Hosted by: James Hotchkiss Director, Member Strategy and ... · U.S. Economic Data Releases For the Week Ending 12/13/2018 Federal Home Loan Bank of Chicago | Member owned. Member

Hosted by:James HotchkissDirector, Member Strategy and Solutions

Date:December 13, 2018

Contacts

Federal Home Loan Bank of Chicago | Member owned. Member focused. 2

James HotchkissDirector, Member Strategy and [email protected]: @econ_james_

Melissa DevenDirector, Member Strategy and [email protected]: @econ_melissa_

Discussion Topics


• Weekly Interest Rate Comparisons

• Economic Data Releases

• November Employment Report

• Preview of the Coming Week

• Q and A

Weekly Interest Rate MovementsFor the Week Ending 12/13/2018


U.S. Treasury Yields

12/13/18 12/06/18

3mo 2.41% 2.41%

2yr 2.76% 2.75%

5yr 2.75% 2.75%

10yr 2.90% 2.87%

FHLBank Chicago Advance Rates

12/13/18 12/06/18

3mo 2.60% 2.60%

2yr 2.96% 2.94%

5yr 3.05% 3.02%

10yr 3.43% 3.38%

Federal Reserve Interest Rate Probability

Following the third rate hike of the year in September, the market implied probability of a fourth interest rate hike at the December meeting stands at 73.91%, as of December 13.

Following the anticipated fourth hike next week, the market implied probability of a rate hike in March 2019 dropped to 30.64%.

If rates do not increase in March, the probability of the first rate hike in June 2019 is 47.84%.

Federal Home Loan Bank of Chicago | Member owned. Member focused.

Source: Bloomberg

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U.S. Economic Data ReleasesFor the Week Ending 12/13/2018


Consumer CreditOctober: $3.963T vs. September: $3.938T

• Increased by $25B to $3.963T in October. Revolving credit, mostly composed of credit card debt, increased by 10.7%. Non-revolving debt, comprised of student and auto loans, rose 6.7% from the prior month. As a result, total consumer credit is up 7.7% year-over-year compared to 3.5% in September.

Small Business OptimismNovember: 104.8 vs. October: 107.4

• Fell 2.6 points to 107.4. The share of firms expecting the economy to improve dropped to 22% from 33%, the lowest since November 2016. The net percent of firms increasing worker compensation rose to 25% from 23%, the highest level in three decades.Source: Federal Reserve, NFIB

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Producer Price Index (PPI) Final DemandNovember: 0.1% vs. October: 0.6%

• Rose 0.1% in November, meeting expectations but below the 0.6% increase seen in October. Much of the slowdown during the month was driven by the volatile energy component, which fell 5.0% during the month. This was partially reversed by food prices rising 1.3%.

Core PPI Final DemandNovember: 0.3% vs. October: 0.5%

• Excluding food and energy, prices also rose 0.3% in November, which is slightly higher than expected. The increase was supported by transportation and warehousing both rising 1.2%. The core index is up 2.7% year-over-year.Source: Bureau of Labor Statistics

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Consumer Price Index (CPI)November: 0.0% vs. October: 0.2%

• Was flat at 0.0% in November after increasing 0.2% in October. As a result, the year-over-year growth is 2.2%. Food prices increased 0.2%, which were offset by energy prices falling 2.2%.

Core CPINovember: 0.2% vs. October: 0.2%

• Excluding food and energy, the index rose 0.2% in November. Supporting the increase, shelter prices rose 0.3%, while transportation services fell 0.3%. The index is up 2.2% year-over-year.

Source: Bureau of Labor Statistics

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JOLTS Job OpeningsOctober: 7.079M vs. September: 6.960M

• Increased by 119K in October. The prior month was downwardly revised from 7.009M to 6.960M. The number of hires rose 3.4% to 5.892M, while separations edged lower from 5.641M to 5.556M. Within separations, the quits rate fell one-tenth to 2.3%. Job openings were primarily positive across regions with the Midwest rising the most.

