Zions Bank Economic Overview WIB Education Summit September 19, 2017
National Economic Conditions
Dow Breaks 22,000 The Trump Bump Dow Reaches New Heights Following U.S. Presidential Election Source: Federal Reserve Bank of St. Louis
Business Optimism Booms Post Election Source: Trading Economics, NFIB Small Business Optimism Index
Current Level of Consumer Confidence Remains High 130 120 110 Above 110 indicates economic prosperity 100 90 80 70 60 50 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14 Sep-14 Dec-14 Mar-15 Jun-15 Sep-15 Dec-15 Mar-16 Jun-16 Sep-16 Dec-16 Mar-17 Jun-17 Source: The Conference Board
Trumponomics Repeal and replace the Affordable Care Act Cut corporate and income taxes Increase spending on infrastructure and military Reduce government regulations Renegotiate trade deals But can they get it done?
August Job Indicators Indicator Expectation Actual Total Nonfarm Payrolls 180,000 156,000 Unemployment Rate 4.3% 4.4% Private Payrolls 180,000 165,000 Monthly Average Hourly Wage Growth Yearly Average Hourly Wage Growth 0.2% 0.1% 2.5% 2.5% Labor Force Participation 62.9% Sources: Wall street Journal and Bureau of Labor Statistics
156,000 Jobs Added in August 83 rd Consecutive Month of Growth Unemployment Near 16 Year Low 150,000 12.0% Thousands of Employees 145,000 140,000 135,000 130,000 10.0% 8.0% 6.0% 4.0% 2.0% Unemployment Rate 125,000 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 0.0% Total Nonfarm Employment Unemployment
156,000 Jobs Added in August Payroll Change in thousands 500 300 100-100 -300-500 -700 8.7 Million Jobs Lost 16.4 Million Jobs Recovered -900 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics
National Employment Change Percent Change in National Employment by Industry: August 2016 to August 2017 Ntl. Res. & Mining 8.8% Construction 3.2% Manufacturing 1.1% Trade, Trans., Utilities 1.5% Information -2.4% Financial Activity 1.8% Prof. & Bus. Serv. 3.0% Ed. & Health Serv. 2.1% Leisure & Hospitality 2.1% Other Services Government 0.0% 1.5% Total: 1.4% -4% -2% 0% 2% 4% 6% 8% 10% Source: Bureau of Labor Statistics
National Employment Change Total Change in Number of Jobs by Industry in Thousands: August 2016 to August 2017 Ntl. Res. & Mining 58 Construction Manufacturing Trade, Trans., Utilities Information Financial Activity Prof. & Bus. Serv. Ed. & Health Serv. Leisure & Hospitality Other Services Government -67 8 138 108 149 88 214 323 476 602-200 -100 0 100 200 300 400 500 600 700 Source: Bureau of Labor Statistics
CA 1.7% OR 2.9% WA 2.2% Employment Growth by State NV 2.7% Percent Change in Employment for States: July 2016 to July 2017 U.S. Rate = 1.5% AK -0.3% ID 2.3% UT 2.5% AZ 1.2% MT 1.1% WY -1.1% HI 1.2% CO 1.7% NM 0.2% ND 1.5% SD 0.4% NE 1.2% KS -0.8% TX 2.4% OK 1.1% MN 2.1% IA 1.0% MO 2.0% AR 2.7% WI 0.9% LA 0.6% IL 0.6% MS 0.5% MI 1.4% IN 0.9% TN 1.7% AL 1.6% OH 0.9% KY 1.2% GA 2.2% VT 0.3% WV 0.2% PA 1.0% NC 1.5% SC 1.4% VA 1.5% FL 2.7% NH 1.8% NY 1.5% ME 1.0% DC 2.4% CT 0.7% DE 0.3% MD 1.9% MA 1.3% RI 1.7% NJ 1.2% 2.0% + 1.6% to 1.9% 1.0% to 1.5% 0.0% to 0.9% Loss Note: Seasonally Adjusted Source: Bureau of Labor Statistics
