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Economic Update: Trends in Occupational Studies
Presented by:
Jonathan M. Gardey, MBA, CFA®, CFP®
President and CEO
Gardey Financial Advisors, Inc.
October 19, 2017
IntroductionJonathan (Jon) M. Gardey, MBA, CFP®, CFA®
Prior to joining Gardey Financial Advisors, Jon spent six years as an officer in the United States Navy. His Naval assignments involved increasing levels of responsibility and included service on an aircraft carrier in the Indian Ocean and drug interdiction work on a high-speed hydrofoil in the Caribbean—on which he was Chief Engineer.
Previous to his Naval service, Jon graduated from the University of Wisconsin and, after his tour of duty in the Navy, earned a Master of Business Administration degree in both Finance and in Money and Financial Markets from Columbia University in the City of New York.
Following graduation and four years of study, Jon was awarded the designation of Chartered Financial Analyst (CFA®). He then earned the designation as a Certified Financial Planner (CFP®) practitioner after successfully completing a series of five examinations. Jon holds the position of President of the Northeastern Michigan Estate Planning Council and is a member of both the CFA Institute and the CFA Society of Detroit. He serves on the Board of Directors of Covenant Healthcare System and on the Delta College Foundation Investment Advisory Committee. In addition, Jon is a member of the Board of Directors for Central Equity Investments Incorporated.
Jon has been a member of the staff of Gardey Financial Advisors for 22 years. He has served as the firm’s Director of Research, as the Chairman of the Investment Committee, as a member of the firm’s Leadership Committee, and as President and CEO. During all of this time, he has also served as a Financial Advisor for the company.
Gardey Financial Advisors
Founded in 1985
Supervised by the United States Securities & Exchange Commission
Over $177,000,000 in assets under management—the largest independent Registered Investment Advisor north of the Detroit area
Registrations include:
National Association of Personal Financial Advisors (NAPFA) –Kim M. Gardey, CFP®
Staff of six CERTIFIED FINANCIAL PLANNER® professionals
Recognitions:
Named a “Top Wealth Manager” by Bloomberg Wealth Manager Magazine(2005)
Named as one of “The Ten Most Dependable Wealth Managers of the Great Lakes” by Goldline Research Corporation (2008)
Agenda
1. Introduction
2. Michigan Employment
3. Michigan Economy
4. U.S. Employment
5. Housing
6. Savers and Consumers
7. Income
8. Inflation
9. Investment Discussion
10. Conclusion
11. Questions
Source: Michigan Treasury
Michigan and U.S. Monthly Unemployment Rates
August 2013 to August 20 17
10
8
United States 4.4%- 6
-
£ 4 "Michigan 3.9%
2
0
2013 2014 2015 2016 2017
Source: Michigan Dept. ofTechnology, Management & Budget and Bureau of Labor Statistics, U.S. Dept. of Labor
Source: Michigan Treasu
Source: Bureau of Labor Statistics (data)
Michigan Counties: Unemployment Rate (%)
August 2017
