U.S. Economic Outlook and Reflation Metrics Review
Explore the U.S. economic outlook with insights on reflation, swerve, reflexivity, and the budget. Detailed analysis of key metrics, forecasts, labor trends, and more. Stay informed on the latest economic developments.
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The Comerica U.S. Economic Outlook Reflation, The Swerve, Reflexivity and The Budget Robert A. Dye Ph.D. Chief Economist, Comerica Bank June 2017
Definitions Reflation Noun 1. An increase in economic activity and prices 2. An increase in the supply of money and credit designed to cause such an increase Swerve Verb Noun An abrupt change of direction. Reflexivity Change or cause to change direction abruptly Noun A circular relationship between cause and effect, with the cause and the effect affecting one another in a relationship in which neither can be assigned as causes or effects. 2
The Diagram Inventories Bus. Investment Defense Spending Housing Consumer Other Government Trade The Outlook Auto Sector Dollar Stocks Oil Fed Monetary Policy Reflexivity Fed Budget Constraints The Trump Swerve Expectation of: Deregulation Business Friendly Environment Tax Cuts Infrastructure Spending Healthcare Policy Global Reflation U.S., China, India, Japan Europe, Commodity Countries Global Money Surge 3
U.S. Reflation Metrics Positively Correlated 2016H2-17Q1 Various Reflation Metrics 30 10 20 10 5 0 -10 0 M2 pchya, (R) S&P 500 pchya (L) GDP pchya (R) CPI pchya (R) Credit % (L) Commodities pchya (L) -20 -30 -5 -40 -50 -10 2013Q1 2014Q1 2015Q1 2016Q1 2017Q1 Sources: BEA, BLS, Federal Reserve, CRB, S&P 4
GDP Forecast: Ongoing Moderate Expansion, Weighing the Trump Bump U.S. Real GDP Growth, Annualized Percent Change 5 Forecast History 3 1 -1 2.6 1.6 2.3 2.7 -3 -5 -7 -9 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: BEA, Comerica Bank 5
Labor Metrics Remain Solid +138k in May, U. Rate 4.3 Percent Forecast 400 10 Payroll Employment, avg monthly diff, ths (L) 200 9 0 8 -200 7 -400 6 Unemployment Rate, percent (R) -600 5 -800 4 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 Sources: BLS, Comerica Bank 6
More Upward Pressure on Wages to Come Unemployment Rate and Hourly Earnings 12 Unemployment Rate 10 8 6 4 2 Average Hourly Earnings, percent change year ago 0 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 Source: BLS 7
Moderating Oil Prices Means Less Inflation Ahead Consumer Price Index and WTI Oil Price, pchya 6 120 5 100 4 80 Consumer Price Index, pchya (L) 3 60 2 40 1 20 0 0 -1 -20 -2 -40 WTI oil price, pchya (R) -3 -60 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 Sources: BLS, EIA 8
Interest Rate Outlook, Moderate Increases Through 2018 Yield, percent 7 6 5 30-Year FRM 4 3 2 10-Year Treasury Bond 1 Fed Funds 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 Sources: Federal Reserve, Comerica Bank 9
2017 ForecastThe 360 View Downside Risks Upside Risks Failure of the Trump Agenda Tax reform, personal and corporate Stock market correction Infrastructure program Global volatility, China, Japan, Consumer/business confidence Eurozone/Brexit, Russia, MENA Business investment Higher interest rates Wealth effects Housing stalls Deregulation, including financial Pushback from trade agreements Expansive energy policy w/higher prices Strong dollar/weak trade Single-family housing market Terrorist event Job growth stays strong Consumer spending slumps Second leg for autos 10
Mind the Gap 1 1
A Dire Prediction by the CBO Federal Deficit as Percent of GDP 4 2 0 -2 -4 -6 -8 -10 '66 '72 '78 '83 '90 '96 '02 '08 '14 '20 '26 '32 '38 '44 Source: Congressional Budget Office 12
Robert A. Dye, Chief Economist Subscribe www.comerica.com/economics Follow on Twitter @Comerica_Econ
