He also reports on and analyzes economic conditions in the seven states of the Eighth Federal Reserve District, managing the bank's Burgundy Books and developing various materials and information sources for the bank's outreach efforts. Kliesen was instrumental in the development of the St. Louis Fed's Financial Stress Index and the St. Louis Fed's Price Pressures Measure. From 2006 to 2013, he taught economics, part-time, at Washington University. He is a member of the American Economic Association, the National Association for Business Economics and the Association of Christian Economists. In September 2011, he was recognized as an NABE Fellow, one of the organization's highest honors. Kliesen holds an M.A. in economics from Colorado State University.
Kathy Deck is director for the Center for Business and Economic Research in the Walton College. Her research interests include local economic development, industry market structure and higher education economics. She has managed studies for a variety of clients including: Arvest Bank Group, the Arkansas Economic Development Commission, the Arkansas Department of Parks and Tourism and the Northwest Arkansas Council. She also acts as a media resource for analysis of current events and trends. She was named Business Advocate of the Year in 2015 by the Fayetteville Chamber of Commerce, Communicator of the Year in 2009 by the Northwest Arkansas Public Relations Society of America, 40 under 40 by Arkansas Business and the Northwest Arkansas Business Journal and as a Woman of Influence by Arkansas Business. Deck earned a B.A. in economics from the College of William and Mary and an M.S. in economics from the University of Wisconsin-Madison.
0Past Performance Is Not Necessarily Indicative Of Future Results.
McVEANTrading & Investments, LLCMcVEAN
Trading & Investments, LLC
GLOBAL ECONOMIC OUTLOOK
January 29, 2016
Michael DruryChief Economist
McVean Trading and Investments, LLC
2016 Business Forecast LuncheonFayetteville, AR
2015 GLOBAL GDP $73.6 TRILLION (-3.6% Y/Y)
2015 GLOBAL GDP $73.6 TRILLION (-3.6% Y/Y)
1Past Performance Is Not Necessarily Indicative Of Future Results.
EUROPE$17.5T-10.9%
NAFTA$20T
+2.4%
Japan+SouthKorea+Taiwan
$6.2T-5.9%
Australia+Brazil+ Argentina+Russia+
OPEC$7.9T
-17.7%
China$11.5T+8.0%
Other$10.5T+0.8%
-4.1%
-9.7%
U.S. MAPU.S. MAP
2Past Performance Is Not Necessarily Indicative Of Future Results.
SUNBELT
U.S.; EUROPE; CHINAU.S.; EUROPE; CHINA
3Past Performance Is Not Necessarily Indicative Of Future Results.
SUBURBS RUST BELT SUNBELT
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
Jan-49 Jan-55 Jan-61 Jan-67 Jan-73 Jan-79 Jan-85 Jan-91 Jan-97 Jan-03 Jan-09 Jan-15
Q3 2015
REAL GDPCURRENT QTR % CHANGE FROM YEAR AGO
REAL GDPCURRENT QTR % CHANGE FROM YEAR AGO
4Past Performance Is Not Necessarily Indicative Of Future Results.
RTC CRISIS
NASDAQ BUBBLE
LEHMAN
REAL GDPCURRENT QTR % CHANGE FROM YEAR AGO
REAL GDPCURRENT QTR % CHANGE FROM YEAR AGO
5Past Performance Is Not Necessarily Indicative Of Future Results.
NIKKEI BUBBLE
ASIAN CRISIS
LEHMAN-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
12%
14%
16%
Jan-49 Jan-55 Jan-61 Jan-67 Jan-73 Jan-79 Jan-85 Jan-91 Jan-97 Jan-03 Jan-09 Jan-15
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
Jan-60 Jan-64 Jan-68 Jan-72 Jan-76 Jan-80 Jan-84 Jan-88 Jan-92 Jan-96 Jan-00 Jan-04 Jan-08 Jan-12
Q3 2015
US TRADE BALANCE AS A % OF GDPUS TRADE BALANCE AS A % OF GDP
6Past Performance Is Not Necessarily Indicative Of Future Results.
7Past Performance Is Not Necessarily Indicative Of Future Results.
