The Peter Pan Economy€¦ · The Cycle is Old . 1 . Source: BEA, CIBC . 0. 10. 20. 30. 40. 50. 60....

January 2018 Benjamin Tal

The Peter Pan Economy

FOR ADVISOR USE ONLY

The Cycle is Old 1

Source: BEA, CIBC

0 10 20 30 40 50 60 70 80 90 100 110 120

91Q2-01Q163Q1-69Q409Q3-17Q282Q4-90Q301Q4-07Q475Q2-80Q149Q4-53Q354Q2-57Q370Q4-73Q458Q2-60Q280Q3-81Q3

Expansion Quarters

No. of Qtrs

Avg 63.9


Cumulative Real GDP Per Capita Growth During Expansions 2

Source: BEA, CIBC

0 5 10 15 20 25 30

1961-Q11982-Q41949-Q41991-Q1Current1975-Q12001-Q41970-Q41954-Q21958-Q21980-Q3

%


Calm Waters in Stocks Reflect Calm Waters in Economy 3

0.00.51.01.52.02.53.03.54.0

1972

- Q

1

1975

- Q

3

1979

- Q

1

1982

- Q

3

1986

- Q

1

1989

- Q

3

1993

- Q

1

1996

- Q

3

2000

- Q

1

2003

- Q

3

2007

- Q

1

2010

- Q

3

2014

- Q

1

2017

- Q

3

Rolling Five-Year Standard Deviation of US Yr/Yr Nominal GDP Growth


A Surprising Start 4

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

Cda EZ Japan UK China US

Change in 2017 GDP Forecasts (%-pts, Latest vs Start of the Year)

Source: Bloomberg, CIBC FOR ADVISOR USE ONLY

As Good as It Gets? Not Quite 5

Source: Statistics Canada, CIBC

95

100

105

110

115

120

Q1-

10

Q3-

11

Q1-

13

Q3-

14

Q1-

16

Real GDP Real Gross Nat. Income


Slower Speed Limits: GDP Bar is Lower for Full Employment 6

0

2

4

6

8

10

12

0.5

1.0

1.5

2.0

2.5

3.0

2002 2004 2006 2008 2010 2012 2014 2016 2018

United States Euro area China (Right)

Potential GDP (Real, %)


Eurozone: Progress Made But Still More To Come

5

7

9

11

13

15Ja

n-00

Feb-

01

Mar

-02

Apr-

03

May

-04

Jun-

05

Jul-

06

Aug-

07

Sep-

08

Oct

-09

Nov

-10

Dec

-11

Jan-

13

Feb-

14

Mar

-15

Apr-

16

May

-17

EZ ex Germany

Eurozone total

0.8% -pts

3.2% -pts

Unemployment Rate (%)

Source: Bloomberg, CIBC

7


ECB QE Announcements Impacting Cdn 5Y Yields (L) Taking a Slow Approach to Tapering as Slack Remains (R) 8

0

5

10

15

20

25

30

35

t-1 t t+1 t+2 t+3 t+4 t+5 t+6

BoC Sr. Dep. Wilkins Speech (June 12th)BoC Rate Hike (July 12th)ECB's Draghi Speech (27th June)

Cumulative Chg in CDN 5Y Bond Yield (bp)

5

7

9

11

13

15

Jan-

00Fe

b-01

Mar

-02

Apr-

03M

ay-0

4Ju

n-05

Jul-

06Au

g-07

Sep-

08O

ct-0

9N

ov-1

0D

ec-1

1Ja

n-13

Feb-

14M

ar-1

5Ap

r-16

May

-17

EZ ex GermanyEurozone total

0.8% -pts

3.2% -pts

Unemployment Rate (%)

Source: Bloomberg, CIBC FOR ADVISOR USE ONLY

Oil Demand Upgrade Met by Non-OPEC Supply (L), Keeping Expected Deficit for 2017 at Slim Levels (R) 9

Source: IEA, CIBC

0.5

0.7

0.9

1.1

1.3

1.5

1.7

Demand Non-OPECSupply

Start of Year Latest

YoY Growth (IEA Forecast, %)

-0.4

-0.3

-0.2

-0.1

0.0

Start of Year Latest

2017 Avg Physical Market Balance (IEA Fcst, mn bbl/day)


Oil Needs to Top $50 to Sustain US Rebound (L), OPEC a Threat at $60 Some Metals Now Above Long-Run Marginal Costs (R)

10

Source: CIBC, EIA, Bloomberg

0

10

20

30

40

50

60

70

80

Bakken Permian

Transportation Overhead Prod Break-Even

~$18/bbl

Total Break-Evens by Shale Basin (average play, $/bbl)

0

1

2

3

4

5

6

7

Copper Nickel Zinc

Est Marginal Cost (All-in) Spot

$/lb


US Tight Labour Market - Slowing 11

Source: BLS, CIBC

0.5

1.0

1.5

2.0

2.5

03 05 07 09 11 13 15 17

Quit Rate

%, 3-mo ma

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

11 12 13 14 15 16 17

US Non-Farm Payrolls

y/y % chg


US Employment Recovery Still Has Some Room (L), But Businesses Having Hard Time Filling Vacancies (R) 12

1.6

2.0

2.4

2.8

3.2

3.6

4.0

2001

2003

2005

2007

2009

2011

2013

2015

2017

US Job Openings % of employment

74

75

76

77

78

79

80

81

2007

2010

2013

2016

2019

Prime-Age Employment-to-Population Ratio (%)

Pre-Crisis Avg.

