sifma us economic survey 1h20...• gdp growth estimate for 2020 was 1.8% (median forecast, 4q/4q)...
TRANSCRIPT
Setting the Scene
Page 1 of 27
SIFMA Research: 2020 Mid-Year US Economic Survey Forecasts from the SIFMA Economic Advisory Roundtable
June 2020
SIFMA Economic Advisory Roundtable
The SIFMA Economic Advisory Roundtable brings together Chief U.S. Economists of
26 global and regional financial institutions. This semiannual survey compiles the
median economic forecast of Roundtable members, published prior to the upcoming
Federal Open Market Committee (FOMC) meeting. We analyze economists’
expectations for: GDP, unemployment, inflation, interest rates, etc. We also review
expectations for policy moves at the upcoming FOMC meeting and discuss key
macroeconomic topics and how these factors impact monetary policy.
Note: The survey was populated between April 30 and May 28.
Key Takeaways
• 2020 GDP forecast -5.5% for 2020 (median forecast, 4Q/4Q); 2021 +4.7%
• Economists do not expect the Fed to take its target interest rate negative
Setting the Scene
Page 2 of 27
Contents
Setting the Scene .................................................................................................................................................................... 3
Recapping Pre COVID-19 Forecasts ...................................................................................................................................... 4
2H20 Survey Results Summary .............................................................................................................................................. 5
The Economy .......................................................................................................................................................................... 6
GDP Growth Expectations ...................................................................................................................................................... 6
COVID-19 Impact on the Economic Outlook .......................................................................................................................... 7
Risks to Economic Forecasts .................................................................................................................................................. 9
Employment and the Consumer............................................................................................................................................ 10
Monetary Policy ..................................................................................................................................................................... 11
The Big Rate Debate ............................................................................................................................................................. 11
Inflation Expectations ............................................................................................................................................................ 14
Interest Rates and Credit Markets ........................................................................................................................................ 16
Macro Policy .......................................................................................................................................................................... 20
Legislation ............................................................................................................................................................................. 20
Trade Policy .......................................................................................................................................................................... 21
Regulatory Policy .................................................................................................................................................................. 23
SIFMA Economic Advisory Roundtable Forecasts................................................................................................................ 24
Reference Guide: Economic Landscape .............................................................................................................................. 25
US GDP Growth and Comparison Across Regions .............................................................................................................. 25
US Employment Landscape .................................................................................................................................................. 26
SIFMA Economic Advisory Roundtable Members ................................................................................................................ 27
SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On
behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors,
equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets,
informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional
development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).
For more information, visit http://www.sifma.org.
This report is subject to the Terms of Use applicable to SIFMA’s website, available at http://www.sifma.org/legal. Copyright © 2020
Setting the Scene
Page 3 of 27
Setting the Scene
The emergence of the global pandemic COVID-19 in the first quarter of 2020 has created a severe economic and
capital markets shock. In an unprecedented move, federal, state and local governments purposely shut down
economic activity to prevent the spread of the virus. Everything from restaurants to theme parks to manufacturing
plants closed, and people self-isolated in their homes. According to the official data provided by the Bureau of Labor
Statistics (BLS), more than 23 million jobs have been lost, with the reported U3 unemployment rate at a record-high
14.7% in April. However, the U6 statistic (a broader measure of underemployment) painted an even bleaker picture
in April: over 36 million unemployed, for a 22.8% unemployment rate.
Source: St. Louis Fed
Yet, even U6 may not fully capture the extent of the pain. Betsey Stevenson, currently a Professor of Economics
and Public Policy at University of Michigan’s Gerald R. Ford School of Public Policy and formerly a member of the
Council of Economic Advisers and Chief Economist of the U.S. Department of Labor, indicated April data included
some incorrect classifications. “Interviewers were told to classify people who were employed but absent from work
due to COVID-19 related reasons as temporarily unemployed. Many did this incorrectly – correcting for this error
raises the [U3] unemployment rate to nearly 20%.” With these miscalculations and backlogs in registering
unemployment claims in many states, the shadow unemployment number could be closer to 30%.
In light of these economic dislocations, we have switched up the format of the semi-annual survey of our Economic
Advisory Roundtable members. Typically, we would compare movements in current forecasts to the last survey.
However, with broad agreement that the U.S. is already in a recession, numbers have fallen off a cliff (or
skyrocketed for metrics like the unemployment rate) and comparisons to prior forecasts have become irrelevant.
The world has changed, and so must this survey.
We are now asking questions like will the Fed take its target interest rate into negative territory? What shape of
economic recovery will the U.S. experience (swoosh-shaped, V-shaped, W-shaped)? What are longer-term
expectations for interest rates and GDP growth? In other words, what might be the new normal and when will we get
there?
