Navigating a sea
of economic
uncertainty
March 19, 2019
Sarasota, FL
Global slowdown leads to higher uncertainty
U.S. GDP expected to slow to 2.5% in 2019, and 2.0% in 2020
Risk of recession 24 months ahead remains elevated
Fed to delay raising rates until 4Q19
Labor market conditions remain favorable
Core inflation to remain stable, rebound in energy prices to lift headline
10-year Treasury to follow shallower path, implying a flat interest rate curve
Oil prices converging with long-term equilibrium of around $60/b
High debt levels in a rising rate environment pose credit cycle risks
Trade deal with China has the potential to support the current expansion
Florida among the states posed to outperform in growth in 2019
Sarasota region enjoying excellent economic conditions
Key messages
Global economy – elevated uncertainty
0
50
100
150
200
250
300
350
06 07 08 09 10 11 12 13 14 15 16 17 18 19
Global policy uncertainty Index
Source: BBVA Research and Haver
Industrial production YoY % Change
China: Total imports YoY % Change
Global sentiment Index
3
-60
-40
-20
0
20
40
60
80
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19
-10
-5
0
5
10
15
20
12 13 14 15 16 17 18 19
Japan Germany
-40
-30
-20
-10
0
10
20
30
40
06 07 08 09 10 11 12 13 14 15 16 17 18 19
Economic activity
Real-time economic momentum heat map
Source BBVA Research Below Average Above Average
Improving manufacturing
sentiment on less negative views
on domestic demand and thawing
trade tensions
Small business optimism has
improved after a period od decline
Aug-January on concerns about
future economic growth
Home prices appreciation strong
despite weaker demand side
conditions
Consumer confidence reversed in
February after reaching lowest
level since 2017 in January
Steady productivity growth amidst
strong labor force inflows and
modest wage increases
ISM Manufacturing
Small Business Optimism
Industrial Production
IP-Manufacturing
IP-Mining
IP- Nonenergy High-Tech
Capital Goods ex Aircraft
Private Construction
Building Permits
Core Logic Home Prices
Consumer Confidence
Private Nonfarm Payrolls
Prime-Age Participation
Marginally Attached (PA)
Average Hourly Earnings
Real Disposable Income
Personal Savings Rate
Productivity
3-months
ago
2-months
ago
1-month
agoCurrent
Industrial production (Year-over-year %)
Retail sales (Year-over-year %)
Economic trends: Industrial production moderates while retail
sales recovered somewhat after plummeting in December
Source: BBVA Research, FRB & BEA
-6%
-4%
-2%
0%
2%
4%
6%
8%
2010 2011 2012 2013 2014 2015 2016 2017 2018
Oil & Gas High-Tech Motor Vechicles
Consumer Gds Biz Equip Headline (lhs)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Autos Health & P. Care Gas
Clothing Nonstore Food Servc
Headline (lhs)
Economic trends: FX and slower global growth weigh
on exports
Real exchange rate and exports (Year-over-year %)
Real exports (Contribution to year-over-year %)
Source: BBVA Research, FRB & Census
-6
-4
-2
0
2
4
6
8
10
De
c-2
018
Oct-
2018
Aug-2
018
Jun-2
018
Apr-
2018
Feb
-2018
De
c-2
017
Oct-
2017
Aug-2
017
Jun-2
017
Apr-
2017
Feb
-2017
De
c-2
016
Oct-
2016
Aug-2
016
Jun-2
016
Apr-
2016
Feb
-2016
De
c-2
015
Oct-
2015
Aug-2
015
Jun-2
015
Consumer Goods ex Food Food & Bev.
