Documents/Summits/TrendsinU.S.Manufacturing Glassman
Trends in U.S. Manufacturing Jim Glassman 1
Flying Through a Worry Vortex
Recovery Progress Report February 16, 2016 2
We’re Probably In the 7th Inning … Unemployment metrics (% of the labor force) 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
18 17 16 15 14 13 12 11 Lines: 10 U-6 9 {U-3 + invol part-timers +8 young adults MIA} 7 Long term 6 {U-3 + invol part-timers} 5 U-3 Short term 4 3 2 1 Note: solid blue areas represent those who are reflected in the official unemployment rate (U -3). Short-term unemployment reflects those who have been unemployed for fewer than six months; long -term unemployed have been unemployed for more than six 0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Sources: Haver Analytics; U.S. Department of Commerce; U.S. Department of Labor. Updated through January 2016.
3
… Looking at the Status of those Under 45 Employment-population ratio for those 45 years of age and younger (percent) 0.78
0.78
0.76
0.76
0.74
0.74
0.72
0.72
0.70
0.70
0.68
0.68
0.66
0.66
0.64
0.64
0.62
0.62
0.60
0.60
0.58
0.58
0.56
0.56
0.54 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
0.54
2.8 million shy of where we were at the end of 2007
Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
4
P.S. Great Lakes Region Chugging Along Nonfarm payroll employment (ratio to 2007 Q4 level) 1.14
US Forecast
1.12
TX
1.14
Midwest
US
1.12
DC
1.10
1.10
AK
1.08
UT
1.06
SD
1.04
NY
1.02
NE
1.08
CO
1.06
OK
1.04
MA
1.02
MN
1.00
1.00
MT LA
0.98
0.98
IA
0.96
W Va
0.94
VA
0.96
WA
0.94
MD
0.92
KS
0.90
CA
0.92
WY
0.90
NH
0.88
0.88
PA TN
0.86
0.86
VT
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
5
P.S. California’s Gaining Ground Nonfarm payroll employment (ratio to 2007 Q4 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV
1.14 1.12 1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
1.14 1.12
California
1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
0.86
0.86 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
6
P.S. California’s Gaining Ground Nonfarm payroll employment (ratio to 2007 Q4 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV
1.14 1.12 1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
1.14 1.12
California
1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
0.86
0.86 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
7
We May be Looking at Extra Innings Inflation, PCE chain price indexes (percent change from 12 months earlier) 12
12 Forecast
10
10 The range of FOMC's forecast for PCE chain price inflation, including its longer-run goal
8 Overall PCE inflation¹
6
8 6
4
4
2
2
0
0
Core PCE inflation¹
-2
-2 1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Commerce. Updated through December 2015 (inflation) and December 16, 2015 (FOMC forecasts).
8
GDP Is Slow … but Compared to What? Real U.S. GDP growth (percent change from four quarters earlier) 20 15
20
Average historical growth = 3.75% annually
15
10
10
5
5
0
0
-5
-5
-10
-10
-15 -15 1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through 2015 Q4.
9
In Fact, We’re Making Good Progress … Employment and the labor force (percent change from 12 months earlier) 400
Payroll employment Household employment*
300
400
300
200
200
100
100
0
0
-100 -200
-100 Labor force*
-300 -400
-200 -300
* Adjusted for annual breaks in the Census Department's estimate of the population.
-500
-400 -500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
10
… Better than Most Think, Because … Relative job growth: employment growth less labor force growth (percentage points) 3
3 Employment and labor force data adjusted for annual breaks in the Census' population estimates
2
2
1
1
0
0
-1
-1
-2
Employment and labor force not adjusted for annual breaks in Census' population estimates
-3 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
-2
-3
Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
11
… the Working-Age Population Is Slowing … Noninstitutional population and the working age population (percent change annually) 3.5
3.5
3.0
3.0
2.5
2.5 Working-age Population (16 to 69 years of age)
2.0
2.0
1.5
1.5
1.0
1.0
0.5
Noninstitutional population
0.0
0.5
0.0
-0.5
-0.5
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 2050
Sources: Haver Analytics; U.S. Census; U.S. Department of Labor. Updated through 2015.
12
… and the Labor Force Is Even Slower Working age population and the labor force (percent change annually) 3.5
3.5
3.0
3.0
2.5
Working-age population (16 to 69 years of age)
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5 Labor force
0.0
0.0
-0.5
-0.5
1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013 2019 2025 2031 2037 2043 2049
Sources: Haver Analytics; U.S. Census; U.S. Department of Labor. Updated through 2015.
13
Relative Growth Metrics Know Best Employment less labor force growth (pct pts)
Jobless claims (% of the labor force)
3
Forecast
0.10
Jobless claims (right, scale is reversed) 0.15
2
0.20
1
0.25 0 0.30 -1
-2
-3
0.35 Employment less labor force growth (growth is the percent change from 12 months earlier, left scale)
0.40 0.45
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q4 (GDP) and February 6, 2016 (jobless claims).
14
Pay Trends Are Starting to Agree Selected measures of hourly pay (% change from 12 months earlier) 4.5
4.5
4.0
4.0
3.5
3.5 Average hourly earnings, all private-sector workers
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
ECI, hourly compensation in the private sector
0.5
0.5
0.0
0.0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through 2015 Q4 (ECI) and January 2016 (average hourly earnings).
15
So Why Are “We” So Unhappy? Misery Index = Unemployment Plus Inflation 25
25
20
20
15
15
10
10
5
5
0 1948
0 1953
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
2008
2013
Sources: Haver Analytics; U.S Department of Commerce; U.S. Department of Labor. Updated through January 2016.
