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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US Economic Outlook
The US Economic Outlook 25 September 2017
Economics and Country Risk
Patrick Newport, Economics Executive Editor +1 781 301 9125, patrick.newport@ihs.com
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Harvey is expected to be the second-costliest US hurricane since 1980.
US Economic Outlook / September 2017
2
0 40 80 120 160
Charley (2004)
Rita (2005)
Wilma (2005)
Ivan (2004)
Irma (2017)
Ike (2008)
Andrew (1992)
Sandy (2012)
Harvey (2017)
Katrina (2005)
Billions of 2017 dollars, adjusted for CPI inflation
Source: NOAA , IHS Markit (Harvey and Irma cost projection) © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Economic impacts of hurricanes
US Economic Outlook / September 2017
• Lost production due to damaged facilities, logistics constraints, shortages of raw materials, and electricity outages
• Inventory drawdowns resulting from idled productive capacity
• Lost wages and salaries of displaced workers, affecting spending
• Rising credit delinquencies associated with uninsured property losses
• Losses in population and tourism in storm-damaged areas
• Additional government and NGO spending during relief efforts
• Increased construction activity as buildings and infrastructure are repaired or replaced over several years
• Spending to replace damaged vehicles, equipment, and supplies, partly supported by insurance payouts
3
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Natural Disasters, GDP, and the BEA
• The BEA is not able to estimate the effects of a natural disaster on GDP because the effects car occur with a lag and they cannot be separated from the regular source data
• GDP is a measure of the Nation’s current production of goods and services, therefore it isn’t directly affected by the loss of property
• GDP can be affected indirectly by the actions that consumers, businesses, and governments take in response to disruptions in production or to the loss of property caused by natural disasters
• But these effects cannot be precisely estimated
• Responses to the natural disaster could be spread out over time
• Under a new methodology adopted in 2003, the value of insurance services produced for policy holders (included in GDP) is not directly affected by the payment of benefits in the wake of a disaster
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The US economy on a solid growth path
US Economic Outlook / September 2017
• Real GDP growth picked up from an annual rate of 1.2% in the first quarter to 3.0% in the second quarter as consumer spending accelerated.
• Hurricanes Harvey and Irma have disrupted economic activity in the third quarter, but recovery and rebuilding will boost growth in subsequent quarters.
• Consumer spending continues to drive US economic growth, supported by rising employment, real incomes, and household wealth.
• Business fixed investment will benefit from strengthening global markets and an easing of regulatory policies, although commercial building is slowing.
• Increasing demand, low inventories of homes for sale, and rising prices will encourage more homebuilding, even as interest rates rise.
• The Federal Reserve will gradually raise interest rates (taking the federal funds rate to 3% in late 2019) and reduce its asset holdings.
• The economy’s long-term potential growth rate is near 2%.
5
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Job Openings at an all-time high
US Economic Outlook / September 2017
6
2000
3000
4000
5000
6000
7000
2002 2005 2008 2011 2014 2017
Labor market, job openings
Source: Bureau of Labor Statistics © 2017 IHS Markit
Thou
sand
s
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Quits back to normal
US Economic Outlook / September 2017
7
1.2
1.4
1.6
1.8
2.0
2.2
2.4
2002 2005 2008 2011 2014 2017
Labor market, quit rate
Source: Bureau of Labor Statistics © 2017 IHS Markit
Perc
enta
ge
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Steady job growth
US Economic Outlook / September 2017
8
-800
-600
-400
-200
0
200
400
2006 2008 2010 2012 2014 2016
Nonfarm payroll gains
Source: Bureau of Labor Statistics © 2017 IHS Markit
Thou
sand
s, d
iffer
ence
d, 3
MM
A
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Closing in on full-employment
US Economic Outlook / September 2017
9
4
6
8
10
12
14
16
18
2006 2008 2010 2012 2014 2016
U6 U3
Unemployment rate
