U.S. Economic Outlook€¦ · BBVA Research –U.S. Economic Outlook February 2019 / 10 Labor...

BBVA Research – U.S. Economic Outlook February 2019 / 1

U.S.

Economic OutlookFebruary 2019

GDP growth to slow to 2.5% in 2019, and 2.0% in 2020

Risk of recession remains elevated

Fed to delay raising rates until 4Q19; operational framework and

balance sheet strategy adjusted

Labor market conditions remain auspicious

Core inflation to remain stable, modest rebound in energy prices to lift

headline

10-year Treasury to follow shallower path

Oil prices converging with long-term equilibrium around $60/b

Economic Outlook


Economic activity

Real-Time Economic Momentum Heat Map

Source BBVA ResearchBelow Average Above Average

Improving manufacturing

sentiment on less negative views

on domestic demand and thawing

trade tensions

Small business optimism

continues declining on concerns

about future economic growth

Home prices appreciation strong

despite weaker demand side

conditions

Consumer confidence is lowest

since 2017

Steady productivity growth amidst

strong labor force inflows and

modest wage increases

3-months

ago

2-months

ago

1-month

agoCurrent

ISM Manufacturing

Small Business Optimism

Industrial Production

IP-Manufacturing

IP-Mining

IP- Nonenergy High-Tech

Capital Goods ex Aircraft

Private Construction

Building Permits

Core Logic Home Prices

Consumer Confidence

Private Nonfarm Payrolls

Prime-Age Participation

Marginally Attached (PA)

Average Hourly Earnings

Real Disposable Income

Personal Savings Rate

Productivity


Industrial Production(Year-over-year %)

Retail Sales(Year-over-year %)

Economic trends: Industrial production moderates while

retail sales plummet in December

Source: BBVA Research, FRB & BEA

-6%

-4%

-2%

0%

2%

4%

6%

8%

2010 2011 2012 2013 2014 2015 2016 2017 2018

Oil & Gas High-Tech Motor Vechicles

Consumer Gds Biz Equip Headline (lhs)

0%

1%

2%

3%

4%

5%

6%

7%

8%

9%

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Autos Health & P. Care Gas

Clothing Nonstore Food Servc

Headline (lhs)


Economic trends: FX and slower global growth weigh

on exports

Real Exchange Rate and Exports(Year-over-year %)

Real Exports(Contribution to year-over-year %)

Source: BBVA Research, FRB & Census

-6

-4

-2

0

2

4

6

8

10

No

v-2

018

Sep-2

018

Jul-2

018

Ma

y-2

018

Ma

r-2

018

Ja

n-2

01

8

No

v-2

017

Sep-2

017

Jul-2

017

Ma

y-2

017

Ma

r-2

017

Jan-2

017

No

v-2

016

Sep-2

016

Jul-2

016

Ma

y-2

016

Ma

r-2

016

Jan-2

016

No

v-2

015

Sep-2

015

Jul-2

015

Ma

y-2

015

Consumer Goods ex Food Food & Bev.

Industrial Supplies Autos

Other Cap Goods ex Autos

-10%

-5%

0%

5%

10%

15%

Ma

y-1

5

Aug-1

5

No

v-1

5

Feb

-16

Ma

y-1

6

Aug-1

6

No

v-1

6

Feb

-17

Ma

y-1

7

Aug-1

7

No

v-1

7

Feb

-18

Ma

y-1

8

Aug-1

8

No

v-1

8

Real Trade Weighted FX Real Exports


Economic trends: Modest impact from government shutdown in 1Q19.

Recession probability 16% in next 12-months, 65% in 24 months

Real GDP(QoQ SAAR, %)

Probability of Recession in 12 Months(%)