16
And a Dark Cloud Has Passed U.S. house prices (January 2000 = 100) 225 200
225
Note: The red zone represents an estimate (about $450 billion) of the aggregate amount of remaining underwater mortgages, before chargeoffs
200
175 150
175 150
CoreLogic measure of house prices
125
The scenario above assumes that house prices rise 4% annually in the future.
100 75 50 25 0 1970
125 100 75 50 25 0
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Sources: Haver Analytics; CoreLogic. Updated through 2015 Q4.
17
It Isn’t That Hard to See … Share of income paid to labor for a dollar of real GDP produced by NFCs (percentage) 0.67
0.67
0.66
0.66
0.65
0.65
0.64
0.64
0.63
0.63
0.62
0.62
0.61
0.61
0.60
0.6
0.59
0.59
0.58
0.58
0.57
0.57
0.56
0.56
0.55 1960
0.55 1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q3.
18
… We Think An Echo of Innovation … Labor productivity versus real compensation, nonfarm business (ratio to 1970’s average) 2.25
2.25
2.00
2.00
Labor productivity
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
Real hourly compensation
0.75
0.75
0.50
0.50
0.25
0.25
0.00 1947
0.00 1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
19
… All Contributing to This Gini Coefficient (0 = perfectly equal and 1 = perfectly unequal) 0.46
0.46
0.44
0.44
0.42
0.42
0.40
0.40
0.38
0.38
0.36
0.36
0.34
0.34 1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015.
20
This Cyclical Deficit Was Never the Issue The federal deficit (billions of dollars over the most recent 12 months) (percent of nominal GDP) 400 300 Black line is the budget balance as a 200 percent of GDP (right scale) 100 0 -100 -200 -300 -400 -500 -600 -700 -800 Solid areas are the budget -900 balance in billions of dollars -1,000 over the most recent 12 -1,100 months (left scale) -1,200 -1,300 -1,400 -1,500 1960 1970 1980 1990
CBO's 10-year projection
2000
2010
4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15
2020
Sources: Haver Analytics; U.S. Department of Commerce; CBO. Updated through January 2016.
21
The (Looming) Structural Deficit Is Actual and structural federal budget balance (percent of nominal GDP) 4 4 3 3 Lines: 2 2 Actual federal deficit (% of potential GDP) CBO's 10-year projection 1 1 CBO's long-term projection 0 0 Shaded area: -1 -1 Cyclically-adjusted federal deficit, net of fiscal initiatives (% of potential GDP) -2 -2 -3 -3 -4 -4 -5 -5 -6 -6 -7 -7 -8 -8 -9 -9 -10 -10 -11 -11 -12 -12 1959 1969 1979 1989 1999 2009 2019 2029 2039 2049 2059 2069 2079 2089 2099
Sources: Haver Analytics; Congressional Budget Office. Updated through January 2016.
22
Slow Growth Makes It Harder to Deal … Federal healthcare spending (percentage of GDP) 6
6
5
5
4
4
3
3
2
2
1
1
0
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Haver Analytics; Congressional Budget Office. Updated through 2015.
23
… Which Is the CBO’s Scary Story … Long-term revenue and spending projections (percent of GDP) 35
35
Actual
Projected
30
30
Net Interest
25
25
20
20 Healthcare Programs
15
15
10
10
Social Security
5
5 Other
0
0 1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
Sources: Haver Analytics; Congressional Budget Office. Updated through 2015.
24
… that Would Be Hard to Ignore Federal debt (ratio to GDP) 200
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030 2050 2070 2090
Sources: Haver Analytics; Federal Reserve Board; U.S. Treasury. Updated through September 2015.
25
APPENDIX. MARKET SHIVERS
26
There They Go Again S&P 500 (percent change from the May 21, 2015 record) 0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
Percent Deviation from the May 21,2015 All-time Peak
-7
-7
-8
-8
-9
-9
-10
-10
-11
-11
-12
-12
-13
-13
-14
-14
-15
-15 May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Sources: Haver Analytics; Dow Jones. Updated through February 12, 2016.
27
It’s Rational to Worry … % ch from the local (most recent 12-month) peak
Wilshire 5000 (Dec. 1970 =830.27)
30
25,000
25
Wilshire 5000 index of all publicly-traded stocks (right scale)
20
20,000
15 10
15,000
5 0 10,000
-5 -10
-20 -25 2009
5,000
Percentage pullback from the peak in the most recent 12 months (left scale)
-15
0 2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; Dow Jones. Updated through February 12,2016.
28
… the More We Discount “Good” Wilshire 5000 (December 31, 1970 = 830.27) 35,000 30,000
After-tax GDP profits (billions of dollars) 2,500
Note: Since 1952, the Wilshire 5000 P/E climbed to 14.2 times earnings near cyclical peaks, excluding the unprecedented multiples during 1997 - 2001, and that occurs when the black line floats at the upper boundary of the shaded (earnings) area. The projection for the Wilshire 5000 is shows what would be expected if the price -earnings ratio remained at 14.2 and earnings grow as indicated. Large arrows mark times when the Fed began to return the funds rate back to a more normal position.
2,000
25,000 20,000
Line represents the Wilshire 5000 index (left scale)
1,500 Forecast
15,000
1,000
10,000
500 5,000 0 1990
0 1995
2000
2005
2010
2015
2020
Sources: Haver Analytics; US Department of Commerce; Dow Jones. Updated through 2015 Q3 (profits) and February 12, 2016 (stocks).
29
Worry Doesn’t Usually Translate % ch in the Wilshire 5000 equity index from the high point in the most recent 12 months 0
0
-5 -10
-10
-15 -20
-20
-25 -30
-30
-35 -40
-40
-45 -50
-50
-55 -60 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
-60
Sources: Haver Analytics; Dow Jones. Updated through February 12,2016.