14.7%
22.8%
0%
5%
10%
15%
20%
25%
1/1
/00
11/1
/00
9/1
/01
7/1
/02
5/1
/03
3/1
/04
1/1
/05
11/1
/05
9/1
/06
7/1
/07
5/1
/08
3/1
/09
1/1
/10
11/1
/10
9/1
/11
7/1
/12
5/1
/13
3/1
/14
1/1
/15
11/1
/15
9/1
/16
7/1
/17
5/1
/18
3/1
/19
1/1
/20
Assessing Real Unemployment: U3 vs. U6
U3 U6
4.0% 3.8% 3.6% 3.7% 3.5% 3.5% 3.6%4.4%
14.7%
8.0% 7.4% 7.2% 6.9% 6.9% 6.8% 6.9%8.7%
22.8%
0%
5%
10%
15%
20%
25%
1/1
/19
2/1
/19
3/1
/19
4/1
/19
5/1
/19
6/1
/19
7/1
/19
8/1
/19
9/1
/19
10/1
/19
11/1
/19
12/1
/19
1/1
/20
2/1
/20
3/1
/20
4/1
/20
Assessing Real Unemployment: U3 vs. U6
U3 U6
Setting the Scene
Page 4 of 27
Recapping Pre COVID-19 Forecasts
Before digging into this year’s survey results, we recap highlights from our December 2019 survey:
https://www.sifma.org/resources/research/us-economic-outlook-survey-end-year-2019/
• GDP growth estimate for 2020 was 1.8% (median forecast, 4Q/4Q)
• Top factors effecting economic growth: trade policy, business confidence & private credit market conditions
• Top risks to economic forecasts: trade/tariffs and global growth for both the up and downside
• The probability of a recession in the next 12 months was 25% on average (high 65%, low 10%)
• Economists expected the unemployment rate to tick up slightly to 3.7% in 2020
• 50% of respondents believed the Fed’s next rate move would be up (44% down, 6% on hold)
• Economists expected inflation (measured by the PCE deflator) to increase to 2.1% in 2020
• 57% of respondents noted the Phase 1 trade deal with China would prevent future tariffs (36% not enough
information, 7% no change); 80% of respondents expected the final deal to be light (eliminating
tariffs/reducing U.S. trade deficit), with 13% no deal and 7% full (including IP protection)
In summary, while there were concerns around slowing global economic growth, the U.S. economy was holding up
well. Trade and tariffs were top of mind, not labor market conditions or plummeting into a recession. And then came
COVID-19.
Setting the Scene
Page 5 of 27
2H20 Survey Results Summary
Unsurprisingly, both the current and forecasted GDP numbers now show an expectation that 2020 is headed for the
deepest recession on record (-5.5% 4Q/4Q), with the U.S. not recovering fully by the end of 2021 (4.7% 4Q/4Q). To
be sure, forecasting during crisis times is difficult at best. There are too many unknowns, and what we think we
know appears to change daily. The majority of state and local economies have begun to open, but what will the new
normal be? Will customer preferences have permanently shifted? How will businesses need to readjust? What
portion of the jobs lost will become permanent? In addition to the demand side, fundamentals factors are shifting on
the supply side as well.
Therefore, instead of comparing to past numbers, we asked our Roundtable of economists to provide their best
assessment of a new normal and when we can get there. We highlight the following from the survey:
(Note: This survey was populated between April 30 and May 28.)
• Economic Growth
o 77% of economists expect a swoosh-shaped economic recovery, followed by 9% for both V-shaped
and U-shaped
o 43% of respondents expect nominal GDP to return to its pre COVID-19 level (in relation to 4Q19) by
the end of 2022
o 77% of economists expect the long-term potential GDP growth rate is between 1.5% and 2%, with
55% stating this has not changed from pre COVID-19 estimates (i.e. COVID-19 is not expected to
have long-term effects)
• Interest Rates
o Will the U.S. follow other countries and regions into negative rate territory? 100% of respondents
said no
o Top factors impacting the Fed’s rate decision: labor impact of COVID-19, large scale return to work,
and if there is a second wave of COVID-19
o 86% of economists think rates will not begin to normalize until after 2021
• Trade Policy
o 45% said the focus will return to tariffs and trade negotiations by 2021; 40% said 2H20 if there is not
a second wave of COVID-19
o 50% of respondents expect no trade deal between the U.S. and China, followed by 45% expecting a
light deal (eliminating tariffs) and 5% expecting a full deal (IP protection)
o Will negative sentiments around China's handling of COVID-19 impact future trade negotiations?
55% of economists responded ‘significantly,’ followed by 40% ‘somewhat.’ None believe that it ends
all chances of negotiation
The Economy
Page 6 of 27
The Economy
GDP Growth Expectations
Our Roundtable economists expect GDP growth to be -5.5% for 2020 (median forecast, 4Q/4Q). For 2021, the
median forecast sees GDP increasing by 4.7% (4Q/4Q).