Source: BBVA Research, and ATL & NY Fed

0

10

20

30

40

50

60

70

80

90

100

83 86 88 91 94 97 00 03 06 09 12 15 18

12-months ahead 24-months ahead

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

Q1-1

8

Q2-1

8

Q3-1

8

Atl F

ed

NY

Fed

20

19

20

19-2

021

Forecast4Q18

Baseline


Consumer credit cycle: Consumer fundamentals remain

strong, but leverage increasing in rising rate environment

Personal Interest Expense

Year-over-year %

New 90+ Day Consumer Delinquencies Rates

%

Personal Interest Expense to Disp. Income

Ratio, %

Senior Loan Officers Lending Standards

+ tightening / - loosening

Source: BBVA Research, FRB, NY Fed & BEA

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016

1.5

1.7

1.9

2.1

2.3

2.5

2.7

2.9

3.1

Ma

r-6

1

Oct-

63

Ma

y-6

6

De

c-6

8

Jul-7

1

Feb

-74

Sep-7

6

Apr-

79

No

v-8

1

Jun-8

4

Jan-8

7

Aug-8

9

Ma

r-9

2

Oct-

94

Ma

y-9

7

De

c-9

9

Jul-0

2

Feb

-05

Sep-0

7

Apr-

10

No

v-1

2

Jun-1

5

Jan-1

8

0

2

4

6

8

10

99 01 03 05 07 09 11 13 15 17

Mortgage HELOC Auto CC

Student Other Total

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

15.0

2012 2013 2014 2015 2016 2017 2018

Credit card Autos Consumer excl. credit cards

Labor Market

In January, nonfarm payroll employment grew 304,000

up from 222,000 in December

The unemployment rate (UR) increased to 4.0%, as the government shutdown

pushed a large number of workers out of the labor force or caused them to be

reported as unemployed

Major industry gains: leisure and hospitality (74K), construction (52K), health

care (42K), and transportation and warehousing (27K)

The labor force participation rate and employment-to-population increased 10bp

to 63.2% and 60.7%, respectively

We expect the UR to reach its low point in this business cycle in 3Q19 (3.6%),

and job growth to continue to decelerate


Labor market: Strong job growth to start 2019

Nonfarm Payrolls(Monthly Change, K)

Industry Employment (Annualized % change)

Source: BBVA Research & BLS

-1000

-800

-600

-400

-200

0

200

400

600

800

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

Actual Forecast

-5 0 5 10 15

Retail Trade

Federal Government

Information Services

Local Government

State Government

Other Services

Wholesale Trade

Financial Activities

Manufacturing

Education & Health Services

Leisure & Hospitality

Professional & Business Services

Transportation & Warehousing

Construction

Mining

Monthly Change Year-over-year


Labor market: Wage pressures rising while hours

worked holds steady

Average Weekly Hours(number & 5mcma)

Average Hourly Earnings(YoY% & 5mcma)


Prime Age Labor Force Participation(%)

Prime Age Employment-to-Population(%)

33.233.433.633.834.034.234.434.634.8

Dec-0

7

Jul-

08

Fe

b-0

9

Se

p-0

9

Ap

r-10

Nov-1

0

Jun

-11

Jan

-12

Au

g-1

2

Ma

r-1

3

Oct-

13

Ma

y-1

4

De

c-1

4

Jul-

15

Fe

b-1

6

Se

p-1

6

Ap

r-17

Nov-1

7

Jun

-18

Jan

-19 0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Dec-0

7

Jul-

08

Fe

b-0

9

Se

p-0

9

Ap

r-10

Nov-1

0

Jun

-11

Jan

-12

Au

g-1

2

Ma

r-1

3

Oct-

13

Ma

y-1

4

Dec-1

4

Jul-

15

Fe

b-1

6

Se

p-1

6

Ap

r-17

Nov-1

7

Jun

-18

Jan

-19

79.079.580.080.581.081.582.082.583.083.5

Dec-0

8

Jun

-09

Dec-0

9

Jun

-10

Dec-1

0

Jun

-11

Dec-1

1

Jun

-12

Dec-1

2

Jun

-13

Dec-1

3

Jun

-14

Dec-1

4

Jun

-15

Dec-1

5

Jun

-16

Dec-1

6

Jun

-17

Dec-1

7

Jun

-18

Dec-1

8

Pre-Crisis Avg.

72.073.074.075.076.077.078.079.080.081.0

Dec-0

8

Jun

-09

Dec-0

9

Jun

-10

Dec-1

0

Jun

-11

Dec-1

1

Jun

-12

Dec-1

2

Jun

-13

Dec-1

3

Jun

-14

Dec-1

4

Jun

-15

Dec-1

5

Jun

-16

Dec-1

6

Jun

-17

Dec-1

7

Jun

-18

Dec-1

8

Pre-Crisis Avg.


