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U.S.
Economic Outlook
June 2019
2BBVA Research - U.S. Economic Outlook. June 2019
Baseline growth forecast unchanged, but risks to downside growing
Model-based recession projections suggest probability around 60%
over the next 24-months
Mixed signals from labor market indicators
Inflation outlook in question with core PCE persistently below target
Fed preparing markets for rate cuts in 3Q19
Yield curve dynamics mainly driven by flight to safety and
dovish monetary policy expectations
Weaker demand pressuring oil prices, but geopolitical risks remain
Economic Outlook
3BBVA Research - U.S. Economic Outlook. June 2019
GDP growth decelerated in 2Q19
Rebound in consumption should support moderate growth rates in 2H19
Survey-based investment indicators declining amidst deteriorating
business expectations
Countervailing trade dynamics(weaker global growth vs. reduced trade
tensions) imply no material change in net export balance
Boost from fiscal stimulus will fade in 2H19 if no additional measures
taken
Growth to remain above potential despite growing risks to downside
Macro Fundamentals
44BBVA Research - U.S. Economic Outlook. June 2019
Economic activity
Overall balance of risks tilted to
the downside amid weaker
indicators
Slight improvement in industrial
production from April, but surveys
deteriorating
Growth in private residential
construction the weakest since
crisis
Confidence indicators whipsaw
with market correction and
geopolitical tensions
Nontrivial deceleration in labor
productivity
REAL-TIME ECONOMIC MOMENTUM HEAT MAP
Source BBVA Research
Below Average Above Average
3-months
ago
2-months
ago
1-month
agoCurrent
ISM Manufacturing
Small Business Optimism
Industrial Production
IP-Manufacturing
IP-Mining
IP- Nonenergy High-Tech
Capital Goods ex Aircraft
Private Construction
Building Permits
Core Logic Home Prices
Consumer Confidence
Private Nonfarm Payrolls
Prime-Age Participation
Marginally Attached (PA)
Average Hourly Earnings
Real Disposable Income
Personal Savings Rate
Productivity
5BBVA Research - U.S. Economic Outlook. June 2019
Economic trends: Slowdown in mining and manufacturing underlie
weakness in industrial production
Source: BBVA Research, FRB & BEA
-6%
-4%
-2%
0%
2%
4%
6%
2011 2012 2013 2014 2015 2016 2017 2018 2019
Oil & Gas High-Tech Motor Vechicles
Consumer Gds Biz Equip Headline (lhs)
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
20
11
20
12
20
13
20
14
20
15
20
16
20
17
20
18
20
19
Autos Health & P. Care Gas
Clothing Nonstore Food Servc
Headline (lhs)
INDUSTRIAL PRODUCTION(YEAR-OVER-YEAR %)
RETAIL SALES
(YEAR-OVER-YEAR %)
6BBVA Research - U.S. Economic Outlook. June 2019
Economic trends: Real exports decline despite stable dollar,
suggesting further deterioration in global demand
Source: BBVA Research, FRB & Census
-6
-4
-2
0
2
4
6
8
10
Apr-
2019
Feb
-2019
De
c-2
018
Oct-
2018
Aug-2
018
Jun-2
018
Apr-
2018
Feb
-2018
De
c-2
017
Oct-
2017
Aug-2
017
Jun-2
017
Apr-
2017
Fe
b-2
017
De
c-2
016
Oct-
2016
Aug-2
016
Jun-2
016
Apr-
2016
Feb
-2016
De
c-2
015
Oct-
2015
Consumer Goods ex Food Food & Bev.
