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ECONOMIC OUTLOOK: HOW FAR WILL THE RECORD EXTEND?

Dr. Mike Walden

Reynolds DistinguishedProfessor

North CarolinaStateUniversity

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ECONOMIC HEADLINES

GROWTH GOES IN TO 11TH YEAR

DEATH OF THE PHILLIPS CURVE

TRADE TENSIONS

FED CUTS RATES DURING AN EXPANSION

CHANCE OF A RECESSION

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REAL GROSS DOMESTIC PRODUCT GROWTH RATE (%, ANNUALIZED)

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UNEMPLOYMENT RATE IS AT A NEAR 50 YEAR LOW

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BUT LABOR FORCE PARTICIPATION STILL HAS ROOM TO IMPROVE

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LABOR PRODUCTIVITY HAS PICKED UP

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AND WAGE GROWTH HAS BEEN IMPROVING

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WHY DOES THE PHILLIPS CURVE APPEAR TO BE DEAD?

GLOBALIZATION

LOGISTICS

WEAK UNIONS

AUTOMATION

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WITH NO RUN-UP IN THE INFLATION RATE(annualized rates)

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EVALUATING POTENTIAL THREATS TO THE ECONOMY

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HOUSEHOLDS ARE ABLE TO CARRY THEIR DEBT

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HOUSEHOLD DEBT DELINQUENCY RATES AREIN GOOD SHAPE

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RELATIVE BUSINESS DEBT IS ALSOHISTORICALLY LOW

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RATIO OF PRIVATE DEBT TO GDP HASACTUALLY FALLEN – A GOOD SIGN

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ALTHOUGH HOME PRICES HAVE RISEN, THE GAINS ARE BASED ON LACK OF SUPPLY

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BUT SERVICING THE NATIONAL DEBT IS TAKING A BIGGER SHARE OF THE ECONOMY

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ALSO, RELATIVE SIZE OF CONSUMER SPENDING HAS MODERATED

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BUSINESS INVESTMENT HAS RECENTLY FALLEN

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STOCK MARKET HAS MOVED WITHNEWS ON CHINA TRADE DISPUTE

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IF A RECESSION DOES OCCUR

ORIGIN WILL BE ON BUSINESS SIDE

LOWER EARNINGS AND MARGINS – LEADING TO CUTBACKS AND DECLINING VALUES

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TRADE WARS

* NEW NAFTA: USMCA, BUT PENDING

* EU TALKS* S. KOREA TREATY* JAPAN TALKS

REMAINING BIG CHALLENGE – CHINA

MAY HAVE ALREADYREDUCED GDP GROWTH BY 0.6% POINTS

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POSSIBILITY OF FOREIGN RECESSIONS

ECONOMIC GROWTH IS SLOWING IN EUROPE TO 0% -BREXIT

JAPAN’S GROWTH RATE IS UNDER 1%

CHINA’S GROWTH RATE IS 6%, BUT LOWEST IN 25 YEARS

HOWEVER, TRADE IS A MINOR PART OF THE US ECONOMY

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THE FEDERAL RESERVE BLINKED ANDREVERSED THE “PUNCH BOWL POLICY”

STANDARD POLICY: GO COUNTER TO TRENDS IN THE ECONOMY IN ORDER TO PROMOTE STEADY GROWTH

RECOVERY- RAISE RATES(REMOVE PUNCH BOWL)

RECESSION – CUT RATES(RETURN PUNCH BOWL)

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FEDERAL FUNDS RATE

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WHAT IS THE FED’S POLICY, & WHY?

OVER-TIGHTENED, SO CORRECTING NOW?

NO WORRIES ABOUT INFLATION

BUT TOOLS FOR NEXT RECESSION?

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YIELD CURVE HAS BECOME MORE NORMALIZED(10 YEAR T-YIELD MINUS 2 YEAR T-YIELD)

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OTHER CHANGES

1. EMERGENCE OF U.S. AS AN OIL PRODUCER

2. IMPLICATIONS OF AGING POPULATION, FALLING BIRTH RATE, ANDIMMIGRATION ON LABOR SUPPLY

3. TECHNOLOGY, JOBS, AND RE-TRAINING

4. THE FUTURE OF TRANSPORTATION – MODES AND FINANCING

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NORTH CAROLINA

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GROWTH ALSO CONTINUES

MOST RECENT DATA – ADDING JOBS AT FASTER RATE THAN NATION

SLOWDOWN IN MANUFACTURINGAND TRADE ISSUES FOR FARMERSHAVE HURT

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SOME OTHER GOOD NEWS

NON-METRO COUTIES ARE SHARING INJOB GROWTH

TECH SECTOR BOOMING

MIDDLE-PAYING JOBS GROWING

FEWER COUNTIES DEPOPULATING30

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LEADING INDICATORS SUGGESTDECELERATION IN NC’S GROWTH

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Source: calculations by Dr. Michael Walden

NCSU INDEX OF NORTH CAROLINA LEADING ECONOMIC INDICATORS

OUTLOOK

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WHAT I SEE COMING

1. NO RECESSION (CONSENSUS IS NOW ONE-THIRD CHANCE

2. “SMALL” CHINA TRADE DEAL MADE3. FED HAS “PAUSED” IN RATE CUTS4. CONTINUED SUPER-LOW INFLATION5. DUE TO SLOW LABOR FORCE GROWTH,

2% ANNUAL GROWTH IS NEAR NORMAL

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FINANCING ISSUES

MOVEMENT AWAY FROM GAS AND GAS TAX

PREDICTIONS OF LOWER VEHICLE OWNERSHIP

OPTIONS: MILEAGE TAX, TOLLS, TAXING PROPERTY BENEFITING FROM TRANSIT IMPROVEMENTS

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MOBILITY MODE ISSUESECLIPSE OF THE PRIVATE AUTO?

WHAT KIND OF MASS TRANSIT?- BUS, RAIL, RIDE-SHARE

IMPACT OF WORKING AT HOME

OTHER: PORTS – AIR AND WATER

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THANKS – QUESTIONS?

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