Labor market: Modest declines in the unemployment rate

while labor market utilization declines

U-6(%)

Unemployment Rate(%)


2

3

4

5

6

7

8

9

10

11

00

02

04

06

08

10

12

14

16

18

20

22

0

2

4

6

8

10

12

14

16

18

De

c-0

8

Jun-0

9

De

c-0

9

Ju

n-1

0

De

c-1

0

Jun-1

1

De

c-1

1

Jun-1

2

De

c-1

2

Jun-1

3

De

c-1

3

Jun-1

4

De

c-1

4

Jun-1

5

De

c-1

5

Jun-1

6

De

c-1

6

Jun-1

7

De

c-1

7

Jun-1

8

De

c-1

8

Pre-Crisis Avg.

Inflation

Headline consumer price index (CPI) was unchanged in

January, as declines in energy prices offset increases

in food prices and core inflation

On a year-over-year basis, headline CPI decelerated to 1.5% while core

remained stable at 2.1%

Recovery in oil prices should limit pass-through to energy prices going

forward

The probability of entering high-inflation regime is nonexistent; deflation risks

are also low

Implied 5-year and 10-year inflation expectations have edged up with energy

prices rising and demand-side fears fading

Pass-through from low energy prices to bring headline CPI below 2% for

year; core CPI to remain close 2.2%


Inflation: Although core prices remains stable,

headline dropping due to declines in energy prices

Consumer Price Inflation(12m change)

Core Inflation Measures(12m change)

Source: BBVA Research, BLS & BEA

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Oct-

00

Sep-0

1

Aug-0

2

Jul-0

3

Jun-0

4

Ma

y-0

5

Apr-

06

Ma

r-0

7

Feb

-08

Jan-0

9

De

c-0

9

No

v-1

0

Oct-

11

Sep-1

2

Aug-1

3

Jul-1

4

Jun-1

5

Ma

y-1

6

Apr-

17

Ma

r-1

8

Core CPI Core PCE Weighted Median

-6%

-5%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

4%

0 10 20 30 40 50 60 70 80 90 100

Relative Importance

Comm. ex

Food/

Energy

Food

Rent

Energy

Med

Services

Edu &

Comm.

Services

Trans.

Serv.

Other

ServicesOER


Inflation: Probability of high inflation regime

extremely low

Core PCE Price Index & Inflation RegimesMonth-over-month %

Inflation Regime Change Probability%


0.00

0.10

0.20

0.30

0.40

0.50

0.60

0.70

0.80

0.90

1.00

Jan-7

0

Jul-7

2

Jan-7

5

Jul-7

7

Jan-8

0

Jul-8

2

Jan-8

5

Jul-8

7

Jan-9

0

Jul-9

2

Jan-9

5

Jul-9

7

Jan-0

0

Jul-0

2

Jan-0

5

Jul-0

7

Jan-1

0

Jul-1

2

Jan-1

5

Jul-1

7

-0.2

0

0.2

0.4

0.6

0.8

1

70 74 78 82 86 90 94 98 02 06 10 14 18

Core PCE Low Inflaiton Regime

High Inflaiton Regime


Inflation: Baseline for modest undershoot in 2019

Inflation Expectations(%)

Headline & Core CPI(Year-over-year %)

Source: BBVA Research & Haver Analytics

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

10 11 12 13 14 15 16 17 18

5Y Implicit 5Y Forward

-2

-1

0

1

2

3

4

5

6

Ma

r-0

0

Ma

y-0

1

Jul-0

2

Sep-0

3

No

v-0

4

Jan-0

6

Ma

r-0

7

Ma

y-0

8

Jul-0

9

Sep-1

0

No

v-1

1

Jan-1

3

Ma

r-1

4

Ma

y-1

5

Jul-1

6

Sep-1

7

No

v-1

8

Jan-2

0

Ma

r-2

1

Ma

y-2

2

Core Headline

The FOMC left the target range of the Fed Funds rate

unchanged at their January 29-30th meeting

FOMC shifting tone saying, “[i]n light of global economic and financial

developments and muted inflation pressures, the Committee will be patient”

