Houston, Texas - U.S. Economic Outlook · 2016. 1. 19. · 3 U.S. Economic Outlook China Share of...
27
U.S. Economic Outlook MIT Enterprise Forum of Texas Kim Chase Senior Economist BBVA Research, Houston TX January 13, 2016
Transcript of Houston, Texas - U.S. Economic Outlook · 2016. 1. 19. · 3 U.S. Economic Outlook China Share of...
U.S. Economic Outlook
MIT Enterprise Forum of Texas
Kim Chase
Senior Economist
BBVA Research, Houston TX January 13, 2016
2
U.S. Economic Outlook
Global Outlook
Global Real GDP growth% change
Balance of risks tilted to the downside
World GDP growth forecasts revised down due to slowdown of emerging
economies and a more tepid recovery in developed economies
Global rebalancing: China, USD, middle class in emerging markets,
commodity super cycle
Downside risks: a severe adjustment in China’s economy; a failed recovery in advanced economies; increasing
geopolitical tensions, long-term stagnation/productivity
Source: BBVA Research
5.7
3.0
0.0
5.4
4.1
3.4 3.2 3.4 3.23.6
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
200
7
200
8
200
9
2010
2011
2012
2013
2014
2015
2016
Advanced Developing
3
U.S. Economic Outlook
China
Share of World GDPPPP adjusted, %
Large spillover effects from China’s slowdown
YoY % change
China: Industrial Production & Inflation
Source: BBVA Research & Haver
-5
0
5
10
15
20
25
Jan
09
May
09
Sep
09
Jan
10
May
10
Sep
10
Jan
11
May
11
Sep
11
Jan
12
May
12
Sep
12
Jan
13
May
13
Sep
13
Jan
14
May
14
Sep
14
Jan
15
May
15
Sep
15
Industrial Production
Inflation
0
5
10
15
20
25
30
35
40
45
199
2
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
2010
2012
2014
Other Developed Other DevelopingChina U.S.
4
U.S. Economic Outlook
Europe
Inflation and Economic Activity IndexYoY % change and Index =100
ECB taking further actions amid internal disagreements
€tn and %
ECB: Assets and interest rates
Source: BBVA Research & Haver
60
70
80
90
100
110
120
130
140
-1
0
1
2
3
4
5
Jan
10
May
10
Sep
10
Jan
11
May
11
Sep
11
Jan
12
May
12
Sep
12
Jan
13
May
13
Sep
13
Jan
14
May
14
Sep
14
Jan
15
May
15
Sep
15
Inflation Activity (rhs)
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
05 06 07 08 09 10 11 12 13 14 15
AssetsMRO (rhs)Deposit (rhs)
5
U.S. Economic Outlook
Canada: Real GDP Growth
The AmericasSignificant challenges ahead
% change YoY
Source: BBVA Research
LATAM: Export Dependency on China
-1
-1
0
1
1
2
2
3
3
4
4 Consumption Investment
Net Exports GDP
6
U.S. Economic Outlook
Mexico: Economic Performance
Oil Mix and Foreign Exchange Rate$Bbl and Peso/USD
Employment and InflationYoY % change
Solid job gains and price stability. Still, the Peso remains under pressure as low oil prices impact fiscal revenues
9.0
10.0
11.0
12.0
13.0
14.0
15.0
16.0
17.0
18.00
20
40
60
80
100
120
140
07 08 09 10 11 12 13 14 15
Oil Mix
Peso (rhs,inverted)
Source: BBVA Research & Haver Analytics
-6
-4
-2
0
2
4
6
8
07 08 09 10 11 12 13 14 15
Employment Inflation
7
U.S. Economic Outlook
U.S. GDP
Real Private Investment in StructuresReal GDP Growth ContributionsSAAR Percentage Points
Lower investments in O&G structures could drag down GDP growth by an accumulated 0.5pp between 3Q15 and 1Q16
Source: BBVA Research & BEA
Contributions to QoQ SAAR GDP Growth, Percentage Points
-1.0
-0.8
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
1.0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Mar
.201
5Ju
n.20
15S
ept.2
015
Other StructuresMining Exploration, Shafts, & WellsPower and CommunicationManufacturingCommercial/Healthcare
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
Advance Preliminary Final