(December survey: 2020 GDP growth 1.8%; median forecast, 4Q/4Q)
Source: Bureau of Economic Analysis, SIFMA Economic Advisory Roundtable
Note: SAAR = seasonally adjusted annual rate
3.5% 3.1% 2.7% 2.5%
-2.6%
2.6% 2.6%1.90% 1.8%
-5.5%
1.4% 1.8%
-0.1% 0.2%
-10.3%-12%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
1H18 2H18 1H19 2H19 1H20
Real GDP Growth Forecasts, 4Q/4Q
High Median Low
-2.6%
7.3%
-5.5%
4.7%
-10.3%
1.5%
-12.0%
-10.0%
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
2020 2021
2021 Real GDP Growth Forecasts, 4Q/4Q
High Median Low
2.1%
2.1%
-5.0%
-24.7%
43.0%
18.2%12.1% 8.1%
-33.5%
15.3%7.5% 5.9% 4.9%
-40.0%
-1.2% -3.0%0.6% 1.6%
-50%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21
Real GDP Growth, Q/Q Change (SAAR)
Actual High Median Low
The Economy
Page 7 of 27
COVID-19 Impact on the Economic Outlook
As we mentioned, these are difficult times for forecasting. Therefore, we polled our economists for just how all-
encompassing COVID-19 is for estimates.
• 59% of respondents have taken into consideration COVID-19 and trade tensions
• 77% of economists expect a swoosh-shaped recovery, followed by 9% for both V-shaped and U-shaped
• 43% of respondents expect nominal GDP to return to pre COVID-19 levels (in relation to 4Q19) by End-2022
• 77% of economists expect the long-term potential growth rate is between 1.5% and 2%, with 55% stating
this has not changed from pre COVID-19 estimates (i.e. COVID-19 is not expected to have long-term
effects)
• Economists that lowered their long-term potential growth rate for the U.S. economy listed the following as
the main drivers of the new forecast: reduction in productivity due to precautionary measures; larger role of
the federal government; bankruptcies; and depressed consumer and business expectations
Source: SIFMA Economic Advisory Roundtable
23%
36%
41%
Only Covid-19
Covid-19 & Trade Tensions
No Change to Prior Periods
Factors Considered in Preparing Economic Outlook
77%
9%
9%
5%
0%
Lazy J/Swoosh
V-Shaped
U-Shaped
W-Shaped
L-Shaped
What Type of Economic Recovery Is Expected?
The Economy
Page 8 of 27
Source: SIFMA Economic Advisory Roundtable
0%
13%
17%
26%
43%
End-2020
Mid-2021
Beyond 2022
End-2021
End-2022
Nominal GDP Return to Pre Covid-19 Level?
5%
5%
14%
77%
1%-1.5%
0%-1%
>2%
1.5%-2%
Long-Term Growth Rate for the US Economy?
0%
0%
5%
41%
55%
Somewhat Higher
Good Deal Higher
Good Deal Lower
Somewhat Lower
No, Temporary Effect
Change in LT Growth Rate Forecast Post Covid-19?
The Economy
Page 9 of 27
Risks to Economic Forecasts
When asked to rank the factors that have the greatest impact on forecasts of U.S. economic growth, COVID-19 was
on the top of the list, followed by business confidence and then private credit markets.
(December survey: U.S. trade policy, business confidence in the U.S. and then private credit market conditions)
Source: SIFMA Economic Advisory Roundtable
Therefore, our Roundtable of economists list the following top risks to their economic forecasts:
• Upside – vaccine for COVID-19, business confidence, and labor market
• Downside – no vaccine or 2nd wave of COVID-19, lower business confidence, and escalation in trade/tariffs
Source: SIFMA Economic Advisory Roundtable
Note: Ranked by number of times an economist listed a factor, those with the most responses on top. Business confidence = growth in confidence,
spending, income
Other
Geopolitical Conflicts
US Monetary Policy
US Fiscal Policy
Brexit
Eurozone Economy
China Economy
US Trade Policy
Private Credit Markets
Business Confidence
Covid-19
Rank: Factors Impacting US Economic Growth
Labor Market
Business Confidence
Covid-19 Vaccine
Rank: Upside Risks to Economic Forecast
Trade/Tariffs
Low Business Confidence
No Vaccine/2nd Wave
Rank: Downside Risks to Economic Forecast
The Economy
Page 10 of 27
Employment and the Consumer
As of April 2020, the U.S. unemployment rate was at a historically high 14.7% - versus 3.6% to start the year – as
the economy was shut down to stop the spread of COVID-19. Economists expect the already elevated
unemployment rate to move higher in 2020 before ending the year at 9.5% in 2020 and ending 2021 at 7.2%
(4Q/4Q). Employment growth (average monthly change in non-farm payroll employment) is expected to be negative
in 2020, at -1,106k.