Industrial Supplies Autos
Other Cap Goods ex Autos
-10%
-5%
0%
5%
10%
15%
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Ma
r-1
8
Jun-1
8
Sep-1
8
De
c-1
8
Ma
r-1
9
Real Trade Weighted FX Real Exports
REAL EXCHANGE RATE AND EXPORTS(YEAR-OVER-YEAR %)
REAL EXPORTS(CONTRIBUTION TO YEAR-OVER-YEAR %)
7BBVA Research - U.S. Economic Outlook. June 2019
Economic trends: 2Q19 growth to dip below 2%, recession risk
around 40% in next 12 months
Source: BBVA Research, and ATL & NY Fed
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
4.50%
Q2-1
8
Q3-1
8
Q4-1
8
Q1-1
9
BB
VA
-N
ow
ca
st
Atl F
ed
NY
Fed
20
19
20
19-2
021
Forecast1Q19
Baseline
REAL GDP(QOQ SAAR, %)
PROBABILITY OF RECESSION IN 12 MONTHS(%)
0
10
20
30
40
50
60
70
80
90
100
1991 1995 1999 2003 2007 2011 2015 2019
Yield Curve Slope BBVA-24
BBVA-Multidimensional(12) BBVA-Multidimensional(24)
8BBVA Research - U.S. Economic Outlook. June 2019
Consumer credit cycle: No major signs of deterioration in
consumer credit conditions
Source: BBVA Research, FRB, NY Fed & BEA
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
25.0
30.0
1961 1966 1971 1976 1981 1986 1991 1996 2001 2006 2011 2016
1.5
1.7
1.9
2.1
2.3
2.5
2.7
2.9
3.1
Jul-6
1
Ma
y-6
4
Ma
r-6
7
Jan-7
0
No
v-7
2
Se
p-7
5
Jul-7
8
Ma
y-8
1
Ma
r-8
4
Jan-8
7
No
v-8
9
Sep-9
2
Jul-9
5
Ma
y-9
8
Ma
r-0
1
Jan-0
4
No
v-0
6
Sep-0
9
Jul-1
2
Ma
y-1
5
Ma
r-1
8
0
2
4
6
8
10
00 02 04 06 08 10 12 14 16 18
Mortgage HELOC Auto CC
Student Other Total
-20.0
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2012 2013 2014 2015 2016 2017 2018
Credit card Autos Consumer excl. credit cards
PERSONAL INTEREST EXPENSE(YEAR-OVER-YEAR %)
PERSONAL INTEREST EXPENSE TO DISP.
INCOME (RATIO, %)
NEW 90+ DAY CONSUMER DELINQUENCIES
RATES (CONTRIBUTION, %)
SENIOR LOAN OFFICERS LENDING
STANDARDS (+ TIGHTENING / - LOOSENING)
9BBVA Research - U.S. Economic Outlook. June 2019
In May, nonfarm payroll employment grew 75,000; an nontrivial
deceleration since April (224,000)
Weakness in the retail trade sector (-7K), transportation and
warehousing (-0.2), information (-5K) and government (-15K) offset
strength in professional and business services (33K), health care (16K)
and construction (4K)
The unemployment rate (UR) held steady at 3.6% in May
The labor force participation rate and the employment-population ratio
were unchanged at 62.8% and 60.6%
Baseline assumes only modest declines in UR in 2019. Average
monthly job growth to slow to 166K this year, from 223K in 2018
Labor Market
10BBVA Research - U.S. Economic Outlook. June 2019
Labor market: 104 consecutive months of positive payroll
growth, but headwinds building
Source: BBVA Research & BLS
-1000
-800
-600
-400
-200
0
200
400
600
800
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
Actual Forecast
-4 -2 0 2 4 6
Information Services
Retail Trade
State Government
Local Government
Federal Government
Financial Activities
Other Services
Manufacturing
Wholesale Trade
Professional & Business Services
Education & Health Services
Leisure & Hospitality
Transportation & Warehousing
Construction
Mining
Monthly Year-over-year
NONFARM PAYROLLS(MONTHLY CHANGE, K)
INDUSTRY EMPLOYMENT (ANNUALIZED % CHANGE)
11BBVA Research - U.S. Economic Outlook. June 2019
Labor market: Slowdown in average weekly hours
and earnings
Source: BBVA Research & BLS
33.2
33.4
33.6
33.8
34.0
34.2
34.4
34.6
34.8
Ap
r-08
Oct-
08
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
Ap
r-18
Oct-
18
Ap
r-19
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Ap
r-08
Oct-
08
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
Ap
r-18
Oct-
18
Ap
r-19
79.0
79.5
80.0
80.5
81.0
81.5
82.0
82.5
83.0
83.5
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
Ap
r-18
Oct-
18
Ap
r-19
Pre-Crisis Avg.
72.0
73.0
74.0
75.0
76.0
77.0
78.0
79.0
80.0
81.0
Ap
r-09
Oct-
09
Ap
r-10
Oct-
10
Ap
r-11
Oct-
11
Ap
r-12
Oct-
12
Ap
r-13
Oct-
13
Ap
r-14
Oct-
14
Ap
r-15
Oct-
15
Ap
r-16
Oct-
16
Ap
r-17
Oct-
17
Ap
r-18
Oct-
18
Ap
r-19
Pre-Crisis Avg.
