2015: Where is the US Growth? GIC Central Banking Series Madrid, Spain May 13, 2015
The year started out with a bust.
Real GDP For 2015: Q1
Real GDP Growth (annualized % change)
2014 Actual*
Advance Estimate (April 29)
2.4
0.2
*: Four quarters ending 2014:Q4 **: Median survey response Source: Federal Reserve Bank of Atlanta Calculations, Macroeconomic Advisors LLC, CNBC
2
The final numbers for Q1 may well be worse when all is said and done.
Real GDP and Tracking Forecast For 2015: Q1
Real GDP Growth (annualized % change)
2014 Actual*
Advance Estimate (April 29)
2.4
0.2
Macro. CNBC Rapid Advisors Update** (May 8) (May 8) -0.6
-0.5
*: Four quarters ending 2014:Q4 **: Median survey response Source: Federal Reserve Bank of Atlanta Calculations, Macroeconomic Advisors LLC, CNBC
3
Weak first quarter growth has been a pattern during the recovery. Real Gross Domestic Product (GDP) Growth by Quarter percent change, SAAR
6 5
average growth by quarter (2010-2014)
4 3 2 1 0 Q1
Q2
Q3
Q4
-1 -2 -3 Source: Bureau of Economic Analysis
4
Our first excuse explanation: It was a rough winter.
5
Fact: According to the National Oceanic and Atmospheric Administration, 7 of the 9 U.S. census divisions had a significantly colder-thannormal February. Result: By our estimates, the weather knocked 0.6 percentage points off of first quarter GDP. 6
Arithmetically, the Q1 trade deficit and structures investment were a big drag on US GDP. 3
Contributions to Q1 2015 Real GDP Growth quarterly, percent, seasonally adjusted annualized rate
2
1
Private Inventory Investment, 0.7 Intellectual Property Products, 0.3 Residential Investment , 0.04 Consumer Spending, 1.3
0 Government Spending, -0.2 Nonresidential Structures, -0.8 -1
-2
-3
Source: Bureau of Economic Analysis
Net Exports, -1.3
The sad summary: • So, so consumer spending. • Weak investment in equipment, software, intellectual property, and residential structures. • Very weak spending on nonresidential structures and exported goods and services. 8
The dollar and oil prices are a big part of the story. Spot Oil Price vs. Broad Dollar Exchange Rate
$140
$120
Brent Spot, $/barrel (lhs)
120
Broad Dollar Exchange Rate (rhs)
116
$100
112
$80
108
$60
104
$40 Jan-14
100 Feb-14
Apr-14
Jun-14
Aug-14
Oct-14
Source: Federal Reserve Board, Energy Information Administration
Dec-14
Jan-15
Mar-15 Through May 8, 2015
9
Point 1: Energy independence is a mixed blessing in the short-run.
10
Mining and oil-field investment, as a share of business spending, has risen dramatically. Investment shares of mining + oil-field investment
40
percent, SA Share of Structures Investment Share of Structures + Equipment Investment
35 30 25 20 15 10 5 0 59
64
69
74
79
84
89
94
99
04
09
14
What happens when oil drops by $50 per barrel? Real Business Fixed Investment (BFI) (percentage point deviation from baseline level) 4 0
Real BFI
-4 -8
Real mining + oil investment
-12 -16 -20
14 q2
15q2
Source: Federal Reserve Bank of Atlanta Calculations
16q2
17q2
What happens when oil drops by $50 per barrel? Real GDP and Real Consumption (percentage point deviation from baseline level) 1.4
Real consumption
1.2 1.0 0.8
Real GDP
0.6 0.4 0.2 0.0 -0.2 14q2
15q2
Source: Federal Reserve Bank of Atlanta Calculations
16q2
17q2
The signs of of weakness in oil-related investment and production are clear. Retail Gasoline
Baker Hughes Active Total Rig Count
all grades, US avg, $/gallon
weekly, number of active rigs
$4.50
2,200
$4.00 1,600
$3.50 $3.00
1,000
$2.50 400
$2.00 10
11
12
13
14
Source: EIA, Department of Energy
10
15
through April 2015
Industrial Production
13
14
15
through May 8, 2015
percent change, year-over-year, NSA 20%
Mining Manufacturing
10%
12
Mining Payroll Employment
percent change, year-over-year 14%
11
Note: Rotary rigs include both oil and natural gas rigs. Source: Baker Hughes
15% 10%
6% 5% 2%
0% 10
11
12
13
14
15
-5%
-2% 10
11
Source: Federal Reserve Board
12
13
14
15
through March 2015
Source: Bureau of Labor Statistics
through April 2015
14
Oil prices are – umm – kind of hard to predict. West Texas Intermediate (WTI) Crude Oil Price dollars per barrel
220 200
Historical spot price
180
STEO price forecast
160
NYMEX futures price
140
95% NYMEX futures upper confidence interval 95% NYMEX futures lower confidence interval
120 100 80 60 40 20 0 Jan 2014
Jul 2014
Jan 2015
Jul 2015
Jan 2016
Jul 2016
Note: Confidence interval derived from options market information for the 5 trading days ending Apr. 2, 2015. Intervals not calculated for months with sparse trading in near-the-money options contracts. Source: Short-Term Energy Outlook, April 2015.
15
Point 2: “King dollar� is a mixed blessing in the short-run.
16
Dollar appreciation and global weakness look to be impacting domestic manufacturing. ISM Manufacturing Indices
Industrial Production Manufacturing Index
SA, 50+ = Expansion
percent change 20%
65
year-over-year
3-month, annualized
Composite
15%
60
10%
55
5%
50
0%
45
-5% 10
11
12
Source: Federal Reserve Board
13
14
15
through March 2015
New Export Orders
40 10
11
12
13
Source: Institute for Supply Management
14
15
through Apr 2015 17
Historically, runs in the dollar tend to persist for a good bit of time. Real Broad Trade-Weighted Exchange Rate Indices Index (Jan-73=100)
135
125
115
105
95
85
75 73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 Source: Federal Reserve Board
11
13 15
data through April 2015
18
Point 3: Consumer spending doesn’t quite add up.
19
By our calculation, consumer spending growth over the past 4 months is much less than predicted. Real Personal Consumption Expenditures Four-month percent change (SAAR)
8
90 percent confidence interval
Counterfactual forecast beyond Nov-2014 conditional on actual values of “other� data*
6 4 2 0 -2
Actual -4 -6 Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
*Other data includes real disposable personal income, payroll employment, the unemployment rate, the indices of Consumer Confidence and Consumer Sentiment, PCE prices, the S&P 500 Index, and an average of Brent and West20 Texas Intermediate oil prices.
2015: Where is the Growth?