The FOMC has not reached a consensus on what conditions would be needed

to continuing raising rates, but several members felt higher inflation or a more

benign risk outlook would be sufficient for the Fed to raise later this year

Terminal level of the balance sheet will be significantly higher (1-1.5Tr) than

previously estimated and the normalization cycle will end sooner (EOY)

With conditions similar to 2016—elevated uncertainty, financial tensions and

weaker growth fundamentals— and with actual and expected inflation likely to

undershoot the Fed’s target in the 1H19, we believe that this means the Fed will

wait until the 4Q19 before raising rates again.

Monetary Policy: Federal Reserve


Fed: Patience is name of the game; rate increases on hold until 4Q19

BBVA & Dealers Projections of Fed Funds(%, Effective)

FOMC Projections of Fed Funds(Year-over-year %, Mid-point)

Source: BBVA Research & FRB

1

1.5

2

2.5

3

3.5

4

2018 2019 2020 2021 L-Term

Sep-18 Current

0

1

2

3

4

5

6

BBVA-Baseline Median 75th Percentile

25th Percentile BBVA-Upside BBVA-Downside


Monetary policy: Markets discounting prolonged pause,

possible rate cut in 2020

Fed Funds Implied Probability(Number of rate increases through 2019, %)

Fed Funds Futures & BBVA Baseline(%)

Source: BBVA Research & Bloomberg

0

10

20

30

40

50

60

70

80

90

100

<2.25% 2.25-2.5 2.5-2.75 2.75-3.0 3.0+

Cut Zero One Two Three

Last 1M Ago 2M Ago

0.5

0.75

1

1.25

1.5

1.75

2

2.25

2.5

2.75

3

3.25

Oct-

16

Jan-1

7

Apr-

17

Jul-1

7

Oct-

17

Jan-1

8

Apr-

18

Jul-1

8

Oct-

18

Jan-1

9

Apr-

19

Jul-1

9

Oct-

19

Jan-2

0

Apr-

20

Jul-2

0

Oct-

20

FFR + BBVA Forecast 8/8/2018

10/3/2018 12/26/2018

2/20/2019


Monetary Policy: New balance sheet strategy to be unveiled

shortly, larger terminal level and shorter wind down

Fed Funds & Repo Rates(%)

Balance Sheet Attrition(US$bn, Cumulative)

Source: BBVA Research & FRB

0.00

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

2.25

2.50

2.75

3.00

3.25

3.50

May-15 Jan-16 Sep-16 May-17 Jan-18 Sep-18

Upper Bound Lower Bound

Effective SOFR

0

50

100

150

200

250

300

350

400

U.S Govt Securities MBS

10-yr Treasury at 2.69%, 70bp below 4Q18 peak,

2-yr Treasury 50bp below peak at 2.53%

Dramatic shift in Fed’s balance sheet strategy and the U-turn on their

guidance for policy rates suggests further compression in the term

premium in medium-term and shift in the level

Rising global uncertainty and dovish monetary policy abroad could add to

the compression on the term premium, meaning a flatter-for-longer

scenario for the yield curve

Ample domestic demand for U.S. government debt from domestic sectors

contain upside pressures on yields

10-yr Treasury to reach 2.9% by end of 2019 and 3.1% by year end 2020

Interest Rates


Interest rates: Drop in inflation expectations and negative

term premium push 10-year Treasury below 2.7%

10-Year Treasury Yield Decomposition(%)

Source: BBVA Research, ACM & Haver Analytics

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

12 13 14 15 16 17 18

Real Rate Term Premium Inflation Expectations Yield


Interest rates: Nontrivial downward revisions to 10-year,

risks now more balanced

10-Year Treasury Yield(%)