(December survey: +139,000 for 2020)
Source: Bureau of Labor Statistics, SIFMA Economic Advisory Roundtable
Note: Average monthly change for non-farm payroll employment, 4Q/4Q for unemployment rate
In light of these unemployment expectations, economists expect real personal consumption growth to come in at
-6.3% at the end of 2020, then rebound to 4.7% in 2021 (4Q/4Q). There is an expected decrease in average hourly
earnings to 2.7% in 2020 and 1.9% in 2021.
(December survey: 2.1% real personal consumption growth; 3.2% average hourly earnings)
Source: Bureau of Economic Analysis, SIFMA Economic Advisory Roundtable
176 193 178
(1,106)
430
4.1%3.8%
3.5%
9.5%
7.2%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
2017 2018 2019 2020 2021
(1,200)
(1,000)
(800)
(600)
(400)
(200)
0
200
400
600
Unemployment Rate & Non-Farm Payroll Employment
Employment (K; RHS) Unemployment
2.9%
2.6% 2.7%
-6.3%
4.7%
2.5%
3.3% 3.2%2.7%
1.9%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
2017 2018 2019 2020 2021
Consumption Earnings
Consumer Spending (4Q/4Q) & Hourly Earnings (4Q/4Q)
Monetary Policy
Page 11 of 27
Monetary Policy
The Big Rate Debate
Normally, we would ask the Roundtable to share expectations of the Fed’s next rate move at the upcoming FOMC
meeting.
(December survey: 50% up, 44% down, 6% hold; if up, 88% said after 2020; if down, 43% said 2Q20, 29% for both
1Q20 and 4Q19; terminal rate 2.1%)
With the current Federal Funds rate target range at 0.00%-0.25%, as part of the Fed’s actions to use its full range of
tools to support the economy hit by the COVID-19 crisis, the question shifts to whether the U.S. will follow other
countries and regions into negative rate territory? 100% of our Roundtable economists said the U.S. won’t take its
target rate into negative territory. If rates were to go negative, respondents were split 50%/50% as to timing, further
out in 2020 or not until 2021.
No, 100%
Negative Rates in the US?
0%
0%
0%
0%
50%
50%
June FOMC
July FOMC
September FOMC
Beyond 2021
Not Until 2021
Further out in 2020
When Will the Fed Move to Negative Rates?
Monetary Policy
Page 12 of 27
Our economists opined on other rate and Fed balance sheet questions:
• 86% of respondents think rates will not begin to normalize until after 2021
• Top factors to the Fed’s decision making: labor impact of COVID-19 and large scale return to work
• Given the Fed’s increase of asset holdings and the credit facilities, 59% of economists expect the Fed’s
balance sheet to reach $8-$10 trillion by the end of 2021, followed by 27% forecasting $10-$12 trillion
Source: SIFMA Economic Advisory Roundtable
0%
14%
86%
2H20
2021
Longer
When Will Rates Begin to Normalize?
Other
Global Economic Developments
Inflation Indicators
Resumption of Economic Activity
Second Wave of Covid-19
Large Scale Return to Work
Labor Impact of Covid-19
Rank: Important Factors to Fed's Rate Decision
5%
9%
27%
59%
>$12T
<=$8T
$10T-$12T
$8T-$10T
Size of Fed's Balance Sheet by the End of 2021?
Monetary Policy
Page 13 of 27
One monetary tool the Fed could use (in addition to forward guidance or quantitative easing/QE) to boost the
economy when short-term interest rates hit zero is yield curve caps or control (YCC), alternatively called interest
rate pegs. Instead of raising or lowering very short-term interest rates (ex: rate banks earn on overnight deposits) to
move the economy, YCC targets some longer-term rate, with the Fed prepared to buy long-term bonds to keep the
rate from rising above its target. 78% of economists surveyed expect the Fed to embark on some form of YCC. 53%
of respondents expect the Fed to begin YCC by mid-2020, with 47% forecasting the end of 2020.
Source: SIFMA Economic Advisory Roundtable
Yes, 78%
No, 22%
Will the Fed Embark on YCC?
0%
0%
47%
53%
End-2021
Beyond 2021
End-2020
Mid-2020
When Will Fed Begin Yield Curve Caps (YCC)?
Monetary Policy
Page 14 of 27
Inflation Expectations
In terms of inflation, economists expect it to decrease to 0.3% for the PCE deflator and 0.9% for the core PCE
deflator in 2020 (year-over-year). This compares to 1.4% and 1.6% in 2019, respectively.
