original article in English

Conference Call Details
U.S. Economic Outlook: Powering
Through Despite Dreary Start to
2016
BBVA Research USA would like to invite you to our
U.S. Economic Outlook conference call on Monday, February
22nd, at 10am CT. During the call, we will present
our monthly update to the economic scenario followed by a
brief Q&A period. Presentation materials will be distributed
prior to the call.
The U.S. economy is expected to maintain a moderate pace of
expansion throughout the coming year, but recent data has
caused fears of another recession on the horizon. Market
volatility has intensified, but we can’t let this blur our vision of
what’s still to come later this year. Another Fed funds rate
increase, perhaps?
Please join us for an informative discussion with Kim Chase
Kim Chase
Senior Economist, BBVA Research USA
[email protected]
@BBVAResearchUSA
www.bbvaresearch.com
Monday, February 22, 2016
10:00 am | CDT (GMT -06:00) | 30 min
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Discussion
GDP
Relying on robust
consumption
Inflation
No signs of a fire
Fed
Finding a comfortable policy
path
Interest Rates
Low yields for a prolonged
period
Risks
Global spillover more
pronounced
• Healthy consumption is the key to moderate growth of 2.5%
• Boost from low oil prices offsetting USD impact on exports
• Fiscal budget relieves some downward pressures on growth
• Falling oil/commodity and import prices extending into 2016
• Core services inflation outweighing commodities
• Unlikely to reach Fed’s target until 2017 or later
• Fed announces first rate hike in December to 0.25-0.50%
• Shallow path as Fed waits to assess impact of higher rates
• Meeting-by-meeting approach continues, with two increases
likely in 2016 under our baseline scenario
• Yield curve continues to flatten
• Downward pressure on long-end (financial volatility, risk-off
sentiment, regulation, HFT)
• Limited increases in future long-term yields
• Domestic: Fed exit strategy, steep disinflation, financial
overheating, regional shocks (Texas)
• Global: Further slowdown in China/EMs, deflation/recession
Europe, financial volatility, geopolitical threats, etc.
5
GDP
Final Sales Private Domestic Purchasers
10
8
4
6
3
4
2
2
1
0
0
-2
Source: BBVA Research & Haver
4Q15
3Q15
2Q15
1Q15
4Q14
3Q14
2Q14
1Q14
4Q13
3Q13
2Q13
1Q13
-1
-4
Feb-14 Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16
10%
10%
5%
30%
20%
0%
0%
10%
-5%
0%
Energy
-10%
-10%
Total
Non-energy
-15%
-20%
07
08
09
10
Source: BBVA Research & Haver
11
12
13
14
15
16
-10%
Ex. Hi-Tech
Ex. Motor Vehicles & Parts
Hi-Tech (rhs)
-20%
-20%
07 08 09 10 11 12 13 14 15 16
100
•
80
60
•
40
20
0
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15
100
100%
80
80%
60%
60
40%
40
20%
20
0
0%
88 90 92 94 96 98 00 02 04 06 08 10 12 14 16
Source: BBVA Research & Haver
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15
3.8; 4.9
68
67
66
65
64
Historical Average
2000-2007 Average
63
62
61
60
59
58
50 55 60 65 70 75 80 85 90 95 00 05 10 15 20
Source: BBVA Research & Haver
4.5
6
2008-2009
4.0
4
2
Wage Growth
3.5
3.0
19942007
0
-2
2.5
-4
2.0
Total Hours
-6
Unit Labor Cost
1.5
-8
2010-Present
1.0
3.0
4.0
5.0
6.0
7.0
8.0
Unemployment Rate
Source: BBVA Research & Haver
9.0
10.0
-10
01 02 03 04 05 06 07 08 09 10 11 12 13 14 15
Import Prices
Import Prices Ex Fuel
Trade-Weighted USD Index (rhs)
15%
10%
10%
8%
6%
4%
5%
2%
0%
0%
-2%
-5%
-4%
-6%
-10%
-8%
-15%
-10%
11
12
13
Source: BBVA Research, BLS, FRB & Haver
14
15
CPI
Total
Food
Energy
Core
Core Commodities
Apparel
Medical Care Commodities
Core Services
Shelter
Medical Care Services
Core Ex Shelter
MoM
YoY
0.03%
1.34%
0.01%
0.83%
-2.76% -6.53%
0.29%
2.22%
0.23% -0.08%
0.58% -0.63%
0.38%
2.12%
0.31%
2.98%
0.30%
3.25%
0.52%
3.25%
0.28%
1.46%
3.0%
2.9
5-yrs
10-yrs
1.00%
1-yr
2.7
0.80%
2.5%
2.5
0.60%
2.0%
2.3
0.40%
2.1
1.5%
0.20%
1.9
1.0%
1.7
0.00%
12
13
14
15
Inflation Expectations
1.5
01
03
05
Source: BBVA Research & Haver
07
09
11
13
15
Implied 12-Month FFR (rhs)
1.60
1.40
1.20
100
11/3/2015
12/15/2015
1/12/2016
2/9/2016
12/1/2015
12/29/2015
1/26/2016
2/16/2016
90
80
70
1.00
60
0.80
50
0.60
40
0.40
30
20
0.20
10
-
11/25/2015 12/22/2015
Jan-16
Sep-16
Source: BBVA Research & Haver
Mar-16
Nov-16
Apr-16
Dec-16
1/19/2016
Jun-16
Jan-17
2/16/2016
Jul-16
Monetary Policy
•
•
•
•
•
•
Fed
January FOMC Meeting Minutes
What do we expect?