Source: BBVA Research, ACM & Haver Analytics

0

1

2

3

4

5

6

7

Jan-0

7

Ma

y-0

7

Sep-0

7

Jan-0

8

Ma

y-0

8

Sep-0

8

Jan-0

9

Ma

y-0

9

Sep-0

9

Jan-1

0

Ma

y-1

0

Sep-1

0

Jan-1

1

Ma

y-1

1

Sep-1

1

Jan-1

2

Ma

y-1

2

Sep-1

2

Jan-1

3

Ma

y-1

3

Sep-1

3

Jan-1

4

Ma

y-1

4

Sep-1

4

Jan-1

5

Ma

y-1

5

Sep-1

5

Jan-1

6

Ma

y-1

6

Sep-1

6

Jan-1

7

Ma

y-1

7

Sep-1

7

Jan-1

8

Ma

y-1

8

Sep-1

8

Jan-1

9

Ma

y-1

9

Sep-1

9

Jan-2

0

Ma

y-2

0

Sep-2

0

Jan-2

1

Ma

y-2

1

Sep-2

1

Jan-2

2

Ma

y-2

2

Sep-2

2

Historic Baseline upside Downside Risk NABE (EOP)

SPF(EOP) Blue Chip(Yr. Avg) OMB (Yr.Avg) CBO(Yr. Avg)


Interest rates: Yield curve slope to remain low, but positive

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y

10-Year Average 2016 2017

2018 2019 (f) 2020 (f)

Yield Curve Slope(Bp)

Yield Curve(%, eop)

Source: BBVA Research

0.0

0.5

1.0

1.5

2.0

2.5

Jan-1

5

Jul-1

5

Jan-1

6

Jul-1

6

Jan-1

7

Jul-1

7

Jan-1

8

Jul-1

8

Jan-1

9

Jul-1

9

Jan-2

0

Jul-2

0

Jan-2

1

Jul-2

1

Jan-2

2

Jul-2

2

30Yr-10yr 10Yr-1Yr

OPEC+ cuts, a pause in U.S. interest rate increases, and

signals of a trade deal between U.S. and China resulted

in higher prices

Going forward, the expiration of import waivers of Iranian oil could add an extra

boost

U.S. production is expected to remain robust through the year, more

transportation infrastructure will facilitate exports

Demand is projected to slow down as global economic growth weakens

We maintain our forecasts of convergence to long-term equilibrium around $60/b

Elevated uncertainty around long-term equilibrium: CAPEX, protectionism,

transportation infrastructure, alternative energy sources, EM convergence, EVs,

climate change, efficiency and technology

Oil Prices


Improving sentiment on the global economy, plus OPEC+ commitment

to adjust supply led to higher prices

Source: BBVA Research and Haver Analytics

Crude oil prices August 2018 to February 2019($ per barrel)

40

45

50

55

60

65

70

75

80

85

90

Sep Oct Nov Dec Jan Feb

WTI Brent

September 23

OPEC and allies

agree not to further

increase oil

production

September 25

India may cut imports of

Iranian oil to zero in

November

October 8-12

Stock market chaos.

Concerns on weaker

demand emerge

November 2

U.S. issue waivers to

Iran’s oil buyers

November 6

EIA expects U.S. crude oil

production to surpass 12

million b/d by 2019

November 12

OPEC lowers oil

demand growth

forecasts and

anticipates

oversupply

December 6

OPEC hints a lower than

expected cut

December 7

OPEC+ decide to cut

output by 1.2 Mb/d

Jan 4-19

U.S–China trade

talks, expectation of

OPEC+ cuts

Jan 20

China post slowest

economic growth

since 1990

Feb 13

Fears of market

disruptions from

political crisis in

Venezuela

Feb 18

U.S. and China

signal a deal or

extend talks to end

their trade war


Demand supported by China, India and the U.S.


Oil product demand: total world (Thousand barrels per day, yoy change)

Oil product demand (Million barrels per day)

43

44

45

46

47

48

49

50

30

35

40

45

50

55

Sep-0

8

Ma

r-0

9

Sep-0

9

Ma

r-1

0

Sep-1

0

Ma

r-1

1

Sep-1

1

Ma

r-1

2

Sep-1

2

Ma

r-1

3

Sep-1

3

Ma

r-1

4

Sep-1

4

Ma

r-1

5

Sep-1

5

Ma

r-1

6

Sep-1

6

Ma

r-1

7

Sep-1

7

Ma

r-1

8

Sep-1

8

non-OECD OECD (rhs)