(December survey: 2.1% and 2.2% respectively for 2020)
Source: Bureau of Economic Analysis, SIFMA Economic Advisory Roundtable
Digging further into inflation, and the potential for deflation, respondents indicated: (charts on the next page)
• Top factors in outlook for core inflation: COVID-19 recovery time and economic slack/unemployment
• There is a divergence of opinions as to whether the Fed can achieve its 2% inflation target in a sustainable
way, with 48% of economists very confident versus 39% not confident at all
• 41% of respondents expect a 15% to 25% probability the U.S. will experience a period of deflation (falling
headline prices) in the next two years, followed by 32% responding 0% to 15% probability
• 45% of respondents expect a 0% to 15% probability the U.S. will experience structurally higher inflation over
the long-term, followed by 36% responding 15% to 25%
• Top factors to push inflation higher: reversal of globalization and sustained breakdown of supply chains
(December survey: top factors = inflation expectations and economic slack/unemployment; 36% somewhat
confident, 36% doubtful the Fed can achieve its 2% goal)
1.8%1.9%
1.4%
0.3%
1.6%1.7%
1.9%1.6%
0.9%
1.4%
-0.3%
0.2%
0.7%
1.2%
1.7%
2.2%
2017 2018 2019 2020 2021
PCE Deflator & Core PCE Deflator
PCE Core PCE
Monetary Policy
Page 15 of 27
Source: SIFMA Economic Advisory Roundtable
Other
Fiscal Policy/Deficit Trends
Value of the Dollar
Global Economic Conditions
Commodity Price Pass Through
Monetary Policy
Inflation Expectations
Economic Slack/Unemployment
Covid-19 Recovery Time
Rank: Factors Important to Core Inflation Outlook
0%
0%
13%
39%
48%
Not Sure
Somewhat Confident
Doubtful
Not Confident At All
Very Confident
Confidence in Fed Achieving 2% Inflation Target?
9%
18%
32%
41%
25%-50%
>50%
0%-15%
15%-25%
Probability of US Deflation in the Next Two Years?
5%
14%
36%
45%
>50%
25%-50%
15%-25%
0%-15%
Probability of Structurally Higher Inflation in the US?
Other
Sustained Higher Deficit
Costs Increase as SupplyChains Move Back to US
Sustained Breakdown ofSupply Chains
Reversal of Globalization
Rank: Factors Contributing to Higher Inflation
Monetary Policy
Page 16 of 27
Interest Rates and Credit Markets
Below we rank respondents’ factors that have the greatest impact on expectations for long-term Treasury yields in
2020: risk aversion/flight to quality and U.S. economic conditions were the top factors.
(December survey: global and U.S. economic conditions ranked at the top, followed by FOMC policy)
Source: SIFMA Economic Advisory Roundtable
Other
Geopolitical Risks
Monetary Policy Outside US
Value of the Dollar
Budget Deficit/Supply New T-Bonds
Global Economic Conditions
Inflation/Inflation Expectations
FOMC Policy
US Economic Conditions
Risk Aversion/Flight to Quality
Rank: Greatest Impact on LT Treasury Yields
Monetary Policy
Page 17 of 27
Respondents expect the following movements in key rates:
• Yield curve (Fed funds-to-10-year Treasury yield) = 63% steepen
• TED (Treasury-to-Eurodollar, now LIBOR) = 59% remain the same
• Investment-grade corporate-to-Treasury spreads = 61% narrow
• High-yield corporate-to-Treasury spreads = 61% narrow
(December survey: YC 70% steepen; TED 69% remain the same; IG/UST 50% widen; HY/UST 69% widen)
Source: Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable
Note: Monthly averages. Fed funds = midpoint of target rate range
16%
21%
63%
Flatten
About the Same
Steepen
Expectations (by End-2020): Yield Curve
12%
29%
59%
Widen
Narrow
About the Same
Expectations (by End-2020): TED Spread
11%
28%
61%
Widen
About the Same
Narrow
Expectations (by End-2020): IG Corp/UST Spread
11%
28%
61%
Widen
About the Same
Narrow
Expectations (by End-2020): HY Corp/UST Spread
Monetary Policy
Page 18 of 27
Surveyed economists expect the following rates and therefore yield curve: (additional chart on next page)
• Fed Funds = 2Q20 0.13%, 4Q20 0.13%
• 2-Year UST = 2Q20 0.20%, 4Q20 0.35%
• 10-Year UST = 2Q20 0.68%, 4Q20 0.80%
• 30-Year Mortgage = 2Q20 3.26%, 4Q20 3.03%
(December survey: FF 1.625%-1.620%; 2Y 1.563%-1.600%; 10Y 1.715%-1.850%; 30Y mort 3.655%-3.775%)
Source: Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable
1.88%
1.63%
0.13% 0.1% 0.1% 0.1%
0.4%
0.6%
0.13% 0.13% 0.13% 0.13% 0.13%