Trade BalanceOctober: $-55.5B vs. September $-54.6B

• The nation's goods and services deficit widened by $0.9B in October to $55.5B following a slight revision the month prior from $54.0B to $54.6B. Source: Bureau of Labor Statistics, U.S. Census Bureau

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Initial Jobless ClaimsDec 8: 206K vs. Dec 1: 233K

• Decreased by 27K to 206K in the week ending December 8. The previous week was upwardly revised by 2K to 233K. As a result, the four-week moving average edged lower by 3.75K to 224.75K, which is the first decline in five weeks.

Continuing ClaimsDec 1: 1.661M vs. Nov 24: 1.636M

• Increased by 25K to 1.661M in the week ending December 1. The prior week was upwardly revised by 5K to 1.636M. The four-week moving average fell by 2.5K to 1.665M. The insured unemployment rate edged higher by 0.1 percentage point to 1.2%.

Source: Department of Labor

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November Non-Farm Payroll Report

• The Bureau of Labor Statistics released November’s Non-Farm Payroll Report. Payrolls rose by 155K, missing consensus expectations of 198K growth.– The unemployment rate remained unchanged at 3.7%, which is the

lowest level since December 1969. – Employment growth in health care, manufacturing, transportation, and

warehousing primarily drove the monthly increase. – Average hourly earnings rose 0.2% month-over-month, or 3.1% year-

over-year. – The labor force participation rate remained unchanged at 62.9%.

• Payrolls in October were downwardly revised from 250K to 237K but was slightly offset by an upward revision in September from 118K to 119K. As a result, employment gains in September and October combined were 12K lower than previously reported.




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November Non-Farm Payroll ReportGoods and Services Payrolls Increase

Within the 155K increase, the private service-providing sector increased by 132K jobs in November compared to 198K in October.

The goods-producing sector rose by 29K in November, which is the smallest monthly gain since February.

Employment in the government sector decreased by 6K after declining by 14K the month prior.



November Non-Farm Payroll ReportPayrolls by Sector


The majority of sectors posted an increase this month. Education and Healthcare rose the most month-over-month by 34K.

Following closely behind, Professional Services and Manufacturing rose by 32K and 27K, respectively.

Mining and Logging, Government, and the Information sectors posted a decline.

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November Non-Farm Payroll Report3-Month and 6-Month Moving Averages Fall

As November payrolls missed expectations and September’s upward revision was more than offset by October’s downward revision, both the 3-month and 6-month moving averages decreased.

The 3-month moving average fell by 44K to 170K in November, while the 6-month moving average decreased by 19K to 195K.



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November Non-Farm Payroll ReportUnemployment Rate Remains Unchanged

The unemployment rate was unchanged at 3.7% for the third consecutive month.

The labor force participation rate, which includes underemployed and discouraged workers, has been little changed since 2014. It remained unchanged at 62.9% in November.



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November Non-Farm Payroll ReportJob Openings Surpass Number of Unemployed

The number of job openings increased by 119K in October. The number of unemployed persons fell further to 5.975M in November.

The number of job openings initially passed the number of unemployed persons in March 2018.



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November Non-Farm Payroll ReportFull-Time Workers Rise While Part-Time Workers Fall

The number of full-time workers increased by 543K to 129.8M in November.

Part-time workers decreased by 258K in November to 27.03M, the largest monthly decrease since May 2018.



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November Non-Farm Payroll ReportAverage Hourly Earnings Surge

Average hourly earnings increased 0.02% month-over-month.

Earnings remained unchanged at 3.1% year-over-year, which is the highest level since June 2009.



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November Non-Farm Payroll ReportJob Openings and Hires Rise

Within the components in the Job Openings and Labor Turnover Survey (JOLTS), hires and openings increased while separations and layoffs decreased in October.

Openings rose 119K to 7.079M. Hires increased 196K to 5.892M, and separations declined 85K to 5.556M. Layoffs also decreased 16K to 1.691M.



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November Non-Farm Payroll ReportBoth Quits and Layoffs Edge Lower

The steady rise in the number of workers quitting their jobs is an underlying sign of strength in the labor market.