160
180
200
220
240
260
280
800
1000
1200
1400
1600
1800
2000
2200
1/1/2000 1/1/2002 1/1/2004 1/1/2006 1/1/2008 1/1/2010 1/1/2012 1/1/2014
S&P HOME PRICE Dec-15
US Household WealthUS Household Wealth
DOMESTIC CORPORATE PROFITS VS CAPITAL INVESTMENTAS A % OF GDP
DOMESTIC CORPORATE PROFITS VS CAPITAL INVESTMENTAS A % OF GDP
8Past Performance Is Not Necessarily Indicative Of Future Results.
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
16.0%
4%
6%
8%
10%
12%
Mar-75 Mar-79 Mar-83 Mar-87 Mar-91 Mar-95 Mar-99 Mar-03 Mar-07 Mar-11 Mar-15
DOMESTIC CORPORATE PROFITS CAPITAL INVESTMENT Q3 15
POLICY LEVERSPOLICY LEVERS
• 1) Monetary Policy
• 2) Fiscal Policy
• 3) Regulation
• 4) Exchange Rates
9Past Performance Is Not Necessarily Indicative Of Future Results.
MONETARY POLICYMONETARY POLICY
10Past Performance Is Not Necessarily Indicative Of Future Results.
0
2
4
6
8
10
12
14
16
18
20
1/1/1980 1/1/1984 1/1/1988 1/1/1992 1/1/1996 1/1/2000 1/1/2004 1/1/2008 1/1/2012
US OVERNIGHT RATE VS 10YR YIELD
Overnight Rate US 10YR Yield Dec 15
5 YR TREASURY YIELD CHANGE FROM 5 YEARS AGO5 YR TREASURY YIELD CHANGE FROM 5 YEARS AGO
11Past Performance Is Not Necessarily Indicative Of Future Results.
-6
-5
-4
-3
-2
-1
0
1
2
Jan-89 Jan-91 Jan-93 Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19
ACTUAL PROJECTION AT CURRENT RATE
FISCAL POLICYFISCAL POLICY
12Past Performance Is Not Necessarily Indicative Of Future Results.
‐4%
‐2%
0%
2%
4%
6%
8%
10%
Jan‐78 Jan‐82 Jan‐86 Jan‐90 Jan‐94 Jan‐98 Jan‐02 Jan‐06 Jan‐10 Jan‐14
FEDERAL GOVERNMENT DEFICIT AS A % OF GDP
Q3 2015
REGULATIONREGULATION
• Exclusion of Utility Operations-Related Swaps with Utility Special Entities from De Minimis Threshold for Swaps with Special Entities
• Prohibitions and Restrictions on Proprietary Trading and Certain Interests in, and Relationships with, Hedge Funds and Private Equity Funds
• Derivatives Clearing Organizations and International Standards
• Protection of Collateral of Counterparties to Uncleared Swaps; Treatment of Securities in a Portfolio Margining Account in a Commodity Broker Bankruptcy
• Swap Dealers and Major Swap Participants; Clerical or Ministerial Employees
• Clearing Exemption for Certain Swaps Entered Into by Cooperatives
• Harmonization of Compliance Obligations for Registered Investment Companies Required To Register as Commodity Pool Operators
• Enhanced Risk Management Standards for Systemically Important Derivatives Clearing Organizations
• Interpretive Guidance and Policy Statement Regarding Compliance With Certain Swap Regulations
• Exemptive Order Regarding Compliance With Certain Swap Regulations
• Process for a Designated Contract Market or Swap Execution Facility To Make a Swap Available to Trade, Swap Transaction Compliance and Implementation Schedule, and Trade Execution Requirement Under the Commodity Exchange Act
• Core Principles and Other Requirements for Swap Execution Facilities
• Core Principles and Other Requirements for Swap Execution Facilities; Correction
• Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades
• Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades
• Procedures To Establish Appropriate Minimum Block Sizes for Large Notional Off-Facility Swaps and Block Trades; Correction
• Reassignment of Commission Staff Responsibilities and Delegations of Authority
• Delegation of Authority To Disclose Confidential Information to a Contract Market, Registered Futures Association or Self-Regulatory Organization
• Clearing Exemption for Swaps Between Certain Affiliated Entities
13Past Performance Is Not Necessarily Indicative Of Future Results.
