davos as seen from new york: china vs the united states...

www.hifreqecon.com/WebinarJan2018

Davos As Seen From New York: China Vs The United States, With A Dash Of Brexit And QE

– Carl Weinberg, Chief Economist – Jim O’Sullivan, Chief U.S. Economist


U.S. Expansion Is Getting Stronger & Fed Needs To Keep Tightening– Jim O’Sullivan, Chief U.S. Economist


HFE Global Webinar — January 24, 2018 Jim O’Sullivan, Chief U.S. Economist

Daily Notes on the United States

-6

-5

-4

-3

-2

-1

0

0 4 8 12 16 20 24 28 32 36

1961-69 1970-73 1975-80 1980-81 1982-90 1991-2001 2001-07 2009- Change In Unemployment Rate From Peak During Recoveries, Percentage Points

Quarters After Peak

Current Cycle

1b. ...Yet Unemployment Rate Has Been Falling Rapidly

100

110

120

130

140

150

160

0 4 8 12 16 20 24 28 32 36

1961-69 1970-73 1975-80 1980-81 1982-90 1991-2001 2001-07 2009- Real GDP During Recoveries, Trough=100

Quarters After Trough

Current Cycle

1a. GDP Growth Has Been Weak By Past Standards




%ch From Previous Period, Annual Rate, Except Where Noted; Forecasts In Bold

2017 2018 Calendar Average Q4/Q4Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2017 2018 2019 2017 2018 2019

Real GDP 1.2 3.1 3.2 2.5 2.3 3.5 3.0 2.5 2.3 2.8 2.4 2.5 2.8 2.1

CPI 3.1 -0.3 2.0 3.7 2.2 1.9 2.0 2.5 2.1 2.3 2.5 2.1 2.2 2.7Core CPI 2.5 0.6 1.7 2.3 2.4 2.2 2.3 2.4 1.8 2.1 2.6 1.7 2.3 2.7

Core PCE Prices 1.8 0.9 1.3 2.0 2.0 1.8 1.9 2.0 1.5 1.8 2.2 1.5 1.9 2.3

Unemployment (%, level) 4.7 4.4 4.3 4.1 4.0 3.8 3.7 3.5 4.4 3.7 3.4 4.1 3.5 3.4Federal Budget Balance ($B, FY) -666 -775 -900

% Of GDP -3.5 -3.9 -4.3End Of Year

Fed Funds Target (%, EOP) 0.88 1.13 1.13 1.38 1.63 1.88 2.13 2.38 1.0 1.8 2.8 1.38 2.38 3.1310-Year Treasury (%, EOP) 2.4 2.3 2.3 2.4 2.7 2.8 2.9 3.0 2.4 2.8 3.2 2.4 3.0 3.430-Year Treasury (%, EOP) 3.0 2.8 2.9 2.7 3.0 3.1 3.2 3.3 2.9 3.1 3.4 2.7 3.3 3.6

S&P 500 (level, EOP) 2363 2423 2519 2674 2725 2650 2650 2650 2440 2672 2585 2674 2650 2520

2. HFE’s U.S. Economic & Financial Forecasts




-0.4

0.8

2.0

3.2

08 10 12 14 16

Core PCE Price Index, %chya Core PCE Price Index, % Change From Three Months Ago, Annual Rate

Fed Goal For PCE Prices

3b. Core Inflation Is Around Where It Was Two Years Ago

0

1

2

3

4

5

07 09 11 13 15 17

Average of Four Measures, %chya Household Survey: Median Usual Weekly Earnings, Full-Time Workers, %chya ECI: Private Sector Wages Per Hour, %chya Employment Report: Average Hourly Earnings, %chya Atlanta Fed Per-Hour Wage Tracker, %chya

3a. Through The Volatility, Wage Gains Have Been Edging Up




-2.4

-1.2

0.0

1.2

-5.0

-2.5

0.0

2.5

83 87 91 95 99 03 07 11 15

CBO Estimate Of Unemployment Gap* (Left) Acceleration/Deceleration In Private Wage Component Of ECI† (Right)

*Reported unemployment rate minus CBO estimate of NAIRU. †%chya minus %chya one year earlier, four-quarter average.