Source: Bureau of Labor Statistics © 2017 IHS Markit
Perc
ent
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Wages rising hardly more than inflation
US Economic Outlook / September 2017
10
1.2
1.6
2.0
2.4
2.8
3.2
3.6
4.0
2007 2009 2011 2013 2015 2017
Average hourly earnings
Source: Bureau of Labor Statistics © 2017 IHS Markit
Perc
ent c
hang
e y/
y
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Prime age workers coming back finally
US Economic Outlook / September 2017
11
80
81
82
83
84
85
1996 1999 2002 2005 2008 2011 2014 2017
Labor force participation rate, ages 25-54
Source: Bureau of Labor Statistics © 2017 IHS Markit
Perc
ent
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
A 2018 pickup in real GDP growth will push the US unemployment rate down to 4%
12
0
2
4
6
8
10
-9
-6
-3
0
3
6
2007 2009 2011 2013 2015 2017 2019
Perc
ent o
f lab
or fo
rce
Ann
ual p
erce
nt c
hang
e
Real GDP growth (Left scale) Unemployment rate (Right scale)
Real GDP and unemployment
Source: IHS Markit © 2017 IHS Markit
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
With labor productivity rising, real GDP growth will outpace employment growth
13
-9
-6
-3
0
3
6
2007 2009 2011 2013 2015 2017 2019
Ann
ual p
erce
nt c
hang
e
Real GDP Employment
Real GDP and payroll employment
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
IHS Markit PMIs signal moderate economic growth
14
48
50
52
54
56
58
60
62
2010 2011 2012 2013 2014 2015 2016 2017
+50
indi
cate
s ex
pans
ion
Manufacturing Services
Markit PMI indexes
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Industrial production is reviving as growth in capital spending and exports picks up
15
-12
-8
-4
0
4
8
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Perc
ent c
hang
e
Real GDP Industrial production
Real GDP and industrial production
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Will the US economy ride the virtuous cycle?
16
Income
Spending Jobs
Positive forces • ICT innovation • asset • Tax and regulatory reforms
Negative forces • Skilled labor shortages • Rising interest rates • Trade restrictions
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US economic growth by sector
US Economic Outlook / September 2017
17
Real GDP and its components Percent change 2016 2017 2018 2019 Real GDP 1.5 2.1 2.8 2.3 Consumption 2.7 2.7 2.8 2.6 Residential investment 5.5 2.3 5.4 2.8 Business fixed investment -0.6 4.3 3.7 4.1 Federal government 0.0 0.2 0.3 -0.8 State & local government 1.2 -0.3 0.8 1.3 Exports -0.3 3.4 3.9 3.4 Imports 1.3 3.7 4.4 5.1 Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US economic growth by sector
US Economic Outlook / September 2017
18
Real GDP and its components Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Real GDP 1.2 3.0 2.1 2.7 3.4 Consumption 1.9 3.3 2.5 2.8 3.1 Residential investment 11.1 -6.5 0.7 7.0 8.6 Business fixed investment 7.1 6.9 3.0 4.0 2.5 Federal government -2.4 1.9 2.6 0.8 0.0 State & local government 0.5 -1.7 -1.5 1.4 1.9 Exports 7.3 3.7 4.2 3.1 4.2 Imports 4.3 1.6 1.5 4.5 4.9 Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Other key US indicators
US Economic Outlook / September 2017
19
Key indicators Percent change 2016 2017 2018 2019 Industrial production -1.2 1.8 3.0 2.5 Payroll employment 1.8 1.5 1.5 1.2 Light-vehicle sales (Million units) 17.5 17.0 17.2 17.0 Housing starts (Million units) 1.18 1.21 1.35 1.41 Consumer Price Index 1.3 2.0 1.6 2.3 Core CPI 2.2 1.8 1.9 2.0 Brent crude oil price (USD/barrel) 44 52 48 55 Federal funds rate (%) 0.4 1.0 1.7 2.6 10-year Treasury yield (%) 1.8 2.4 3.1 3.8 Source: IHS Markit © 2017 IHS Markit
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Other key US indicators
US Economic Outlook / September 2017
20
Key indicators Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Industrial production 1.6 5.2 0.7 2.1 4.4 Payroll employment 1.5 1.3 1.4 1.3 1.5 Light-vehicle sales (Million units) 17.1 16.8 16.6 17.4 17.5 Housing starts (Million units) 1.24 1.17 1.20 1.25 1.32 Consumer Price Index 3.1 -0.3 1.7 1.9 1.4 Core CPI 2.5 0.6 1.4 2.3 2.0 Brent crude oil price (USD/barrel) 55 51 51 50 50 Federal funds rate (%) 0.7 1.0 1.2 1.3 1.5 10-year Treasury yield (%) 2.4 2.3 2.2 2.5 2.8 Source: IHS Markit © 2017 IHS Markit
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Consumer sentiment is upbeat, supported by improving household finances
21
50
60
70
80
90
100
110
120
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016
196
6 =
100