• DODD FRANK
EXCHANGE RATEEXCHANGE RATE
14Past Performance Is Not Necessarily Indicative Of Future Results.
60
82
104
126
148
170
192
214
236
258
280
0.6
0.7
0.8
0.9
1
1.1
1.2
1.3
1.4
1.5
1.6
1/1/1980 1/1/1984 1/1/1988 1/1/1992 1/1/1996 1/1/2000 1/1/2004 1/1/2008 1/1/2012
Dollar / Euro Cross vs Dollar / Yen
Dollar_Euro Dollar_Yen Dec 15
AGGREGATE HOURS WORKED VS AVERAGE HOURLY EARNINGSTHREE MO AVG % CHANGE FROM 3 MO AVG YEAR AGO
AGGREGATE HOURS WORKED VS AVERAGE HOURLY EARNINGSTHREE MO AVG % CHANGE FROM 3 MO AVG YEAR AGO
15Past Performance Is Not Necessarily Indicative Of Future Results.
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
Jan-85 Jan-89 Jan-93 Jan-97 Jan-01 Jan-05 Jan-09 Jan-13
AGGREGATE HOURS WORKED AVERAGE HOURLY EARNINGS (right) Dec-15
RETAIL SALES EX GASOLINE VS DISPOSABLE INCOME3 MONTH AVERAGE % CHANGE FROM 3 MONTH AVERAGE YEAR AGO
RETAIL SALES EX GASOLINE VS DISPOSABLE INCOME3 MONTH AVERAGE % CHANGE FROM 3 MONTH AVERAGE YEAR AGO
16Past Performance Is Not Necessarily Indicative Of Future Results.
Nov-15
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
RETAIL SALES EX GAS DISPOSABLE INCOME
TOTAL RETAIL SALES VS RETAIL SALES EX GASOLINE3 MONTH AVERAGE % CHANGE FROM 3 MONTH AVERAGE YEAR AGO
TOTAL RETAIL SALES VS RETAIL SALES EX GASOLINE3 MONTH AVERAGE % CHANGE FROM 3 MONTH AVERAGE YEAR AGO
17Past Performance Is Not Necessarily Indicative Of Future Results.
Nov-15
-12.0%
-9.0%
-6.0%
-3.0%
0.0%
3.0%
6.0%
9.0%
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
RETAIL SALES EX GAS STATION SALES
US, EUROPE, JAPAN, CHINA PMIUS, EUROPE, JAPAN, CHINA PMI
18Past Performance Is Not Necessarily Indicative Of Future Results.
-25
-10
5
20
35
50
65
80
30
35
40
45
50
55
60
65
1/1/2006 1/1/2007 1/1/2008 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1/1/2013 1/1/2014 1/1/2015
CHINA Eurozone US JAPAN (RS)Dec-15
BALANCE SHEETSMONTHLY
BALANCE SHEETSMONTHLY
19Past Performance Is Not Necessarily Indicative Of Future Results.
Dec-15
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
Bill
ion
s o
f U
S$
US Europe Japan
EXCHANGE RATEEXCHANGE RATE
20Past Performance Is Not Necessarily Indicative Of Future Results.
0.005
0.006
0.007
0.008
0.009
0.01
0.011
1/1/1986 1/1/1990 1/1/1994 1/1/1998 1/1/2002 1/1/2006 1/1/2010 1/1/2014
Yen / Euro Cross
Dec 15
U.S., EUROPE AND JAPAN GDPU.S., EUROPE AND JAPAN GDP
21Past Performance Is Not Necessarily Indicative Of Future Results.
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
Jan-95 Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
US Europe JapanQ1 2015
SHANGHAI COMPOSITE STOCK MARKETSHANGHAI COMPOSITE STOCK MARKET
22Past Performance Is Not Necessarily Indicative Of Future Results.
1000
1500
2000
2500
3000
3500
4000
4500
5000
5500
6000
Jan‐16
CHINESE YUAN IN US$CHINESE YUAN IN US$
23Past Performance Is Not Necessarily Indicative Of Future Results.