Wage Growth Stagnant 4.0% 3.5% August 2017 2.5% 3.0% 2007 2017 Average 2.4% 2.5% 2.0% 1.5% 1.0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Federal Reserve Bank of St. Louis
68% Labor Force Participation Seeing Little Change 67% 66% 65% 64% August: 62.9% 63% 62% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: U.S. Bureau of Labor Statistics
Labor Force Participation Among Lowest Level in Almost 40 Years 68% 66% Mar 2000 67.3% 64% 62% 60% 58% Apr 1978 63.0% August 2017 62.9% 56% 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 Source: U.S. Bureau of Labor Statistics
Baby Boomers Head for Retirement 68% 38% U.S. Participation Rate 67% 66% 65% 64% 63% 62% 61% 36% 34% 32% 30% 28% 26% 24% 22% Share of 55+ 60% 20% 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 U.S. Participation Rate Age 55+ Share of Working Age Pop Source: Zions Bank Analysis of Federal Reserve Bank of St. Louis
Long-Term Decline of the Teenage Workforce 70% 65% 60% 55% 50% 45% 40% 35% 30% 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 U.S. Labor Force Participation Rate Participation Rate Ages 16-19 Source: Federal Reserve Bank of St. Louis
Unemployment Remains Low 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 5.0% = Full Employment 3.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics
Unemployment Rates by State OR 3.8% CA 4.8% WA 4.5% NV 4.8% ID 3.0% UT 3.5% AZ 5.1% MT 3.9% WY 4.0% CO 2.4% NM 6.3% July 2017 U.S. Rate = 4.3% ND 2.2% SD 3.1% NE 2.8% KS 3.7% OK 4.4% MN 3.7% IA 3.2% MO 3.8% AR 3.4% WI 3.2% IL 4.8% MS 5.2% MI 3.7% IN 3.1% TN 3.4% AL 4.5% OH 5.2% KY 5.3% GA 4.8% WV 4.8% VT 3.1% PA 5.0% NC 4.1% SC 3.9% VA 3.8% NH 2.8% NY 4.8% ME 3.7% DC 6.4% CT 5.0% DE 4.8% MD 4.1% MA 4.3% RI 4.3% NJ 4.2% 6.0% + 5.5% to 5.9% AK 7.0% TX 4.3% LA 5.3% FL 4.1% 4.8% to 5.4% 4.0% to 4.7% 3.9% or less HI 2.7% Source: Bureau of Labor Statistics
Gap Between Unemployment and Underemployment Narrows 18% 16% 14% 12% 7.1% 10% 8% 6% 4.2% 4% 2% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 U-6 (Underemployed) U-3 (Unemployment) Source: Bureau of Labor Statistics
10,000 The Number of Part-time Workers for Economic Reasons Spiked during the Great Recession Thousands of Employees 9,000 8,000 7,000 6,000 5,000 4,000 3,000 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
8 Long-Term Unemployment Drops Unemployed for more than 27 weeks Millions of Persons 6 4 2 July 2017: 1.8 m 0 1980 1983 1985 1988 1991 1994 1997 2000 2002 2005 2008 2011 2014 2017 Sources: Federal Reserve Bank of St. Louis, Numbers are rounded
Job Openings Hit All-Time High in July Level in Thousands 6,500 6,000 5,500 5,000 4,500 4,000 3,500 3,000 2,500 2,000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Hires Openings Federal Reserve Bank of St. Louis
Fewer Unemployed Workers Per Job Opening 7 6 5 4 3 July 2017 1.1 2 1 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Unemployed/Openings Source: Federal Reserve Bank of St. Louis
Labor productivity has declined since strong growth during late 1990 s and early 2000 s Percent Change from Quarter One Year Ago 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Real output per hour Source: Bureau of Economic Analysis