University of Michigan Index of Consumer Sentiment
US Economic Outlook / September 2017
Source: University of Michigan Surveys of Consumers © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US small business sentiment soared after the November 2016 election and remains high
22
80
85
90
95
100
105
110
1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017
198
6 =
100
NFIB index of small business optimism
US Economic Outlook / September 2017
Source: National Federation of Independent Business © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US stock prices have reached new highs in 2017
23
0
500
1,000
1,500
2,000
2,500
1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017
Inde
x, 1
941-
43 =
10
S&P 500 stock price index
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US interest rates will rise as the Federal Reserve normalizes monetary policy
24
0
2
4
6
8
10
12
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Perc
ent
Federal funds 10-year Treasury 30-year mortgage BAA corporate
Interest rates
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
President Trump will have an opportunity to recast the Federal Reserve’s Board of Governors Board of Governors End of term
Janet Yellen, chair Chair until 3 February 2018, member to 31 January 2024
Stanley Fisher, vice chairman Resigning on 13 October 2017 from a term that ends in January 2020
Lael Brainard 2026
Jerome Powell 2028
3 vacancies* 2018, 2022, and 2030
25
*President Trump has nominated Randal Quarles, who is awaiting Senate confirmation. Other Federal Open Market Committee voting members in 2017 are Reserve Bank presidents William Dudley (New York), Charles Evans (Chicago), Patrick Harker (Philadelphia), Robert Kaplan (Dallas), and Neel Kashkari (Minneapolis).
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Potential real GDP growth is projected to average 2.0% from 2017 to 2027
26
-4
-2
0
2
4
6
8
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Perc
ent c
hang
e, 2
009
USD
Actual real GDP Full-employment potential real GDP
Actual and potential real GDP
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
-100 0 100 200 300 400 500 600 700
Information Retail trade
State government Utilities
Federal government Local government
Mining & logging Wholesale trade
Transport & warehousing Education
Other services Manufacturing
Financial services Construction
Leisure & hospitality Health & social services
Prof. & business services
Services and recorded the largest employment gains during the 12 months ended August 2017
27
Total change = 2.1 million
Change in payroll employment, thousands
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
With baby boomers aging, labor-force participation and employment rates will not return to earlier peaks
28
52
54
56
58
60
62
64
66
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
% o
f pop
ulat
ion
aged
16
& o
ver
Labor-force participation rate Employment rate (Household survey)
Labor-force participation and employment rates
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Western and southern states will lead in job growth
29
US Economic Outlook / September 2017
© 2017 IHS Markit. All rights reserved. Provided “as is”, without any warranty. This map is not to be reproduced or disseminated and is not to be used nor cited as evidence in connection with any territorial claim. IHS Markit is impartial and not an authority on international boundaries which might be subject to unresolved claims by multiple jurisdictions.
Nonfarm employment, annual percent change, 2017-22
Source: IHS Markit
Percent0.3 to 0.60.7 to 0.91.0 to 1.41.5 to 2.0
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
-200
-150
-100
-50
0
50
100
150
2006 2008 2010 2012 2014 2016 2018
Bill
ions
, ann
ual r
ate
A gradual return to normal inventory investment will boost economic growth in 2018
30
Change in nonfarm inventories, 2009 dollars
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Industrial production is recovering as global demand strengthens and oil output rises
31
-3
-2
-1
0
1
2
3
4
2012 2013 2014 2015 2016 2017 2018 2019
Year
-ove
r-ye
ar %
cha
nge
Industrial production Manufacturing production Real GDP
Industrial production and real GDP
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US manufacturing production growth
US Economic Outlook / September 2017
32