Industrial Supplies Autos
Other Cap Goods ex Autos
-10
-5
0
5
10
15
20
Jan-2
015
Apr-
2015
Jul-2
015
Oct-
2015
Jan-2
016
Apr-
2016
Jul-2
016
Oct-
2016
Jan-2
017
Apr-
2017
Jul-2
017
Oct-
2017
Jan-2
018
Apr-
2018
Jul-2
018
Oct-
2018
Trade weighted dollar index Exports
GDP
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
20
20
20
22
Real GDP Average: '00-Current
Real GDP Year-over-year %
-0.50
0.00
0.50
1.00
1.50
2.00
2.50
PCE Nonres Res Inv NetExports
Federal State
4Q18 Average 2014-Current
Source: BBVA Research & BEA
GDP- contribution to growth Annualized %
7
GDP and recession probability
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Q1-1
8
Q2-1
8
Q3-1
8
Q4-1
8
BB
VA
Atl F
ed
NY
Fed
20
19
20
19-2
021
Forecast1Q19
Baseline
Real GDP SAAR, %
0
10
20
30
40
50
60
70
80
90
100
83 86 88 91 94 97 00 03 06 09 12 15 18
12-months ahead 24-months ahead
Source: BBVA Research & BEA Recession Probability
Recession probability %, 4wkma
8
Labor market
In February, nonfarm payroll employment grew 20,000, down
from 311,000 and 227,000 in December
The unemployment rate (UR) decreased to 3.8
Major weaknesses: construction (-31K), education (-18.7K), retail trade (-6.1K),
transportation and warehousing (-3.0K), mining (-2.8K), and leisure and
hospitality (unchanged).
Gains: professional business services (42K) and financial related industries (6K).
Average hourly earnings growth at 3.4% is just shy of the pre-crisis peak of 3.6%.
Labor force participation has some room to increase further
We expect the UR to reach its low point in this business cycle in 3Q19 (3.6%),
and job growth to continue to decelerate
Labor market: Still solid job growth overall, despite February
figures
Nonfarm payrolls (Monthly Change, K)
Industry employment (Annualized % change)
Source: BBVA Research & BLS
-1000
-800
-600
-400
-200
0
200
400
600
800
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
Actual Forecast
-10 -5 0 5 10
Retail Trade
Information Services
Federal Government
Local Government
State Government
Financial Activities
Other Services
Wholesale Trade
Manufacturing
Education & Health Services
Leisure & Hospitality
Professional & Business Services
Construction
Transportation & Warehousing
Mining
Monthly Year-over-year
Labor market: While hours worked fluctuate somewhat, wage
pressures are rising
Average weekly hours (number & 5mcma)
Average hourly earnings (YoY% & 5mcma)
Source: BBVA Research & BLS
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Jan
-200
8
Au
g-2
00
8
Ma
r-2
009
Oct-
20
09
Ma
y-2
01
0
De
c-2
010
Jul-
201
1
Fe
b-2
012
Se
p-2
01
2
Ap
r-20
13
No
v-2
013
Jun
-201
4
Jan
-201
5
Au
g-2
01
5
Ma
r-2
016
Oct-
20
16
Ma
y-2
01
7
De
c-2
017
Jul-
201
8
Fe
b-2
019
33.2
33.4
33.6
33.8
34.0
34.2
34.4
34.6
34.8
Jan
-200
8
Jul-
200
8
Jan
-200
9
Jul-
200
9
Jan
-201
0
Jul-
201
0
Jan
-201
1
Jul-
201
1
Jan
-201
2
Jul-
201
2
Jan
-201
3
Jul-
201
3
Jan
-201
4
Jul-
201
4
Jan
-201
5
Jul-
201
5
Jan
-201
6
Jul-
201
6
Jan
-201
7
Jul-
201
7
Jan
-201
8
Jul-
201
8
Jan
-201
9
Labor market: Solid labor market utilization with some
decline in the unemployment rate
U-6 (%)
Unemployment rate (%)
Source: BBVA Research & BLS
2
3
4
5
6
7
8
9
10
11
00
02
04
06
08
10
12
14
16
18
20
22
0
2
4
6
8
10
12
14
16
18
Jan-0
9
Jul-0
9
Jan-1
0
Jul-1
0
Jan-1
1
Jul-1
1
Jan-1
2
Jul-1
2
Jan-1
3
Jul-1
3
Jan-1
4
Jul-1
4
Jan-1
5
Jul-1
5
Jan-1
6
Jul-1
6
Jan-1
7
Jul-1
7
Jan-1
8
Jul-1
8
Jan-1
9
Pre-Crisis Avg.