8
U.S. Economic Outlook
U.S. GDP
Real GDP Growth ForecastsReal GDP Growth ForecastsQoQ SAAR % Change
Leading indicators pointing to only modest improvement in 4Q growth, with annual growth stabilizing near 2.5%
Source: BBVA Research & Haver
QoQ SAAR % Change
-2
-1
0
1
2
3
4
5BB
VA R
esea
rch
USA
WA
I
MAI
Now
cast
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Baseline
Upside
Downside
9
U.S. Economic Outlook
Oil Prices
WTI spot price ($ per barrel)
When adjusted by the volatility observed between 2007-2009, prices followed a 12-year expansion that has come to an end
Source: BBVA Research and Haver Analytics
U.S. economy expands 2.9%
between 2004-2007
U.S. production of crude oil goes from 5.2 million B/D to 9.6 million B/D
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 20150
20
40
60
80
100
120
140
160
10
U.S. Economic Outlook
U.S. Oil Production
0
2
4
6
8
10
12TexasNorth DakotaU.S. Total
Total Oil Production by shale playMillion barrels per day
U.S. crude oil productionMillion barrels per day
Production has declined as output from new wells fails to compensate rapidly declining production in legacy wells
Source: BBVA Research, EIA and Haver Analytics
0.0
0.5
1.0
1.5
2.0
2.5October-2014October-2015
11
U.S. Economic Outlook
Oil Price ForecastsMarket conditions support an environment of low prices
Crude Oil Prices ForecastsWTI, $ per barrel, annual average
Crude Oil PricesWTI, $ per barrel
Source: BBVA Research
0
20
40
60
80
100
120
2014 2015 2016 2017 2018 2019 2020
Baseline UpsideDownside
Baseline Upside Downside
2015 48.6 48.6 48.6
2016 29.2 43.9 19.0
2017 37.6 53.0 21.0
2018 46.2 63.3 21.5
2019 52.3 73.8 19.9
2020 55.1 81.9 18.8
Source: BBVA Research
12
U.S. Economic Outlook
Inflation
Headline CPI ForecastsImport Price and USD StrengthYoY % Change
Strong USD adds further downward pressure to import prices and overall inflation
Source: BBVA Research, BLS, FRB & Haver
YoY % Change
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
-15%
-10%
-5%
0%
5%
10%
15%
10 11 12 13 14 15
Import PricesImport Prices Ex FuelTrade-Weighted USD Index
-2%
-1%
0%
1%
2%
3%
4%
09 10 11 12 13 14 15 16 17 18 19 20
Downside Risk
Upside Risk
Baseline
13
U.S. Economic Outlook
Inflation
Core CPI InflationYoY % Change
CPI ComponentsNovember 2015
Core services inflation offsetting commodities
Source: BBVA Research & Haver Analytics
CPI MoM YoYTotal 0.03% 0.44%Food ‐0.11% 1.27%Energy ‐1.26% ‐14.80%Core 0.18% 2.02%Core Commodities ‐0.16% ‐0.55%
Apparel ‐0.32% ‐1.52%Medical Care Commodities 0.29% 2.49%
Core Services 0.28% 2.88%Shelter 0.24% 3.18%Medical Care Services 0.38% 3.08%
Core Ex Shelter 0.14% 1.18% -1%
0%
1%
2%
3%
4%
10 11 12 13 14 15
Core Services
Core Commodities
14
U.S. Economic Outlook
Inflation
Core CPI and PCEYoY % Change
Market Inflation Expectations%
However, core PCE inflation is expected to hold below the Fed’s 2% target at least throughout 2016
Source: BBVA Research & Haver Analytics
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
07 08 09 10 11 12 13 14 15
5yr implicit
5yr forward0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
01 03 05 07 09 11 13 15 17 19
Core CPICore PCEFed Target (PCE)
15
U.S. Economic Outlook
Monetary Policy
Source: BBVA Research, BEA, BLS, & FRB
FOMC announces first rate hike since 2006
Unemployment, Inflation, and Fed Funds Rate%, YoY % Change, %
3%
4%
5%
6%
7%
8%
9%
10%
11%
0%
2%
4%
6%
8%
10%
91 94 97 00 03 06 09 12 15
Core PCE Fed Funds Rate Unemployment Rate (rhs)
16
U.S. Economic Outlook
Monetary Policy
Real-time estimates of the natural interest rate%
Unemployment and Inflation%
