As Good as it Gets. The Aging Expansion Powers On... but for How Much Longer? Andrew J. Nelson Chief Economist USA, Colliers International

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1 As Good as it Gets The Aging Expansion Powers On... but for How Much Longer? Andrew J. Nelson Chief Economist USA, Colliers International

Ten Years After: A Full if Imperfect Recovery

potential > Jobs well above prior peak and

stronger and confident > Record household

prices above prior peak nationally > College

Growth still below average; GDP potential

low-end and part-time jobs > Most Americans

income) even more highly concentrated at the

Numerous homes still seriously underwater;

2 Ten Years After: A Full if Imperfect Recovery > GDP growing stronger and now back to full potential > Jobs well above prior peak and still going strong > Consumers financially stronger and confident > Record household wealth > Wage growth finally rising > Home prices above prior peak nationally > College enrollment still strong (if down modestly) > Growth still below average; GDP potential keeps dropping > Fewer people working; more low-end and part-time jobs > Most Americans still live paycheck to paycheck > Wealth (and income) even more highly concentrated at the top > Inflation negating wage gains > Numerous homes still seriously underwater; affordability reducing homeownership rates > Student debt levels soaring

3 The Aging Moderate Expansion... Deserves more respect

4 As Good as it Gets? (1) Economy surges... but less than it seems

5 As Good as it Gets? (2) Job growth strong but slowing... as unemployment falls Quarterly Nonfarm Jobs Growth at Annualized Rate Unemployment (U3) vs. Underemployment (U6) Rates 2.5% 18% 16% 2.0% 14% 1.5% 12% 10% 1.0% 8% 6% 0.5% 4% 2% 0.0% U3 U6

6 As Good as it Gets? (3) Job openings now exceed hires... and unemployed workers! Hires vs. Job Openings (3-Mo. MA) Unemployed Workers vs. Job Openings 4.5% 18, % 3.5% 16,000 14,000 12, % 2.5% 10,000 8,000 6, % 1.5% 4,000 2,000 0 Hires Openings Unemployed Openings

7 Leading Indicators Still High but for how long? Virtually all states to keep expanding into 2019 State Leading Indexes: Expected Six-Month Change U.S. Leading Economic Indicator Index

8 Business and Consumer Confidence Both near high point for this cycle Consumer Confidence vs. Manufacturing and Services PMI* At/near high point in this cycle PMI: Manufacturing PMI: Nonmanufacturing Consumer Confidence

9 Home Sales Strong-ish but Stalling Both new and existing home sales flat to falling since the spring Existing Home Sales, SAAR (000s) New Home Sales, SAAR (000s) Thousands 7,500 7,000 6,500 6,000 5,500 5,000 4,500 4,000 3,500 Thousands 1,600 1,400 1,200 1, , New Home Sales - US

10 Yield Curve Flattening Long-term yields still > short-term yields but barely 10-year minus 2-year Treasury Yields

11 GDP Output Gap is Positive and Rising Overheating economy prompting Fed to cool growth with rate hikes GDP Output Gap = (Actual GDP Potential GDP) / Potential GDP 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% -5.0% -6.0% -7.0%

12 Key Economic Themes for New life for a maturing expansion... but comes with risks Drivers Tax cut / reform and new budget spending provide short-term boost Exuberant business sector to keep investing (though pace softening) Consumers confident but tapped out Global growth (and trade) slowing again after brief peak in 2017 Fed increasingly pivots from expansionary to neutral (to contractionary) Increasingly tight labor markets raise wages, cool job growth Near-Term Risks Rising dollar and growing costs of trade wars Equity prices (still) looking pricey, risk of correction Emerging market contagion from oil / currency shocks Accelerating inflation: wages, fiscal overdrive, deficit spending Overcorrection from Fed

be very good year but economy starts to cool in late 2019 Job growth slowing as we near full employment Inflation and interest rates finally rising in

) closer to the top of the market cycle than the bottom Absorption and sales transactions to continue slowing.

13 2018+ U.S. Economic Forecast Mostly sunny with increasing clouds and a chance of T-storms We re (much) closer to the end of the expansion than the beginning 2018 will be very good year but economy starts to cool in late 2019 Job growth slowing as we near full employment Inflation and interest rates finally rising in earnest Another one to two good years left but rising downside risks by 2020 We re much (much!) closer to the top of the market cycle than the bottom Absorption and sales transactions to continue slowing. Financial returns will continue easing as cap rates stabilize / rise... But strong investor interest will maintain asset values for now. Next recession / downturn likely to be kinder to property sector Great Recession was unusually deep / long / broad... and focused on property sector. Next recession likely to be shallower / shorter / regional, and focused on other sectors... But does Fed have tools to fight the next one?

14 colliers.com/andrew.nelson

The Economic Outlook. Economic Policy Division

The Economic Outlook. Economic Policy Division The Economic Outlook Economic Policy Division Glass Half Full Six plus years of moderate growth Real GDP Outlook Percent Change, Annual Rate 10 5 0-5 -10 1980 1985 1990 1995 2000 2005 2010 2015 Glass Half