AVERAGE WEEKLY HOURS(NUMBER & 5MCMA)
AVERAGE HOURLY EARNINGS(YOY% & 5MCMA)
PRIME AGE LABOR FORCE PARTICIPATION(%)
PRIME AGE EMPLOYMENT-TO-POPULATION(%)
12BBVA Research - U.S. Economic Outlook. June 2019
Labor market: Unemployment rate unlikely to decline
further, as signs of late-cycle fears growing
Source: BBVA Research & BLS
2
3
4
5
6
7
8
9
10
11
00
02
04
06
08
10
12
14
16
18
20
22
0
2
4
6
8
10
12
14
16
18
Apr-
09
Oct-
09
Apr-
10
Oct-
10
Apr-
11
Oct-
11
Apr-
12
Oct-
12
Apr-
13
Oct-
13
Apr-
14
Oct-
14
Apr-
15
Oct-
15
Apr-
16
Oct-
16
Apr-
17
Oct-
17
Apr-
18
Oct-
18
Apr-
19
Pre-Crisis Avg.
U-6(%)
UNEMPLOYMENT RATE(%)
13BBVA Research - U.S. Economic Outlook. June 2019
Headline consumer prices increased 0.1% month-over-month in May,
after rising 0.3% in April
The 12-month change in headline CPI slumped below 2% again to
1.8%, while core CPI continued to decelerate, reaching 2.0% in May
In addition to the slowdown in energy prices, used car and trucks, and
motor vehicle insurance prices decelerated dragging down headline CPI
Idiosyncratic supply-side shocks from tariffs could push prices up in
short-run, but majority of risks are tilted to downside
Inflation expectations trending near lowest levels in 3 years
Baseline assumes average headline CPI to decelerate to 1.8% in 2019,
before rebounding in 2020
Inflation
14BBVA Research - U.S. Economic Outlook. June 2019
Inflation: Core inflation continues to trend below Fed target
Source: BBVA Research, BLS & BEA
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
Feb
-01
Jan-0
2
De
c-0
2
No
v-0
3
Oct-
04
Sep-0
5
Aug-0
6
Jul-0
7
Jun-0
8
Ma
y-0
9
Apr-
10
Ma
r-1
1
Feb
-12
Jan-1
3
De
c-1
3
No
v-1
4
Oct-
15
Sep-1
6
Aug-1
7
Jul-1
8
Core CPI Core PCE Weighted Median
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
0 10 20 30 40 50 60 70 80 90 100
Relative Importance
Comm. ex
Food/
Energy
Food
Rent
Energy
Med
Services
Edu &
Comm.
Services
Trans.
Services
Other
Services
OER
CONSUMER PRICE INFLATION(12M CHANGE)
CORE INFLATION MEASURES(12M CHANGE)
15BBVA Research - U.S. Economic Outlook. June 2019
Inflation: Lack of inflationary pressures a concern,
but deflation risk minimal
Source: BBVA Research & BLS
-0.2
0
0.2
0.4
0.6
0.8
1
70 74 78 82 86 90 94 98 02 06 10 14 18
Core PCE Low Inflaiton Regime
High Inflaiton Regime
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
Jan-7
0
Jul-7
2
Jan-7
5
Jul-7
7
Jan-8
0
Jul-8
2
Jan-8
5
Jul-8
7
Jan-9
0
Jul-9
2
Jan-9
5
Jul-9
7
Jan-0
0
Jul-0
2
Jan-0
5
Jul-0
7
Jan-1
0
Jul-1
2
Jan-1
5
Jul-1
7
CORE PCE PRICE INDEX & INFLATION
REGIMES (MONTH-OVER-MONTH %)
INFLATION REGIME CHANGE PROBABILITY(%)
16BBVA Research - U.S. Economic Outlook. June 2019
Inflation: Baseline continues to assume modest undershooting
in short-run, but recovery in 2H19
Source: BBVA Research & Haver Analytics
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
10 11 12 13 14 15 16 17 18
5Y Implicit 5Y Forward
-2
-1
0
1
2
3
4
5
6
Ma
r-0
0
Apr-
01
Ma
y-0
2
Jun-0
3
Jul-0
4
Aug-0
5
Sep-0
6
Oct-
07
No
v-0
8
De
c-0
9
Jan-1
1
Feb
-12
Ma
r-1
3
Apr-
14
Ma
y-1
5
Jun-1
6
Jul-1
7
Aug-1
8
Sep-1
9
Oct-
20
No
v-2
1
De
c-2
2
Core Headline
INFLATION EXPECTATIONS(%)
HEADLINE & CORE CPI(YEAR-OVER-YEAR %)
17BBVA Research - U.S. Economic Outlook. June 2019
Fed kept interest rates unchanged at their June 18-19th meeting, but
altered their forward guidance from “patient” to “closely monitor”
Elevated policy uncertainty, renewed “crosscurrents” and the threat of
inflation and inflation expectations further drifting below the Fed’s two
percent target suggest the Fed will lower rates this year
The summary of economic projections recognized that risks to inflation
have shifted to the downside and that FOMC will cut interest rates.