Projections
Dec 16/ Dec 17
▪ FOMC members “unclear” in January on how
deteriorating financial developments might
impact their outlook and “therefore judged that
it was premature to alter appreciably their
assessment”
▪ Monetary policy actions remain
data-dependent and not on a
“preset
course”
(meeting-bymeeting approach)
Two hikes
in 2016
(downward bias)
▪ “The effects of these financial developments,
if they were to persist, may be roughly
equivalent to those from further firming in
monetary policy,” implying that the Fed would
not be inclined to increase rates under such
circumstances
▪ The FOMC “saw the prospect of some
moderation in employment gains from the
particularly large increases” in 4Q15
Timeline
Exit
Strategy
▪ On inflation, members acknowledged that it
“would take somewhat longer than previously
anticipated to rise to the Committee’s
objective”
June 2016
2nd FFR Increase
▪ FOMC will take time to assess
impact of higher rates before 2nd
increase
Four hikes in
2017
▪ Global economic and financial
developments and the strong USD
could slow the pace of future rate
increases
▪ Reinvestments policy to end after
the ZLB lift-off “looks sustainable”
Fed funds rate:
▪ Balance sheet normalization plans
not yet finalized
▪ Further
discussion
normalization tools (ON
IOER) and timing
December 2016
3rd FFR Increase
on
RRP,
2017
End of reinvestment policy
Dec 16: 1.00
Dec 17: 2.00
Treasury Yields
Short-term volatility is not unusual, and we expect yields
to return to our projected path of gradual increases
Treasury Yield Curve Baseline Forecast
Treasury Yield Curve Baseline Slope
%
10Y-2Y, %
3.0
6.0
10YTN,
eop %
5.5
5.0
2016
2017
2018
2019
4.5
4.0
2.32
2.88
3.67
4.39
3.5
2.5
2.0
1.5
3.0
1.0
2.5
2.0
0.5
1.5
1.0
0.0
0.5
-0.5
0.0
05 06 07 08 09 10 11 12 13 14 15 16 17 18
Source: BBVA Research
07 08 09 10 11 12 13 14 15 16 17 18 19 20
Source: BBVA Research
Baseline Scenario
No changes, but slight downward bias given current
conditions
2011 2012 2013
Real GDP (% SAAR)
1.6
2.2
1.5
Unemployment Rate (%, average)
8.9
8.1
7.4
Average Monthly Nonfarm Payroll (K) 174
179
193
CPI (YoY %)
3.1
2.1
1.5
Core CPI (YoY %)
1.7
2.1
1.8
Fed Target Rate (%, eop)
0.25
0.25
0.25
Core Logic National HPI (YoY %)
-3.64
3.84 10.91
Housing Starts (SAAR Thousands)
612
784
928
Industrial Production (YoY %)
3.03
2.86
1.93
Auto Sales (annualized, average)
12.73 14.44 15.53
10-Yr Treasury (% Yield, eop)
1.98
1.72
2.90
1.32
1.31
1.37
U.S. Dollar / Euro (eop)
Brent Oil Prices (dpb, average)
111.26 111.65 108.64
2014 2015 2016 2017 2018 2019 2020
2.4
2.4
2.5
2.4
2.3
2.3
2.3
6.2
5.3
4.8
4.6
4.5
4.5
4.6
251
228
205
245
265
283
281
1.6
0.1
1.3
2.0
2.0
2.1
2.2
1.7
1.8
2.0
2.0
2.1
2.1
2.2
0.25
0.50
1.00
2.00
3.00
3.50
3.50
7.69
4.99
5.37
2.45
2.43
1.10
1.18
1,001 1,107 1,227 1,370 1,506 1,620 1,640
3.72
1.31 -0.45
1.94
1.82
1.63
1.67
16.43 17.33 18.18 18.68 19.08 19.39 19.47
2.21
2.24
2.32
2.88
3.67
4.39
4.56
1.23
1.09
1.11
1.16
1.20
1.20
1.20
99.02 52.35 30.01 45.73 55.73 59.60 59.60
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