Labor market: While more workers can enter the workforce,
wage inflation will continue to inch up
80.0
80.5
81.0
81.5
82.0
82.5
83.0
83.5
84.0
84.5
85.0
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
Prime-age LF participation rate 1990-1999 average
Prime-age labor force participation rate %
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
0.2
0.4
0.6
90 92 94 96 98 00 02 04 06 08 10 12 14 16 18
LF Participation Average hourly earnings (rhs)
Source: BBV A Research and BLS
Labor force participation and wages PP YoY and % YoY
13
Inflation
Headline consumer price index (CPI) was up 0.2% month-
over-month in February and core CPI was up 0.1%
The declines in energy prices ended and the recovery in oil prices should
limit pass-through to energy prices going forward
On a year-over-year basis, headline CPI stood at 1.5% while core remained
stable at 2.1%
The probability of entering high-inflation regime is nonexistent; deflation risks
are also low
Implied 5-year and 10-year inflation expectations have edged up with energy
prices rising and demand-side fears fading
Pass-through from low energy prices to bring headline CPI below 2% for
year; core CPI to remain close 2.2%
Inflation: Although core prices remains stable,
headline dropping due to declines in energy prices
Consumer price inflation (12m change)
Core inflation measures (12m change)
Source: BBVA Research, BLS & BEA
-6%
-5%
-4%
-3%
-2%
-1%
0%
1%
2%
3%
4%
0 10 20 30 40 50 60 70 80 90 100
Relative Importance
Comm. ex
Food/
Energy
Food
Rent
Energy
Med
Services
Edu &
Comm.
Services
Trans.
Services
Other
Services
OER
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
No
v-2
000
Oct-
2001
Sep-2
002
Aug-2
003
Jul-2
004
Jun-2
005
Ma
y-2
006
Apr-
2007
Ma
r-2
008
Feb
-2009
Jan-2
010
De
c-2
010
No
v-2
011
Oct-
2012
Sep-2
013
Aug-2
014
Jul-2
015
Jun-2
016
Ma
y-2
017
Apr-
2018
Core CPI Core PCE Weighted Median
Inflation: Probability of high inflation regime
extremely low
Core PCE price index & inflation regimes Month-over-month %
Inflation regime change probability %
Source: BBVA Research & BLS
0.00
0.10
0.20
0.30
0.40
0.50
0.60
0.70
0.80
0.90
1.00
Jan-7
0
Jul-7
2
Jan-7
5
Jul-7
7
Jan-8
0
Jul-8
2
Jan-8
5
Jul-8
7
Jan-9
0
Jul-9
2
Jan-9
5
Jul-9
7
Jan-0
0
Jul-0
2
Jan-0
5
Jul-0
7
Jan-1
0
Jul-1
2
Jan-1
5
Jul-1
7
-0.2
0
0.2
0.4
0.6
0.8
1
70 74 78 82 86 90 94 98 02 06 10 14 18
Core PCE Low Inflaiton Regime
High Inflaiton Regime
Inflation: Baseline for modest undershoot in 2019
Inflation expectations (%)
Headline & core CPI (Year-over-year %)
Source: BBVA Research & Haver Analytics
-2
-1
0
1
2
3
4
5
6
Ma
r-2
000
Ma
y-2
001
Jul-2
002
Sep-2
003
No
v-2
004
Jan-2
006
Ma
r-2
007
Ma
y-2
008
Jul-2
009
Sep-2
010
No
v-2
011
Jan-2
013
Ma
r-2
014
Ma
y-2
015
Jul-2
016
Sep-2
017
No
v-2
018
Jan-2
020
Ma
r-2
021
Ma
y-2
022
Core Headline
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
10 11 12 13 14 15 16 17 18
5Y Implicit 5Y Forward
The FOMC left the target range of the Fed Funds rate
unchanged at their January 29-30th meeting
FOMC shifting tone saying, “[i]n light of global economic and financial
developments and muted inflation pressures, the Committee will be patient”
The FOMC has not reached a consensus on what conditions would be needed
to continuing raising rates, but several members felt higher inflation or a more
benign risk outlook would be sufficient for the Fed to raise later this year
Terminal level of the balance sheet will be significantly higher (1-1.5Tr) than
previously estimated and the normalization cycle will end sooner (EOY)
With conditions similar to 2016—elevated uncertainty, financial tensions and
weaker growth fundamentals— and with actual and expected inflation likely to
undershoot the Fed’s target in the 1H19, we believe that this means the Fed will
wait until the 4Q19 before raising rates again.
