NASCUS Summit August dwightjohnston.com

Transcription

1 NASCUS Summit August 2017

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3 } Accomplishments to date that impact the economy positively or negatively 0 } Stock market surprisingly patient and could remain so } Bond traders still betting against Trump } Congress is where the real power lies } Nothing has really changed but Trump world remains full of promise and full of risk

4 CONCCONF MOM Index RSTA YOY Jan-05 Jan-06 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

5 Feb-99 Aug-99 Feb-00 Aug-00 Feb-01 Aug-01 Feb-02 Aug-02 Feb-03 Aug-03 Feb-04 Aug-04 Feb-05 Aug-05 Feb-06 Aug-06 Feb-07 Aug-07 Feb-07 Aug-08 Feb-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Units in millions annualized

6 } Year-over-year Retail Sales rebound and prior months revised higher } New auto sales down year-over-year but on high end of historical norms } Consumer Confidence stays at unusually high level even with the stalled agenda in D.C. } Jobs and confidence should continue to support growth in consumer sector after sluggish summer

7 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jan-08 Jan-13 Jul-13 Jan-14 Jul-12 Jan-15 Jul-15 Jul-14 Jul-16 Jan-17 Jul-17 Jan

8 } July Nonfarm Payrolls add 209k after 231k in June } Average monthly gain for k } Wages steady at 2.5% } Health Care and Business/Professional sectors lead } UR rate 4.3% and labor pool grows } Continuing gains of 200k+ unlikely but the surprises could keep going

9 } Nonfarm payrolls up 50k for first six months of 2017 Avg. for the first six months of the last 5 years 171k } Unemployment rate 4.7% (record low) } Wage growth 4% vs. U.S. 2.5% } Slowdown or something else?

10 } LA Metro, San Bern/Riv. 4.5% } LA South 3.8% } San Diego 3.6% } O.C. 3.2% } Oakland 3.4% } San Jose and Santa Rosa 3.0% } San Fran and San Rafael 2.6% } Sacramento 4.1%

11 } El Centro 20.5% } Visalia/Porterville 8.6% } Merced 8.5% } Bakersfield 8.4% } Yuba City 7.5% } Fresno 7.4%.

12 Jan-09 May-09 Sep-09 Units (thousands) Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17

13 New Homes (thousands) Existing Homes (millions) New Existing Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17

14 New Homes (thousands) 700 New 600 Existing 500 Existing Homes (millions) Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan

15 } Consistent market coast to coast market } High demand, low supply 4.2 mos. Vs normal 6.5 } Affordability a growing issue in some areas mortgage rates hold the key } Some more expensive areas slowing } Not a bubble, but some bubble-like behavior getting worrisome } Housing looks solid longer-term with big rental pool

16 In billions Autos $625 $650 $1110 Credit cards $675 $750 $1071 Student loans $220 $650 $1390 Total $1,520 $2,050 $3,571 Source: Federal Reserve Bank

17 In billions Home mortgages Home equity $7,600 $12,100 $10,800 $11,800 $675 $895 $300 $575 Total $8,275 $12,995 $11,100 $12,375 Source: Federal Reserve Bank

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20 } Delinquencies and charge-offs in normal ranges especially for credit unions } Non-mortgage consumer debt not large enough to threaten financial system } Mortgage defaults and foreclosures low } Missing element for mortgage crisis repeat is securitization } Any debt is too much if you lose your job

21 Jan-95 Sep-95 May-96 Jan-97 Sep-97 May-98-3 Sep-99 May-00 Jan-01 Sep-01 May-02 Jan-03 Sep-03 May-04 Jan-05 Sep-05 May-06 Jan-07 Sep-07 May-08 Jan-09 Sep-09 May-10 Jan Sep 5/30/2012 Jan-13 Sep-13 5/1/2014 1/1/2015 9/1/2015 5/1/2016 1/1/2017 Jan-11 CPI Core CPI

22 } Stock market and consumers showing surprising patience with Washington } Job growth should remain steady but monthly average should decline } Wage gains likely accelerate } European and Chinese economies performing above expectations } Emphasis shifts from Trump to Congress } Corporate tax cuts could boost business spending but implementation looks to be in 2018 instead of 2017

23 /23/2017 3/13/ /7/ FFunds 3m 6m 12m 2Y 5Y 10Y 30Y

24 Should be 8/23/ FFunds 3m 6m 12m 2Y 5Y 10Y 30Y

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26 } 2013 EU on the brink with crisis in Crete and Greece U.S. budget crisis } 2014 Ukraine Ebola Plunge in Oil } 2015 Severe winter Another Greek crisis August Chinese stock market meltdown } 2016 Chinese meltdown Part II Brexit Election } 2017 o???

27 } Still optimistic on economy but less certain on inflation } Still indicates one more this year and two or three in 2018 range would be 1.75% to 2.25% } Balance sheet runoff relatively soon } Yellen might have one foot out the door } Remember, the Fed is not tightening in usual sense but normalizing

28 From March 2014?

29 } China pokes back Possible sharp devaluation, setting off tailspin in markets } Trump escalates trade war } Businesses sour on Trump and optimism fades } Core supporters turn against Trump and White House/Congress relationship crumbles } New add: North Korea

30 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Fed Funds 2yr T 5yr T 10y T

31 } Corporate tax cut and regulatory relief boost business spending } Wages rise as jobs hard to fill } Trump makes only small trade changes enough to declare victory before war starts } Individual tax cuts disappoint but not a deal-breaker } Inflation expectations rise but contained } Europe keeps it together one more year and economy improves

32 Recession nears? Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Fed Funds 2yr T 5yr T 10y T

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34 } GDP } Consumer Confidence } Stock market } The absolute or nominal level of yields

35 } Weekly Jobless Claims go over 300k } Nonfarm Payrolls contract below 100k for three consecutive months } Auto sales fall below 15mm } Existing and new home inventories rise as sales stall

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37 } Inverted yield curve shorter rates higher than longer rates } Most typical when Fed stays too tight too long but can be due to bursting of bubbles } A flattening but rising yield curve can be early sign but not always

38 /30/1999 5/30/ /31/2000 FFunds 3m 6m 12m 2Y 5Y 10Y 30Y

39 /15/2005 6/1/2006 9/18/2007 FFunds 3m 6m 12m 2Y 5Y 10Y 30Y

40 } Typical cyclical V } Secular } Japanese style } Something different

41 } Economy will not turn on a dime the stock market is not the economy } This Fed remains slave to the markets; decisions will be market risk based } The transition from the world we knew (the Fed) to the Trump world will not be easy } Bond volatility should accelerate as some risks come and go

42 } If you ever had any doubt in the first place, you now know that President Trump is the same man as Candidate Trump; what he Tweets is what you get } Risk/reward ratio is very high } The biggest risks to the economy are the ones we can t see coming } Best approach for is to be optimistic but wary

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