clear sailing ahead - gfoat fall conference · clear sailing ahead dr. mark g. dotzour college...
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Clear Sailing Ahead
Dr. Mark G. Dotzour College Station, Texas
[email protected] www.markdotzour.com
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2018 Has Emerged into
An Economic Boom
A time of prosperity
To progress swiftly and vigorously
A sudden increase in growth
How long can it last?
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Sensationalized “News” Everything is unprecedented, biblical and catastrophic
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Sensationalized News Or maybe it’s not
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2,742,414 Texas 2,031,864 California 1,792,590 Florida 655,684 Arizona 643,179 North Carolina 584,698 Georgia 547,395 Virginia 544,388 Washington 500,825 Colorado
States With Most Employment Growth In the 21st century
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-377,273 Michigan -125,967 Ohio - 56,537 Illinois - 42,461 Mississippi - 28,284 West Virginia 1,499 Rhode Island 8,559 Kentucky 8,661 Maine 11,511 Vermont
States With Least Employment Growth In the 21st century
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622,550 Dallas-Fort Worth-Arlington 523,748 Houston-The Woodlands 416,602 Austin-Round Rock 322,063 San Antonio-New Braunfels - 269,467 Boston-Cambridge - 300,987 San Francisco-Oakland - 956,597 Chicago-Napier -1,710,512 Los Angeles-Long Beach -2,809,903 New York-Newark
Net Domestic Migration In the 21st century
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Population Projection: Austin Metro Area
Source: Texas State Data Center at UTSA
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Population Projection: DFW-A Metro Area
Source: Texas State Data Center at UTSA
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Population Projection: Houston Metro Area
Source: Texas State Data Center at UTSA
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Population Projection: San Antonio Metro Area
Source: Texas State Data Center at UTSA
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Texas Leading Index
Source: Federal Reserve Bank of Dallas
Recent weakness due to strong dollar impacts on Texas exports.
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Austin Business-Cycle Index
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Dallas Business-Cycle Index
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Fort Worth Business-Cycle Index
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Houston Business-Cycle Index
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San Antonio Business-Cycle Index
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Oil and Gas
U.S. oil output hit 11 million barrels per day for the first time ever. “The international recovery has finally started. The backlog on integrated drilling projects is the most we have ever seen.” Paal Kibsgaard, CEO Schlumberger Schlumberger 2Q revenue was up 11% from a year ago. Baker Hughes 2Q revenue was up 2% from a year ago.
Source: WSJ 7/21/18
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• Mar 1991 to Mar 2001 120 months • Feb 1961 to Dec 1969 106 months • Nov 1982 to Jul 1990 92 months • Jun 1938 to Feb 1945 80 months • Nov 2001 to Dec 2007 73 months
Current expansion as of September 2018 is 111 months
Longest U.S. Economic Expansions Current expansion began in June, 2009
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Index of Leading Economic Indicators
Source: Federal Reserve Bank of St. Louis
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Source: The Conference Board
Consumer Confidence Index
30405060708090
100110120130140150
Aug-
00Fe
b-01
Aug-
01Fe
b-02
Aug-
02Fe
b-03
Aug-
03Fe
b-04
Aug-
04Fe
b-05
Aug-
05Fe
b-06
Aug-
06Fe
b-07
Aug-
07Fe
b-08
Aug-
08Fe
b-09
Aug-
09Fe
b-10
Aug-
10Fe
b-11
Aug-
11Fe
b-12
Aug-
12Fe
b-13
Aug-
13Fe
b-14
Aug-
14Fe
b-15
Aug-
15Fe
b-16
Aug-
16Fe
b-17
Aug-
17Fe
b-18
Aug-
18
The index rose to 133.4 in August, the highest since October, 2000
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Household Net Worth since 1980
Source: Federal Reserve Bank of St. Louis
Now exceeds $100 trillion
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Monthly Increase in Jobs
Source: Bureau of Labor Statistics; Federal Reserve Bank of St. Louis
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Rate of Wage Growth Since 1960’s
Source: Federal Reserve Bank of St. Louis
Wages and salaries in June grew at 2.9%, the highest since 2008.
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Job Openings in America Looking for Workers
Source: Bureau of Labor Statistics BLS release on September 11, 2018
Total Job Openings in July 6,939,000
Construction 273,000
Manufacturing 506,000
Trade, Transportation, Utilities 1,307,000
Professional & Business Services 1,203000
Education & Health Care 1,249,000
Leisure & Hospitality 1,003,000
Government 6223,000 July ‘18 number of 6.9 million was the highest ever in series history. Began in December 2000
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Corporate Profits
Source: Federal Reserve Bank of St. Louis
Corporate profits were up 16.1% in the 2nd quarter. Taxes paid by US companies was down 33% from a year ago.