Uncertainty about the Phillips Curve and the equilibrium real rate of interest could imply low inflation, growth and interest rates for a prolonged time
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
06 07 08 09 10 12 13 14 15 16 17 19 20
4Q06 4Q08
4Q10 4Q12
3Q15
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
3.0 5.0 7.0 9.0 11.0
2009-15
1990-08
Current
Source: BBVA Research & Haver
17
U.S. Economic Outlook
Monetary Policy
Change in Real GDP, 4Q % ChangeCentral Tendency
Unemployment Rate, 4Q %Central Tendency
Minor revisions to FOMC outlook
Core PCE Inflation, 4Q % ChangeCentral Tendency
Source: BBVA Research & Haver
1.3
1.5
1.7
1.9
2.1
2.3
2.5
2.7
Actual Sept Low Sept High
Dec Low Dec High
4.0
5.0
6.0
7.0
8.0
2013 2014 2015 2016 2017 2018 L-Run
Actual Sept Low
Sept High Dec Low
Dec High
1.0
1.5
2.0
2.5
2013 2014 2015 2016 2017 2018
Actual Dec Low Dec HighSept Low Sept High
18
U.S. Economic Outlook
Monetary Policy
Median Fed Funds Rate FOMC ForecastSeptember vs December, Year-end %
Source: BBVA Research & FRB
Despite dovish undertones, Fed maintains projections for four rate increases in 2016
Target Fed Funds Rate, DecemberYear-end, %
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2015 2016 2017 2018 Long Run
December September
19
U.S. Economic Outlook
Monetary Policy
Federal Funds Rate Futures Implied Probabilities2nd 25bp increase, %
Average Change in Fed Funds RatePast Tightening Cycles, Basis Points
Our expectations remain less optimistic than the Fed’s
Source: BBVA Research & FRB
0
50
100
150
200
250
300
350
400
450
Jan1987 -Sept1987
Mar1988 -May1989
Feb1994 -Feb1995
Jun1999 -May2000
Jun2004 -June2006
Sept2015 -Dec2016
Sept2015 -Dec2016
BBVA Research Forecast
FOMC Forecast
(Dec)
-
10
20
30
40
50
60
70
80
90
100
10/21/2015 11/17/2015 12/15/2015 1/12/2016
Jan-16 Mar-16 Apr-16 Jun-16 Jul-16 Sep-16
20
U.S. Economic Outlook
Fiscal Policy
Federal Debt% of GDP
Government Outlays and Revenue% of GDP
Under current policy, entitlements and interest dominate outlays, while gross debt exceeds 100% of GDP
Source: BBVA Research & CBO**Medicaid includes Medicaid, CHIP and Exchange Subsidies
Source: BBVA Research, Haver, OMB
17.6
25.3
0
5
10
15
20
25
30
2000 2005 2010 2015 2020 2025 2030 2035 2040Net InterestDiscretionary SpendingOther Mandatory SpendingMedicaid*Medicare
92.1
103.2 94.4
0
20
40
60
80
100
120
1950
1955
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
2025
Held by government accountsHeld by government accounts - projectionHeld by the publicHeld by the public - projection
21
U.S. Economic Outlook
Fiscal Policy
Discretionary Funding in Appropriations Bills$ billions
Congress passed substantial fiscal legislation last year, but elections will dominate agenda in 2016
Source: House Appropriations Committee & BBVA Research
514.1
162.1
79.9
57.6
55.7
41
3837.2
32.15923.2
21.754.4
Defense Labor/Health & Human Services/EducationMilitary Construction/Veterans Affairs Transportation/Housing & Urban DevelopmentCommerce/Justice/Science Homeland SecurityState/Foreign Operations Energy & WaterInterior & Environment Financial ServicesAgriculture Legislative Branch
2015: Budget deal
raising of debt ceiling
Highway funding billreauthorization of EXIM Bank
Appropriations bills lifting of oil export banextension of tax breaks
Pending: • TPP / TTIP
• Elections
22
U.S. Economic Outlook
Cracks Show in Texas Economy
Unemployment Insurance ClaimsK
Texas ExportsYear-over-year, current $
Weak exports and declining investment in Oil & Gas weighs on our outlook for economic activity in 2016