Alcona County Missaukee County6.5 Gratiot County 5.5 5.5
Hillsdale CountyAlger County 6.6 5.4 Monroe County 5.3
Allegan County Houghton County Montcalm County3.8 6 5
Alpena County 5.7 Huron County 5.1 Montmorency County 8.9
Ingham County Muskegon CountyAntrim County 5.6 4.9 5.8
Arenac County 7.1 Ionia County 4.3 Newaygo County 4.8
Oakland CountyBaraga County 7.1 Iosco County 6.9 3.5
Barry County 4.2 Iron County 5.6 Oceana County 5.8
Isabella CountyBay County 5.6 Ogemaw County4.9 6.8
Jackson CountyBenzie County 5.3 4.9 Ontonagon County 7.6
Kalamazoo County Osceola CountyBerrien County 5 4.4 5.6
Branch County Kalkaska County Oscoda County5 5.9 7.1
Calhoun County 5.1 Kent County 3.8 Otsego County 5.6
Cass County 4.7 Keweenaw County 7.6 Ottawa County 3.6
Charlevoix County Presque Isle CountyLake County4.6 7.7 7.3
Cheboygan County 4.5 Lapeer County 4.6 Roscommon County 7.8
Chippewa County Leelanau County6.7 Saginaw County 5.54.1
Clare County Saint Clair County5.16.4 Lenawee County 4.5
Clinton County Saint Joseph County4 Livingston County 3.2 4.4
Crawford County Sanilac County6.5 Luce County 5.8 5.7
Delta County Mackinac County Schoolcraft County5.7 3.2 7.3
Dickinson County Macomb County Shiawassee County4.2 5.14.7
Tuscola CountyEaton County 4.6 Manistee County 5.7 6.4
Emmet County 4.8 Marquette County 5.5 Van Buren County 5.4
Washtenaw CountyGenesee County 5.8 Mason County 5 3.9
Gladwin County 6.5 Mecosta County 5.9 Wayne County 5.5
Gogebic County Wexford County5.9 Menominee County 5 5.6
Grand Traverse County Midland County3.8 4.7
r
Source: Bureau of Labor Statistics (data)
Source: Bureau of Labor Statistics
Unemployment rates by county, not seasonally adjusted, Michigan August 2017
r\
-WTVrrrrrfrfrfrfrfHwyyyyyyyyrrrrrrrrrtxrrrrrrrrrrrrrrrrrrrrNP F F Y Y YY Y YTUT Y Y YY YY YYY
BrrrrrrrrjaMMrrrrrrrr
yTyTyYYIrrrrrrjjr r rrflB
rrrrrfFFff
r r
r r
r r
r r rrrr
WyyTttytyTYYYYYYYYYTYYYYYYr f fr r r r ry yyyy y yyy y
WYTTTYTYTTTYTYTYTYTYTY'l5JfP ^ Y YYY YYY Y YYY Y Y Y Y YY Y Y F
rrrrrrrrrrrrrrrrrrr^gMYYYYYYYYYYYYYYYYYYYYJ'
^^M^^nrYYYYYYYYYYYYTYYZ,m ^fcrrrrfrrrj^T
X.1Ur Vl^S
r r
r r
- r - r r
rr
unemployment rate(%)
I 10.0 to 60.0nTrrffirrrrr rrr
&' ?* r r r r r r t
sTYVYTY^r rrrr
gTYYYYYI S»v
7.0 to 9.9
6.0 to 6.9
5.0 to 5.9
4.0 to 4.9
3.0 to 3.9
0.0 to 2.9
rrr
rrrrrr
rrr rrrIjrJjr * >
p .
YY
rrrrrrriTwWwwwVmy rrrrrn
f^rrrrrrrKyyyyyyyyXj rrrrrrlU'YYYYYYti•fFfffffl.if r r r r r r t\
1I t - r r rrrI f rrrrrrFFFrFfFFlyvY'VYvyvY1YYYmjm
r
J'YYY1
i
I
Source: Bureau of Labor Statisticsr
Source: Michigan Labor Market Bureau
Total Nonfarm Employment for Michigan MSAs, August 2017
Source: Current Employment Statistics (CES), All data not seasonally adjusted
Current
Employment
% Change
Month
Previous
Year
% Change
Year
Previous
MonthArea
4,390,600 4,384,000 0.2% 1.7%Michigan 4,316,700
Detroit-Warren-Dearborn, Ml Metropolitan
Statistical Area2,019,700 2,013,000 0.3% 1,974,800 2.3%
Grand Rapids-Wyoming, MI Metropolitan
Statistical Area2.5%554,800 554,100 0.1% 541,200
Lansing-East Lansing, Ml Metropolitan
Statistical Area227,800 228,200 -0.2% 224,200 1.6%
Ann Arbor. Ml Metropolitan Statistical