0.12
0.125
0.13
0.135
0.14
0.145
0.15
0.155
0.16
0.165
0.17
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Jan-15
CHINA NOMINAL GDP GROWTH IN US$CURRENT QUARTER % CHANGE FROM YEAR AGO
CHINA NOMINAL GDP GROWTH IN US$CURRENT QUARTER % CHANGE FROM YEAR AGO
24Past Performance Is Not Necessarily Indicative Of Future Results.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
Mar-01 Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
Q3 15
CORN VS COPPERCORN VS COPPER
25Past Performance Is Not Necessarily Indicative Of Future Results.
50
100
150
200
250
300
350
400
450
500
150
250
350
450
550
650
750
850
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Corn CopperDec-15
WTI CRUDE OILWTI CRUDE OIL
26Past Performance Is Not Necessarily Indicative Of Future Results.
20
40
60
80
100
120
140
160
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15Dec-15
-5.0
0.0
5.0
10.0
15.0
5.0
7.5
10.0
12.5
15.0
Mar-02 Mar-03 Mar-04 Mar-05 Mar-06 Mar-07 Mar-08 Mar-09 Mar-10 Mar-11 Mar-12 Mar-13 Mar-14 Mar-15
REAL GDP (LHS) GDP DEFLATOR (RHS)
CHINA GDP GROWTHCURRENT QUARTER %CH FROM YEAR AGO
CHINA GDP GROWTHCURRENT QUARTER %CH FROM YEAR AGO
27Past Performance Is Not Necessarily Indicative Of Future Results.
Q3 15
CHINESE NOMINAL GDP BY SECTOR 3 MONTH AVERAGE % CHANGE FROM YEAR AGOCHINESE NOMINAL GDP BY SECTOR
3 MONTH AVERAGE % CHANGE FROM YEAR AGO
28Past Performance Is Not Necessarily Indicative Of Future Results.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15
PRIMARY & SECONDARY TERTIARY Q3 2015
CHINA TOTAL AMOUNT OF SOCIAL FINANCING12 MONTH AVERAGE
CHINA TOTAL AMOUNT OF SOCIAL FINANCING12 MONTH AVERAGE
29Past Performance Is Not Necessarily Indicative Of Future Results.
0
200
400
600
800
1000
1200
1400
1600
Nov 15
REAL ESTATE IN CHINAREAL ESTATE IN CHINA
Real Estate Investment in Eastern, Central and Western Regions for January- August
Regions InvestmentShare
% of Investment inGrowth Rate Y/Y (%)
Residential Buildings Residential Buildings
National Total 100.0% 67.3% 1.3 0.7
Eastern 55.6% 67.0% 1.1 1.2
Central 21.6% 70.0% 1.8 1.3Western 22.7% 65.4% 1.1 -1.2
30Past Performance Is Not Necessarily Indicative Of Future Results.
Sales of Commercial Buildings in Eastern, Central and Western Regions for January-November
Regions
Floor Space of Commercial Buildings Sold Sales of Commercial Buildings
Share of Production
Growth Rate Y/Y (%)
Share ofValue Sold
Growth Rate Y/Y (%)
National Total 100.0% 7.4 100.0% 15.6
Eastern 46.6% 9.6 60.2% 21.1
Central 26.9% 7.3 20.1% 10.9
Western 26.3% 3.8 19.8% 5.5
CHINESE EXPORT VS IMPORTS3 MO AVG %CH FROM 3 MO AVG YEAR AGO
CHINESE EXPORT VS IMPORTS3 MO AVG %CH FROM 3 MO AVG YEAR AGO
31Past Performance Is Not Necessarily Indicative Of Future Results.
-33.0%
-16.5%
0.0%
16.5%
33.0%
49.5%
66.0%
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
EXPORTS IMPORTSNov 15
CHINESE GLOBAL TRADE SURPLUSBILLIONS OF US$ - 3 MONTH AVERAGE
CHINESE GLOBAL TRADE SURPLUSBILLIONS OF US$ - 3 MONTH AVERAGE
32Past Performance Is Not Necessarily Indicative Of Future Results.