Industrial production Percent change 2016 2017 2018 2019 All manufacturing 0.2 1.4 2.8 2.7 Motor vehicles & parts 4.1 0.0 2.2 1.5 Computers & electronics 1.4 3.4 5.1 4.3 Electrical equip. & appliances 2.2 0.5 2.6 3.6 Machinery -3.2 4.4 4.3 4.2 Textiles 2.5 -0.2 -0.5 -1.3 Furniture -0.1 0.1 2.1 3.0 Chemicals 0.7 0.5 4.2 4.1 Source: IHS Markit © 2017 IHS Markit
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US inflation dynamics
33
Inflationary pressures
• Skilled labor shortages • Dollar depreciation
Deflationary pressures
• Excess productive capacity • Monetary policy tightening
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Core consumer price inflation is fluctuating around 2%
34
-2
-1
0
1
2
3
4
5
6
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
All-urban CPI Core CPI (excluding food and energy)
Consumer price indexes
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
A divergence between goods and services inflation
35
-3
-2
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Core goods and services Core goods Core services
US consumer price indexes excluding food and energy
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Consumer price inflation will pick up in 2019–20 as labor and product markets tighten
36
-1
0
1
2
3
4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Personal consumption deflator Excluding food and energy
Personal consumption deflators
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Wages and benefits will accelerate in response to a tightening US labor market
37
0
2
4
6
8
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Total compensation Wages & salaries Benefits
Labor compensation
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Hourly compensation, productivity, and unit labor costs
38
-4
-2
0
2
4
6
8
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Perc
ent c
hang
e
Hourly compensation Productivity Unit labor costs
Private nonfarm sector
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Industrial materials prices are recovering but remain well below their previous peaks
39
1
2
3
4
5
6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
All industrial materials Chemicals Nonferrous metals
IHS
wee
kly
inde
xes,
200
2:1=
1
IHS Markit Materials Price Index
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
After a mild correction, industrial materials prices will gradually rise
40
0
1
2
3
4
5
6
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027
IHS
wee
kly
inde
x, 2
002:
1=1
IHS Materials Price Index
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Crude oil prices will decline in 2018 before recovering
• Prices have firmed in recent weeks, with Brent trading above USD50/barrel.
• Strong seasonal demand, declining US crude oil inventories, and expectations that US supply growth will moderate have outweighed rising OPEC output.
• Hurricane Harvey briefly disrupted crude oil production along the Texas coast; chemical plants and refineries were hit harder but most are restarting.
• Although world oil demand growth will remain firm, a production surplus will reemerge through 2018. North America, Brazil, the United Kingdom, and Kazakhstan will contribute to global production growth.
• OPEC will likely continue to restrict its output next year. This decision could be made at its 30 November ministerial meeting.
• A 2018 drop in oil prices will lead to a downturn in US drilling activity.
• Price recovery is expected after 2018, when supply growth slows.
41
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Crude oil prices will gradually recover after 2018
42
0
25
50
75
100
125
150
2000 2003 2006 2009 2012 2015 2018 2021 2024 2027
Dol
lars
/bar
rel
Current US dollars 2016 US dollars
Price of Dated Brent crude oil
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
North American natural gas markets
• With seasonal electricity loads declining and gas production increasing, Henry Hub gas prices are currently below $3/million Btu.
• Electricity outages resulting from hurricanes Harvey and Irma have temporarily reduced gas demand. More gas is flowing into storage.
• Industrial gas demand is increasing as new capacity at ammonia, methanol, and ethylene facilities comes online.
• Exports to Mexico by pipeline and liquefied natural gas (LNG) exports will also support total gas demand growth.
• Global LNG supply will, however, increase 50% over the next three years, creating excess supply.
• The North American gas resource base is expanding and costs are declining, due to improved resource recovery and new discoveries.