However, Dot Plot hinted at a more polarized committee, with eight
members viewing no rate increases as the most likely path while seven
members projected two rate cuts in 2019 as the most likely outcome.
Baseline assumes two 25bp rates cuts this year plus one additional
“fine-tuning” cut in 2020
Monetary Policy: Federal Reserve
18BBVA Research - U.S. Economic Outlook. June 2019
Fed: Projections fail to reflect change in committee members
communication and shift in guidance
Source: BBVA Research & FRB
0
1
2
3
4
5
6
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
BBVA-Baseline Median 75th Percentile
25th Percentile BBVA-Upside BBVA-Downside
BBVA & DEALERS PROJECTIONS OF FED
FUNDS (%, EFFECTIVE)
FOMC PROJECTIONS OF FED FUNDS(YEAR-OVER-YEAR %, MID-POINT)
0
0.5
1
1.5
2
2.5
3
3.5
2019 2020 2021 Longerrun
19BBVA Research - U.S. Economic Outlook. June 2019
Monetary policy: Market expectations coalesce around
three or more rate cuts
Source: BBVA Research & Bloomberg
1.25
1.50
1.75
2.00
2.25
2.50
2.75
Jan-1
8
Ma
r-1
8
Ma
y-1
8
Jul-1
8
Sep-1
8
No
v-1
8
Jan-1
9
Ma
r-1
9
Ma
y-1
9
Jul-1
9
Sep-1
9
No
v-1
9
Jan-2
0
Ma
r-2
0
Ma
y-2
0
Jul-2
0
Sep-2
0
No
v-2
0
FFR + BBVA Forecast 2/7/2019
5/2/2019 6/27/2019
0
10
20
30
40
50
60
70
<1.75 1.75-2.0 2.0-2.25 2.25-2.5
Three orMore
2 Cuts 1 Cut Zero
Last 1M Ago 2M Ago 4m Ago
FED FUNDS IMPLIED PROBABILITY(NUMBER OF RATE CUTS THROUGH 2019, %)
FED FUNDS FUTURES & BBVA BASELINE(%)
20BBVA Research - U.S. Economic Outlook. June 2019
Monetary policy: Balance sheet attrition plateaued as increase in
Treasury holdings offsetting wind down in MBS portfolio
Source: BBVA Research & FRB
0.00
0.25
0.50
0.75
1.00
1.25
1.50
1.75
2.00
2.25
2.50
2.75
3.00
3.25
3.50
Sep-15 Apr-16 Nov-16 Jun-17 Jan-18 Aug-18 Mar-19
Upper Bound Lower Bound
Effective SOFR
0
50
100
150
200
250
300
350
400
U.S Govt Securities MBS
FED FUNDS & REPO RATES(%)
BALANCE SHEET ATTRITION(US$BN, CUMULATIVE)
21BBVA Research - U.S. Economic Outlook. June 2019
10-yr Treasury down to 2.0%, 2-yr Treasury down to 1.75%
Term premium remains at historic lows due to dramatic shift in Fed’s
balance sheet strategy, U-turn in rates guidance, global weakness and
elevated uncertainty
Short-term rates converging with IOER; deviation from these levels
unlikely with shift in monetary policy strategy (“floor system”)
Yield curve slope narrows across most durations (6-month, 3-month
and 1-year). Weakening rates outlook impacting belly (2-year to 5-year)
of yield curve
New baseline assumes lower year end target for the 10-yr Treasury
yields; short-terms rates to align with Fed rate cut scenario
Interest Rates
22BBVA Research - U.S. Economic Outlook. June 2019
Interest rates: Drop in inflation expectations and increased risk
aversion fueling decline in long-term rates
Source: BBVA Research, ACM & Haver Analytics
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
13 14 15 16 17 18 19
Real Rate Term Premium Inflation Expectations Yield
10-YEAR TREASURY YIELD DECOMPOSITION(%)
23BBVA Research - U.S. Economic Outlook. June 2019
Interest rates: Baseline assumes 10-year below 2% by end of year
Source: BBVA Research, ACM & Haver Analytics
0
1
2
3
4
5
6
7
8
Jan-0
7
Ma
y-0
7
Sep-0
7
Jan-0
8
Ma
y-0
8
Sep-0
8
Jan-0
9
Ma
y-0
9
Sep-0
9
Jan-1
0
Ma
y-1
0
Sep-1
0
Jan-1
1
Ma
y-1
1
Sep-1
1
Jan-1
2
Ma
y-1
2
Sep-1
2
Jan-1
3
Ma
y-1
3
Sep-1
3
Jan-1
4
Ma
y-1
4
Sep-1
4
Jan-1
5
Ma
y-1
5
Sep-1
5
Jan-1
6
Ma
y-1
6
Sep-1
6
Jan-1
7
Ma
y-1
7
Sep-1
7
Jan-1
8
Ma
y-1
8
Sep-1
8
Jan-1
9
Ma
y-1
9
Sep-1
9
Jan-2
0
Ma
y-2
0
Sep-2
0
Jan-2
1
Ma
y-2
1
Sep-2
1
Jan-2
2
Ma
y-2
2
Sep-2
2