60

70

80

90

100

110

120

130

140

3.4

3.5

3.6

3.7

3.8

3.9

4.0

4.1

4.2

4.3

4.4

2014 2015 2016 2017 2018

Milla

res

Production (lhs) Imports (rhs)

China: imports and production of crude oil (Million metric tons SA, and million b/d)

Sharp increase induced

by Iranian sanctions and

expiration of small

refineries import quotas

-500

0

500

1000

1500

2000

2500

-500

0

500

1000

1500

2000

2500

3000

1Q

14

2Q

14

3Q

14

4Q

14

1Q

15

2Q

15

3Q

15

4Q

15

1Q

16

2Q

16

3Q

16

4Q

16

1Q

17

2Q

17

3Q

17

4Q

17

1Q

18

2Q

18

3Q

18

4Q

18

Western Europe United States China

India Total World (rhs)


OPEC+ supply adjustments and the expiration of waivers to importers

of Iranian oil will tight supply thought 1H19

Source: BBVA Research, Haver Analytics, and Bloomberg

Crude oil production(Million barrels per day)

11.5

11.2

10.8

10.4

8.5

9.0

9.5

10.0

10.5

11.0

11.5

12.0

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

Jan-1

9

Ma

r-1

9

Ma

y-1

9

Wellhead Production: Non OPEC: Russia (Ths b/d)

Wellhead Production: OPEC: Saudi Arabia (Ths b/d)

Iran: exports of crude oil(million barrels per day)

0.0

0.5

1.0

1.5

2.0

2.5

2015 2016 2017 2018

Other China India Turkey South Korea Japan Europe


U.S. production to remain solid. No signs of domestic oversupply


WTI Midland-Cushing differential ($/b)

U.S. Estimated crude oil production (Thousand barrels/day)

U.S. Crude oil inventories (Excluding SPR, million barrels)

U.S. Real private investment in E&P (yoy $billion )

-150

-100

-50

0

50

100

150

0

20

40

60

80

100

120

140

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Milla

res

WTI (lhs) Investment (rhs)

-20.0

-15.0

-10.0

-5.0

0.0

5.0

Jan-1

7

Ma

r-1

7

Ma

y-1

7

Jul-1

7

Sep-1

7

No

v-1

7

Jan-1

8

Ma

r-1

8

Ma

y-1

8

Jul-1

8

Sep-1

8

No

v-1

8

Jan-1

90

100

200

300

400

500

600

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2018 Average 5-yr high 5-yr low

6

7

8

9

10

11

12

13

2015 2016 2017 2018 2019


WTI prices could move between higher $50s and lower $60s in 2019, but may

decelerate further in 2020. We maintain our forecasts of convergence to long-

term equilibrium around $60/b

Source: BBVA Research and Bloomberg

WTI prices forecast ($ per barrel)WTI Futures

($ per barrel)

40

45

50

55

60

65

70

1 3 5 7 9 11131517192123252729313335373941434547

$U

SD

/bb

l

Months Ahead

02/21/19 01/22/19 3 months ago 6 months ago

65.0

56.2

52.7

58.0 57.7

48

53

58

63

68

73

78

2018 2019 2020 2021 2022

BBVA Research

Bloomberg Survey (as of Feb 22)

EIA (STEO, Feb 12.)

BBVA ResearchBloomberg Survey

(as of Feb 22) EIA (STEO, Feb 12.)

2017 50.8 50.9 50.9

2018 65.0 65.0 65.0

2019 56.2 60.0 54.8

2020 52.7 63.0 58.0

2021 58.0 64.8

2022 57.7 64.5


Macroeconomic Outlook

Source: BBVA Research

*Forecasts subject to change

2011 2012 2013 2014 2015 2016 2017 2018 (e) 2019 (f) 2020 (f) 2021 (f) 2022 (f)

Real GDP (% SAAR) 1.6 2.2 1.8 2.5 2.9 1.6 2.2 2.9 2.5 2.0 1.9 1.8

Real GDP (Contribution, pp)