Area217,900 217,000 0.4% 211,200 3.2%
Kalamazoo-Portage, Ml Metropolitan
Statistical Area147,900 147,500 0.3% 144,700 2.2%
Flint, Ml Metropolitan Statistical Area 139,700 140,200 -0.4% 139,200 0.4%
0 8%Saginaw, Ml Metropolitan Statistical Area 89,000 89,200 -0.2% 88,300
Muskegon, Ml Metropolitan Statistical
Area64,200 64,400 -0.3% 64,000 0.3%
Niles-Benton Harbor, Ml Metropolitan
Statistical Area64,100 63,800 0.5% 63,000 1.7%
Battle Creek, Ml Metropolitan Statistical
Area59,900 59,500 0.7% 59,100 1.4%
Jackson, Ml Metropolitan Statistical Area 58,300 58,500 -0.3% 57,300 1.7%
Monroe, Ml Metropolitan Statistical Area 42,200 42,100 0 2% 41,600 1.4%
Midland, Ml Metropolitan Statistical Area 37,400 38,000 -1.6% 37,600 -0.5%
Bay City, Ml Metropolitan Statistical Area 35,800 35,600 06% 36,300 -1.4%
VSource: Michigan Labor Market Bureaur
Source: Michigan Treasury
U.S. and Great Lakes States
August 2017 Unemployment Rates
16.0
14.0
12.0
10.011.0
Decline from Great Recession
Peak Unemployment Rate8.0
6.0
4.0Current Unemployment Rate
2.0
0.0
& kP ^of *V5 ^ \<> Wv
' ^4sa?
Source: Michigan Treasu
Source: U of M RSQE
Job Losses and Gains in Michigan by Year150,000
100,000
50,000
to 0_QO
^ (50,000)
O)-Q (100,000)
£3
z: (150,000)
(200,000)
(250,000)
(300,000)
1971- 1991- 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017* 2018* 2019*
2000 2000
*Forecasted
Source: U of M RSQE
Source: Federal Reserve Bank of St. Louis
— Leading Index for Michigan
7.5
5.0
2.5
£ 0.0 \r-
I V_
-2.5
-5.0
-7.5
-10.0
1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
£ill
Shadedareas indicate U.S. recessions Source: Federal Reserve Bank of Philadelphia fred.stlouisfed.org
Source: Federal Reserve Bank of St. Louis
Source: Comerica
Michigan Total Economic Activity Index(2008=100)
140
130
_ r120
110
100
90
80
70 \
Jan-09
i i i T 1I
Jan-10 Jan-1 1 Jan-1? Jan-13 Jan-14 Jan-1 5 Jan-1 6 Jan-1 7
Source: Co ricar
Source: Wall Street Journal
Comparative Midwest EconomicsReal average annual GDP growth in percent in the six
years before the 2008-2009 recession and six years
after a post-recession tax reform
All Industries 2002-2007 2011-2016
U.S. 2.7% 2.0%
Michigan
Great Lakes*
Illinois
Manufacturing
0.0 1.9
1.3 1.4
1.8 1.0
2002-2007 2011-2016
U.S. 0.9%4.4%
Michigan
Great Lakes'-
0.8 2.1
2.4 0.8
Illinois 2.7 -0.4
'-Illinois, Indiana, Ohio, Michigan, Wisconsin
Source: Bureau of Economic Analysis THE WALL STREET JOURNAL
Source: Wall Street Journal
Source: U of M RSQE
Michigan Inflation and Income Growth
2016-19
Percent6
4.95
#.| „
Ulil4
3.03
2 22
1
0
Detroit CPI Personal Income Real Disposable Income
2016 D2017 2018 D2019
RSQE: October 20 17
Source: U of M RSQE
Source: U of M RSQE
Chart 10
Light Vehicle SalesUnits (Millions)
TotalAutos nLt. Trucks20
17.516.9 16.9 16.9
—•
16
12 11.211.010.810.6
86.9
6.1 5.9 5.7
4
0
2016 2017 2018 2019
RSQE: September 201 7
Source: U of M RSQE
Source: Federal Reserve Bank of St. Louis
— Civilian Labor Force Participation Rate
68
67
66
65
Sep 201 7: 63.164
s 63aic_
62
61
60
59
58
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