Historic Baseline Upside Downside NABE (EOP)
SPF(EOP) Blue Chip(Yr. Avg) OMB (Yr.Avg) CBO(Yr. Avg)
10-YEAR TREASURY YIELD(%)
24BBVA Research - U.S. Economic Outlook. June 2019
Interest rates: Inverted yield curve (10y-6m) through remainder
of 2019
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
1Y 2Y 3Y 5Y 7Y 10Y 20Y 30Y
10-Year Average 2016 2017
2018 2019 (f) 2020 (f)
Source: BBVA Research
0.0
0.5
1.0
1.5
2.0
2.5
Jan-1
5
Jun-1
5
No
v-1
5
Apr-
16
Sep-1
6
Fe
b-1
7
Jul-1
7
De
c-1
7
Ma
y-1
8
Oct-
18
Ma
r-1
9
Aug-1
9
Jan-2
0
Jun-2
0
No
v-2
0
Apr-
21
Sep-2
1
Feb
-22
Jul-2
2
De
c-2
2
30Yr-10yr 10Yr-1Yr
YIELD CURVE SLOPE(BP)
YIELD CURVE(%, EOP)
25BBVA Research - U.S. Economic Outlook. June 2019
OPEC+ extended the output deal through the rest of the year
Weaker economic growth to lead to slower demand for oil
Escalation of tensions between U.S. and Iran, as well as trade
negotiations between China and the U.S. are the main sources of
uncertainty
U.S oil production will expand further while substantial transportation
capacity is being added
Our prospects for lower prices in 2H19 and 2020 assume slower
economic growth amid sufficient supply
We maintain our view of convergence to long-term equilibrium of around
$60/b
Elevated uncertainty around long-term equilibrium: CAPEX,
protectionism, transportation infrastructure, alternative energy sources,
EM convergence, EVs, climate change, efficiency and technology
Oil Prices Outlook
26BBVA Research - U.S. Economic Outlook. June 2019
Downward pressures from weaker economic growth were partially
offset by growing tensions between the U.S. and Iran
CRUDE OIL PRICES DECEMBER 2018 TO JUNE 2019 ($ PER BARREL)
40
45
50
55
60
65
70
75
80
Dec Jan Feb Mar Apr May Jun
WTI Brent
December 7
OPEC+ decide to cut
output by 1.2 Mb/d
Jan 4-19
U.S–China trade
talks, expectation of
OPEC+ cuts
Jan 20
China post slowest
economic growth
since 1990
Feb 13
Fears of market
disruptions from
political crisis in
Venezuela
Feb 18
U.S. and China
signal a deal or
extend talks to end
their trade war
March 18
OPEC+ reaffirms
commitment to
output cuts
March 22
Eurozone’s
manufacturing
activity shows the
worst performance
in 5 years
April 5
Tensions in Libya
increased supply
concerns
April 22
U.S. ends sanctions
waivers on Iranian
oil imports
May 20
OPEC Considers
extending
production cuts until
end of 2019
May 13
US-China trade
tensions increase
Jun 4
President Trump
threatens to impose
tariffs on Mexico
Jun20
Iran shoots down
U.S. drone aircraft
Source BBVA Research with data from Haver Analytics
27BBVA Research - U.S. Economic Outlook. June 2019
Demand in developing countries remains supportive
OIL PRODUCT DEMAND: TOTAL WORLD (THOUSAND BARRELS PER DAY, YOY CHANGE)
-500
0
500
1000
1500
2000
2500
-1000
-500
0
500
1000
1500
2000
2500
3000
1Q
14
2Q
14
3Q
14
4Q
14
1Q
15
2Q
15
3Q
15
4Q
15
1Q
16
2Q
16
3Q
16
4Q
16
1Q
17
2Q
17
3Q
17
4Q
17
1Q
18
2Q
18
3Q
18
4Q
18
1Q
19
2Q
19
W. Europe U.S.China IndiaTotal World (rhs)
-500
0
500
1000
1500
2015 2016 2017 2018 2019
OECD (rhs) non-OECD U.S. OECD exUS
20
25
30
35
40
45
2015 2016 2017 2018 2019
Source BBVA Research with data from Haver Analytics and Bloomberg
OIL PRODUCT DEMAND (THOUSAND BARRELS PER DAY, YOY CHANGE)
CHINA CUSTOMS CRUDE OIL TOTAL IMPORTS (MILLION METRIC TONES)
28BBVA Research - U.S. Economic Outlook. June 2019
However, there are signs that demand is also slowing down in Asia
28
ASIA REFINING MARGINS ($ PER BARREL)
0
1
2
3
4
5
6
7
8
9
10
50
55
60
65
70
75
80
85
90
Jan-1
8
Fe
b-1
8
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
Jul-1
8
Aug-1
8
Sep-1
8
Oct-
18
No
v-1
8
De
c-1
8