4. NAIRU-Related Acceleration In Wages Is Just Starting




62

63

64

65

66

67

68

94 96 98 00 02 04 06 08 10 12 14 16

Labor Force Participation Rate, %

Shaded Bars Denote Recession Periods

5b. Participation Rate Has Stopped Falling—Likely Temporarily

-6.8

-5.1

-3.4

-1.7

0.0

1.7

3.4

06 08 10 12 14 16

Household Survey Employment, Break-Adjusted, %chya Labor Force, Break-Adjusted, %chya Payrolls, Excluding Temporary Census Hiring, %chya

Shaded Bar Denotes Recession Period

5a. Employment Growth Is Outpacing Labor Force Growth




10

24

38

52

66

80

06 08 10 12 14 16 18

Overall Index Democrats Republicans Independents

Vertical Lines Mark Presidential Elections

Weekly Bloomberg Consumer Comfort Index

6b. Rise In Confidence Has Been Led By Republicans

74

84

94

104

114

-10

-5

0

5

10

80 83 86 89 92 95 98 01 04 07 10 13 16

Real GDP, %q/q, Annual Rate (Left) NFIB Small Business Optimism Index (Right)


6a. NFIB Index Is High Enough For 5% Real GDP Growth




Estimated Revenue Impact Of Conference Version

FY18 FY19 FY20 FY21 FY22 FY23 FY24 FY25 FY26 FY27 FY18-27Total Tax Revenues (% of GDP) -0.7 -1.4 -1.2 -1.0 -0.8 -0.6 -0.5 -0.4 -0.2 0.1 -0.6

Individual Taxes -0.4 -0.9 -0.8 -0.7 -0.7 -0.6 -0.6 -0.5 -0.2 0.3 -0.5Pass-Through Business -0.1 -0.1 -0.2 -0.2 -0.1 -0.1 -0.1 -0.1 -0.1 0.0 -0.1Repeal ACA Mandate 0.0 0.0 0.0 0.1 0.2 0.2 0.2 0.2 0.2 0.2 0.1Other -0.3 -0.8 -0.7 -0.7 -0.7 -0.6 -0.6 -0.6 -0.3 0.1 -0.5

Domestic Business Taxes -0.6 -0.6 -0.5 -0.4 -0.2 -0.1 -0.1 -0.1 -0.1 -0.2 -0.3Foreign Income Taxes 0.3 0.2 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.0 0.1

Ex Foreign Taxes (% of GDP) -1.0 -1.6 -1.3 -1.1 -0.9 -0.7 -0.6 -0.6 -0.3 0.1 -0.8Sources: Joint Committee On Taxation (Revenues) and CBO (GDP)

7. Domestic Taxes Will Be Cut By 1.3% Of GDP In Calendar Year 2018—1.0% On A Fiscal Year Basis




Nominal Funds Rate Target (%)

Real Funds Rate (%)*

Start End Start End Start EndMar 83 Aug 84 8.50 11.50 2.6 7.5Apr 87 Feb 89 6.00 9.75 3.2 5.1Feb 94 Feb 95 3.00 6.00 0.8 3.7Jun 99 May 00 4.75 6.50 3.5 4.8Jun 04 Jun 06 1.00 5.25 -0.9 2.9Dec 15 0.13 -1.2*Deflated with %chya in core PCE prices.