However, quits decreased by 50K in October, while layoffs fell by 16K.

While quits have moved lower in the last two months, the level remains historically high and continues to suggest that people are more confident they can find other opportunities.



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November Non-Farm Payroll ReportIs the Quits Rate a Leading Indicator of Average Hourly Earnings?

While average hourly earnings have been steadily increasing since 2014, they breached 3.0% in October for the first time since 2008.

As the labor market continues to tighten, wages may continue to increase, leading to more people voluntarily quitting their jobs.



Summary:• Payrolls increased by 155K in November following net revisions to

September and October payrolls that resulted in a 12K decrease.• The 3- and 6-month moving averages both decreased to under 200K. • The unemployment rate remained unchanged at 3.7%, which is the lowest

level since December 1969. • Hourly wages increased 0.20% month-over-month and remain 3.1%

higher than one year ago.

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November Non-Farm Payroll Report




This and That

Source: Gallup

In a recent poll by Gallup, Americans have predicted they will spend an average of $885 on gifts this holiday season. This is slightly below the $906 recorded in October 2017. The same poll shows that 33% of Americans plan to spend at least $1,000 on Christmas gifts, while 22% will spend between $500 and $999, 29% will spend less than $500, and just 3% will spend less than $100.

Further, a record 66% of respondents stated they would maintain last year’s elevated holiday spending level. Only 17% stated they will spend less. There have been only four years since 1990 that less than 20% of respondents stated they will spend less than the prior year, including 2000, 2006, 2007, and 2017.


Prior to the weekend, economic data will be released on retail sales and industrial production.

All eyes will be focused on the FOMC rate decision to be announced on Wednesday.

Economic Data Release CalendarDecember 2018

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Certain information included in this presentation speaks only as of a particular date or dates included in this presentation. The information in the presentation may have become out of date. The Federal Home Loan Bank of Chicago (FHLBC) does not undertake an obligation, and disclaims any duty, to update any of the information in this presentation. “Mortgage PartnershipFinance®”, “MPF®”, “MPF Xtra®”, “Downpayment Plus®”, “DPP®”, “Downpayment Plus Advantage®”, “DPP Advantage®”, and “Community First®” are registered trademarks of the Federal Home Loan Bank of Chicago . The “MPF Mortgage Partnership Finance” logo is a trademark of the Federal Home Loan Bank of Chicago.

The data, scenarios and valuations provided to you in this presentation are for information purposes only and are provided as anaccommodation and without charge and are not intended for further distribution. The data, scenarios and valuations are estimates only and may not represent the actual or indicative terms at which new (or economically equivalent) transactions couldbe entered into or the actual or indicative terms at which existing (or economically equivalent) transactions could be prepaid, terminated, liquidated, assigned or unwound. The scenarios and valuations were derived using proprietary pricing models and estimates and assumptions about relevant future market conditions and other matters, all of which are subject to change without notice. The scenarios and valuations were prepared without specific information about your institution’s balance sheet composition, hedging strategies or financial assumptions and plans, any of which may affect the relevance of these valuations toyour own analysis.

The Federal Home Loan Bank of Chicago makes no representations or warranties about the accuracy or suitability of any information in this presentation, and no representation of non-infringement. This presentation is not intended to constitute legal, accounting, investment or financial advice or the rendering of legal, accounting, consulting, or other professional services of any kind. You should consult with your accountants, counsel, financial representatives, consultants and/or other advisors regardingthe extent these scenarios and valuations may be useful to you and with respect to any legal, tax, business and/or financial matters or questions. This presentation may contain forward-looking statements which are based upon the FHLBC’s current expectations and speak only as of the date hereof. These forward-looking statements involve risks and uncertainties including, but not limited to, the risk factors set forth in the FHLBC’s periodic filings with the Securities and Exchange Commission, which are available on its website at www.fhlbc.com

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Hosted by: James Hotchkiss Director, Member Strategy and ... · U.S. Economic Data Releases For the Week Ending 12/13/2018 Federal Home Loan Bank of Chicago | Member owned. Member