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Small Business Confidence: “Now is a Good Time to Expand”
0
10
20
30
40
Feb-
13
May
-13
Aug-
13
Nov
-13
Feb-
14
May
-14
Aug-
14
Nov
-14
Feb-
15
May
-15
Aug-
15
Nov
-15
Feb-
16
May
-16
Aug-
16
Nov
-16
Feb-
17
May
-17
Aug-
17
Nov
-17
Feb-
18
May
-18
Percent of Respondents
Source: National Federation of Independent Business
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Small Business Confidence: “Hiring Plans in the Next Three Months”
0
5
10
15
20
25
30
Jan-
13
Apr-
13
Jul-1
3
Oct
-13
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
Jul-1
5
Oct
-15
Jan-
16
Apr-
16
Jul-1
6
Oct
-16
Jan-
17
Apr-
17
Jul-1
7
Oct
-17
Jan-
18
Apr-
18
Jul-1
8
Net Percent of Respondents
Source: National Federation of Independent Business
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Small Business Survey Results May 2018
• Compensation increases hit a 45 year record high. • Views about expansion are most optimistic in history • Reports of positive earnings trends at a record high • Reports of positive sales trends highest since 1995 • Concerns about labor quality second highest in history • Reports of price hikes the highest since 2008 • Plans to raise prices are the highest since 2008
Source: National Federation of Independent Business William Dunkelberg
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Q3-18 Q2-18 Q1-18 Q4-17
More Jobs 56% 58% 61% 43%
Less Jobs 13% 13% 13% 18%
Large Corporate Hiring Plans: Next 6 Months
Source: Business Roundtable
The Business Roundtable Q1 2018 CEO Economic Outlook Index - a composite of CEO Projections- increased to 118.6 in the first quarter of 2018, the highest level since the survey began in the fourth quarter of 2002.
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Corporate Bond Spread BB Corporate – 10 Year Treasury
Source: Federal Reserve Bank of St. Louis
7th Inning?
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Looking Farther Down the Road
Source: WSJ 8/6/18
Fiscal stimulus “is going to hit the economy in a big way this year and next year, and then in 2020, Wile E. Coyote is going off the cliff.” -Ben Bernanke at an American Enterprise Institute conference in June
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Revenue Act of 1964 Enacted February 26, 1964
•Recovery from recession of 1958 was slow. •JFK campaigned in 1960 with the slogan of "getting America moving again."
•Proposed cutting individual tax rates from a range of 20-91% to 14-65%
•Proposed cutting the corporate tax rate from 52% to 47%.
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Percentage Change in Employment After the Kennedy Tax Cuts
Source: Federal Reserve Bank of St. Louis
Enacted Feb1964
Peak Jun 1966
1960 1971
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Tax Reform Act of 1986 Enacted October 22, 1986
Top rate for individuals cut from 50% to 38.5%. Major reduction of depreciation for real estate Raised tax rates on capital gains. Corporate tax rate lowered from 50% to 35%.
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Index of Leading Economic Indicators After Reagan Tax Cuts
Source: Federal Reserve Bank of St. Louis
Enacted Oct 1986
Peak Nov 1988
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Interest Rate on 10-Year Treasury Bond
Source: Federal Reserve Bank of St. Louis
False Alarm
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The CPI Inflation Rate Since 1950
Source: Federal Reserve Bank of St. Louis
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Expected Returns Lowered for the Two Largest U.S. Pension Funds
The California State Teachers Retirement System (CALSTERS) reduced its expected future returns to 7% this year. The California Public Employees Retirement System (CALPERS) begins a multi-step drop to 7% by 2021. The median expected return of 130 public pension funds dropped to 7.25% in 2017. That rate was still 8% in 2012.
Source: WSJ 7/23/18
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Margin Debt at Broker/Dealers Jan 98 through Dec 17
Source: Standard and Poor’s
0
100,000
200,000
300,000
400,000
500,000
600,000
700,000Ja
n-98
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-
17
Mill
ions
Debit Balances in Margin Accounts at Broker/Dealers
Dow - 41%
Dow - 34%
Dow - 11%
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200250300350400450500550600650700
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
Jan-18
Margin Debt at Broker/Dealers Jan 2011 to present
Source: Financial Industry Regulatory Authority
Billion
Earnings per share of the S&P 500 were up 24.8% Over the second quarter of 2017. The rate is expected drop to 9.3% in 2Q19. WSJ 8/30/18
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The Impact of the Last Major Rate Hikes DJIA and the Fed Funds Rate
4.74 4.94 5.56 6.50 6.61
4.03 3.10
1.75 1.16
1999 2000 2001 2002 2003
5.46 Five rate hikes Between Jun99 and May00
Rates fall from 6.6% to 1.75% in 2001
Dow peak 11,700
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Existing Home Sales in Texas
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000Ja
n
Feb
Mar
Apr
May Ju
n Jul
Aug
Sept Oct
Nov De
c
2018
2017
2016
Source: Real Estate Center at Texas A&M
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Months Inventory of Unsold Homes in Texas
3.0
4.0
5.0
6.0
7.0
8.0
9.0Ja
n-94
Jan-
99
Jan-
04
Jan-
09
Jan-
14
Mon
ths
Source: Real Estate Center at Texas A&M