0.1% 0.1% 0.1% 0.1% 0.1%
0.0%
0.5%
1.0%
1.5%
2.0%
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
Federal Funds Target Rate
Actual High Median Low
1.65% 1.61%
0.45% 0.4%
0.6%
0.8%
1.0%1.1%
0.20%0.25%
0.35% 0.38% 0.35%
0.2% 0.1% 0.1% 0.1% 0.1%0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
2 Year UST Rate
Actual High Median Low
1.70%1.86%
0.87%
1.0%1.2%
1.3%1.4%
1.6%
0.68% 0.73%0.80%
0.88% 1.01%
0.5%
0.4% 0.4% 0.4% 0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
10 Year UST Rate
Actual High Median Low
3.61% 3.72%
3.45%
3.7%
5.2%
3.6% 3.7%4.0%
3.26% 3.21%3.03% 3.01% 3.04%
2.9% 2.9%2.7% 2.6%
2.8%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
5.0%
5.5%
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
30 Year Fixed Mortgage Rate
Actual High Median Low
Monetary Policy
Page 19 of 27
Source: Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable
3.6%3.7%
3.5%3.3% 3.2%
3.0% 3.0% 3.0%1.9%
1.6%
0.1%0.1% 0.1% 0.1% 0.1% 0.1%
1.7%1.6%
0.5%
0.2%0.3% 0.4% 0.4% 0.4%
1.7%
1.9%
0.9%
0.7% 0.7%0.8%
0.9%1.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21
Expected Rates
30-Y Mortgage (RHS) Fed Funds
Macro Policy
Page 20 of 27
Macro Policy
Legislation
67% of respondents expect no major non COVID-19 related legislation during the upcoming election cycle. If further
major legislation is passed, it would be around fiscal stimulus or healthcare, both related to COVID-19. The
economists were asked to describe the 2020 election outcome they were assuming when answering. 82%
responded a divided government with Republicans leading Senate, followed by 18% expecting a Democratic sweep.
(December survey: pre-COVID only 7% responded yes; expected legislation is in infrastructure)
Source: SIFMA Economic Advisory Roundtable
Yes, 33%
No, 67%
Non Covid-19 Legislation in Election Cycle?
0%
0%
18%
82%
Republicans Sweep
Divide: Dem Lead Senate
Democrats Sweep
Divide: Rep Lead Senate
Expectation: Election Outcome
Macro Policy
Page 21 of 27
Trade Policy
In the trade policy section of the survey (focused on tariffs on China and the EU), we analyzed the shift in sentiment
prior to COVID-19 versus currently. (charts continued on next page)
Note: This survey was put into the field and populated prior to China’s passing of the Hong Kong security
law and the certification to Congress by Secretary of State Mike Pompeo that Hong Kong no longer enjoys a
high degree of autonomy from China.
• U.S. to proceed with trade negotiations with China with: 65% responded increased trade pressures, 30%
start up where they left off
• U.S. to proceed with trade negotiations with Europe with: 55% responded start back up where they left off,
30% relax trade pressures
• 45% of economists expect the focus to return to tariffs and trade negotiations by 2021, with 40% believing
this will happen in 2H20 if there is no second wave of COVID-19
• Economists indicated their expectations for tariffs/trade policy over the medium term include tariff
escalation/trade restrictions and deglobalization
• 50% of respondents expect the U.S. and China to eventually agree on no trade deal, followed by 45% a light
deal (around only eliminating tariffs, reducing the U.S. trade deficit with China) and 5% still holding out hope
for a full deal (includes IP protection)
• When asked if the current negative sentiments around China’s handling of COVID-19 will impact future trade
negotiations, 55% of economists responded significantly, followed by 40% somewhat – (happily,) 0%
responded it ends all chances of negotiation
• When asked if they assumed no change in the presidential party or makeup of Congressional leadership
when responding, i.e. a political status quo, 76% said yes
(December survey: US and China to agree on 80% light deal, 13% no deal, 7% full deal)
5%
30%
65%
Relax Trade Pressures
Start Up Where Left Off
Increase Trade Pressures
US to Proceed with Trade Negotiations with China
15%
30%
55%
Increase Trade Pressures
Relax Trade Pressures
Start Up Where Left Off
US to Proceed with Trade Negotiations with Europe
Macro Policy
Page 22 of 27
Source: SIFMA Economic Advisory Roundtable
0%
15%
40%
45%
Beyond 2021
2H20, Independent of Covid-192nd Wave
2H20, If No Covid-19 2nd Wave
2021
When Will Focus Return to Tariffs/Trade?