8a. Fed Tightening Cycles

8c. Fed Officials’ Estimates For Appropriate Fed Funds Rate

% At Year-End, as of Dec 2017 FOMC Meeting

2017 2018 2019 2020Longer

RunMedian Estimate 1.375 2.125 2.688 3.063 2.75Mean Estimate 1.344 2.016 2.695 3.016 2.783

8b. Fed Officials’ Economic Projections

Median, %ch Q4/Q4, Unless Noted, as of Dec 2017 FOMC Meeting

2017 2018 2019 2020Longer

RunReal GDP 2.5 2.5 2.1 2.0 1.8Unemployment Rate* 4.1 3.9 3.9 4.0 4.6PCE Prices 1.7 1.9 2.0 2.0 2.0Core PCE Prices 1.5 1.9 2.0 2.0*Q4 level




100

110

120

130

Jan 14 Jan 15 Jan 16 Jan 17 Jan 18

Fed's Nominal Broad Trade-Weighted Dollar Index, Jan 1997 = 100

Election Day 2016

9b. The Dollar Has Been Falling

-14

-12

-10

-8

-6

-4

-2

0

2

95 98 01 04 07 10 13 16

Bloomberg U.S. Financial Conditions

*Based on nine financial markets series, covering money markets, bond markets and equity markets; positive readings imply accomodative financial conditions.

Shaded Bars Denote Periods Of Recession

1998

European Sovereign Debt Fears

U.S. Debt-Limit Saga

Early 2016

9a. Financial Conditions Have Been Easing, Despite Fed Tightening




-7.5

-5.0

-2.5

0.0 00 02 04 06 08 10 12 14 16 18

Current Account Balance, % Of GDP

Shaded Bars Denote Periods of Recession

10b. Current Account Deficit Is Relatively Low

-26

-13

0

13

26

07 09 11 13 15 17

Real Goods Exports, %chya Real Goods Imports, %chya

10a. Exports And Imports Have Picked Up In Past Year




-6

-3

0

3

6

9

-2

-1

0

1

2

3

77 82 87 92 97 02 07 12 17

Yield Curve: 10-Year Minus 2-Year Treasury Yield, Percentage Points (Left) Real GDP, %chya (Right)

Shaded Bars Denotes Recession Periods

11c. Yield Curve Inversions Generally Precede Recessions

11a. Long Expansion, But “Expansions Do Not Die Of OldAge”

RecessionsDuration (Months) Expansions

Duration (Months)

1945 8 1945-48 371948-49 11 1949-53 451953-54 10 1954-57 391957-58 8 1958-60 241960-61 10 1961-69 1061970 11 1970-73 361973-75 16 1975-80 581980 6 1980-81 121981-82 16 1982-90 921990-91 8 1991-2001 1202001 8 2001-07 732008-09 18 2009-? 102 So Far

Averages: Averages:1854-1919 21.6 1854-1919 26.61919-45 18.2 1919-45 35.0 1945-2009 11.1 1945-2009 58.4

-4

0

4

8

12

16

20

24

77 83 89 95 01 07 13

Real Fed Funds Rate, Deflated With %Y/Y In Core PCE Prices, % Nominal Fed Funds Rate, %


11b. Recent Recessions Preceded By Fed Tightening Cycles

Carl B. Weinberg, Chief Economist


HFE Global Webinar — January 24, 2018


Davos 2018… It Is All About China– Carl Weinberg, Chief Economist




Two Views Of Davos




Davos 2018: It Is All About China

Petro-Yuan

Free Trade And Protectionism

Silk Road

North Korea




0

50

100

150

200

250

Nov 96

Nov 97

Nov 98

Nov 99

Nov 00

Nov 01

Nov 02

Nov 03

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Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

