Minority Depository Institutions Advisory Committee, Economic Update ... · 07-04-2015 · FOMC...
Transcript of Minority Depository Institutions Advisory Committee, Economic Update ... · 07-04-2015 · FOMC...
Economic Update
Minority Depository Institutions Advisory Committee April 7, 2015
Richard Nisenson, Director, Industry
and Regional Analysis
Agenda
U.S. economy strengthening; others weak or slowing
– U.S. labor market
– Potential rise in U.S. interest rates
– Drop in oil prices
Real estate markets continue to recover; extent of recovery varies across markets and property type
– Home prices and affordability
– Residential and commercial construction
2
-3
-2
-1
0
1
2
3
4
07 08 09 10 11 12 13 14 15 16
4.8
9.9
4
5
6
7
8
9
10
07 08 09 10 11 12 13 14 15 16
Quarterly average unemployment rate, % Real GDP, annual % change
Sources: BEA, BLS, Blue Chip Economic Indicators (March2015)
Real GDP growth forecast for 2015 above 3%, driving unemployment towards 5%
Recession Recession
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Blue Chip Consensus
5.7
4.9
0
1
2
3
4
5
6
92 98 04 10
As long-term unemployment and part-timers being absorbed, earnings growth edging higher
Source: BLS (data through 4Q:2014)
Employment Cost Index:
year-to-year change, percent
Compensation
Wages & salaries
Measures of labor underutilization,
percent of labor force
Unemployed up to 14 weeks
Employed part-time for economic reasons
Unemployed over 26 weeks
4
U.S. growth accelerating while EU and Japan struggle and emerging markets slow
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Source: Oxford Economics; January 2015 forecast
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0
2
4
6
8
10
-2
0
2
4
6
8
10
China EmergingMarkets
Brazil UK Eurozone Japan US World
Real GDP, annual % change
14 15F
97-07 avg
5
Treasury yield curve expected to flatten through 2015 into 2016
0
1
2
3
4
5
04 05 06 07 08 09 10 11 12 13 14 15 16
10-year Treasury rate
3-month Treasury rate
Percent
Sources: FRB, Blue Chip Consensus Forecast (March 2015). Historical data through 4Q:2014.
Recession
Blue Chip Consensus Forecast
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Coming rate increase cycle expected to be mild from a historical perspective
Source: FRB, OCC Econ calculations
* 2015-17 cycle assumes first rate increase at July 2015 FOMC meeting, rising to a peak fed funds rate target by December 2017. Assumption of a 3% fed funds rate target by December 2017 aligns with several baseline rate forecasts as of December 2014. Assumption of a 4.25% fed funds rate target by December 2017 reflects highest FOMC member forecast as of December 2014 (median forecast = 3.63%).
Intensity of federal funds rate increases (basis point increase / # months from trough to peak)
1986-1989 1994-1995 1999-2000 2004-2006 2015-2017*5.9% to 9.8% over 30 months
3.0% to 6.0% over 14 months
4.75% to 6.5% over 13 months
1.0% to 5.25% over 26 months
If assume a 6.5% funds rate by Dec. 2017
If assume a 4.25% funds rate by Dec. 2017
0% to 3.00% over 30 months
(consensus forecast)
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8
Sources: EIA, WSJ, Haver Analytics (data through January 2015)
Down 60% in 4 months
Sharp drops in oil prices are not uncommon;
current cycle largely driven by supply growth
Down 55% in 7 months
Price West Texas Intermediate Oil, $/barrel (log scale)
Down 70% In 5 months
Down 45% in 5 months
Down 35% in 10 months
Down 33% in 7 months
Manufacturers, particularly in Midwest and South, benefit from lower oil prices…
Sources: Census Bureau, EIA, Moody’s Analytics
Petroleum used by manufacturing sector per dollar of output, 2013
>142
59 to 142
<59
U.S.=100
9
…as do consumers, particularly in non-oil South and mountain states…
Sources: BEA, EIA, Moody’s Analytics
Gasoline expenditure share of disposable income, %, 2012
>4.6
<3.9
3.9 to 4.6
U.S.=3.9
10
…but energy-producing states hurt by lower oil prices
Mining and extraction share of real GDP, %, 2013
11
US.=2.1
>5
1 to 5
<1
Sources: Census Bureau, EIA, Moody’s Analytics
26%
6%
8%
6% 14%
8%
6%
12%
11%
17%
34%
Agenda
U.S. economy strengthening; others weak or slowing
– U.S. labor market
– Potential rise in U.S. interest rates
– Drop in oil prices
Real estate markets continue to recover; extent of recovery varies across markets and property type
– Home prices and affordability
– Residential and commercial construction
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Home price appreciation slowing in most states
Source: Black Knight (formerly LPS), through December 2014 Note: Black Knight data represents prices of non-distressed transactions; they compute discount-corrected REO and short sale prices and combines them with non-distressed sale prices.
-25
-15
-5
5
15
25
01 02 03 04 05 06 07 08 09 10 11 12 13 14
Home price index, year-to-year change, %
U.S.
CA
TX
FL
13
NJ
14
Source: Black Knight (formerly LPS), data through December 2014 at the metro division level. Note: Represents prices of non-distressed transactions; Black Knight computes discount-corrected REO and short sale prices and combines them with non-distressed sale prices.
Home prices are rising, but remain below prior peak in some metros
Newark, NJ
McAllen, TX
Charlotte, NC
Philadelphia, PA
U.S.
Los Angeles, CA
Miami, FL
change (%) Dec:13-Dec:14 change (%) prior peak to Dec:14
San Francisco
0 5 10 15 -25 -15 -5 5 15
Shawnee, OK
0
2
4
6
8
10
12
14
Source: NAR, Census Bureau, Moody’s Analytics; data at the metro division level
Median home price to median household income ratio
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Relationship between home prices and income varies widely across local markets
Boom peak
Recent low
4Q:14
16
Multifamily starts back to historical averages; single-family starts remain subdued
Source: Black Knight (formerly LPS), through December 2014 Note: Black Knight data represents prices of non-distressed transactions; they compute discount-corrected REO and short sale prices and combines them with non-distressed sale prices.
0
1
2
3
Housing construction relative to area trend has recovered fastest in tech and energy areas
Source: Census Bureau, Moody’s Analytics; note: housing starts includes multifamily units; data at the metro division level
2012-2014 average annual housing starts index (1 = 82-14 average)
82-14 avg=1
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Apartment construction surges while other property types remain below historical norms Growth in existing CRE space by property type
Source: CoStar Portfolio Strategy 4Q:2014 baseline forecast for 54 Tier 1 markets
y/y supply growth %
1.9
0.6 0.5
1.1
2.4
0.9
0.6
1.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Apartment Office Retail Warehouse
4Q:14 4Q:15 F 20-Year Average
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Summary
U.S. economy strengthening; others weak or slowing
– U.S. labor market tightening
– Rise in U.S. interest rates complicated by international factors
– Both gainers and losers from drop in oil prices
– Real estate markets continue to recover; extent of recovery varies across markets and property type
– Home price growth slowing and affordability varies widely across U.S.
– Housing in tech and energy-reliant areas and apartments seeing fastest growth in construction
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