I '"I -145a Bhi
fred.stlouisfed.orgShadedareas indicate U.S. recessions Source: U.S. Bureau of Labor Statistics
Source: Federal Reserve Bank of St. Louis
Source: Advisor Perspectives
dshort.com
of September 2017^P^RS^VlVES Labor Force Participation Rate
Growth Since 2000
Recessions Ages 16-24 Ages 25-34 Ages 35-44 —Ages 45-54 Ages 55-64 —Ages 65 and Over
60%
Since 2000Cohort LFPR
Ages 16-24 56.2 -15.0%
82.3 -3.2%Ages 25-3450%
Ages 34-44 82.6 -3.2%
80.5 -2.8%Ages 45- 54
64.8 9.3%Ages 55-64
19.6 56.8%^ Ages 65 &Over40%
30%
20%
10%
0%
-10%
Ages 16-54 seasonally adjusted, Ages 55 and over nonadjusted
-20%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Advisor Perspectives
Source: Advisor Perspectives
dshort.com
October 2017
As of September
^PERSPECTIVES Age 65+ Cohort as a Percent of Employed
Monthly 12-Month Moving AverageRecessions
6.5%
r
6.0% 6;o%"
15.5%
5.2%
•*
I I••
5.0%
" I\
I *
t*
4.5%r \\ •*.
i
'^14.0%• i :
}. t;
*r
3.5%- .
*
* ,.j?
Aiw,—- r*' • i. . * •
.» • !S-k,——'4 , — . V-*-3.0%
r •
*jCO'
Shift starts
in 1999
2.5%2.6%
_
2.0%
1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Advisor Perspectives
Source: Wall Street Journal
S&P/Case-Shiller U.S. national home price index
Recession200
190
180
170
160
150
140
130
'08 09 '10 '11 '15 '16 '17'12 '13 '142007
Source: S&P Dow Jones Indices via Federal Reserve
THE WALL STREET JOURNAL
Source: Wall Street Journalr
Source: Advisor Perspectives
dshort.com
October 2017
Data through August
®£^PEC^IVES Personal Savings Rate
• Personal Savings Rate 12-Month Moving AverageRecessionsLog Scale
32%
Latest monthly value = 3.6%
12-month moving average = 3.8%
16% -
£4
8% t • .
•5L. <
\Ln\
.1 •J. u*
J4% -
. .*.
.*
-
*2%
Historic lows during
the "easy money"
housing bubble
rzi%
I960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020
Source: Advisor Perspectives
Source: Advisor Perspectives
dshort.com
October 2017® PERSPECTIVES University of Michigan Consumer Sentiment Index
GDP and Recessions
120-
October Preliminary Report
Current Level'Z. TOT71" '100
91.5
88.2
80
75.574.'
e:
60
4016
14
1210
GDP s6
4202
0
2
4
6
8
0 10
1975 1980 1985 1990 1995 2000 2005 2010 2015
Source: Advisor Perspectives
Source: U of M RSQE
Chart 5
Growth Rate of Real GDP
Percent, AR4
Actual Forecast
3.13.0
2 82.4,
2.2,2.2
2.02 ,1 8
12
0.6,0.5
0 i i i i i i i i. i i i x x i
41234123412341234
'15 2016 2017 2018 2019
4th Quarter to 4th Quarter Growth Rate of Real GDP (%)
2.0 1.8 2.4 2.3 2.1
RSQE: September 2017
Source: U of M RSQE
Source: ZeroHedge, 720Global
Consumer Credit and Transfer Payments as % of Consumption50%
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%ro ro
§ 8ro *o
ro ro>—'
KD IX) KD
720GUyBAL IO<D CD CO CO CO CD CO
-u SJ3 00 CO CO CDen cn <n 5"O fO •o roro ro ro ro
Consumer Credit OTrans. Payments
Data Courtesy: St. Louis Federal Reserve (FRED)
Source: ZeroHedge, 720GlobalV
Source: Wall Street Journal
Wave of Young Consumers
Millennials have replaced baby boomers as the largest generation—with 26-year-olds as the largest
single age group—creating a wave of consumers for companies to target.