43
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US crude oil and natural gas prices
44
0
2
4
6
8
10
12
14
0
20
40
60
80
100
120
140
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Dol
lars
/mill
ion
Btu
Dol
lars
/bar
rel
Crude oil, WTI (Left scale) Natural gas, Henry Hub (Right scale)
Crude oil and natural gas prices
US Economic Outlook / September 2017
Source: IHS Energy © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Retail gasoline prices have increased temporarily in the aftermath of Hurricane Harvey
45
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Thou
sand
USD
/hou
seho
ld
USD
/gal
lon
Retail gasoline price Spending on motor fuels per household (right scale)
Retail gasoline price and annualized spending on motor fuels
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US households are spending less than 4% of disposable income on energy
46
0
2
4
6
8
10
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
% o
f dis
posa
ble
inco
me
Motor fuels consumption All energy consumption
Household energy consumption
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US oil and gas production has resumed growth
47
20
30
40
50
60
70
1990 1995 2000 2005 2010 2015 2020 2025
Qua
drill
ion
Btu
, ann
ual r
ate
Oil and gas production
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US energy production will catch up with demand in the decade ahead
48
0
25
50
75
100
125
2007 2010 2013 2016 2019 2022 2025
Qua
drill
ion
Btu
Oil and gas production Nuclear, hydro, and other production Energy imports Energy demand
US energy supply and demand
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Labor productivity and total factor productivity growth have been exceptionally weak in recent years
49
-2
-1
0
1
2
3
4
5
1965 1975 1985 1995 2005 2015 2025
Perc
ent c
hang
e
Private nonfarm labor productivity Total factor productivity
1966-2016 average = 1.9%
Productivity
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Consumer spending
US Economic Outlook / September 2017
50
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Forces affecting consumer spending
51
Positive forces
• Employment growth
• Real wage growth
• Rising asset values
• Income tax cuts in 2018
• Expansion of e-commerce
Negative forces
• High student debt burdens
• Saving for retirement
• Asset and income inequality
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The consumer market environment is favorable
US Economic Outlook / September 2017
52
Consumer market indicators Percent change 2016 2017 2018 2019 Real consumption 2.7 2.7 2.8 2.6 Real disposable income 1.4 1.5 3.5 3.2 Real household net worth 4.6 4.3 2.5 1.9 Payroll employment 1.8 1.5 1.5 1.2 Real wage rate 1.1 1.0 1.6 1.4 Consumption price deflator 1.2 1.6 1.3 1.9 Light-vehicle sales (Millions) 17.5 17.0 17.2 17.0 Single-family home sales (Millions) 5.39 5.58 5.71 5.65 Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Consumer spending will be supported by solid growth in real disposable income
53
Real consumer spending and disposable income
-2
0
2
4
6
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Perc
ent c
hang
e
Real consumer spending Real disposable income
Tax cuts boost growth in 2018
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Durable goods lead growth in real consumer spending
54
-6
-3
0
3
6
9
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Perc
ent c
hang
e
Durable goods Nondurable goods Services
Real consumer spending
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
-1
0
1
2
3
4
5
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Employment Cost Index, wages & salaries Consumption deflator
Wage gains will continue to outpace inflation
55
Wages and prices
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Household net worth and the personal saving rate
56
4.5
5.0
5.5
6.0
6.5
7.0
0
3
6
9
12
15
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Rat
io
% o
f dis
posa
ble
inco
me
Saving rate (Left scale) Household net worth/disposable income (Right scale)
Household saving rate and net worth
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The personal saving rate is below its historical average
57
0
3
6
9
12
15
1960 1967 1974 1981 1988 1995 2002 2009 2016 2023
% o
f dis
posa
ble
inco
me
Personal saving rate
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Real household net worth has reached a new high
58
0
20
40
60
80
100
120
1980 1985 1990 1995 2000 2005 2010 2015 2020
Trill
ions
of 2
016
dolla
rs
Assets Liabilities Net worth
Household assets and liabilities
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Household debt will increase at a moderate pace
59
-4
0
4
8
12
16
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
% c
hg. i
n ou
tsta
ndin
g lo
ans
Mortgages Consumer credit
Household debt
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Households’ financial obligations ratio will increase slightly as interest rates rise
60
14
15
16
17
18
19
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
% o
f dis
posa
ble
inco
me
Household financial obligations*
US Economic Outlook / September 2017
* Debt service, rent on primary residences, auto lease payments, property taxes, and homeowners’ insurance Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Household financial and real estate assets are rising
61
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Trill
ions
of U
SD
Equities Other financial assets Nonfinancial assets (includes real estate)
Household asset holdings
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US light-vehicle sales have reached their peak; light trucks will continue to outsell cars
62
0
4
8
12
16
20
1980 1985 1990 1995 2000 2005 2010 2015 2020
Mill
ion
units
, ann
ual r
ate
Total Cars Light trucks
Light-vehicle sales
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Nominal consumer spending growth by category
63
0 1 2 3 4 5 6 7 8 9
Computers & software
Recreation services
Medical care & products
Food & beverages
Home furnishings
Transportation services
Vehicles & parts
Apparel
2018 2017 2016
Nominal consumer spending, percent change
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Healthcare will account for a rising share of personal consumption
64
0
4
8
12
16
20
24
28
1960 1967 1974 1981 1988 1995 2002 2009 2016 2023
Food Energy Health Housing services
% o
f tot
al c
onsu
mpt
ion
Personal consumption by category
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Housing markets
US Economic Outlook / September 2017
65
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Homebuilding continues its slow recovery
• Housing demand is supported by sustained growth in employment and real incomes. Mortgage rates are low, but will rise through 2019.