-100.0
0.0
100.0
200.0
300.0
400.0
500.0
600.0
700.0
800.0
900.0
Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Nov-15
The Near-TermOutlook for the U.S. Economy2016 Business Forecast LuncheonCenter for Business & Economic ResearchWalton College, University of ArkansasFayetteville, Arkansas
Kevin L. KliesenBusiness Economist and Research OfficerFederal Reserve Bank of St. LouisJanuary 29, 2016
Not an official document
The views I will express are my own and do not necessarily reflect the positions of the Federal Reserve Bank of St. Louis or the Federal Reserve System.
Disclaimer
• The economy is into the seventh year of expansion.
• The song remains the same . . . Modest growth, low inflation, and an extremely easy monetary policy.
• Job gains remain strong and the unemployment rate is low.
• The FOMC finally moved; policy will probably remain very accommodative for quite a while.
The Big Picture
1. Forecasters have over-predicted real GDP growth and inflation the past few years.
a. This should humble us about our forecasting prowess.
Three Key Themes in the Outlook
Slower real GDP growth reflects slower growth of two key inputs: labor and labor productivity.
5
4.4
3.6
2.8
2.22.5
1.61.2 1.0
2.0 2.01.6
1.2
0.0
1.0
2.0
3.0
4.0
5.0
1982-90 1991-2001 2001-07 2009-15
Real GDP Growth
Labor Input
Labor Productivity
Accounting for Real GDP Growth During the Current andPrevious Three Business ExpansionsPercent changes at compounded annual rates
NOTE: Totals may not add because of rounding.SOURCE: Author's calculations based on data from the BEA and BLS.
To boost output growth over the long term requires boosting productivity growth, the most important factor driving living standards.
1. Forecasters have over-predicted real GDP growth and inflation the past few years.
2. Falling oil prices and a strengthening U.S. dollar.
Three Key Themes in the Outlook
The fall in oil prices has lowered headline inflation, but not underlying inflation.
7
Once oil prices stabilize, headline inflation should converge to its underlying rate. Well, that’s the expectation!
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan.2012 Sep.2012 May.2013 Jan.2014 Sep.2014 May.2015
Headline PCE FRB Dallas 2% Target
Actual and Underlying Inflation (YOY Changes)12-month percent changes
NOTE: Data through November 2015.
New measures by the St. Louis Fed suggest a high probability of low inflation over the next 12 months.
8
p y
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Jan.2011 Jan.2012 Jan.2013 Jan.2014 Jan.2015 Jan.2016
LT 0% 0% to 1.5% 1.5% to 2.5% GT 2.5%
The St. Louis Fed Inflation Probability Measures: FourPossibilities for Headline PCE Inflation Over the Next 12 MonthsProbability, 1.0 = 100 percent
NOTE: This excludes the deflation probability estimate. Last observation is December 2015.
The Changing Nature of Oil Shocks• Historically, oil price increases have mattered more
than decreases.
• But that appears to be changing.
• Energy consumption per dollar of real GDP has declined by about 40% since 1985.
• The U.S. is now a major oil producer; this has reduced crude oil imports by about 60% since 2011.
Dollar Appreciation and GDP Growth• A stronger dollar can slow the growth of U.S. exports
and lower inflation via lower import prices.
• A dollar appreciation also often coincides with an oil price decline.
• This tends to raise real disposable income and, therefore, real consumption.
• Empirically, these contrasting effects largely cancel out.
The boost to real GDP growth from consumption was larger than the drag from net exports in 2015.
11
g g p
Auto sales boomed in 2015! The contribution from net exports is also affected by U.S. and world growth, as in 2008, when imports plunged.
0.84
-0.67
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 2013
Consumption Net Exports
Contributions to Real GDP Growth from Consumption of Durable and Nondurable Goods and from Net ExportsPercentage points of growth
NOTE: Data through 2015
1. Forecasters have over-predicted real GDP growth and inflation the past few years.
2. Falling oil prices and a strengthening dollar.
3. There is a growth divergence between the manufacturing and services sectors.
Three Key Themes in the Outlook
• Weaker exports, China’s slowdown, and lower oil prices have taken a toll on the manufacturing sector.
• However, the broader economy continues to expand, as evidenced by continued growth in the (much larger) services sector.
• December job gains were robust, a further indication that the manufacturing slowdown is not widespread.
• Still, Q4 growth could be weaker than Q3.
Diverging Growth—But for How Long?