Jan-1
9
Feb
-19
Ma
r-1
9
Apr-
19
Ma
y-1
9
Brent (left axis)Singapore Complex Refining Margins (right axis)
2.6
2.8
3.0
3.2
3.4
3.6
3.8
4.0
4.2
2014 2015 2016 2017 2018 2019
CHINA DIESEL CONSUMPTION (MILLION BARRELS PER DAY)
Source BBVA Research with data from Bloomberg
29BBVA Research - U.S. Economic Outlook. June 2019
A weaker economic outlook points to slower demand growth
29
99.8 101.0102.1103.3
104.6105.8
80
85
90
95
100
105
110
Actual BBVA Research forecasts
1.41
1.23
1.08
1.281.25 1.26
0.40
0.60
0.80
1.00
1.20
1.40
1.60
2018 2019F 2020F 2021F 2022F 2023F3.0
3.2
3.4
3.6
3.8
4.0
2017E 2018E 2019F 2020F
Oct-18 Apr-19
OIL PRODUCT DEMAND(YOY CHANGE, MILLION BARRELS PER DAY)
OIL PRODUCT DEMAND(MILLION BARRELS PER DAY)
IMF WORLD GDP GROWTH(YOY PERCENT CHANGE)
Source BBVA Research with data from Bloomberg Source : IMF WEO , E = estimates, F = forecast
30BBVA Research - U.S. Economic Outlook. June 2019
OPEC production is the lowest since 2015
Source: BBVA Research, Haver Analytics, and Bloomberg
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
19
74
19
76
19
78
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
20
08
20
10
20
12
20
14
20
16
20
18
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Jan
-17
Ma
r-1
7
Ma
y-1
7
Jul-
17
Se
p-1
7
Nov-1
7
Jan
-18
Ma
r-1
8
Ma
y-1
8
Jul-
18
Se
p-1
8
Nov-1
8
Jan
-19
Ma
r-1
9
Ma
y-1
9
34.0
34.5
35.0
35.5
36.0
36.5
37.0
37.5
38.0
38.5
39.0
8.0
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
Ma
r-1
5
Jun-1
5
Sep-1
5
De
c-1
5
Ma
r-1
6
Jun-1
6
Sep-1
6
De
c-1
6
Ma
r-1
7
Jun-1
7
Sep-1
7
De
c-1
7
Ma
r-1
8
Jun-1
8
Sep-1
8
De
c-1
8
Ma
r-1
9
Jun-1
9
Milla
res
U.S. OPEC (right axis)
CRUDE OIL PRODUCTION
(MILLION BARRELS PER DAY)
IRAN: EXPORTS OF CRUDE OIL
(MILLION BARRELS PER DAY)
VENEZUELA: CRUDE OIL PRODUCTION
(MILLION BARRELS PER DAY)
31BBVA Research - U.S. Economic Outlook. June 2019
U.S. shale production on track to reach 9 million b/d
Source: BBVA Research and Haver Analytics
6
7
8
9
10
11
12
13
2015 2016 2017 2018 2019
800
850
900
950
1000
1050
1100
Jan-1
8
Feb
-18
Ma
r-1
8
Apr-
18
Ma
y-1
8
Jun-1
8
Jul-1
8
Aug-1
8
Sep-1
8
Oct-
18
No
v-1
8
De
c-1
8
Jan-1
9
Feb
-19
Ma
r-1
9
Apr-
19
Ma
y-1
9
Jun-1
9
U.S. STOCKS OF CRUDE OIL
(EXCLUDING SPR, MILLION BARRELS)
U.S. ACTIVE RIG COUNT
(UNITS)
U.S. OIL PRODUCTION BY REGION
(MILLION BARRELS PER DAY)
U.S. TOTAL ESTIMATED CRUDE OIL PRODUCTION
(THOUSAND BARRELS PER DAY)
300
350
400
450
500
550
2015 2016 2017 2018 2019
-
1.0
2.0
3.0
4.0
5.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Bakken Eagle Ford Permian Other
32BBVA Research - U.S. Economic Outlook. June 2019
U.S. Imports substitution has accelerated
32
U.S. EXPORTS OF CRUDE OIL
(MILLION BARRELS PER DAY)
U.S. PRODUCTION AND NET IMPORTS OF CRUDE OIL
(MILLION BARRELS PER DAY)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
19
95
19
96
19
97
19
98
20
00
20
01
20
02
20
03
20
05
20
06
20
07
20
08
20
10
20
11
20
12
20
13
20
15
20
16
20
17
20
18
0
2
4
6
8
10
12
14
19
95
19
96
19
97
19
98
19
99
20
00
20
02
20
03
20
04
20
05
20
06
20
07
20
09
20
10
20
11
20
12
20
13
20
14
20
16
20
17
20
18
Net imports Crude oil production
Source: BBVA Research and Haver Analytics
33BBVA Research - U.S. Economic Outlook. June 2019
Escalation of tensions between the U.S. and Iran could cause
significant disruption
33
STRAIT OF HORMUZ
Source: Australian BC
17.2 18.420.6 20.3 20.7
39.240.5
40.6 42.2 43.8
0
10
20
30
40
50
60
70
2014 2015 2016 2017 2018
Through the Strait of Hormuz Other
WORLD MARITIME OIL TRADE
(MILLION BARRELS PER DAY)
Note: Other maritime trade flows in 2018 are BBVA Research estimate.