30
… CONFUSION ABOUT OIL
(because falling oil prices cut many ways)
31
Falling Oil Prices Squeeze Business …
32
A Supply Glut … Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 95,000
95,000 Production
90,000
90,000
85,000
85,000 Demand
80,000
80,000
75,000
75,000
70,000
70,000
65,000
65,000 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Sources: Haver Analytics; U.S. Department of Labor. Updated through September 2015 (states) and October 2015 (U.S.).
33
… Forced Prices Down … U.S. oil production (thousands of barrels daily)
WTI (dollars per barrel)
10,000
160
140 9,000 Petroleum Prices, WTI (right scale)
120
8,000 100
U.S. oil output (left scale) 7,000
80
60
6,000 40 5,000 20
4,000 1990
0 1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Energy; International Energy Agency. Updated through February 5, 2016.
34
… and Shuttered Projects … U.S. oil production (thousands of barrels daily)
Rig Count (number)
10,000
1,800 1,600
9,000 1,400 Oil drilling rig count (right scale)
8,000
1,200 U.S. oil output (left scale)
1,000 7,000 800
6,000
600 400
5,000 200
4,000 1990
0 1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Energy; International Energy Agency; Baker Hughes. Updated through February 5, 2016.
35
Layoffs In the Energy Belt Show the Stress … Jobless claims in “energy” states (ratio to 2007 Q4 level) 2.00
(Black line) The energy belt (Arkansas, Colorado, 2.00 Kansas, Mississippi, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, 1.75 Utah, West Virginia, Wyoming)
1.75
(Green line) All others
1.50
1.50
(Blue-shaded area) U.S. total
1.25
1.25
1.00
1.00
0.75
0.75
0.50 2007
0.50
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through February 6, 2016.
36
… But It’s Manageable Even at Ground Zero Jobless claims in Texas versus the nation (ratio to 2007 Q4 level) 3.00
3.00
2.75
2.75
Texas US (solid area)
2.50
2.50
2.25
2.25
2.00
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75 2007
0.75
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through February 6, 2016.
37
Employment Shows the Divide Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 280
280
260
260
240
240
Nonfarm payroll employment
220
220
200
200
180
180
160
160
140
140 Nonfarm payroll employment excluding Arkansas, Colorado, Louisiana, New Mexico, North Dakota, Pennsylvania, Texas, and West Virginia
120
100
120
100 2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
38
Industries Tied to Oil Feel It … Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 300
15 Nonfarm payroll employment, left scale
250
10
200
5
150
0
100
-5 Mining (oil and gas extraction, support activities for mining), Construction (oil and gas pipeline construction), and Manufacturing (petroleum refineries), right scale
50
-10
0
-15
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
39
… Manufacturing vs Nonmanufacturing … ISM indexes (50+ = increasing) 65
Real GDP (percent change from 12 months earlier) Real GDP, grey shaded area (right)
6
60 4
55 50
2
45 40
0
35 -2
30 25
Manufacturing ISM, line (left) Nonmanufacturing ISM, line (left)
-4
20 15
-6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Sources: Haver Analytics; Macroeconomic Advisers; ISM. Updated through November 2015 (GDP) and January 2016 (ISM).
40
… Including Those Indirectly Touched Real goods GDP and Transportation Services Index (2000 = 100) 140
140
130
130 Real Goods GDP
120
120
110
110
100
100 Transportation Services Index, Freight
90
90
80
80
70
70
60
60 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Commerce; Bureau of Transportation Statistics. Updated through October 2015.
41
Business Investment … Business fixed investment (% change from 4 quarters earlier unless noted otherwise) 25
25
20
Forecast
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
Note: line represents the change in business investment from quarter to quarter at an annualized rate.
-25 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
-20 -25
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
42
… Close Up Components of business fixed investment (percent change from 4 quarters earlier) 25
25
Shaded area denotes overall business fixed investment
20
20 Forecast
15
15
10
10
5
5
0
0
-5
-10 -15
Nonresidential structures
-5
Intellectual property products
-10 -15
Equipment
-20
-20
-25
-25
-30
-30
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
43
Equipment: Equipment Indicators Ease … Capital goods orders and shipments (billions of dollars) 110 105
110
Orders all nondefense capital goods (black line)
105
Shipments of nondefense aircraft
100
100
95
95
Shipments of nondefense capital equipment excluding aircraft
90 85 80
90 85 80
75
75
70
70
65
65
60
60
Orders for nondefense capital equipment excluding nondefense aircraft (line)
55 50
55 50
45
45 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: U.S. Department of Commerce. Updated through December 2015.
44
… but Backlogs Are Full … Backlogs of unfilled orders (billions of dollars) 700
650 600
700 Backlogs of (military and nondefense) aircraft orders
650 600
550 Backlogs of nondefense capital goods other than aircraft
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
0
Source: U.S. Department of Commerce. Updated through December 2015.
45
… Relative to Sales Backlogs of unfilled orders (months’ supply) 4
80 Backlogs of (military and nondefense) aircraft orders (right) Backlogs of nondefense capital goods other than aircraft (left)
70 60 50
3 40 30 20 2 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
10
Source: U.S. Department of Commerce. Updated through December 2015.
46
Oil Stress Market Sectors … High yield spread (noninvestment grade debt yield less 10-year Treasury yield) 2,000 1,800 1,600 1,400
Ibbotson Associates
J.P. Morgan Securities high yield index (left scale) J.P.Morgan Securities high yield index adjusted for LSAPs (left scale)
1,200
1,000 800 600
2,200 2,000 1,800 1,600 1,400 1,200 1,000 800
600
400
400
200
200
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
0
Sources: Haver Analytics; Federal Reserve Board; J.P. Morgan. Updated through December 11, 2015.