China

United States

United States Vs China: Exports In Billions Of U.S. Dollars

Yellow Line Shows 12-Month Moving Average Drawn For China




0

5

10

15

20

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

China And United States Crude Oil Imports

Millions Of Barrels Per Day, Monthly Data, HFE Estimates, 12-Month Trend Shown




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0

20

40

60

80

Nov 01

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

China: Exports To The EU In U.S. Dollars

Percent Change Year Ago, Line Is 12-Month Moving Average

-30

-20

-10

0

10

20

30

40

50

60

Nov 01

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

China: Imports From The EU In U.S. Dollars

Percent Change Year Ago, Line Is 12-Month Moving Average




-8

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-2

0

2

4

6

99 Q3

00 Q3

01 Q3

02 Q3

03 Q3

04 Q3

05 Q3

06 Q3

07 Q3

08 Q3

09 Q3

10 Q3

11 Q3

12 Q3

13 Q3

14 Q3

15 Q3

16 Q3

17 Q3

Euro Zone: GDP Growth

Line Shows Percent Change Year Ago, Bars Show Quarterly Annualized Rate

-6

-3

0

3

6

9

12

15

Dec 99

Dec 00

Dec 01

Dec 02

Dec 03

Dec 04

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17f

Total MFI Lending Lending To SMEs Ex-Mortgages Mortgages

Euro Zone: Bank Lending, Percent Change Year Ago

-35 -30 -25 -20 -15 -10 -5 0 5 10 15

97 Q3

98 Q3

99 Q3

00 Q3

01 Q3

02 Q3

03 Q3

04 Q3

05 Q3

06 Q3

07 Q3

08 Q3

09 Q3

10 Q3

11 Q3

12 Q3

13 Q3

14 Q3

15 Q3

16 Q3

17 Q3

Euro Zone: Gross Fixed Capital Formation

Bars Show Percent Change Year Ago, Line Shows Annualized Quarterly Rate

85

90

95

100

105

110

115

Nov 97

Nov 98

Nov 99

Nov 00

Nov 01

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

Euro Zone: Industrial Production Index

Seasonally Adjusted, 2010 = 100, Trend Since 2011 Drawn




-8

-3

2

7

12

99 Q3

00 Q3

01 Q3

02 Q3

03 Q3

04 Q3

05 Q3

06 Q3

07 Q3

08 Q3

09 Q3

10 Q3

11 Q3

12 Q3

13 Q3

14 Q3

15 Q3

16 Q3

17 Q3

China United States Germany

China Vs Germany: GDP Growth, Percent Change Year Ago




-1

0

1

2

3

4

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Nov 12

May 13

Nov 13

May 14

Nov 14

May 15

Nov 15

May 16

Nov 16

May 17

Nov 17

May 18f

Nov 18f

HFE Projection

Canada: CPI, Percent Change Year Ago

Yellow Line Shows CPI Ex-Energy, Dec 2017 Onward Is HFE Forecast Black Line Is CPI-TRIM, No Forecast

-2

-1

0

1

2

3

4

5

6

Nov 08

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Nov 12

May 13

Nov 13

May 14

Nov 14

May 15

Nov 15

May 16

Nov 16

May 17

Nov 17

May 18f

Nov 17f

United Kingdom: CPI, Percent Change Year Ago

Green Line Shows Core CPI, Black Line Shows RPI Dec 17 Onward Is HFE Forecast, Blue Line Is Trend Of Core CPI Since 2010

HFE Projection

-1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5

Dec 08

Jun 09

Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

Jun 12

Dec 12

Jun 13

Dec 13

Jun 14

Dec 14

Jun 15

Dec 15

Jun 16

Dec 16

Jun 17

Dec 17

Jun 18f

Dec 18f

Euro Zone: CPI, Percent Change Year Ago

Blue Bars Are CPI, Green Line Is Core CPI Data To Dec 17, Jan 17 Onward Is HFE Forecast

HFE Projection

-3

-2

-1

0

1

2

3

Nov 08

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Nov 12

May 13

Nov 13

May 14

Nov 14

May 15

Nov 15

May 16

Nov 16

May 17

Nov 17

May 18f

Nov 18f

CPI Spike After Sales Tax Hike

CPI Crashes One Year After Sales Tax Hike

HFE Projection

Japan: Tokyo-Area CPI, Percent Change Year Ago

Yellow Line Shows CPI Excluding Food & Energy, Blue Bars Are Headline CPI Ex-Sales Tax Dec 17 Onward Is HFE Forecast