Current


The Shrinking Middle Class 13

Source: OECD, CIBC

-15

-10

-5

0

5

10

15

Canada France Germany Japan OECD UK US

High Skill Middle Skill Low Skill

%

Change in Employment by Skill Level


Consumer Spending in China to Rise at Double the US Rate (L), Leaving it $1.4 tn Higher in 2020 (R ) 14

Source: BEA, National Bureau of Statistics of China, CIBC

0

1

2

3

4

5

6

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

1.4 Trillion

USD

Chinese Household Consumption (Trillions of USD)

0

1

2

3

4

5

6

7

8

9

US China

Forecasted Nominal Household Consumption Growth

(2016-2020, Annual Rate, %)


Chinese Takeout: Ordering Off a New Menu 15

0

5

10

15

20

25

30

3520

01

2006

2011

2016

Crude OilCopperWineLeather Purses etc.

Chinese Imports as % of World

0

50

100

150

200

250

300

350

1995

2000

2005

2010

2015

China

US

Tourism Spending (US $ bn)


The North Korea File 16

Source: Reuters, CIBC

0

2

4

6

8

10

12

14

16

Kim Il-Sung Kim Jong-il Kim Jong-Un

Missile Tests

annual average


First Specific Negotiation Objective 17

“To improve the US trade balance and to reduce the trade deficits with the NAFTA countries”

-60

-40

-20

0

20

40

Energy Other

$Bn

“Blameless Deficit”

Canada

Mexico

US Trade Deficit: 2016


Mexico Has Benefitted More From NAFTA (L), Unwinding Trade Links Wouldn’t Be Easy For US Either (R) 18

Source: CIBC

-0.4

-0.3

-0.2

-0.1

0.0

0.1

Mexico Canada

1993

2016

US Goods Trade Balance (% of GDP)

0

5

10

15

20

25

30

35

40

45

Mexico Canada World China EU Japan

Share of US Content in American Imports By Region (%)


Markets Brushing Aside NAFTA Concerns in Both Stocks (L) and Currencies (R) 19

17

18

19

20

21

22

USDMXN (Inverse)

Trump Elected

60

80

100

120

140

Nov-16 Apr-17 Sep-17

S&P 500 TSX (USD)

Auto Parts Manufacturing Sub-Index

NAFTA Negotiations


Higher Wages and Better Job Composition 20


-0.5%0.0%0.5%1.0%1.5%2.0%2.5%3.0%3.5%4.0%4.5%

Nov

-15

Feb-

16

May

-16

Aug-

16

Nov

-16

Feb-

17

May

-17

Aug-

17

Nov

-17

Y/Y % Change

Average wkly wage rateMedian wkly wage rate

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

By Industry By Occupation

Low-paying High-paying

Job Creation - 2017


Strong Rebound in Labour Income 21


-3%

-2%

-1%

0%

1%

2%

3%

4%

5%

07 08 09 10 11 12 13 14 15 16 17

y/y chg

Real Labour Income

0.00.51.01.52.02.53.03.54.0

Tota

l

Wag

es

Labo

urco

mpo

siti

on

%

Change in Labour Income (First 3Q of 2017)


Basically All the Decline in Youth Participation Rate is Due to Lower High School Student Participation 22


0.540.550.560.570.580.590.600.610.620.630.640.65

96 98 00 02 04 06 08 10 12 14 16

Age 15-24: Labour Force as a Share of Population

0

20

40

60

80

100

120

Age 15-19 Age 20-24

StudentsNon-students

Contribution to Decline in Labour Market Participation

000s


Interest Rates Sensitivity 23


0.6%

0.7%

0.8%

0.9%

1.0%

1.1%

1.2%

1.3%

2000

:120

01:3

2003

:120

04:3

2006

:120

07:3

2009

:120

10:3

2012

:120

13:3

2015

:120

16:3

Impact of 100-bp Increase in Effective Interest Rate

% of consumer spending

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%20

00:1

2001

:320

03:1

2004

:320

06:1

2007

:320

09:1

2010

:320

12:1

2013

:320

15:1

2016

:3

Effective Interest Rate on Household Debt


A Mighty Basis Point 24

0.00.20.40.60.81.01.21.41.6

TODAY 5 YEARS AGO 10 YEARS AGO

One Basis Point Increase in Effective Rate

Basis Points


Growth in Mortgage Outstanding Could Slow Notably 25

Source: Bank of Canada, CIBC

0.0%1.0%2.0%3.0%4.0%5.0%6.0%7.0%8.0%9.0%

10.0%

09Q1 10Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1

Potential impact of higher rates & changes to rate qualification policy

y/y


Credit Unions and Private Lenders Will Benefit 26

Source: Teranet, Statistics Canada CIBC

7.5

8.0

8.5

9.0

9.5

10.0

10.5

12 13 14 15 16

% of origination

Private Mortgage Lending

11.5

12.0

12.5

13.0

13.5

14.0Ja

n-06

Apr-

07

Jul-

08

Oct

-09

Jan-

11

Apr-

12

Jul-

13

Oct

-14

Jan-

16

Apr-

17

Credit Union Share in Mortgage Market

%


27

Source: CREA, CIBC

The Best View of the

Toronto Real Estate Horizon is from the

Vancouver Harbour

012345678910

0.00.51.01.52.02.53.03.54.04.55.0

May

-13

Oct

-13

Mar

-14

Aug-

14

Jan-

15

Jun-

15

Nov

-15

Apr-

16

Sep-

16

Feb-

17

Jul-

17

Vancouver Sales (L)Toronto Sales Lagged 14 mos (R)

$Bn $Bn

Residential Sales

Indicates policy change


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The Peter Pan Economy€¦ · The Cycle is Old . 1 . Source: BEA, CIBC . 0. 10. 20. 30. 40. 50. 60....

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Transcript of The Peter Pan Economy€¦ · The Cycle is Old . 1 . Source: BEA, CIBC . 0. 10. 20. 30. 40. 50. 60....