47
… and the Transport Indexes DJ Transportation Average and DJIA (October 9, 2007 = 1.0) 2.00
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75
0.75
0.50
0.50
Dow Jones Industrial Average Dow Transports
0.25 0.00 2007
0.25 0.00
2009
2011
2013
2015
Sources: Haver Analytics; Dow Jones. Updated through January 15, 2016.
48
Falling Oil Prices Benefit Many …
49
We Benefit If We Use More than We Make … U.S. petroleum demand and supply (thousands of barrels daily) 25,000
25,000
U.S. Petroleum Production
U.S. Petroleum Consumption
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Haver Analytics; Oil & Gas Journal. Updated through October 2015.
50
… and So Do Many Others Annual decline in the national oil bill (percent of nominal GDP) 15%
The $2 ½ trillion petrodollar shift:
10% 5%
0%
92 million barrels per day consumed globally
-5%
X 365 days
-10%
-15%
X $65 per barrel drop in oil prices
-20% -25%
Sources: Haver Analytics; Oil & Gas Journal; International Energy Agency. Updated through October 2015.
51
And It’s Consumers Who Hit the Jackpot … Consumer outlays for energy goods and services (billions of dollars) 575
575
550
550
525
525
500
500
475
475
450
450
425
425
400
400 2014
2015
2016
Sources: Haver Analytics; U.S. Department of Commerce. Updated through January 2016.
52
… But They Take Their Time to Respond Saving (percent of income) 5.75
Energy outlays ($ billions over the most recent 4 quarters)
Consumer outlays for energy goods and services (right scale, scale is reversed)
5.50
450
500 Household saving rate (left scale)
5.25
550
5.00
600
4.75
650
4.50
700 Consumers were spending the energy windfall as of Summer 2015
4.25 2013
2014
750
2015
Sources: Haver Analytics; U.S. Department of Commerce. Updated through December 2015.
53
… CONFUSION ABOUT CHINA
54
GDP Size Exaggerates Her Global Impact Real GDP (2009 dollars) 16,000
16,000 United States GDP
14,000
14,000
12,000
12,000
10,000
10,000
8,000
8,000
United States consumer spending
6,000
6,000 Chinese GDP
4,000
4,000
2,000
2,000 Chinese consumer spending
0 2001
2003
2005
2007
2009
2011
2013
U.S. consumers are 70% of GDP
Chinese consumers are 33% of GDP
0 2015
Sources: Haver Analytics; U.S. Department of Commerce; World Bank. Updated through 2015 Q4.
55
China’s a Long Story Real GDP (2009 dollars)
Ratio to U.S. real GDP per capita
800,000
1.0 Green-shaded area denotes the ratio of China's GDP per capita to the US GDP per capita (right scale)
0.9
700,000
0.8 600,000 0.7 500,000
0.6
China's real GDP, if growth averages 5% annually over the next 100 years (left scale) 400,000
0.5 0.4
300,000
0.3
200,000
U.S. real GDP, if growth averages 2.6% annually over the next 100 years (left scale)
0.2
100,000
0 1990
0.1 0.0 2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Sources: U.S. Department of Commerce; JPMorgan Chase & Co. Updated through 2015 Q3.
56
Currency Challenges … Nominal and real trade weighted yuan indexes (2010 = 100)
Yuan per U.S. dollar
140
4.0
4.5
130 Real trade-weighted Renminbi index (left scale) Nominal trade-weighted Renminbi index (scale)
5.0
120 5.5 110
6.0
100
6.5
7.0
90
7.5
Yuan per U.S. dollar (right scale)
80
8.0 70
8.5
60
9.0 1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; Federal Reserve Board; Bank for International Settlements. Updated through November 2015 (BIS indexes) and January 8, 2016 (yuan).
57
… but Capital Flight Is Not a Risk China’s international reserves and cumulative trade surplus (billions of U.S. dollars) 4,000
4,000
3,500
3,500
3,000
3,000
International reserves Cumulative merchandise trade/current account surplus translated for changes in the nominal trade-weighted U.S. dollar index currently
2,500 2,000
2,500 2,000
Cumulative merchandise trade/current account surplus 1,500
1,500
1,000
1,000
500
500
0
0
-500
-500 1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
Sources: Haver Analytics; World Bank; U.S. Department of Commerce. Updated through November 2015.
58
CONTACT: James E. Glassman Telephone: (212) 270-0778 [email protected]
© 2016 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.
59
Flying Through a Worry Vortex
Recovery Progress Report February 16, 2016 2
We’re Probably In the 7th Inning … Unemployment metrics (% of the labor force) 18 17 16 15 14 13 12 11 10 9 8 7 6 5 4 3 2 1 0
18 17 16 15 14 13 12 11 Lines: 10 U-6 9 {U-3 + invol part-timers +8 young adults MIA} 7 Long term 6 {U-3 + invol part-timers} 5 U-3 Short term 4 3 2 1 Note: solid blue areas represent those who are reflected in the official unemployment rate (U -3). Short-term unemployment reflects those who have been unemployed for fewer than six months; long -term unemployed have been unemployed for more than six 0 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Sources: Haver Analytics; U.S. Department of Commerce; U.S. Department of Labor. Updated through January 2016.