-25%-20%-15%-10%-5%0%5%10%15%20%25%30%35%40%
-60%-50%-40%-30%-20%-10%
0%10%20%30%40%50%60%70%80%90%
100%110%120%
Dec
-201
0A
pr-2
011
Aug
-201
1D
ec-2
011
Apr
-201
2A
ug-2
012
Dec
-201
2A
pr-2
013
Aug
-201
3D
ec-2
013
Apr
-201
4A
ug-2
014
Dec
-201
4A
pr-2
015
Aug
-201
5
Nonmanufactured Manufactured (rhs)250
300
350
400
450
500
550
600
650
700
40
50
60
70
80
90
100
110
120
130
140
Au
g-2
00
0
Jul-2
00
1
Jun
-20
02
May
-20
03
Ap
r-20
04
Mar
-20
05
Feb
-20
06
Jan
-20
07
Dec
-20
07
No
v-20
08
Oct
-20
09
Sep
-20
10
Au
g-2
011
Jul-2
012
Jun
-20
13
May
-20
14
Ap
r-20
15
Texas U.S. (rhs)
Source: BBVA Research, BLS, Census & Haver Analytics
23
U.S. Economic Outlook
Why This Time is Different than 80sU.S. & Texas EmploymentYear-over-year%
Ratio of Information & Healthcare to Oil & Gas
Production and GDP
Loans to GDP%
4.0
5.0
6.0
7.0
8.0
9.0
10.0
Mar
-90
May
-91
Jul-9
2S
ep-9
3N
ov-9
4Ja
n-96
Mar
-97
May
-98
Jul-9
9S
ep-0
0N
ov-0
1Ja
n-03
Mar
-04
May
-05
Jul-0
6S
ep-0
7N
ov-0
8Ja
n-10
Mar
-11
May
-12
Jul-1
3S
ep-1
4
0%5%
10%15%20%25%30%35%40%45%
85 87 88 89 91 92 93 95 96 97 99 00 01 03 04 05 07 08 09 11 12 13
0
0.0005
0.001
0.0015
0.002
0.0025
0.003
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%Production($)-to-GDP
Production(bbl)-to-GDP(2009$)
-6.00%-4.00%-2.00%0.00%2.00%4.00%6.00%8.00%
10.00%
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
Texas U.S.
Source: BBVA Research, BEA, FDIC, BLS & Haver Analytics
24
U.S. Economic Outlook
Texas Outlook
2016 Texas Real GDP Growth & Oil PricesDotted lines= 95% C.I., Markers represent median estimate
Upside to 2016 fading, as oil prices trend towards inflation adjusted lows
• 2015 GDP growth likely to be lowest since recession
• Pessimistic oil price outlook implies a “U-shaped” path to recovery in Texas
• 2016 GDP (2.1%) up from 2015, but remains below potential
• Downsides risks could emerge from further oil price declines
• Labor markets characterized by weak employment growth and rising unemployment rates
• More resilient balance sheets and greater diversity lowers the probability of a tail risk event for Texas
1.0
1.5
2.0
2.5
3.0
3.5
@50 @40 @30 @20
25
U.S. Economic Outlook
Texas Home Price Outlook
Texas Home Prices Scenarios
Home price growth to remain positive amidst economic headwinds
YoY % change, 95% Confidence Interval
Texas MSA Home PricesYoY % change, EOP
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
2015 2016
Houston Austin
DFW San Antonio
-4
-2
0
2
4
6
8
10
Jan
-05
Jan
-06
Jan
-07
Jan
-08
Jan
-09
Jan
-10
Jan
-11
Jan
-12
Jan
-13
Jan
-14
Jan
-15
Jan
-16
Jan
-17
Jan
-18
’15-’16 Baseline: 2.4%
26
U.S. Economic Outlook
Texas Metropolitan Area Outlook
Real GDPAnnualized % change, 2016-2017
At the local-level, there will be a growing divergence amongst oil and non-oil dependent MSA
TX Leaders TX Laggards
'16 Location Quotient
Austin-Round Rock 4.2% 1.4Dallas-Fort Worth-Arlington 2.8% 2.1San Antonio-New Braunfels 2.6% 2.8McAllen-Edinburg-Mission 2.2% 3.3Brownsville-Harlingen 2.1% 2.0Lubbock 1.9% 4.3Waco 1.7% 0.7Killeen-Temple 1.6% 1.6Victoria 1.5% 15.0Corpus Christi 1.4% 10.6College Station-Bryan 1.2% 4.8Longview 1.2% 13.5Houston-The Woodlands-Sugar Land 1.2% 7.2Beaumont-Port Arthur 0.7% 3.0Laredo 0.6% 13.3El Paso 0.6% 1.5Sherman-Denison 0.4% 1.6Amarillo 0.3% 2.8Texarkana 0.3% -Tyler -1.1% 4.5Odessa -1.9% 23.7Wichita Falls -1.9% 6.5San Angelo -2.3% 16.6Midland -3.6% 34.1Abilene -3.9% 4.2
* Location Quotient: Oil & Gas extraction and Support Services
U.S. Economic Outlook
MIT Enterprise Forum of Texas
Kim Chase
Senior Economist
BBVA Research, Houston TX January 13, 2016