Monetary policy: Federal Reserve
Fed: Patience is name of the game; rate increases on hold until
4Q19
BBVA & dealers projections of Fed Funds (%, Effective)
FOMC projections of Fed Funds (Year-over-year %, Mid-point)
Source: BBVA Research & FRB
1
1.5
2
2.5
3
3.5
4
2018 2019 2020 2021 L-Term
Sep-18 Current
0
1
2
3
4
5
6
BBVA-Baseline Median 75th Percentile
25th Percentile BBVA-Upside BBVA-Downside
Monetary policy: Markets discounting prolonged pause,
possible rate cut in 2020
Fed Funds implied probability (Number of rate increases through 2019, %)
Fed Funds futures & BBVA baseline (%)
Source: BBVA Research & Bloomberg
0.5
0.75
1
1.25
1.5
1.75
2
2.25
2.5
2.75
3
3.25
Oct-
16
Jan-1
7
Apr-
17
Jul-1
7
Oct-
17
Jan-1
8
Apr-
18
Jul-1
8
Oct-
18
Jan-1
9
Apr-
19
Jul-1
9
Oct-
19
Jan-2
0
Apr-
20
Jul-2
0
Oct-
20
FFR + BBVA Forecast 8/8/2018
10/3/2018 12/26/2018
2/20/2019
0
10
20
30
40
50
60
70
80
90
100
<2.25% 2.25-2.5 2.5-2.75 2.75-3.0 3.0+
Cut Zero One Two Three
Last 1M Ago
10-yr Treasury in February at 2.68%, 70bp below 4Q18 peak,
2-yr Treasury at 2.51% 50bp below peak
Dramatic shift in Fed’s balance sheet strategy and the U-turn on their
guidance for policy rates suggests further compression in the term
premium in medium-term and shift in the level
Rising global uncertainty and dovish monetary policy abroad could add to
the compression on the term premium, meaning a flatter-for-longer
scenario for the yield curve
Ample domestic demand for U.S. government debt from domestic sectors
contain upside pressures on yields
10-yr Treasury to reach 2.9% by end of 2019 and 3.1% by year end 2020
Interest rates
Interest rates: Drop in inflation expectations and negative
term premium push 10-year Treasury below 2.7%
10-Year Treasury yield decomposition (%)
Source: BBVA Research, ACM & Haver Analytics
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
12 13 14 15 16 17 18
Real Rate Term Premium Inflation Expectations Yield
Interest rates: Nontrivial downward revisions to 10-year,
risks now more balanced
10-Year Treasury yield (%)
Source: BBVA Research, ACM & Haver Analytics
0
1
2
3
4
5
6
7
Jan.2
00
7
Ma
y.2
00
7
Sep.2
007
Jan.2
00
8
Ma
y.2
00
8
Sep.2
008
Jan.2
00
9
Ma
y.2
00
9
Sep.2
009
Jan.2
01
0
Ma
y.2
01
0
Sep.2
010
Jan.2
01
1
Ma
y.2
01
1
Sep.2
011
Jan.2
01
2
Ma
y.2
01
2
Sep.2
012
Jan.2
01
3
Ma
y.2
01
3
Sep.2
013
Jan.2
01
4
Ma
y.2
01
4
Sep.2
014
Jan.2
01
5
Ma
y.2
01
5
Sep.2
015
Jan.2
01
6
Ma
y.2
01
6
Sep.2
016
Jan.2
01
7
Ma
y.2
01
7
Sep.2
017
Jan.2
01
8
Ma
y.2
01
8
Sep.2
018
Jan.2
01
9
Ma
y.2
01
9
Sep.2
019
Jan.2
02
0
Ma
y.2
02
0
Sep.2
020
Jan.2
02
1
Ma
y.2
02
1
Sep.2
021
Jan.2
02
2
Ma
y.2
02
2
Sep.2
022
Historic Baseline upside Downside Risk NABE (EOP)
SPF(EOP) Blue Chip(Yr. Avg) OMB (Yr.Avg) CBO(Yr. Avg)
Interest rates: Yield curve slope to remain low, but
positive
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
10-Year Average 2016 2017
2018 2019 (f) 2020 (f)
Yield curve slope (Bp)
Yield curve (%, eop)
Source: BBVA Research
0.0
0.5
1.0
1.5
2.0
2.5
Jan-2
015
Jul-2
015
Jan-2
016
Jul-2
016
Jan-2
017
Jul-2
017
Jan-2
018
Jul-2
018
Jan-2
019
Jul-2
019
Jan-2
020
Jul-2
020
Jan-2
021
Jul-2
021
Jan-2
022
Jul-2
022
30Yr-10yr 10Yr-1Yr
OPEC+ cuts, a pause in U.S. interest rate increases, and
signals of a trade deal between U.S. and China resulted
in higher prices
Going forward, the expiration of import waivers of Iranian oil could add an extra
boost
U.S. production is expected to remain robust through the year, more
transportation infrastructure will facilitate exports
Demand is projected to slow down as global economic growth weakens
We maintain our forecasts of convergence to long-term equilibrium around $60/b
Elevated uncertainty around long-term equilibrium: CAPEX, protectionism,
transportation infrastructure, alternative energy sources, EM convergence, EVs,
climate change, efficiency and technology
Oil prices
BBVA Research – U.S. Economic Outlook February 2019 / 26
Improving sentiment on the global economy, plus OPEC+ commitment
to adjust supply led to higher prices
Source: BBVA Research and Haver Analytics
Crude oil prices August 2018 to February 2019 ($ per barrel)
40
45
50
55
60
65
70
75
80
85
90
Sep Oct Nov Dec Jan Feb Mar
WTI Brent
September 23
OPEC and allies
agree not to further
increase oil
production
September 25
India may cut imports of
Iranian oil to zero in
November
October 8-12
Stock market chaos.