Source: Energy Information Administration
34BBVA Research - U.S. Economic Outlook. June 2019
Supply adjustments will support prices in 2019, but demand will be the
main driver going forward
Source: BBVA Research, Bloomberg and EIA
WTI prices forecast ($ per barrel)
Brent prices forecast ($ per barrel)
BBVA Research (baseline)
Bloomberg
Survey (June 25)
EIASTEO (June 11)
2017 54.2 54.2 54.2
2018 71.1 71.1 71.1
2019 64.2 67.2 66.7
2020 55.4 67.7 67.0
2021 60.8 68.0
2022 60.0 67.8
2023 59.7 67.6
BBVA
Research
Bloomberg
Survey (June 25)
EIA STEO (June 11)
2017 50.9 50.9 50.9
2018 65.0 65.0 65.0
2019 55.4 60.5 59.3
2020 48.2 61.0 63.0
2021 58.0 62.9
2022 57.7 63.8
2023 57.4 61.0
64.2
55.4
60.8 60.0 59.7
40
45
50
55
60
65
70
75
80
2019 2020 2021 2022 2023
BBVA Research Bloomberg Survey (June 25)
EIA STEO (June 11)
55.4
48.2
58.0 57.7 57.4
40
45
50
55
60
65
70
75
80
2019 2020 2021 2022 2023
BBVA Research Bloomberg Survey (June 25)
EIA STEO (June 11)
35BBVA Research - U.S. Economic Outlook. June 2019
Futures curve remains in backwardation
Source: BBVA Research and Bloomberg
Brent Futures($ per barrel)
WTI Futures($ per barrel)
40
45
50
55
60
65
70
75
1 2 3 4 5 6 7 8 9 101112131415161718192021222324
$U
SD
/bb
l
Months Ahead
06/27/19 1 month ago3 months ago 6 months ago
40
45
50
55
60
65
70
75
1 2 3 4 5 6 7 8 9 101112131415161718192021222324
$U
SD
/bb
l
Months Ahead
06/27/19 1 month ago3 months ago 6 months ago
36BBVA Research - U.S. Economic Outlook. June 2019
The balance of short-term risks is tilted to the upside
*Brent crude prices. Source: BBVA Research
>=
$60/b*
<
$60/b*
OPEC spare capacity insufficient to deal with unexpected
shocks
Tensions between the U.S. and Iran escalate
Stronger–than–expected impact from additional negative
supply shocks (e.g., Eastern Europe, Venezuela and Libya)
Signs of progress in trade negotiations between the U.S.
and China after G-20
Milder-than-expected deceleration of global demand
Takeaway issues preventing U.S. crude to reach global
markets
Weaker global economic outlook
Persistent deadlock in trade talks between U.S. and China
OPEC+ output deal is broken
Dollar appreciation
President Trump’s pressure on OPEC
Limited enforcement of Iranian sanctions
Iran sues for peace and quickly revamps exports
Higher-than-expected crude oil production in the U.S.