Tariff Escalation/Trade Restrictions
Deglobalization
No Major Changes
Expectations: Trade Policy Over Medium Term
5%
45%
50%
Full Deal
Light Deal
No Deal
Type of Final US-China Trade Deal?
0%
5%
40%
55%
Ends All Chances ofNegotiations
Not At All
Somewhat
Significantly
Will China's Handling of Covid-19 Impact Trade Talks?
Yes, 76%
No, 24%
Trade Policy Based on Political Status Quo?
Macro Policy
Page 23 of 27
Regulatory Policy
67% of respondents believe the regulatory environment for financial services is improving but still difficult. 89% of
economists do not build estimates for the impact of regulatory reform into their GDP forecast model, and 53%
indicate significant reform would have no impact on their GDP growth forecasts.
(December survey: 77% improving but still difficult; 85% do not build reg reform into forecasts; 50% say reg reform
raise GDP growth estimates 0-20 bps)
Source: SIFMA Economic Advisory Roundtable
Note: Reg = regulatory; est = estimates
0%
6%
11%
17%
67%
Very Negative
Negative
Other
Positive
Improving, Still Difficult
Regulatory Environment for Financial Services
Yes, 11%
No, 89%
Reg Reform Est. in GDP Model
0%
0%
6%
18%
24%
53%
Lower by up to 20bps
Lower by morethan 20 bps
Raise by more than20 bps
Raise by up to 20bps
Do not forecast
No impact
Regulatory Reform Impact on GDP Growth
SIFMA Economic Advisory Roundtable Forecasts
Page 24 of 27
SIFMA Economic Advisory Roundtable Forecasts
Economic Indicators – Annual
(%, unless indicated) 2017 2018 2019 2020E 2021E
Real GDP (4Q/4Q) 2.8 2.5 2.3 -5.5 4.7
Real Personal Consumption (4Q/4Q) 2.9 2.6 2.7 -6.3 4.7
Nonresidential Fixed Investment (4Q/4Q) 5.4 5.9 -0.4 -8.8 4.5
Residential Fixed Investment (4Q/4Q) 4.2 -4.4 1.7 -1.3 4.9
Real Federal Government Spending (4Q/4Q) 1.7 2.7 4.3 4 2.1
Real State and Local Government Spending (4Q/4Q) 0.4 0.9 2.2 0.7 1.2
Non-Farm Payroll Employment (K; avg. monthly change) 176 193 178 -1,106 430
Unemployment Rate (4Q average) 4.1 3.8 3.5 9.5 7.2
Average Hourly earnings (4Q/4Q) 2.5 3.3 3.2 2.65 1.9
Real Disposable Income (4Q/4Q) 3.4 3.9 2.4 -1.7 2
Personal Savings Rate (annual average) 7.0 7.7 7.9 11.5 9.13
CPI (4Q/4Q) 2.1 2.2 2.0 0.2 1.8
Core CPI (4Q/4Q) 1.8 2.2 2.3 0.9 1.6
PCE deflator (4Q/4Q) 1.8 1.9 1.4 0.3 1.6
Core PCE deflator (4Q/4Q) 1.7 1.9 1.6 0.9 1.4
Industrial Production Index (annual % change) 2.3 4.0 0.9 -9.85 5
Housing Starts (K, annual average) 1,209 1,250 1,298 1,170 1,283
S&P Corelogic Case-Shiller Home Prices (Y/Y) 5.8 5.8 3.5 1 2.65
New Home Sales (K, annual average) 617 615 684 637 660
Motor Vehicle Sales (M, annual average) 17.1 17.2 16.9 13 15.3
Federal Budget ($B, FY) 529 -779 -984 -3,775 -2,000
Current Account Deficit ($B) 439.6 491 498.3 415.5 441.5
Economic Indicators – Quarterly
(%) 3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E 1Q21E 2Q21E
Real GDP (Q/Q, annualized) 2.1 2.1 -5.0 -33.5 15.3 7.45 5.9 4.85
Real Personal Consumption (Q/Q, annualized) 3.1 1.8 -6.8 -41.4 19.4 9 5.3 5
Nonresidential Fixed Investment (Q/Q, annualized) -2.3 -2.5 -7.9 -30 -0.01 3.5 5 5.1
Residential Fixed Investment (Q/Q, annualized) 4.6 6.5 18.5 -30.1 4.2 6.5 6.5 5
CPI (Y/Y) 1.8 2.0 2.1 0.4 0.33 0.2 0.35 1.8
Core CPI (Y/Y) 2.1 2.1 2.3 1.4 1.05 0.9 0.8 1.5
PCE Deflator (Y/Y) 1.4 1.4 1.3 0.5 0.3 0.3 0.45 1.55
Core PCE Deflator (Y/Y) 1.7 1.6 1.6 1.2 0.9 0.95 0.95 1.3
Interest Rates (Monthly Average)
(%) Sep’19 Dec’19 Mar’20 Jun’20E Sep’20E Dec’20E Mar’21E Jun’21E
Federal Funds Target Rate (midpoint) 1.875 1.625 0.125 0.125 0.125 0.125 0.125 0.125
2-Year UST Yield 1.65 1.61 0.45 0.2 0.25 0.35 0.38 0.35