3
… Looking at the Status of those Under 45 Employment-population ratio for those 45 years of age and younger (percent) 0.78
0.78
0.76
0.76
0.74
0.74
0.72
0.72
0.70
0.70
0.68
0.68
0.66
0.66
0.64
0.64
0.62
0.62
0.60
0.60
0.58
0.58
0.56
0.56
0.54 1947 1952 1957 1962 1967 1972 1977 1982 1987 1992 1997 2002 2007 2012 2017
0.54
2.8 million shy of where we were at the end of 2007
Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
4
P.S. Great Lakes Region Chugging Along Nonfarm payroll employment (ratio to 2007 Q4 level) 1.14
US Forecast
1.12
TX
1.14
Midwest
US
1.12
DC
1.10
1.10
AK
1.08
UT
1.06
SD
1.04
NY
1.02
NE
1.08
CO
1.06
OK
1.04
MA
1.02
MN
1.00
1.00
MT LA
0.98
0.98
IA
0.96
W Va
0.94
VA
0.96
WA
0.94
MD
0.92
KS
0.90
CA
0.92
WY
0.90
NH
0.88
0.88
PA TN
0.86
0.86
VT
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
5
P.S. California’s Gaining Ground Nonfarm payroll employment (ratio to 2007 Q4 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV
1.14 1.12 1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
1.14 1.12
California
1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
0.86
0.86 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
6
P.S. California’s Gaining Ground Nonfarm payroll employment (ratio to 2007 Q4 level) US Forecast US TX DC AK UT CO SD OK NY MA NE MN MT LA IA W Va WA VA MD KS WY CA NH PA TN VT IN HI WI AR SC MO DE KY NC OR RI ID ME OH GA FL IL CT MI NJ MS NM AZ AL NV
1.14 1.12 1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
1.14 1.12
California
1.10
1.08 1.06 1.04 1.02 1.00
0.98 0.96 0.94 0.92 0.90
0.88
0.86
0.86 2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
7
We May be Looking at Extra Innings Inflation, PCE chain price indexes (percent change from 12 months earlier) 12
12 Forecast
10
10 The range of FOMC's forecast for PCE chain price inflation, including its longer-run goal
8 Overall PCE inflation¹
6
8 6
4
4
2
2
0
0
Core PCE inflation¹
-2
-2 1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Commerce. Updated through December 2015 (inflation) and December 16, 2015 (FOMC forecasts).
8
GDP Is Slow … but Compared to What? Real U.S. GDP growth (percent change from four quarters earlier) 20 15
20
Average historical growth = 3.75% annually
15
10
10
5
5
0
0
-5
-5
-10
-10
-15 -15 1879 1889 1899 1909 1919 1929 1939 1949 1959 1969 1979 1989 1999 2009 Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through 2015 Q4.
9
In Fact, We’re Making Good Progress … Employment and the labor force (percent change from 12 months earlier) 400
Payroll employment Household employment*
300
400
300
200
200
100
100
0
0
-100 -200
-100 Labor force*
-300 -400
-200 -300
* Adjusted for annual breaks in the Census Department's estimate of the population.
-500
-400 -500
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
10
… Better than Most Think, Because … Relative job growth: employment growth less labor force growth (percentage points) 3
3 Employment and labor force data adjusted for annual breaks in the Census' population estimates
2
2
1
1
0
0
-1
-1
-2
Employment and labor force not adjusted for annual breaks in Census' population estimates
-3 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
-2
-3
Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2016.
11
… the Working-Age Population Is Slowing … Noninstitutional population and the working age population (percent change annually) 3.5
3.5
3.0
3.0
2.5
2.5 Working-age Population (16 to 69 years of age)
2.0
2.0
1.5
1.5
1.0
1.0
0.5
Noninstitutional population
0.0
0.5
0.0
-0.5
-0.5
1948 1954 1960 1966 1972 1978 1984 1990 1996 2002 2008 2014 2020 2026 2032 2038 2044 2050
Sources: Haver Analytics; U.S. Census; U.S. Department of Labor. Updated through 2015.
12
… and the Labor Force Is Even Slower Working age population and the labor force (percent change annually) 3.5
3.5
3.0
3.0
2.5
Working-age population (16 to 69 years of age)
2.5
2.0
2.0
1.5
1.5
1.0
1.0
0.5
0.5 Labor force
0.0
0.0
-0.5
-0.5
1947 1953 1959 1965 1971 1977 1983 1989 1995 2001 2007 2013 2019 2025 2031 2037 2043 2049
Sources: Haver Analytics; U.S. Census; U.S. Department of Labor. Updated through 2015.
13
Relative Growth Metrics Know Best Employment less labor force growth (pct pts)
Jobless claims (% of the labor force)
3
Forecast
0.10
Jobless claims (right, scale is reversed) 0.15
2
0.20
1
0.25 0 0.30 -1
-2
-3
0.35 Employment less labor force growth (growth is the percent change from 12 months earlier, left scale)
0.40 0.45
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q4 (GDP) and February 6, 2016 (jobless claims).
14
Pay Trends Are Starting to Agree Selected measures of hourly pay (% change from 12 months earlier) 4.5
4.5
4.0
4.0
3.5
3.5 Average hourly earnings, all private-sector workers
3.0
3.0
2.5
2.5
2.0
2.0
1.5
1.5
1.0
1.0
ECI, hourly compensation in the private sector
0.5
0.5
0.0
0.0 2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through 2015 Q4 (ECI) and January 2016 (average hourly earnings).
15
So Why Are “We” So Unhappy? Misery Index = Unemployment Plus Inflation 25
25
20
20
15
15
10
10
5
5
0 1948
0 1953
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
2008
2013
Sources: Haver Analytics; U.S Department of Commerce; U.S. Department of Labor. Updated through January 2016.
16
And a Dark Cloud Has Passed U.S. house prices (January 2000 = 100) 225 200
225
Note: The red zone represents an estimate (about $450 billion) of the aggregate amount of remaining underwater mortgages, before chargeoffs
200
175 150
175 150
CoreLogic measure of house prices
125
The scenario above assumes that house prices rise 4% annually in the future.