Total Compensation $35.00 $30.00 $25.00 $20.00 $15.00 $10.00 $5.00 $0.00 Employment Cost Index Components of Total Compensation $23.29 $4.32 $0.80 $1.53 $16.64 Q1 2004 18.6% 3.4% 6.6% $26.42 $4.93 $0.95 $1.87 $5.11 $0.96 $2.08 $18.67 $19.58 Q4 2007: Start of Great Recession $27.73 18.7% 18.4% 3.6% 7.1% 3.5% 7.5% Q1 2010: ACA Signed into Law Salary and Wages Health Insurance Retirement Other Benefits $33.12 $6.22 $1.34 $2.50 $23.06 71.4% 70.7% 70.6% 69.6% Q1 2017 18.8% 4.0% 7.6% Source: Bureau of Labor Statistics
Producer Price Index increased in August 5% 4% 3% August 2.4% 2% 1% 0% -1% -2% Year-to-Year Change 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Labor Statistics
Inflation Continues to Underperform 4.5% 4.0% U.S. Consumer Price Index Yearly Change Rate 3.5% 3.0% 2.5% July 1.7% 2.0% 1.5% 1.0% 0.5% 0.0% -0.5% Feb-12 Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Source: Bureau of Labor Statistics
Growth in Consumer Spending Under Par 5% 4% 3% Personal Consumption Expenditure Yearly Percent Change July 1.4% 2% 1% 0% -1% -2% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Bureau of Economic Analysis
Median Household Income Hits New High $60,000 $58,000 $56,000 $54,000 $52,000 $50,000 $48,000 In 2015 Dollars $59,039 $46,000 1975 1980 1985 1990 1995 2000 2005 2010 2015 Source: U.S. Census Bureau
Personal Income Growth by State Percent Change in Personal Income : 2016 Q1 2017 Q1 U.S. = 3.7%; UT = 4.9% ID = 4.9% CA 4.8% WA 4.9% OR 3.8% NV 4.8% ID 4.9% UT 4.9% AZ 3.8% MT 3.7% WY -0.5% CO 4.4% NM 2.2% ND 1.0% SD 2.5% NE 1.2% KS 2.5% OK 1.2% MN 3.6% IA 1.9% MO 3.5% AR 3.1% WI 3.1% IL 2.2% MS 2.4% MI 4.4% IN 4.0% TN 4.4% AL 3.2% OH 3.6% 3.8 2.6% WV 1.9% GA 3.8% VT 1.6% PA 3.9 % NC 4.4% SC 4.6% VA 4.4% NH 3.1% NY 3.0% ME 2.9% DC 4.4% CT 2.5% DE 3.6% MD 4.9% MA 3.8% RI 3.0% NJ 3.5% AK 1.6% TX 3.2% LA 3.0% 4.0% or more 3.6% to 3.9% FL 4.6% HI 3.0% 2.0% to 3.5% 0.0% to 1.9% Decrease Source: Bureau of Economic Analysis
Income Increases Not Felt Evenly
Consumer Spending Drives Growth 6.0% 4.0% Q2 2017 3.0% 2.0% 0.0% -2.0% -4.0% 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015 2015 2015 2016 2016 2016 2016 2017 2017 Personal Consumption Fixed Investment Net Exports Inventories Government Real GDP Growth Source: Bureau of Economic Analysis
Gross Domestic Product by State: Q1 2017 U.S. Rate = 1.2% CA 0.1% OR 1.1% WA 2.7% NV 1.0% AK 1.8% ID 2.1% UT 1.9% AZ 0.9% MT -0.5% WY 0.9% CO 0.4% NM 2.8% ND 1.6% SD -3.8% NE -4.0% KS -0.7% TX 3.9% OK 1.9% MN -0.3% IA -3.2% MO 0.9% AR 1.3% WI 2.1% LA 1.0% IL 0.9% MS 1.3% MI 1.5% IN 1.8% TN 1.5% AL 1.9% OH 1.4% KY 1.8% GA 1.7% VT 1.1% WV 3.0% PA 1.2% NC 0.7% SC 1.7% VA 2.0% FL 1.4% NH 0.8% NY 0.3% ME 0.0% DC 0.6% CT 0.6% DE 0.3% MD 2.1% MA 1.1% RI 0.7% NJ 0.6% 2.0% + 1.6% to 1.9% 1.0% to 1.5% 0.0% to 0.9% HI -0.9% Loss Note: Seasonally Adjusted Source: Bureau of Labor Statistics
The U.S. Dollar has Weakened Since the Start of 2017 140 Trade Weighted U.S. Dollar Index: Broad 130 120 110 100 90 80 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Index 1997 = 100 Source: Federal Reserve Bank of St. Louis
The Dollar s Percentage Drop Accelerates
Euro compared to U.S. Dollar $1.70 $1.60 $1.50 1.39 $1.40 $1.30 $1.20 $1.10 $1.00 $0.90 PARITY 1.06 $0.80 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Federal Reserve Bank of St. Louis
