The ABA Advantage: Economic Issues Update & ABA Resources

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1 The ABA Advantage: Economic Issues Update & ABA Resources aba.com BANKERS

2 Meet the team Jim Chessen Chief Economist Curtis Dubay Senior Economist Brittany Kleinpaste Vice President of Economic Policy & Research Robert Strand Senior Economist Stephen Newton Research Associate Jack McCabe Research Associate

3 Meet today s speaker Brittany Kleinpaste Vice President Economic Policy & Research I bkleinpaste@aba.com

4 Major Economic Trends Affecting Banking May 21, 2018 Brittany Kleinpaste VP, Economic Policy & Research aba.com BANKERS

5 More of the Same? Jobs Consumer Spending Housing Capital Spending Manufacturing Global Expansion Tax Relief

6 Economic Advisory Committee Forecast Real GDP 2.4% 2.0% Personal Consumption 2.4% 2.0% New Home Sales 681k 730k Core PCE 1.7% 2.0% New Jobs/Month 156k 125k Unemployment Rate 3.9% 3.8% Source: ABA Economic Advisory Committee, January 2018

7 Steady GDP Growth Continues 6% 5% 4% 3% ABA EAC Forecast 2% 1% 0% -1% -2% Source: Bureau of Economic Analysis

8 Sluggish Expansion Y/Y percent change 15 Recession Real GDP Expansion Average 10 5 Avg: 4.4% Avg: 4.2% Avg: 3.6% Avg: 2.8% Avg: 1.9% 0 Avg: 4.9% Source: Bureau of Economic Analysis

9 Consumers Continue to Drive Growth Contribution to GDP Growth 6% Total GDP Growth 3% 1% -2% Source: Bureau of Economic Analysis

10 Consumer Confidence Remains Strong Index Value Source: University of Michigan

11 On the Domestic Watch List 1. Inconsistent business investment 2. Lacking labor force participation 3. Tight housing supply 4. Future rate hikes

12 1. Inconsistent Business Investment Percentage points Nonresidential Fixed Investment GDP Source: Bureau of Economic Analysis

13 Business Investments Weak? Business Investment as a Share of GDP 16 Recessions Source: Bureau of Economic Analysis

14 Small Businesses Millions Number of businesses <500 employees Pre-2007 trend line : 690,000 missing small businesses : 133,000 missing small businesses Source: U.S. Census Bureau, Goldman Sachs Global Investment Research

15 Single Most Important Problem for Small Businesses 30% 25% 20% 27% Taxes Government Regulation and Red Tape Quality of Labor 21% 15% 10% 11% 13% 13% 14% 5% 0% October 2007 March 2018 Source: National Federation of Independent Business

16 Borrowing Needs Satisfied Percent of All Businesses Last Three Months Satisfied Percent of All Businesses Last Three Months Not Satisfied Source: National Federation of Independent Business

17 Percent Lacking Labor Force Participation LFPR Working Age Population Source: U.S. Bureau of Labor Statistics, World Bank

18 Payroll Change 000 s 1000 Consistently Strong Job Growth Million Jobs Added over the Last 4 Years ABA EAC Forecast Source: Bureau of Labor Statistics

19 Wage Growth Improving Year/Year Growth Averaged 3.4% over Last Two Years 3-Month Moving Average (% Y/Y) 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% Source: Federal Reserve Bank of Atlanta

20 Job Growth by Sector Jobs added since 2009, millions Transportation and Warehousing Manufacturing Construction Retail Trade Leisure and Hospitality Education and Health Professional and Business Source: U.S. Bureau of Labor Statistics

21 Prime Age Men Not in Labor Force Taking Pain Medication Type of Medication: Prescription OTC 20% Both No Medication 53% 11% 16% Source: Princeton Pain Survey (571 respondents), Alan Krueger

22 Manufacturing Employment Millions 15 Employees Job Openings Thousands Source: U.S. Bureau of Labor Statistics

23 Manufacturing Employment Millions 15 Employees Job Openings Thousands Source: U.S. Bureau of Labor Statistics

24 3. Tight Housing Supply Months Supply 14 Recessions Source: U.S Census Bureau

25 Housing Starts Millions of Units 3 Recession Average Source: U.S Census Bureau

26 Tight Supply Driving Housing Inflation Index 1991 = House Price Index, Purchase Only Sources: U.S. Federal Housing Finance Agency

27 But is it a bubble? Index 1991 = House Price Index, Purchase Only 230 Average Hourly Earnings Procution, Nonsupervisory Employees Sources: U.S. Federal Housing Finance Agency

28 4. Future Rate Hikes Fed Will Raise Rates Financial conditions remain loose Inflation forecast to read 2% this year Home sales seem unaffected by rate increases Global recovery will reduce risk of large divergence in rates Tax reform and government spending stimulus

29 FOMC Participants 2018 Projections December 2017 Number of Rate Hikes in Source: FOMC (December 2017) FOMC Participants

30 FOMC Participants 2018 Projections March 2018 Number of Rate Hikes in Source: FOMC (March 2018) FOMC Participants

31 Mortgage Rates Not Impacting Home Sales Millions Existing Home Sales Percent year Mortgage Source: Fannie Mae, National Association of Realtors

32 Inflation Makes a Return Y/Y percent change 3% PCE Core PCE FOMC 2% Target 2% 1% 0% Source: U.S. Bureau of Economic Analysis

33 Eurozone Inflation in Line with U.S. Percent 3 Germany France U.S Source: OECD, U.S. Bureau of Economic Analysis

34 1.5 Fed Moves while the World Waits Central Bank Policy Rates (%) Switzerland ECB BOE Japan United States Source: Federal Reserve, BoE, BoJ, ECB, SNB

35 Outlook Economic fundamentals are very positive Tax reform and infrastructure spending can boost short term growth but may drive debt and inflation higher Geopolitical turmoil will present unexpected challenges Wages, demographics, and weak productivity will limit potential growth

36 Research resources on aba.com

37 Research resources on aba.com What s new Topics pages ABA staff analyses Key issues Publications Surveys Featured Charts Industry Data

38 Banking Information

39 ABA EAC Economic Forecast

40 Educating Policy Makers Banks sit at the core of the basic credit cycle, which turns the economic wheel of the country. NONBANKS

41 ABA s Benchmarking Tools The Bank Performance Benchmark is a tool allowing you to compare your bank s performance against a custom peer group.

42 ABA Banking Journal bankingjournal.aba.com

43 ABA Infographics ABA.com/Infographics

44 ABA Experts On Call ABA.com/Experts ABA s 300+ staff experts are available at no cost to ABA members Find answers to any question Vehicle for identifying issues bankers are struggling with and exam trends

45 Q&A Brittany Kleinpaste Vice President Economic Policy & Research I bkleinpaste@aba.com

46 Make the most of your ABA member benefits ABA.com/GetStarted

47 Questions about your ABA benefits? Contact: Maureen Onda Kim Michael

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