100 75 50 25 0 1970
125 100 75 50 25 0
1975
1980
1985
1990
1995
2000
2005
2010
2015
2020
Sources: Haver Analytics; CoreLogic. Updated through 2015 Q4.
17
It Isn’t That Hard to See … Share of income paid to labor for a dollar of real GDP produced by NFCs (percentage) 0.67
0.67
0.66
0.66
0.65
0.65
0.64
0.64
0.63
0.63
0.62
0.62
0.61
0.61
0.60
0.6
0.59
0.59
0.58
0.58
0.57
0.57
0.56
0.56
0.55 1960
0.55 1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q3.
18
… We Think An Echo of Innovation … Labor productivity versus real compensation, nonfarm business (ratio to 1970’s average) 2.25
2.25
2.00
2.00
Labor productivity
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
Real hourly compensation
0.75
0.75
0.50
0.50
0.25
0.25
0.00 1947
0.00 1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
19
… All Contributing to This Gini Coefficient (0 = perfectly equal and 1 = perfectly unequal) 0.46
0.46
0.44
0.44
0.42
0.42
0.40
0.40
0.38
0.38
0.36
0.36
0.34
0.34 1947
1952
1957
1962
1967
1972
1977
1982
1987
1992
1997
2002
2007
2012
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015.
20
This Cyclical Deficit Was Never the Issue The federal deficit (billions of dollars over the most recent 12 months) (percent of nominal GDP) 400 300 Black line is the budget balance as a 200 percent of GDP (right scale) 100 0 -100 -200 -300 -400 -500 -600 -700 -800 Solid areas are the budget -900 balance in billions of dollars -1,000 over the most recent 12 -1,100 months (left scale) -1,200 -1,300 -1,400 -1,500 1960 1970 1980 1990
CBO's 10-year projection
2000
2010
4 3 2 1 0 -1 -2 -3 -4 -5 -6 -7 -8 -9 -10 -11 -12 -13 -14 -15
2020
Sources: Haver Analytics; U.S. Department of Commerce; CBO. Updated through January 2016.
21
The (Looming) Structural Deficit Is Actual and structural federal budget balance (percent of nominal GDP) 4 4 3 3 Lines: 2 2 Actual federal deficit (% of potential GDP) CBO's 10-year projection 1 1 CBO's long-term projection 0 0 Shaded area: -1 -1 Cyclically-adjusted federal deficit, net of fiscal initiatives (% of potential GDP) -2 -2 -3 -3 -4 -4 -5 -5 -6 -6 -7 -7 -8 -8 -9 -9 -10 -10 -11 -11 -12 -12 1959 1969 1979 1989 1999 2009 2019 2029 2039 2049 2059 2069 2079 2089 2099
Sources: Haver Analytics; Congressional Budget Office. Updated through January 2016.
22
Slow Growth Makes It Harder to Deal … Federal healthcare spending (percentage of GDP) 6
6
5
5
4
4
3
3
2
2
1
1
0
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Haver Analytics; Congressional Budget Office. Updated through 2015.
23
… Which Is the CBO’s Scary Story … Long-term revenue and spending projections (percent of GDP) 35
35
Actual
Projected
30
30
Net Interest
25
25
20
20 Healthcare Programs
15
15
10
10
Social Security
5
5 Other
0
0 1960
1970
1980
1990
2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
Sources: Haver Analytics; Congressional Budget Office. Updated through 2015.
24
… that Would Be Hard to Ignore Federal debt (ratio to GDP) 200
200
180
180
160
160
140
140
120
120
100
100
80
80
60
60
40
40
20
20
0
0 1790 1810 1830 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030 2050 2070 2090
Sources: Haver Analytics; Federal Reserve Board; U.S. Treasury. Updated through September 2015.
25
APPENDIX. MARKET SHIVERS
26
There They Go Again S&P 500 (percent change from the May 21, 2015 record) 0
0
-1
-1
-2
-2
-3
-3
-4
-4
-5
-5
-6
-6
Percent Deviation from the May 21,2015 All-time Peak
-7
-7
-8
-8
-9
-9
-10
-10
-11
-11
-12
-12
-13
-13
-14
-14
-15
-15 May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan
Feb
Mar
Sources: Haver Analytics; Dow Jones. Updated through February 12, 2016.
27
It’s Rational to Worry … % ch from the local (most recent 12-month) peak
Wilshire 5000 (Dec. 1970 =830.27)
30
25,000
25
Wilshire 5000 index of all publicly-traded stocks (right scale)
20
20,000
15 10
15,000
5 0 10,000
-5 -10
-20 -25 2009
5,000
Percentage pullback from the peak in the most recent 12 months (left scale)
-15
0 2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; Dow Jones. Updated through February 12,2016.
28
… the More We Discount “Good” Wilshire 5000 (December 31, 1970 = 830.27) 35,000 30,000
After-tax GDP profits (billions of dollars) 2,500
Note: Since 1952, the Wilshire 5000 P/E climbed to 14.2 times earnings near cyclical peaks, excluding the unprecedented multiples during 1997 - 2001, and that occurs when the black line floats at the upper boundary of the shaded (earnings) area. The projection for the Wilshire 5000 is shows what would be expected if the price -earnings ratio remained at 14.2 and earnings grow as indicated. Large arrows mark times when the Fed began to return the funds rate back to a more normal position.
2,000
25,000 20,000
Line represents the Wilshire 5000 index (left scale)
1,500 Forecast
15,000
1,000
10,000
500 5,000 0 1990
0 1995
2000
2005
2010
2015
2020
Sources: Haver Analytics; US Department of Commerce; Dow Jones. Updated through 2015 Q3 (profits) and February 12, 2016 (stocks).