U.S. population by age, December 2016
5 million people 26-year-olds:4.75 million
4
3
2
1
MILLENNIALSi B1—
GENERATION X BABY BOOMERSo
10-year-olds 20 30 40 50 60 70 80 90 100+
Source: Deutsche Bank
fSource: Wall Street Journal
r
Source: Wall Street Journal
Uneven Gains
Inflation-adjusted earnings have risen faster since 2007 than in previous business cycles, but gains
mostly flowed to higher earners.
Real earnings growth, change from a year earlier
6%
4
Cycle trend2
o
-2
-4
I I I10s1990s
Hourly earnings in 2016 dollars by earnings quintile
1981 2000s
19792016
S50
40
30
20
10
0
Lower-middle Middle Upper-middleBottom Top
Labor Department via Hamilton Project
Source: Wall Street Journal
Source: ZeroHedge
Figure A. Income shares by income percentile, 1989-2016 surveys
Percent70 r- Top 1 percent
Next 9 percent
Bottom 90 percent60 -
50 -
40 -
30 -
20 -
10 -
1 1 110
1989 1992 1995 1998 2001 2004 2007 2010 2013 2016
Source: ZeroHedge
Source: ZeroHedge
Change In 2007 - 2016 Mean Net Worth by Family ($ In '000s)
fSOO
S710
$"00
$600
$500
$400
$500
$200
$100 S66
$0
-S27-S32 -S37-$61-$100
Less than 20% 20%- 40% 40%-60% 60%- 80% 80%- 90% 90%- 100%
Percentile of Income So;/ret: Ftdtraf B^str/t. Ztro Htdgt
ASource: ZeroHedge
Source: Wall Street Journal
Taking Stock of Growing Net Worth
Net worth of U.S. households and nonprofits
$100 trillion Recession
80
60
| Stocks*
Other net worth40
II
20
0
'02 '04 '06 '08 '10 '12 '14 '162000
'Indirectly and directly held
Source: Federal Reserve
THE WALL STREET JOURNAL
Source: Wall Street Journal
Source: Advisor Perspectives
dshort.com
October 2017®PERSPECTIVES Fourteen Decades of Price Inflation
The Decline in Purchasing Power of the DollarLog scale
$4.00
Offical inflation based on the BLS Consumer Price Index
Inflation estimate before creation of the BLS- — -r — — -
Federal Reserve: 1914$2.00
Roosevelt abandons
the gold standard: 1933
~~7 —
$1.00
X$1 = $1
$0.50
$0.25 Nixon closes the
gold window: 1971
- -
$0.13
$1 = 5 centsBLS began changing methods
to calculate the CPI: 1982
XT$0.06— - -
$0.03
1870 1880 1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010 2020
Source: Advisor rspectivesP
Source: Advisor Perspectives
dshort.com
October 2017
Data through September
®PERSPECTIVES Consumer Price Index for Urban Consumers
Headline and Core Year-over-YearNot seasonally adjusted
16%
Recessions
Consumer Price Index (CPI)
CPI less Food and Energy14%
"12%
10%
8%
6%
4%
I2%
0%
-2%
^»%
1955 1960 1965 1970 1975 1995 2000 2005 2010 2015 20201980 1985 1990
ISource: Advisor rspectivesP
Source: Allgen Financial
The Federal Reserve balance sheetUSD trillions
Oct. 2014:
End of OE3;
balance sheet
stands at $4 5T
$5 -i Forecasted reduction'
IJan. 2014:
Tapering of
purchases begins
Balance sheet reduction scenario
(current balance sheet = S4 460 trillion)
+•
-J
1Beginning
balance ($ trillion)
End balance
($ tnllion)Other
Jun. 2011:
End of OE2:
balance sheet
stands at $2 8T
k.$4
kS2 465 $t 170Treasuries
