U.S. Economic Outlook Monthly Update - July 2014

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Expectations for a Stronger 2H14

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U.S. Economic Outlook Monthly Update - July 2014

  1. 1. U.S. Economic Outlook Monthly Update July 11, 2014
  2. 2. 2 US Monthly Outlook Meeting Details Topic: U.S. Monthly Economic Outlook Date: Friday, July 11, 2014 Time: 10:00 am, Central Standard Time (Chicago, GMT-06:00) Meeting Number / Access Code: 714 525 921 Meeting Password: bbva To join the online meeting: https://bbvacompass.webex.com/bbvacompass/j.php?MTID=m182e5132f 7a7269db49577e2fb665fd3 To join the audio conference only: Call-in toll-free number (US/Canada): 1-877-768-4036 Call-in toll number (US/Canada): 1-972-932-2100 Global call-in numbers: https://bbvacompass.webex.com/bbvacompass/globalcallin.php?service Type=MC&ED=187370482&tollFree=1
  3. 3. 3 US Monthly Outlook Economic Activity Contributions to % change in real GDP, SAARReal GDP Growth %, SAAR, shaded areas=recession 1Q14 real GDP growth: A highly unusual performance % 1Q14 Avg. 1Q13-4Q13 GDP -2.9 2.6 PCE 0.7 1.6 Durables 0.0 0.4 Nondurables -0.1 0.4 Services 0.7 0.8 Investment -2.0 1.3 Structures -0.2 0.0 Eq. & software -0.2 0.2 Int. property 0.2 0.1 Residential -0.1 0.2 Inventories -1.7 0.7 Net Exports -1.5 0.2 Exports -1.3 0.7 Imports -0.3 -0.5 Federal gov't 0.1 -0.5 State & local gov’t -0.2 0.0 Source: BBVA Research & Haver Analytics -15 -10 -5 0 5 10 15 20 50 54 58 62 66 70 74 78 82 86 90 94 98 02 06 10 14
  4. 4. 4 US Monthly Outlook Economic Activity Real GDP Growth & MICA QoQ % change BBVA US Weekly Activity Index 3m % change A strong rebound in 2Q14 GDP growth is likely Source: BBVA Research -20 -15 -10 -5 0 5 10 15 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 5.0 5.5 6.0 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 GDP Growth Management Committee BBVA-MICA7 BBVA-MICA7 1M Ago BBVA-MICA9 BBVA-MICA GDP M Comp
  5. 5. 5 US Monthly Outlook Economic Activity 2014 Forecasts, Selected Indicators % 2014 Real GDP Growth Forecasts % Although we expect a solid performance for the rest of the year, the annual average may be lower than currently expected 2.0 2.1 2.2 2.3 2.4 2.5 2.6 2.7 2.8 2.9 3.0 Mar13 Apr13 May13 Jun13 Jul13 Aug13 Sep13 Oct13 Nov13 Dec13 Jan14 Feb14 Mar14 Apr14 May14 Jun14 Consensus BBVA Research 1.4 2.4 3.4 4.4 5.4 6.4 7.4 U-rate (% avg.) CPI (% avg.) 10YTN (eop) Consensus BBVA Research Source: BBVA Research & Consensus Forecasts
  6. 6. 6 US Monthly Outlook Labor Markets Labor market conditions Index Labor market conditions Index Ongoing progress in labor market conditions Source: BBVA Research & Haver Analytics -25 0 25 50 75 100 125 150 ISM Mfg.… ISM Nonmfg.… Temp. Help Initial Claims Empl. Expect.… Difficulty to Fill… Real Wage Avg. Hours Job Vacancies PayrollEmployment Job Losers Unemployment Job Availability Quits Hires Hiring Plans… Hiring Plans… 2002-2007 Last 4Q07=100 4Q09=0 -150 -100 -50 0 50 100 150 Work Part Time: Economic Reason Unemployment Duration Unemployment Unemployed 5-14 weeks Unemployed 15- 26 Unemployed >15 weeks Unemployed > 27 weeks Unemployed < 5 weeks Real Earnings Participation Part time 1-34Hrs. Reentrants New Entrants Marginally Attached Disability Payments Compensation 2002-2007=100 Sep-12 Last 4Q09=0