Concerns on weaker
demand emerge
November 2
U.S. issue waivers to
Iran’s oil buyers
November 6
EIA expects U.S. crude oil
production to surpass 12
million b/d by 2019
November 12
OPEC lowers oil
demand growth
forecasts and
anticipates
oversupply
December 6
OPEC hints a lower than
expected cut
December 7
OPEC+ decide to cut
output by 1.2 Mb/d
Jan 4-19
U.S–China trade
talks, expectation of
OPEC+ cuts
Jan 20
China post slowest
economic growth
since 1990
Feb 13
Fears of market
disruptions from
political crisis in
Venezuela
Feb 18
U.S. and China
extend talks to end
their trade war
BBVA Research – U.S. Economic Outlook February 2019 / 27
Demand supported by China, India and the U.S.
Source: BBVA Research and Haver Analytics
Oil product demand: total world (Thousand barrels per day, yoy change)
Oil product demand (Million barrels per day)
43
44
45
46
47
48
49
50
30
35
40
45
50
55
Sep-0
8
Ma
r-0
9
Sep-0
9
Ma
r-1
0
Sep-1
0
Ma
r-1
1
Sep-1
1
Ma
r-1
2
Sep-1
2
Ma
r-1
3
Sep-1
3
Ma
r-1
4
Sep-1
4
Ma
r-1
5
Sep-1
5
Ma
r-1
6
Sep-1
6
Ma
r-1
7
Sep-1
7
Ma
r-1
8
Sep-1
8
non-OECD OECD (rhs)
60
70
80
90
100
110
120
130
140
3.4
3.5
3.6
3.7
3.8
3.9
4.0
4.1
4.2
4.3
4.4
2014 2015 2016 2017 2018
Th
ou
san
ds
Production (lhs) Imports (rhs)
China: imports and production of crude oil (Million metric tons SA, and million b/d)
Sharp increase induced
by Iranian sanctions and
expiration of small
refineries import quotas
-500
0
500
1000
1500
2000
2500
-500
0
500
1000
1500
2000
2500
3000
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
4Q
18
Western Europe United States China
India Total World (rhs)
BBVA Research – U.S. Economic Outlook February 2019 / 28
OPEC+ supply adjustments and the expiration of waivers to importers
of Iranian oil will tight supply thought 1H19
Source: BBVA Research, Haver Analytics, and Bloomberg
Crude oil production (Million barrels per day)
11.5
11.2
10.8
10.4
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
Ma
r-1
7
Ma
y-1
7
Jul-1
7
Sep-1
7
No
v-1
7
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Wellhead Production: Non OPEC: Russia (Ths b/d)
Wellhead Production: OPEC: Saudi Arabia (Ths b/d)
Iran: exports of crude oil (million barrels per day)
0.0
0.5
1.0
1.5
2.0
2.5
2015 2016 2017 2018
Other China India Turkey South Korea Japan Europe
BBVA Research – U.S. Economic Outlook February 2019 / 29
U.S. production to remain solid. No signs of domestic oversupply
Source: BBVA Research and Haver Analytics
WTI Midland-Cushing differential ($/b)
U.S. Estimated crude oil production (Thousand barrels/day)
U.S. Crude oil inventories (Excluding SPR, million barrels)
U.S. Real private investment in E&P (yoy $billion )
-150
-100
-50
0
50
100
150
0
20
40
60
80
100
120
140
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
Th
ou
san
ds
WTI (lhs) Investment (rhs)
-20.0
-15.0
-10.0
-5.0
0.0
5.0
Jan-1
7
Ma
r-1
7
Ma
y-1
7
Jul-1
7
Sep-1
7
No
v-1
7
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
0
100
200
300
400
500
600
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
2018 Average
5-yr high 5-yr low
6
7
8
9
10
11
12
13
2015 2016 2017 2018 2019
Risk indicators suggest low risk in the short-term
Risks are concentrated in the leverage and prices segments
Debt servicing is becoming more difficult for consumers and will become more
difficult for corporations
An increase in debt distress that would lead to a rise in delinquencies could be a
trigger for tighter credit standards, a credit crunch and a recession
Credit cycle
Debt to GDP is at historically high level supported by the
ability to borrow against assets
20
25
30
35
40
45
50
5256606468727680848892960004081216