• Supply is constrained by shortages of labor and developed lots.
• As demand outpaces supply, home prices are rising.
• After hitting a 51-year low in 2016, the homeownership rate is rising in 2017, led by an upturn in homeownership among young adults.
• Lean inventories, strong demand, rising prices, and builder optimism will lead to increasing home construction.
66
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
A slow recovery in housing starts is contributing to upward pressure on home prices
67
150
175
200
225
250
275
300
0.0
0.5
1.0
1.5
2.0
2.5
2004 2006 2008 2010 2012 2014 2016 2018
Inde
x, 1
991Q
1 =
100
Mill
ions
of u
nits
Housing starts (Left scale) FHFA house price index* (Right scale)
Housing starts and home prices
US Economic Outlook / September 2017
* Purchase-only index Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Housing affordability will deteriorate through 2020 as home prices and mortgage rates rise
68
0.50
0.75
1.00
1.25
1.50
1.75
2.00
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Housing affordability index*
US Economic Outlook / September 2017
* A value of 1.00 indicates a household earning the median income can afford a median-priced single-family home Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Household formation and rebuilding after hurricanes will support further gains in housing starts
69
0.0
0.3
0.6
0.9
1.2
1.5
1.8
2.1
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Mill
ions
Housing starts Household formation
Housing starts and formation
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US housing starts continue their gradual recovery
70
0.0
0.4
0.8
1.2
1.6
2.0
2.4
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Mill
ions
of u
nits
Single-family Multifamily
Housing starts
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Single-family home sales and construction are not expected to regain their 2005 peaks
71
1
2
3
4
5
6
7
8
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Housing starts (Left scale) Home sales (Right scale)
Single-family housing starts and sales, millions
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Business investment
US Economic Outlook / September 2017
72
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Forces driving business fixed investment
US Economic Outlook / September 2017
• Expected market growth
• Cost of capital
• Technological advances
• Efficiency gains
• Corporate profits
73
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Corporate economic profits’ share of GDP
74
0
2
4
6
8
10
12
14
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Perc
ent o
f GD
P
Economic profits
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Corporate economic profits are rising again
75
-20
-10
0
10
20
30
1990 1995 2000 2005 2010 2015 2020 2025
Perc
ent c
hang
e
Economic profits
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US corporate cash flow’s share of GDP peaked in 2010
76
9
10
11
12
13
14
15
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Perc
ent o
f GD
P
Net cash flow*
US Economic Outlook / September 2017
* Excluding capital transfers Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Core capital goods orders and shipments are recovering
77
45
50
55
60
65
70
2000 2002 2004 2006 2008 2010 2012 2014 2016
New orders Shipments
3-m
on m
ovin
g av
g., b
il. U
SD
Nondefense capital goods excluding aircraft
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The upturn in real capital spending is led by structures
78
-30
-20
-10
0
10
20
30
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Equipment Structures Intellectual products
Real business fixed investment
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Real business equipment investment growth by type
79
-12
-8
-4
0
4
8
Total Information technology
Industrial equipment
Transportation equipment
Other equipment
Perc
ent c
hang
e
2016 2017 2018 2019
Real business equipment investment
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Investment in manufacturing structures is down, while investment in mines and wells is up
80
0
25
50
75
100
125
150
1990 1995 2000 2005 2010 2015 2020
Bill
ions
of 2
009
dolla
rs
Manufacturing Mines & wells Utilities
Investment in structures
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US oil drilling follows crude oil prices
81
0
30
60
90
120
150
0.0
0.4
0.8
1.2
1.6
2.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Oil rigs (Left scale, thousands) WTI price (Right scale, USD/barrel)
Weekly oil rig count and West Texas Intermediate crude oil price
US Economic Outlook / September 2017
Sources: Baker Hughes [http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother] and EIA [http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=w] © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US real construction growth by sector
US Economic Outlook / September 2017
82
Real investment in structures Percent change 2016 2017 2018 2019 Total construction 1.1 3.5 3.7 3.5