10-Year UST Yield 1.70 1.86 0.87 0.68 0.725 0.8 0.875 1.01
30-Year Fixed Mortgage Rate 3.61 3.72 3.45 3.26 3.21 3.03 3.01 3.04
Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable
Reference Guide: Economic Landscape
Page 25 of 27
Reference Guide: Economic Landscape
US GDP Growth and Comparison Across Regions
Source: Bureau of Economic Analysis, World Bank, OECD, Bloomberg
Note: NE=net expenditures, Business=business investment, Government=govt consumption & investment, PC=personal consumption expenditure
15.0
21.4
0
5
10
15
20
25
2010 2019
US Real GDP - Total ($T)
-3.4% -2.9%
14.4% 17.5%
67.9%68.0%
21.0% 17.5%
-10%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2010 2019
US Real GDP - By Category
NE Business PC Government
1.0 1.5
2.33.0
6.9
10.1
0
2
4
6
8
10
12
14
16
2010 2019
US Real GDP - Personal Consumption ($T)
Services Nondurable Goods Durable Goods
1.7
2.9
0.4
0.8
0.05
0.07
-0.3
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
2.4
2.7
3.0
3.3
3.6
3.9
2010 2019
US Real GDP - Business Investment ($T)
Inventories Residential Nonresidential
15.0
17.0
2.5
5.7 6.1
19.5
15.5
2.8
5.1
14.1
0
5
10
15
20
25
US EuropeanUnion
UK Japan China
GDP by Region ($T)
2010 2019
48.5
33.7
39.1
44.5
4.6
65.1
35.2
41.0 40.8
10.1
0
10
20
30
40
50
60
70
US European Union UK Japan China
GDP Per Capita by Region ($M)
2010 2019
Reference Guide: Economic Landscape
Page 26 of 27
US Employment Landscape
Source: Bureau of Economic Analysis (as of 2018), Bureau of Labor Statistics
Note: NE = not employed (unemployed), FTE = full time employment, NLF = not in labor force, PTE = part time employment. Employment statistics
based on civilian population 16 years or over
SIFMA Economic Advisory Roundtable Members
6,328
9,321
10,071
12,674
13,925
20,012
21,810
24,837
Fin/Ins
Admin & Waste Mgmt Svces
Ag/Mining/Util/Const
Manufacturing
Food/Lodging
Healthcare
Trade
Govt
0 10,000 20,000 30,000
US Non-Farm Employment by Industry (K)
112 111 113 116 118 121 123 126 127 130
143 137 136 137 140 142 145 148 150 152137 136 137 140 142 145 148 150 152 155
0
20
40
60
80
100
120
140
160
180
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
US Employment (M)
Private Government
FTE50.4%
NLF36.9%
PTE10.4%
NE2.3%
US Employment Statistics (M)
6.8%
4.2%
9.3%
3.7%
66.2%
67.1%
66.2%
63.1%
58%
59%
60%
61%
62%
63%
64%
65%
66%
67%
68%
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
1991 1995 1999 2003 2007 2011 2015 2019
US Unemployment and Labor Participation
Unemployment rate (LHS) Labor force participation rate (RHS)
SIFMA Economic Advisory Roundtable Members
Page 27 of 27
SIFMA Economic Advisory Roundtable Members
Chair SIFMA Research
Ellen Zentner Katie Kolchin, CFA, Director of Research
Morgan Stanley Justyna Podziemska
Ali Mostafa
Members
Ethan Harris Michael Gapen Nathaniel Karp
Bank of America Barclays Capital BBVA Compass
Douglas Porter Andrew Hollenhorst Nicholas Van Ness
BMO Financial Citigroup Credit Agricole
James Sweeney Michael Moran Peter Hooper
Credit Suisse Daiwa Capital Markets America Deutsche Bank Securities
Christopher Low Jan Hatzius Michael Feroli
FTN Financial Goldman Sachs J.P. Morgan
Aneta Markowska John Lonski Troy Ludtka
Jefferies Moody’s Analytics Natixis
Michelle Girard Lewis Alexander Carl Tannenbaum
NatWest Markets Securities Nomura Northern Trust
Augustine Faucher Scott J. Brown Tom Porcelli
PNC Financial Raymond James RBC Capital Markets
Stephen Gallagher Lindsey Piegza Seth Carpenter
Société Générale Stifel Financial UBS Securities
Jay Bryson
Wells Fargo Securities