-2 -1 0 1 2 3 4 5 6 7

Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

Jun 12

Dec 12

Jun 13

Dec 13

Jun 14

Dec 14

Jun 15

Dec 15

Jun 16

Dec 16

Jun 17

Dec 17f

Jun 18f

Dec 18f

HFE Projection

China: Consumer Price Index, Percent Change Year Ago

Green Line Shows Non-Food Prices, Dec 17 To Dec 18 Are HFE Forecast




-2

-1

0

1

2

3

4

5

6

Dec 08

Jun 09

Dec 09

Jun 10

Dec 10

Jun 11

Dec 11

Jun 12

Dec 12

Jun 13

Dec 13

Jun 14

Dec 14

Jun 15

Dec 15

Jun 16

Dec 16

Jun 17

Dec 17

Jun 18f

Dec 17f

United Kingdom: CPI, Percent Change Year Ago

Green Line Shows Core CPI, Black Line Shows RPI Jan 17 Onward Is HFE Forecast, Blue Line Is Trend Of Core CPI Since 2010

HFE Projection

-2

-1

0

1

2

3

4

5

6

Nov 07

May 08

Nov 08

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Nov 12

May 13

Nov 13

May 14

Nov 14

May 15

Nov 15

May 16

Nov 16

May 17

Nov 17

RPI CPI Average Weekly Earnings (3mma)

United Kingdom: Average Weekly Earnings Ex Bonuses, %chya

0

1

2

3

4

5

6

7

8

9

Nov 96

Nov 97

Nov 98

Nov 99

Nov 00

Nov 01

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17

United Kingdom: ILO Unemployment Rate, Percent

-200

-100

0

100

200

300

400

500

600

Nov 02

Nov 03

Nov 04

Nov 05

Nov 06

Nov 07

Nov 08

Nov 09

Nov 10

Nov 11

Nov 12

Nov 13

Nov 14

Nov 15

Nov 16

Nov 17f

Immigration United Kingdom: HFE Estimate Of Immigration

Excess Of Job Creation Over Unemployment Decline, 12-Month Rate, Thousands Line Shows 12-Month Moving Average




-10

-8

-6

-4

-2

0

2

4

6

Q4 07

Q2 08

Q4 08

Q2 09

Q4 09

Q2 10

Q4 10

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

Q4 14

Q2 15

Q4 15

Q2 16

Q4 16

Q2 17

Q4 17f

Annualized Quarterly Growth Rate Percent Change Year Ago

Olympic Windfall

United Kingdom: GDP Growth

9000

9500

10000

10500

11000

11500

12000

12500

13000

13500

Nov 07

May 08

Nov 08

May 09

Nov 09

May 10

Nov 10

May 11

Nov 11

May 12

Nov 12

May 13

Nov 13

May 14

Nov 14

May 15

Nov 15

May 16

Nov 16

May 17

Nov 17

United Kingdom: Construction Sector Activity

Index 2015 = 100, Quarterly Data Prior To January 2010, Monthly Data Thereafter

-4 -3 -2 -1 0 1 2 3 4 5 6 7

Dec 05

Dec 06

Dec 07

Dec 08

Dec 09

Dec 10

Dec 11

Dec 12

Dec 13

Dec 14

Dec 15

Dec 16

Dec 17

United Kingdom: Retail Sales, Percent Change Year Ago

Line Shows Yearly Change Of Three-Month Moving Average

-20

-15

-10

-5

0

5

10

Q2 09

Q4 09

Q2 10

Q4 10

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

Q4 14

Q2 15

Q4 15

Q2 16

Q4 16

Q2 17

Calculated In Chained Prices Of 2011, Percent Change Year Ago At Constant Prices

United Kingdom: Investment Spending Volume

www.hifreqecon.com/WebinarSep2017

Davos As Seen From New York: China Vs The United States, With A Dash Of Brexit And QE

– Carl Weinberg, Chief Economist – Jim O’Sullivan, Chief U.S. Economist

davos as seen from new york: china vs the united states...

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