Nonfinancial corporate debt to GDP %
0%
10%
20%
30%
40%
50%
60%
52 56 60 64 68 72 76 80 84 88 92 96 00 04 08 12 16
Total liabilities to total assets
Loans and debt securities to total assets
Source: BBVA Research and FRB
Nonfinancial corporations, leverage %
The risks are primarily in the leverage and prices segments, making
corporate debt one of the primary concerns
32
PCE Real
NRI
Residential
Costs
UR
SME Leverage
Corporate
Financials
Government
Households
S&P 500 Prices
Home Price Index
Stress
Slope Rates
Real Interest Rate
Spread C&I
Consumer Quality
Residential
CRE
C&I
Consumer Standards
Mortgages
CRE
C&I
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Less risk More risk
Source: BBVA Research
In the short term, the economy remains in expansion
mode
-0.4
-0.2
0.0
0.2
0.4
0.6
0.8
94 96 98 00 02 04 06 08 10 12 14 16 18
BBVA Research credit cycle risk index Normalized; >0 above average risk
-
0.01
0.02
0.03
0.04
0.05
0.06
0.07
0.08
0.09
0.10
-2
-1
0
1
2
3
4
5
94 96 98 00 02 04 06 08 10 12 14 16 18
Source: BBVA Research, Haver and FRBSTL
Financial stress index Normalized; >0 above average stress
33
Consumer credit: Consumer fundamentals remain strong, but
leverage is increasing in a rising rate environment
Personal interest expense
Year-over-year %
New 90+ day consumer delinquency rates
%
Personal interest expense to disp. income
Ratio, %
Senior loan officers lending standards
+ tightening / - loosening
Source: BBVA Research, FRB, NY Fed & BEA
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
Ma
r-1
961
Oct-
1963
Ma
y-1
966
De
c-1
968
Jul-1
971
Feb
-1974
Sep-1
976
Apr-
1979
No
v-1
981
Jun-1
984
Jan-1
987
Aug-1
989
Ma
r-1
992
Oct-
1994
Ma
y-1
997
De
c-1
999
Jul-2
002
Feb
-2005
Sep-2
007
Apr-
2010
No
v-2
012
Jun-2
015
Jan-2
018
0
2
4
6
8
10
99 01 03 05 07 09 11 13 15 17
Mortgage HELOC
Auto CC
Student Other
Total
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2012 2013 2014 2015 2016 2017 2018Credit card Autos Consumer excl. credit cards
Corporations are able to service their debt, despite some risks
in the tails, which are partly related to new corporations that still
have negative EBIT
0
0.5
1
1.5
2
2.5
3
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Average Median
Implied interest coverage ratio Ratio
-160
-140
-120
-100
-80
-60
-40
-20
0
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
5th percentile 10th percentile
Source: BBVA Research calculations and Bloomberg
Implied interest coverage ratio Ratio
35
Debt distress has been increasing, but is still at
favorable levels
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
5
0.1
0.2
0.3
0.4
0.5
0.6
0.7
97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Distress index C&I loan delinquencies (rhs)
BBVA U.S. debt distress leading indicator Indicator estimated using financial data for a sample of 9448 firms and historical interest rates for
corporate debt (AA, BBB, BB, B and CCC)
Source: BBVA Research and FRB 36
Rising interest rates coupled with a sharp correction in
asset prices could cause a spike in defaults/delinquencies,
weakening expectations
0
1
2
3
4
5
6
7
8
94 96 98 00 02 04 06 08 10 12 14 16 18
BBB/5-yr Treasury spread C&I Delinquencies
Interest rate spreads and delinquencies Percentage points
0
1
2
3
4
5
6
7
8
0
2
4
6
8
10
12
878991939597990103050709111315171921
Fed funds rate (10 quarters ahead)
Delinquency rate (rhs)
Chargeoff rate (rhs)
Source: BBVA Research, Haver and FRB
Fed Funds rates and delinquencies %
37
China slowdown not necessarily only a result of trade war
Chinese growth estimate still above 6%
China and the U.S. working to arrive to a mutually acceptable solution.