29
Worry Doesn’t Usually Translate % ch in the Wilshire 5000 equity index from the high point in the most recent 12 months 0
0
-5 -10
-10
-15 -20
-20
-25 -30
-30
-35 -40
-40
-45 -50
-50
-55 -60 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
-60
Sources: Haver Analytics; Dow Jones. Updated through February 12,2016.
30
… CONFUSION ABOUT OIL
(because falling oil prices cut many ways)
31
Falling Oil Prices Squeeze Business …
32
A Supply Glut … Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 95,000
95,000 Production
90,000
90,000
85,000
85,000 Demand
80,000
80,000
75,000
75,000
70,000
70,000
65,000
65,000 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
Sources: Haver Analytics; U.S. Department of Labor. Updated through September 2015 (states) and October 2015 (U.S.).
33
… Forced Prices Down … U.S. oil production (thousands of barrels daily)
WTI (dollars per barrel)
10,000
160
140 9,000 Petroleum Prices, WTI (right scale)
120
8,000 100
U.S. oil output (left scale) 7,000
80
60
6,000 40 5,000 20
4,000 1990
0 1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Energy; International Energy Agency. Updated through February 5, 2016.
34
… and Shuttered Projects … U.S. oil production (thousands of barrels daily)
Rig Count (number)
10,000
1,800 1,600
9,000 1,400 Oil drilling rig count (right scale)
8,000
1,200 U.S. oil output (left scale)
1,000 7,000 800
6,000
600 400
5,000 200
4,000 1990
0 1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Energy; International Energy Agency; Baker Hughes. Updated through February 5, 2016.
35
Layoffs In the Energy Belt Show the Stress … Jobless claims in “energy” states (ratio to 2007 Q4 level) 2.00
(Black line) The energy belt (Arkansas, Colorado, 2.00 Kansas, Mississippi, Montana, New Mexico, North Dakota, Ohio, Oklahoma, Pennsylvania, Texas, 1.75 Utah, West Virginia, Wyoming)
1.75
(Green line) All others
1.50
1.50
(Blue-shaded area) U.S. total
1.25
1.25
1.00
1.00
0.75
0.75
0.50 2007
0.50
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through February 6, 2016.
36
… But It’s Manageable Even at Ground Zero Jobless claims in Texas versus the nation (ratio to 2007 Q4 level) 3.00
3.00
2.75
2.75
Texas US (solid area)
2.50
2.50
2.25
2.25
2.00
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75 2007
0.75
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through February 6, 2016.
37
Employment Shows the Divide Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 280
280
260
260
240
240
Nonfarm payroll employment
220
220
200
200
180
180
160
160
140
140 Nonfarm payroll employment excluding Arkansas, Colorado, Louisiana, New Mexico, North Dakota, Pennsylvania, Texas, and West Virginia
120
100
120
100 2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
38
Industries Tied to Oil Feel It … Nonfarm payrolls (monthly change in thousands over the most recent 12 months) 300
15 Nonfarm payroll employment, left scale
250
10
200
5
150
0
100
-5 Mining (oil and gas extraction, support activities for mining), Construction (oil and gas pipeline construction), and Manufacturing (petroleum refineries), right scale
50
-10
0
-15
2011
2012
2013
2014
2015
2016
Sources: Haver Analytics; U.S. Department of Labor. Updated through December 2015 (states) and January 2016 (U.S.).
39
… Manufacturing vs Nonmanufacturing … ISM indexes (50+ = increasing) 65
Real GDP (percent change from 12 months earlier) Real GDP, grey shaded area (right)
6
60 4
55 50
2
45 40
0
35 -2
30 25
Manufacturing ISM, line (left) Nonmanufacturing ISM, line (left)
-4
20 15
-6 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
Sources: Haver Analytics; Macroeconomic Advisers; ISM. Updated through November 2015 (GDP) and January 2016 (ISM).
40
… Including Those Indirectly Touched Real goods GDP and Transportation Services Index (2000 = 100) 140
140
130
130 Real Goods GDP
120
120
110
110
100
100 Transportation Services Index, Freight
90
90
80
80
70
70
60
60 1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; U.S. Department of Commerce; Bureau of Transportation Statistics. Updated through October 2015.
41
Business Investment … Business fixed investment (% change from 4 quarters earlier unless noted otherwise) 25
25
20
Forecast
20
15
15
10
10
5
5
0
0
-5
-5
-10
-10
-15
-15
-20
Note: line represents the change in business investment from quarter to quarter at an annualized rate.
-25 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
-20 -25
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
42
… Close Up Components of business fixed investment (percent change from 4 quarters earlier) 25
25
Shaded area denotes overall business fixed investment
20
20 Forecast
15
15
10
10
5
5
0
0
-5
-10 -15
Nonresidential structures
-5
Intellectual property products
-10 -15
Equipment
-20
-20
-25
-25
-30
-30
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q4.
43
Equipment: Equipment Indicators Ease … Capital goods orders and shipments (billions of dollars) 110 105
110
Orders all nondefense capital goods (black line)
105
Shipments of nondefense aircraft
100
100
95
95
Shipments of nondefense capital equipment excluding aircraft
90 85 80
90 85 80
75
75
70
70
65
65
60
60
Orders for nondefense capital equipment excluding nondefense aircraft (line)
55 50
55 50
45
45 2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Source: U.S. Department of Commerce. Updated through December 2015.
44
… but Backlogs Are Full … Backlogs of unfilled orders (billions of dollars) 700
650 600
700 Backlogs of (military and nondefense) aircraft orders
650 600
550 Backlogs of nondefense capital goods other than aircraft
550
500
500
450
450
400
400
350
350
300
300
250
250
200
200
150
150
100
100
50
50
0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
0
Source: U.S. Department of Commerce. Updated through December 2015.