Residential 5.5 2.2 5.4 2.8 Commercial 18.8 7.1 4.2 5.5 Manufacturing -6.4 -10.0 -0.1 11.3 Mines & wells -43.2 51.6 -1.8 5.5 Healthcare -3.9 -3.1 5.3 7.6 Public utilities 2.8 -5.6 -1.8 -1.5 Highways & streets 0.3 -5.9 3.4 5.3 Public education 2.9 -3.1 0.0 6.7
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Business fixed investment’s share of GDP remains below historical peaks
83
0
3
6
9
12
15
1960 1967 1974 1981 1988 1995 2002 2009 2016 2023
Perc
ent o
f GD
P
Structures Non-IT equipment IT equipment Intellectual products
Business fixed investment
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Fiscal policy
US Economic Outlook / September 2017
84
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US policy assumptions in the September forecast
US Economic Outlook / September 2017
• A reduction in the statutory corporate income tax rate from 35% to 25%, partially offset by fewer tax breaks, starting in January 2018
• No border adjustments
• No expensing of capital expenditures
• Repatriation of $800 billion of foreign profits at a reduced tax rate of 10% in 2018
• Personal income tax reforms that lower the average effective federal tax rate from 20.7% to 20.0% in January 2018
• Additional public infrastructure investments totaling $250 billion over 2019–28
• No major changes in healthcare or international trade policies
• Federal Reserve (Fed) policy rate increases of 75 basis points in 2017, 2018, and 2019, bringing the rate to a long-term equilibrium of 3%
• The Fed begins to reduce its asset holdings later this year
85
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
US federal budget deficits will increase after fiscal 2018
86
-12
-9
-6
-3
0
3
-2,000
-1,500
-1,000
-500
0
500
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Bill
ions
of U
SD, f
isca
l yea
rs
Unified budget balance (Left scale) Balance as percent of GDP (Right scale)
US federal budget balance
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Federal expenditures will continue to exceed revenues
87
14
16
18
20
22
24
26
1970 1976 1982 1988 1994 2000 2006 2012 2018 2024
Perc
ent o
f GD
P
Federal revenues Federal expenditures
Federal revenues and expenditures*
US Economic Outlook / September 2017
* Fiscal years, unified budget Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Federal spending will keep rising as transfer payments and interest payments surge
88
0
1
2
3
4
5
6
7
8
1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025
Trill
ions
of U
SD
Defense spending Nondefense spending Transfer payments
Interest payments Subsidies
Federal budget expenditures
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Government spending on Social Security and healthcare will increase as the population ages
89
0
2
4
6
8
10
12
14
1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
Perc
ent o
f GD
P
Social Security Medicare State & local medical
Government spending
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The effective federal personal income tax rate will decrease in 2018
90
17
19
21
23
25
1970 1980 1990 2000 2010 2020
Perc
ent o
f tax
able
inco
me
Personal income tax rate
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Federal government debt remains high relative to GDP
91
0
20
40
60
80
100
1970 1980 1990 2000 2010 2020
Perc
ent o
f GD
P
Publically held federal debt
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Forces driving state government revenues
92
0
1
2
3
4
5
6
Nonfarm employment
Wages per worker Wage income Personal income Retail sales
% c
hang
e, c
alen
dar y
ears
2016 2017 2018 2019
State revenue drivers
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Foreign trade
US Economic Outlook / September 2017
93
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Destinations of US exports of goods, 2016
94
Canada 18.3%
Mexico 15.9%
South & Central America
9.4%
Europe 21.9%
Pacific Rim 24.9%
All other 9.6%
China 7.7% Japan 4.2% ASEAN 5.0%
Percent of total goods exports
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Canada 12.7%
Mexico 13.4%
South & Central America
4.9% Europe 22.1%
Pacific Rim 37.0%
All other 9.9%
Sources of US imports of goods, 2016
95
China 21.5% Japan 5.9% ASEAN 6.8%
Percent of total goods imports, customs basis
US Economic Outlook / September 2017
Source: US Census Bureau, IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Real US exports and imports are rising
96
-20
-15
-10
-5
0
5
10
15
20
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Year
-ove
r-ye
ar %
cha
nge
Real US exports Real US imports
US exports and imports
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Global economic growth will strengthen
• Global growth will pick up from 2.5% in 2016 to 3.1% in 2017 and 3.2% in 2018, led by the United States and emerging markets.
• Eurozone growth will be steady, but UK growth is expected to slow through 2018 as Brexit-related uncertainty delays investment.
• After a good start to 2017, China’s economic growth will slow because of persistent imbalances in credit, housing, and industrial markets.
• The Asia-Pacific region will make the strongest contribution to global in the decade ahead, despite slightly slower growth in China.