Agreement expected some time in April, although risk of a no-deal still exists
Lifting of tariffs should translate to some support for growth both in the U.S. and
especially in China
China has indicated willingness to increase imports from the U.S. which could
have a positive impact on U.S. growth. Industries to benefit include aerospace,
O&G, agriculture and vehicles and machinery
U.S. – China trade war
China concerns are justified, but the challenges
seem contained at the moment
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
00010203040506070809101112131415161718
U.S. Euro area Japan China Rest of the world
World GDP
Distribution
Source: IMF, CEIC and BBVA Research * Mean since 2009
China activity indicators 3mma, YoY, SA
39
2018 2019
Mean* Jun Jul Aug Sep Oct Nov Dec Jan Feb
Industrial Production 9.4 6.6 6.2 5.9 6.0 6.0 5.7 5.7 5.4 5.2
CPI 2.7 1.6 1.6 1.8 2.1 2.3 2.2 2.1 1.8 1.7
Retail sales 14.4 4.2 4.1 3.7 3.9 3.6 4.4 4.5 5.5 7.1
Auto Sales 10.0 9.1 3.4 -1.5 -7.1 -9.5 -12.5 -12.7 -12.8 -12.1
Exports 8.9 11.7 11.7 10.9 12.0 13.4 11.9 4.4 1.8 -3.4
Imports 8.9 20.7 22.5 20.4 21.1 18.7 12.9 4.8 -2.1 -4.6
Manufacturing PMI -0.4 0.5 0.2 -0.5 -1.4 -2.2 -3.1 -3.5 -3.7 -3.3
Non-manufacturing PMI -0.5 0.8 0.0 0.2 -0.1 -0.1 -1.4 -1.8 -1.9 -1.2
Caixin PMI -0.2 1.9 1.2 -0.5 -1.5 -1.9 -1.6 -2.2 -3.6 -4.3
P/E ratio -0.1 -7.3 -14.6 -20.1 -21.6 -25.3 -26.6 -29.6 -30.8 -27.7
Real estate sales 23.7 12.6 12.9 14.0 14.5 14.5 13.8 13.9 13.9 13.9
Credit 17.0 12.7 12.9 13.0 13.2 13.2 13.1 13.2 13.3 13.4
MICA Forecast 6.70% 6.60% 6.50% 6.30%
GDP YoY 6.70% 6.50% 6.40%
Contraction Slow-down Growth Boom
U.S. – China trade
40 Source: BBVA Research
25% Steel
10% Aluminium All countries
25% $50 billion
10% $200 billion
China
25% $200 billion 25% All Imports from China 20% All Cars to US
-0.33
-0.66
-0.19
-0.12
-0.80 -0.60 -0.40 -0.20 0.00
World
China
US
Europe
-0.60
-1.06
-0.39
-0.23
-1.20 -1.00 -0.80 -0.60 -0.40 -0.20 0.00
World
China
US
Europe
-0.17
-0.11
-0.13
-0.13
-0.20 -0.15 -0.10 -0.05 0.00
World
China
US
Europe
Effect on GDP growth of approved US tariffs and retaliation (pp over two years, trade and financial/confidence channel)
Effect on GDP growth of additional US tariff and retaliation (pp over two years, trade and financial/confidence channel)
-0.10
-0.20
-0.07
-0.04
-0.25 -0.20 -0.15 -0.10 -0.05 0.00
World
China
US
Europe
U.S. – China trade
Source: Census Bureau, BEA and BBVA Research
Exports of goods to China Trade with China, goods and services $bn and %
Computers and electronics
Electrical equipment andappliancesMisc. commodities
Machinery ex electrical
Apparel and accessories
Other
Imports of goods from China
-0.6%
-0.5%
-0.4%
-0.3%
-0.2%
-0.1%
0.0%
0
20
40
60
80
100
120
140
160
99 02 05 08 11 14 17
Imports Exports Balance as a share of GDP (rhs)
Aerospace products
Oilseeds and grains
Oil and gas
Motor vehicles
Semiconductors and otherelectronicsOther
Florida expected to outperform in terms of growth in 2019
The state’s low relative exposure to China limits both the upside from the trade
deal and the downside from the trade tensions
The Sarasota region enjoys excellent economic conditions which are expected to
continue in the coming period