37BBVA Research - U.S. Economic Outlook. June 2019
Macroeconomic Outlook
Source: BBVA Research
*Forecasts subject to change
2011 2012 2013 2014 2015 2016 2017 2018 2019 (f) 2020 (f) 2021 (f) 2022 (f)
Real GDP (% SAAR) 1.6 2.2 1.8 2.5 2.9 1.6 2.2 2.9 2.5 2.0 1.9 1.8
Real GDP (Contribution, pp)
PCE 1.3 1.0 1.0 2.0 2.5 1.9 1.8 1.8 1.5 1.3 1.3 1.2
Gross Investment 0.9 1.6 1.1 0.9 0.8 -0.2 0.8 1.0 0.7 0.7 0.8 0.9
Non Residential 1.0 1.2 0.5 0.9 0.3 0.1 0.7 1.0 0.6 0.7 0.7 0.8
Residential 0.0 0.3 0.3 0.1 0.3 0.2 0.1 0.0 -0.1 0.0 0.0 0.1
Exports 0.9 0.5 0.5 0.6 0.1 0.0 0.4 0.5 0.4 0.6 0.7 0.7
Imports -0.9 -0.5 -0.3 -0.9 -1.0 -0.3 -0.8 -0.8 -0.2 -0.8 -0.9 -0.9
Government -0.7 -0.4 -0.5 -0.2 0.3 0.3 0.0 0.3 0.2 0.1 0.0 0.0
Unemployment Rate (%, average) 8.9 8.1 7.4 6.2 5.3 4.9 4.4 3.9 3.7 4.0 4.2 4.4
Avg. Monthly Nonfarm Payroll (K) 173 181 192 251 227 193 179 223 166 151 135 113
CPI (YoY %) 3.1 2.1 1.5 1.6 0.1 1.3 2.1 2.4 1.8 1.9 2.0 2.1
Core CPI (YoY %) 1.7 2.1 1.8 1.8 1.8 2.2 1.8 2.1 2.0 2.0 2.0 2.0
Fiscal Balance (% GDP, FY) -8.4 -6.8 -4.1 -2.8 -2.4 -3.2 -3.5 -3.8 -4.6 -4.1 -4.2 -4.7
Current Account (bop, % GDP) -2.9 -2.6 -2.1 -2.1 -2.2 -2.3 -2.3 -2.4 -2.2 -2.3 -2.3 -2.4
Fed Target Rate (%, eop) 0.25 0.25 0.25 0.25 0.50 0.75 1.50 2.50 2.00 1.75 1.75 2.25
Core Logic National HPI (YoY %) -2.9 4.0 9.7 6.8 5.3 5.5 5.9 5.7 3.7 3.0 3.2 3.5
10-Yr Treasury (% Yield, eop) 1.98 1.72 2.90 2.21 2.24 2.49 2.40 2.83 1.71 1.82 2.09 2.45
West Texas Intermediate
Oil Prices (dpb, average)94.9 94.1 97.9 93.3 48.7 43.2 50.9 65.0 55.4 48.2 58.0 57.7
38BBVA Research - U.S. Economic Outlook. June 2019
Economic Scenarios Probability (%) Current Previous
Upside 5 5
Baseline 55 55
Downside 40 40
Subject to revision without notice
Macro Scenarios
2015 2016 2017 2018 2019 2020 2021 2022 2023
GDP 2.9 1.6 2.2 2.9 2.5 2.0 1.9 1.8 1.7
Upside 3.1 3.5 3.1 2.7 2.7
Downside 1.5 -0.7 1.2 1.4 1.6
UR 5.3 4.9 4.4 3.9 3.7 4.0 4.2 4.4 4.4
Upside 3.5 2.9 2.9 3.0 3.0
Downside 4.2 6.2 6.6 5.7 5.0
CPI 0.1 1.3 2.1 2.4 1.8 1.9 2.0 2.1 2.0
Upside 2.0 3.3 3.7 3.8 3.8
Downside 1.3 0.4 1.1 1.3 1.4
Fed [eop] 0.50 0.75 1.50 2.50 2.00 1.75 1.75 2.25 2.25
Upside 3.50 5.00 5.50 6.00 6.50
Downside 1.50 0.25 0.25 0.25 0.25
10-Yr [eop] 2.24 2.49 2.4 2.83 1.71 1.82 2.09 2.45 2.6
Upside 5.15 5.88 6.72 7.20 7.35
Downside 0.67 0.68 0.93 1.21 1.55
39BBVA Research - U.S. Economic Outlook. June 2019
Disclaimer
This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) BBVA Research U.S. on behalf of itself and its affiliated companies (each BBVA Group Company) for
distribution in the United States and the rest of the world and is provided for information purposes only. Within the US, BBVA operates primarily through its subsidiary Compass Bank. The
information, opinions, estimates and forecasts contained herein refer to the specific date and are subject to changes without notice due to market fluctuations. The information, opinions,
estimates and forecasts contained in this document have been gathered or obtained from public sources, believed to be correct by the Company concerning their accuracy, completeness,
and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.
U.S.
Economic Outlook
June 2019