45
… Relative to Sales Backlogs of unfilled orders (months’ supply) 4
80 Backlogs of (military and nondefense) aircraft orders (right) Backlogs of nondefense capital goods other than aircraft (left)
70 60 50
3 40 30 20 2 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
10
Source: U.S. Department of Commerce. Updated through December 2015.
46
Oil Stress Market Sectors … High yield spread (noninvestment grade debt yield less 10-year Treasury yield) 2,000 1,800 1,600 1,400
Ibbotson Associates
J.P. Morgan Securities high yield index (left scale) J.P.Morgan Securities high yield index adjusted for LSAPs (left scale)
1,200
1,000 800 600
2,200 2,000 1,800 1,600 1,400 1,200 1,000 800
600
400
400
200
200
0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
0
Sources: Haver Analytics; Federal Reserve Board; J.P. Morgan. Updated through December 11, 2015.
47
… and the Transport Indexes DJ Transportation Average and DJIA (October 9, 2007 = 1.0) 2.00
2.00
1.75
1.75
1.50
1.50
1.25
1.25
1.00
1.00
0.75
0.75
0.50
0.50
Dow Jones Industrial Average Dow Transports
0.25 0.00 2007
0.25 0.00
2009
2011
2013
2015
Sources: Haver Analytics; Dow Jones. Updated through January 15, 2016.
48
Falling Oil Prices Benefit Many …
49
We Benefit If We Use More than We Make … U.S. petroleum demand and supply (thousands of barrels daily) 25,000
25,000
U.S. Petroleum Production
U.S. Petroleum Consumption
20,000
20,000
15,000
15,000
10,000
10,000
5,000
5,000
0
0 1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Sources: Haver Analytics; Oil & Gas Journal. Updated through October 2015.
50
… and So Do Many Others Annual decline in the national oil bill (percent of nominal GDP) 15%
The $2 ½ trillion petrodollar shift:
10% 5%
0%
92 million barrels per day consumed globally
-5%
X 365 days
-10%
-15%
X $65 per barrel drop in oil prices
-20% -25%
Sources: Haver Analytics; Oil & Gas Journal; International Energy Agency. Updated through October 2015.
51
And It’s Consumers Who Hit the Jackpot … Consumer outlays for energy goods and services (billions of dollars) 575
575
550
550
525
525
500
500
475
475
450
450
425
425
400
400 2014
2015
2016
Sources: Haver Analytics; U.S. Department of Commerce. Updated through January 2016.
52
… But They Take Their Time to Respond Saving (percent of income) 5.75
Energy outlays ($ billions over the most recent 4 quarters)
Consumer outlays for energy goods and services (right scale, scale is reversed)
5.50
450
500 Household saving rate (left scale)
5.25
550
5.00
600
4.75
650
4.50
700 Consumers were spending the energy windfall as of Summer 2015
4.25 2013
2014
750
2015
Sources: Haver Analytics; U.S. Department of Commerce. Updated through December 2015.
53
… CONFUSION ABOUT CHINA
54
GDP Size Exaggerates Her Global Impact Real GDP (2009 dollars) 16,000
16,000 United States GDP
14,000
14,000
12,000
12,000
10,000
10,000
8,000
8,000
United States consumer spending
6,000
6,000 Chinese GDP
4,000
4,000
2,000
2,000 Chinese consumer spending
0 2001
2003
2005
2007
2009
2011
2013
U.S. consumers are 70% of GDP
Chinese consumers are 33% of GDP
0 2015
Sources: Haver Analytics; U.S. Department of Commerce; World Bank. Updated through 2015 Q4.
55
China’s a Long Story Real GDP (2009 dollars)
Ratio to U.S. real GDP per capita
800,000
1.0 Green-shaded area denotes the ratio of China's GDP per capita to the US GDP per capita (right scale)
0.9
700,000
0.8 600,000 0.7 500,000
0.6
China's real GDP, if growth averages 5% annually over the next 100 years (left scale) 400,000
0.5 0.4
300,000
0.3
200,000
U.S. real GDP, if growth averages 2.6% annually over the next 100 years (left scale)
0.2
100,000
0 1990
0.1 0.0 2000
2010
2020
2030
2040
2050
2060
2070
2080
2090
2100
2110
Sources: U.S. Department of Commerce; JPMorgan Chase & Co. Updated through 2015 Q3.
56
Currency Challenges … Nominal and real trade weighted yuan indexes (2010 = 100)
Yuan per U.S. dollar
140
4.0
4.5
130 Real trade-weighted Renminbi index (left scale) Nominal trade-weighted Renminbi index (scale)
5.0
120 5.5 110
6.0
100
6.5
7.0
90
7.5
Yuan per U.S. dollar (right scale)
80
8.0 70
8.5
60
9.0 1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
Sources: Haver Analytics; Federal Reserve Board; Bank for International Settlements. Updated through November 2015 (BIS indexes) and January 8, 2016 (yuan).
57
… but Capital Flight Is Not a Risk China’s international reserves and cumulative trade surplus (billions of U.S. dollars) 4,000
4,000
3,500
3,500
3,000
3,000
International reserves Cumulative merchandise trade/current account surplus translated for changes in the nominal trade-weighted U.S. dollar index currently
2,500 2,000
2,500 2,000
Cumulative merchandise trade/current account surplus 1,500
1,500
1,000
1,000
500
500
0
0
-500
-500 1966
1971
1976
1981
1986
1991
1996
2001
2006
2011
Sources: Haver Analytics; World Bank; U.S. Department of Commerce. Updated through November 2015.
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CONTACT: James E. Glassman Telephone: (212) 270-0778 [email protected]
© 2016 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.
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