As Good as it Gets The Aging Expansion Powers On... but for How Much Longer? Andrew J. Nelson Chief Economist USA, Colliers International #NMHCstudent @ApartmentWire
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
The Aging Moderate Expansion... Deserves more respect
As Good as it Gets? (1) Economy surges... but less than it seems
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
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% 18,000 4.0% 3.5% 16,000 14,000 12,000 3.0% 2.5% 10,000 8,000 6,000 2.0% 1.5% 4,000 2,000 0 Hires Openings Unemployed Openings
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 3.0 2.0 1.0 0.0-1.0-2.0-3.0
Business and Consumer Confidence Both near high point for this cycle Consumer Confidence vs. Manufacturing and Services PMI* 65 60 55 50 45 40 35 30 At/near high point in this cycle 105 100 95 90 85 80 75 70 65 60 55 PMI: Manufacturing PMI: Nonmanufacturing Consumer Confidence
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 1,000 800 600 400 200 3,000 2000 2003 2006 2009 2012 2015 2018 0 2000 2003 2006 2009 2012 2015 2018 New Home Sales - US
Yield Curve Flattening Long-term yields still > short-term yields but barely 10-year minus 2-year Treasury Yields 3.0 2.5 2.0 1.5 1.0 0.5 0.0-0.5-1.0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
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% 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Key Economic Themes for 2018+ 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
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?
colliers.com/andrew.nelson http://knowledge-leader.colliers.com/author/andrew-nelson/