• Risks abound, including potential trade wars, financial-market turbulence, China’s rising debt, conflicts in the Middle East and Africa, and Eurozone banking problems.
97
US Economic Outlook / September 2017
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
-2
0
2
4
6
NAFTA Other Americas
Western Europe
Emerging Europe
Mideast-N. Africa
Sub-Saharan
Africa
Japan Other Asia-
Pacific
Ann
ual p
erce
nt c
hang
e
2016 2017 2018 2019 2020–24
Asia-Pacific (excluding Japan) will achieve the fastest growth in real GDP
98
Real GDP
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The US surplus in services trade partially offsets the deficit in merchandise trade
99
-1,000
-750
-500
-250
0
250
500
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Bill
. of d
olla
rs, a
nnua
l rat
es
Goods and services Goods Services
US net exports, NIPA
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The US current account will remain in deficit
100
-6
-5
-4
-3
-2
-1
0
1
-1,500
-1,250
-1,000
-750
-500
-250
0
250
1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Current-account balance (Left scale, billion US dollars)
Balance as percent of GDP (Right scale)
Current-account balance
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The dollar’s real exchange value will depreciate against major currencies in the medium term
101
0.8
1.0
1.2
1.4
1.6
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Inde
x, 2
009
= 1.
0
Major trading partners Other important trading partners
Real trade-weighted dollar index
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
The dollar’s real exchange value will depreciate in the medium term
102
0.8
0.9
1.0
1.1
1.2
1.3
1.4
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Inde
x, 2
009
= 1.
0
Real trade-weighted dollar index
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Risks to the US forecast
US Economic Outlook / September 2017
103
Scenario Characteristics Crisis of confidence damages economic growth (Probability = 25%)
• Congress fails to enact tax reforms or new infrastructure spending. Policy uncertainty undermines confidence, leading to a stock market correction.
• Consumers and businesses delay spending. • US economic growth slows through late 2018.
Lower taxes and fewer regulations (Probability = 15%)
• A rollback of regulations and lower corporate taxes result in higher capital spending and productivity growth.
• Consumer and housing markets benefit from higher incomes, milder inflation, and lower interest rates.
• Stronger global economic growth helps exports.
Baseline forecast (Probability = 60%)
• The Fed gradually raises interest rates through 2019. • Personal and corporate income tax rates are cut in 2018. • Consumer spending, homebuilding, and business fixed investment post moderate growth.
• Global economic growth picks up in 2017–18.
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Real GDP growth in alternative scenarios
104
-1
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent c
hang
e, a
nnua
l rat
e
Baseline (60%) Pessimistic (25%) Optimistic (15%)
Real GDP
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Real consumer spending growth in alternative scenarios
105
0
1
2
3
4
5
6
2012 2013 2014 2015 2016 2017 2018 2019
Perc
ent c
hang
e, a
nnua
l rat
e
Baseline (60%) Pessimistic (25%) Optimistic (15%)
Real consumer spending
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Light-vehicle sales in alternative scenarios
106
8
10
12
14
16
18
20
2006 2008 2010 2012 2014 2016 2018 2020
Mill
. of u
nits
, ann
ual r
ate
Baseline (60%) Pessimistic (25%) Optimistic (15%)
Light-vehicle sales
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Housing starts in alternative scenarios
107
0.4
0.7
1.0
1.3
1.6
1.9
2.2
2006 2008 2010 2012 2014 2016 2018 2020
Mill
. of u
nits
, ann
ual r
ate
Baseline (60%) Pessimistic (25%) Optimistic (15%)
Housing starts
US Economic Outlook / September 2017
Source: IHS Markit © 2017 IHS Markit
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Bottom line for the US economy
• Real GDP growth is projected to pick up from 1.5% in 2016 to 2.1% in 2017 and 2.7% in 2018, before settling back to 2.3% in 2019.
• Consumer spending will be supported by solid gains in employment, real disposable incomes, and household net worth.
• Business fixed investment will benefit from stronger growth in global markets, along with an improving tax and regulatory environment.
• Due to supply constraints, the recovery in residential construction will remain on a slow track.
• Wage and benefit costs will accelerate as labor markets tighten.
• The Fed will gradually raise the federal funds rate to an equilibrium level of 3% by the end of 2019.
108
US Economic Outlook / September 2017
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US Economic Outlook / September 2017
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