PCE 1.3 1.0 1.0 2.0 2.5 1.9 1.8 1.9 1.9 1.3 1.3 1.3

Gross Investment 0.9 1.6 1.1 0.9 0.8 -0.2 0.8 1.0 1.0 0.9 0.8 0.8

Non Residential 1.0 1.2 0.5 0.9 0.3 0.1 0.7 1.0 0.8 0.8 0.7 0.8

Residential 0.0 0.3 0.3 0.1 0.3 0.2 0.1 0.0 0.0 0.0 0.0 0.0

Exports 0.9 0.5 0.5 0.6 0.1 0.0 0.4 0.6 0.5 0.6 0.7 0.7

Imports -0.9 -0.5 -0.3 -0.9 -1.0 -0.3 -0.8 -0.9 -1.0 -0.9 -0.9 -1.0

Government -0.7 -0.4 -0.5 -0.2 0.3 0.3 0.0 0.3 0.3 0.1 0.0 0.0

Unemployment Rate (%, average) 8.9 8.1 7.4 6.2 5.3 4.9 4.4 3.9 3.8 4.1 4.2 4.5

Avg. Monthly Nonfarm Payroll (K) 173 181 192 251 227 193 179 223 188 159 135 121

CPI (YoY %) 3.1 2.1 1.5 1.6 0.1 1.3 2.1 2.4 1.7 2.2 2.0 2.1

Core CPI (YoY %) 1.7 2.1 1.8 1.8 1.8 2.2 1.8 2.1 2.2 2.0 2.1 2.0

Fiscal Balance (% GDP, FY) -8.4 -6.8 -4.1 -2.8 -2.4 -3.2 -3.5 -3.9 -4.2 -4.1 -4.2 -4.7

Current Account (bop, % GDP) -2.9 -2.6 -2.1 -2.1 -2.2 -2.3 -2.3 -2.4 -2.8 -2.9 -3.0 -3.1

Fed Target Rate (%, eop) 0.25 0.25 0.25 0.25 0.50 0.75 1.50 2.50 2.75 2.75 2.75 2.75

Core Logic National HPI (YoY %) -2.9 4.0 9.7 6.8 5.3 5.5 5.9 5.8 4.9 4.2 3.9 3.6

10-Yr Treasury (% Yield, eop) 1.98 1.72 2.90 2.21 2.24 2.49 2.40 2.83 2.87 3.09 3.23 3.37

West Texas Intermediate

Oil Prices (dpb, average)94.9 94.1 97.9 93.3 48.7 43.2 50.9 65.0 56.3 52.7 58.0 57.7


Economic Scenarios Probability (%) Current Previous

Upside 5 5

Baseline 55 55

Downside 40 40

Subject to revision without notice

Macro Scenarios

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

GDP 2.5 2.9 1.6 2.2 2.9 2.5 2.0 1.9 1.8 1.8

Upside 3.0 3.0 3.2 3.1 2.7 2.7

Downside 2.8 0.7 -0.9 1.9 2.1 2.3

UR 6.2 5.3 4.9 4.4 3.9 3.8 4.1 4.2 4.5 4.5

Upside 3.1 2.9 2.9 3.0 3.0

Downside 4.3 6.2 6.6 5.7 5.0

CPI 1.6 0.1 1.3 2.1 2.4 1.7 2.2 2.0 2.1 2.0

Upside 1.6 3.8 3.5 3.8 3.8

Downside 0.7 1.1 1.1 1.3 1.4

Fed [eop] 0.25 0.50 0.75 1.50 2.50 2.75 2.75 2.75 2.75 2.75

Upside 3.50 5.00 5.00 5.00 5.00

Downside 1.50 0.25 0.25 0.25 0.25

10-Yr [eop] 2.21 2.24 2.49 2.4 2.83 2.87 3.09 3.23 3.37 3.46

Upside 3.90 5.10 5.90 5.90 5.90

Downside 2.40 1.60 1.90 2.10 2.10


DISCLAIMER

This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) BBVA Research U.S. on behalf of itself and its

affiliated companies (each BBVA Group Company) for distribution in the United States and the rest of the world and is

provided for information purposes only. Within the US, BBVA operates primarily through its subsidiary Compass Bank.

The information, opinions, estimates and forecasts contained herein refer to the specific date and are subject to changes

without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document

have been gathered or obtained from public sources, believed to be correct by the Company concerning their accuracy,

completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in

securities.


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