The Sarasota-North Port-Bradenton economy is relatively more exposed to
cyclical industries, implying greater stress when in recession
The region could improve its competitiveness with greater investment in facilities
that attract young educated people and businesses
Regional
Growth forecasts
Real GDP growth 2019, Forecast %
Source: BBVA Research
43
Regional economy: Trade exposure
Exports to China as a share of GDP %
Source: BBVA Research, Census Bureau and BEA 44
Regional economy: Florida and Sarasota to outperform in 2019
-10
-5
0
5
10
15
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Sarasota-North Point-Bradenton Florida U.S.
Real GDP % YoY
0
2
4
6
8
10
12
14
02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 21
Sarasota-North Point-Bradenton Florida U.S.
Source: BEA, BLS and BBVA Research
Unemployment rate % YoY
0
5
10
15
20
25
Construction Manufacturing Trade Transportation,warehousingand utilities
Financialactivities
Professionaland business
services
Education andhealth services
Leisure andhospitality
Government Other
Sarasota-North Port-Bradenton Florida U.S.
Regional economy: Sarasota more exposed to
cyclical industries
Value added by industry group % of GDP
Source: BEA and BBVA Research 46
Regional economy: Diverging patterns between GDP and
personal income per capita
GDP per capita $
Source: BEA, Census Bureau and BBVA Research
Personal income per capita $
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
65,000
05 06 07 08 09 10 11 12 13 14 15 16 17
Sarasota-North Port-Bradenton Florida U.S.
20,000
25,000
30,000
35,000
40,000
45,000
50,000
55,000
60,000
05 06 07 08 09 10 11 12 13 14 15 16 17
Sarasota-North Port-Bradenton FL U.S.
Economic scenarios Probability (%) Current Previous
Upside 5 5
Baseline 55 55
Downside 40 40
Subject to revision without notice
Macro Scenarios
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023
GDP 2.5 2.9 1.6 2.2 2.9 2.5 2.0 1.9 1.8 1.8
Upside 3.0 3.0 3.2 3.1 2.7 2.7
Downside 2.8 0.7 -0.9 1.9 2.1 2.3
UR 6.2 5.3 4.9 4.4 3.9 3.8 4.1 4.2 4.5 4.5
Upside 3.1 2.9 2.9 3.0 3.0
Downside 4.3 6.2 6.6 5.7 5.0
CPI 1.6 0.1 1.3 2.1 2.4 1.7 2.2 2.0 2.1 2.0
Upside 1.6 3.8 3.5 3.8 3.8
Downside 0.7 1.1 1.1 1.3 1.4
Fed [eop] 0.25 0.50 0.75 1.50 2.50 2.75 2.75 2.75 2.75 2.75
Upside 3.50 5.00 5.00 5.00 5.00
Downside 1.50 0.25 0.25 0.25 0.25
10-Yr [eop] 2.21 2.24 2.49 2.4 2.83 2.87 3.09 3.23 3.37 3.46
Upside 3.90 5.10 5.90 5.90 5.90
Downside 2.40 1.60 1.90 2.10 2.10
DISCLAIMER
This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) BBVA Research U.S. on behalf of itself and its
affiliated companies (each BBVA Group Company) for distribution in the United States and the rest of the world and is
provided for information purposes only. Within the US, BBVA operates primarily through its subsidiary Compass Bank.
The information, opinions, estimates and forecasts contained herein refer to the specific date and are subject to changes
without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document
have been gathered or obtained from public sources, believed to be correct by the Company concerning their accuracy,
completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in
securities.
Navigating a sea
of economic
uncertainty
March 19, 2019
Sarasota, FL