  7. 7. 7 US Monthly Outlook Inflation Inflation heat mapBBVA Research US Inflation Risk Index & Core CPI Deflation risk<0; Inflation risk>0 Our inflation risk index suggest a slight uptick in inflation in the next four quarters Source: BBVA Research & Haver Analytics DeflationInflation 0.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% -25 -20 -15 -10 -5 0 5 10 15 05 06 07 08 09 10 11 12 13 14 Index Core CPI (rhs, -4Q) 2014 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Money Stock Loans House prices CRE prices PPI consumer PPI capital Wages 10YTN BAA AAA Nonfin Corp debt Fin Corp debt Gov't debt Households Debt SME debt Households debt to income DSR FOR Delinquencies Charge‐offs 2013 2012 2011 2010
  8. 8. 8 US Monthly Outlook Monetary Policy  Mid – 2015  Maintaining the 3Q15 baseline with a light bias towards an earlier rate hike  Under current baseline, rate increases will be gradual  Risks: low rates for too long vs. fast rate increases too soon  Slowdown in 1Q14 is seen as temporary: “growth in economic activity has rebounded in recent months.”  Concerns on labor market conditions despite recent improvement: “The unemployment rate, though lower, remains elevated.”  $10bn reduction in asset purchases  “… appropriate to maintain the current target range for the federal funds rate for a considerable time after the asset purchase program ends…”  Differences of opinion on the mechanics of normalizing the stance and conduct of monetary policy: “will continue its discussions in upcoming meetings, with the expectation of providing additional details later this year.” Fed  Measured steps of $10bn reduction of QE3  Timing of the rate hike and the path of policy rate remains data dependent  Debate driven by long-term growth potential and level of slack (labor market underutilization)  FOMC in consensus building phase to clarify exit strategy principles  Doves have the upper hand in the discretionary vs. rule-like policy debate FOMC Statement: June 17-18, 2014 What do we expect? 1st Rate increase 4Q14 Expected End QE3 3Q15 First FFR Hike 1H16 Policy Normalization Let securities mature/sales Timeline Exit Strategy
  9. 9. 9 US Monthly Outlook Monetary Policy 0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0 4.5 2014 2015 2016 Long- run FOMC Appropriate pace of policy firming: Target fed funds rate Year-end, %, latest release Hawks Doves George (KC) Plosser (Phi) Bullard (StL) Lacker (Rich) Fisher (Dal) Mester (Gov)* Tarullo (Gov) Powell (Gov) Fischer (Gov)* Lockhart (Atl) Brainard (Gov)* Yellen (Chair) Dudley (NY) Kocherlakota (Min) Williams (SF) Rosengren (Bos) Evans (Chi) * First time voters
  10. 10. 10 US Monthly Outlook Federal Funds Rate Median Market Expectations Fed Funds % Market Expectations First Rate Hike End of period, probability Survey expectations have adjusted slightly Source: BBVA Research, NYFRB & Haver Analytics 0.00 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00 April 22, 2014 Dec 9, 2013 Sep 9, 2013 BBVA 0% 5% 10% 15% 20% 25% 30% 35% 40% Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Jun-17 Dec-17 Sep 9, 2013 Dec 9, 2013 April 22, 2014 BBVA
  11. 11. 11 US Monthly Outlook Baseline Scenario 2014 real GDP growth on watch alert 2011 2012 2013 2014 2015 2016 2017 2018 GDP new 1.8 2.8 1.9 2.5 2.5 2.8 2.8 2.9 old 1.8 2.8 1.8 2.5 2.5 2.8 2.8 2.9 CPI new 3.1 2.1 1.5 1.8 2.2 2.3 2.4 2.4 old 3.1 2.1 1.5 2.3 2.4 2.4 2.5 2.5 Core new 1.7 2.1 1.8 1.9 2.1 2.3 2.4 2.5 old 1.7 2.1 1.8 2.0 2.3 2.4 2.5 2.5 Fed new 0.25 0.25 0.25 0.25 0.50 1.50 2.50 3.25 [eop] old 0.25 0.25 0.25 0.25 0.50 1.50 2.50 3.25
  12. 12. U.S. Economic Outlook Monthly Update July 11, 2014

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