$1.80 $1.70 $1.60 $1.50 $1.40 $1.30 $1.20 $1.10 British Pound Dropped to New Low Following BrexitVote July 2014 $1.72 Brexit Vote $1.00 2010 2011 2012 2013 2014 2015 2016 2017 Sept. 2017 $1.32 Source: Federal Reserve Bank of St. Louis
China s Yuan Dropping
U.S. Total Oil Rigs and Oil Prices 1,700 1,500 $120 $100 Oil Rig Count 1,300 1,100 900 700 $80 $60 $40 Oil Prices 500 $20 300 2011 2012 2013 2014 2015 2016 2017 $0 US Oil Rigs Oil (WTI Crude) Sources: Baker Hughes and Federal Reserve Bank of St. Louis
Federal Funds Target Rate Sees 4th Increase in Over a Decade 6 5 4 3 2 Federal Funds Target Rate = 1.25 1 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: U.S. Federal Reserve
6% Fed Funds Rate, Unemployment and Inflation 12% 5% 4% 3% 2% 1% 0% -1% 1 st increase since 2006-2% 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 10% 8% 6% 4% 2% 0% Unemployment Rate FEDFUNDS PCE %Δ YoY UNRATE
4% June 2017 Fed Rate Increase Projections 3% 2.9% 3.0% 2% 2.1% 1.4% 1% 0% 2017 2018 2019 Long Run Source: Board of Governors of the Federal Reserve
Markets Increasing Likelihood of Rate Increases
Explosion in the Federal Reserve s Balance Sheet $5.00T $4.50T $4.00T $3.50T $3.00T $2.50T $2.00T $1.50T $1.00T $0.50T Recession QE1 QE2 QE3 $0.00T 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Mortgage-Backed Securities U.S. Treasury Securities Federal Agency Debt Other Source: Federal Reserve Bank of St. Louis
3.0% Yield Curve Showing Signs of Distress 10-year minus 2-year spread 2.50% 2.0% 1.50% 1.0% 0.50% 0.0% -0.50% -1.0% 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Federal Reserve Bank of St. Louis ource: Federal Reserve Bank of St. Louis
U.S. Annual Building Permits Thousands 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 Single-Family Units Multifamily Source: U.S. Department of Commerce and U.S. Census Bureau
Value of Private Nonresidential Construction Surpassed Pre-Recession Levels Millions of Dollars 1,000,000 900,000 800,000 700,000 600,000 500,000 400,000 300,000 200,000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Total Private Residential Nonresidential 2014 2015 2016 2017 Source: U.S. Department of Commerce and U.S. Census Bureau; seasonally adjusted
Commercial Property Values Up Dramatically
US home prices surpass pre-recession peak $210,000 $190,000 April 2007 $196,600 July 2017 $200,700 $170,000 $150,000 $130,000 $110,000 $90,000 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Source: Zillow Research
Number of Foreclosures Dropping Percentage of total homes in foreclosure process 1.8 1.6 1.4 1.2 1 0.8 0.6 0.4 0.2 0 2008 2009 2010 2011 2012 2013 2014 2015 2016 U.S. Source: Graphiq.com
What Does This Mean for Banks?
Economic Positives Strong consumer and business confidence Trumponomics pro growth agenda The Western US has: Strong population growth Strong employment growth Low unemployment Strong income growth Economic Negatives National and international uncertainty Trumponomics success? Depressed business investment Unstable inflation outlook Skills mismatch Low productivity growth Overregulation from Washington
American Civics Knowledge Lacking
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