• Trend-like growth (2% to 2.5%) is the most likely outcome, but risks are evident on either side.
• Job gains should continue to outpace labor force growth, pushing the unemployment rate lower.
• Inflation returns to underlying levels in 2016. Oil prices and the dollar are wildcards.
• But shocks will occur—both good and bad—so monetary policy needs to be nimble.
The Near-Term Outlook
END
THE ARKANSAS ECONOMY IN 2016:CRUISING ALTITUDE
Kathy Deck, Director
Center for Business and Economic Research
January 29, 2016
$‐
$10,000
$20,000
$30,000
$40,000
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1970
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1996
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2004
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2012
2014
Per Capita Personal Income
United States Arkansas Northwest ArkansasSource: Bureau of Economic Analysis
1,080
1,100
1,120
1,140
1,160
1,180
1,200
1,220
1,240
Jan‐07
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Jul‐14
Jan‐15
Jul‐15
Jan‐16
Jul‐16
Arkansas Non‐Farm Employment Forecast
Source: Bureau of Labor Statistics, January 2016 CBER Forecast
Thousands
Mining and Logging1%
Construction4%
Manufacturing12%
Trade, Transportation and Utilities
21%
Information1%
Financial Activities4%Professional and
Business Services11%
Education and Health Services15%
Leisure and Hospitality9%
Other Services4%
Government18%
Arkansas Employment by Sector ‐ November 2015
Source: Bureau of Labor Statistics
1.2%
‐15.0% ‐12.0% ‐9.0% ‐6.0% ‐3.0% 0.0% 3.0% 6.0% 9.0% 12.0% 15.0%
Mining and Logging
Manufacturing
Trade, Transportation and Utilities
Government
Non‐Farm
Information
Leisure and Hospitality
Financial Activities
Other Services
Education and Health Services
Professional and Business Services
Construction
Change in Arkansas Employment by SectorNovember 2014 ‐ November 2015
Source: Bureau of Labor Statistics, CBER Calculations
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Jan‐07
Jan‐08
Jan‐09
Jan‐10
Jan‐11
Jan‐12
Jan‐13
Jan‐14
Jan‐15
Unemployment Rates, Not Seasonally Adjusted
United States Arkansas Northwest ArkansasSource: Bureau of Labor Statistics
‐4.0%
‐2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
Jan‐07
Jan‐08
Jan‐09
Jan‐10
Jan‐11
Jan‐12
Jan‐13
Jan‐14
Jan‐15
Labor Force, Year Over Year Percent Change
United States Arkansas Northwest ArkansasSource: Bureau of Labor Statistics
195
200
205
210
215
220
225
230
235
240
Jan‐07
Jan‐08
Jan‐09
Jan‐10
Jan‐11
Jan‐12
Jan‐13
Jan‐14
Jan‐15
Jan‐16
Northwest Arkansas Employment Forecast
Source: Bureau of Labor Statistics, January 2016 CBER Forecast
Thousands
Mining, Logging and Construction
4%
Manufacturing11%
Trade, Transportation and Utilities
22%
Information1%
Financial Activities3%
Professional and Business Services
20%
Education and Health Services11%
Leisure and Hospitality10%
Other Services3%
Government15%
Northwest Arkansas Employment by Sector ‐ November 2015
Source: Bureau of Labor Statistics
1.9%
‐15.0% ‐12.0% ‐9.0% ‐6.0% ‐3.0% 0.0% 3.0% 6.0% 9.0% 12.0% 15.0%
Manufacturing
Information
Trade, Transportation and Utilities
Professional and Business Services
Non‐Farm
Mining, Logging and Construction
Government
Financial Activities
Other Services
Education and Health Services
Leisure and Hospitality
Change in Northwest Arkansas MSA Employment by Sector, November 2014 ‐ November 2015
Source: Bureau of Labor Statistics, CBER Calculations
2015 is a Year of Transition Per capita personal income growth means moreamenities and an even better place to live.
Construction is strong, but not leading employmentgrowth—a more sustainable situation than beforethe recession.
The area should expect more out-of-region visitors,given the mix of investments in the leisure andhospitality amenities sector.
One note of caution is that both professional andbusiness services and trade, transportation andutilities are growing more slowly than in the recentpast