SI 770 SO 929MBSSep. 2012: ,
Nov. 2010: OE3 begins^OE2 begins
MBS
IJun. 2010:
End of QE1;
balance sheet
stands at $2. 1 T
$3 -
IDec. 2008:
QE1 begins
$2
Treasuries$1 -
$0
•03 '04 '05 '06 '07 '08 '09 '10 '11 •12 '13 '14 '15 '16 '17 '18 '19 '20 '21
Source: Allg Financial
Source: Wall Street Journal
Monthly returns of U.S. stocks in October of each year*
Since 1980, nearly two of everythree Octobers have been positive
15%
10
5
1I llilu 1lllll Urn 1
IT-5
-10
Stock marketwas closed inOctober 1914
-15I I t I I t f 1 t 1 1 1 l l l l l l l l l l l l l l i i i i i i i i i | i i i i i i i i i I r i i i t t i i i | i i i i i i i t i
II i i i i i i i i t i i i i i i I 1 1 1 I I I i t t i t r
1900 1910 11920 1930 1940 11950 [i960
October 1987: -23%
Stock plummeted worldwide on "Black Monday,"
Oct. 19, with the DowJones Industrial Average
falling more than 20%.
1970 11980 1 1990 2000 12010
October 1929: -20%The historic crash
climaxed on "BlackTuesday," Oct. 29, andwas a prec ursor to the
Great Depression.
IJ October 2008:
-18%
'Average of monthly returns, including dividends, on broadest available index of U.S. stocks.
Source: Prof G. William Schwert, University of Rochester
Source: Wall Street Journal
Source: Advisor Perspectives
dshort.com
Data through
September 29, 2017
®PERSPECTIVES Three "Real" Indexes: Percent Change from Their 2000 Peaks
Recessions Real Dow Real S&P 500 Real Nasdaq
70%
Inflation-adjusted price based on the ConsumerPrice Index
60%
50%
40%
33.9%30%
20%
15.5%
10%
0%
-9.9%10%
20%
30%
40%
50%
60%
70%
80%
90%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Source: Advisor Perspectives
Source: GMO Commentary
GMO 7-Year Asset Class Real Return Forecasts*Norfi America Europe I AsU-Fucifk
/Is of September 30, 201 7
STOCKS BONDS
10% -|
8% -6.5% Long-term
Historical U.S.
Equity ReturnID
6% -re
a;
>-
r> 4% -QJ 2.4%
O2% -c
0.4%5 0.1%OJ
0% -- T T
"5 0.0%-0.4% -0.7% -1.0%-2% -
-1.4%
-2.6%-2.9%5 -4% -
-4.1%
-6% -
-S% JU.S. U.S. High Intl
Small Quality Large
Iritl Intl Emerging
Bonds Debt
Hedged
U.S. Emerging U.S. U.S. U.S.
Small Bonds Inflation
Linked
Bonds
CashLarge
Source: GMO
"The chart represents local, real return forecasts for several asset classes and not for any GMO fund or strategy. These forecasts are forward-looking statements based upon the reasonable beliefs ofGMO and are not a guarantee of future performance. Forward-looking statements speak only as of the date they are made, and GMO assumes no duty to and does not undertake to update forward-looking statements. Forward-looking statements are subject to numerous assumptions, risks, and uncertainties, which changeover time. Actual results may differ materially from those anticipated inforward-looking statements. U.S. inflation is assumed to mean revert to long-term inflation of 2.2% over 15 years.
Proprietary information - not for distribution Copyright © 2017 by GMO LLC All rights reserved.
Source: GMO Commentary
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