The document provides an economic outlook and forecasts for the US economy from BBVA Compass. It summarizes that global growth is expected to remain weak in 2016. While the US job market and consumer spending remain strong, private business investment growth is lackluster. Lower oil prices boost energy-intensive industries but hurt the energy sector. Inflation is below target and the Federal Reserve remains cautious about raising interest rates given subpar growth and low inflation. The US dollar is expected to remain strong relative to other currencies.
1. U.S. Economic Outlook
Spain-Texas Investment &
Trade Conference
Nathaniel Karp
Chief Economist
BBVA Compass
Houston, Texas October 1, 2015
2. 2
U.S. Economic Outlook
Global Outlook
Global Real GDP growth
% change
Weak global economic conditions
Downward revision to global growth
reflecting weaker-than-expected
performance in China, U.S. &
commodity-dependent economies
Global rebalancing: China, USD,
middle class in emerging markets,
commodity super cycle
Uncertainties: Oil, deflation, ECB QE,
FX-USD, Fed exit, China, geopolitics &
secular stagnation
Source: BBVA Research
5.7
3.0
0.0
5.4
4.1
3.4 3.2 3.4 3.4
3.8
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Advanced Developing
3. 3
U.S. Economic Outlook
Financial Markets
Foreign Exchange Rates
% change July to date; vs.. USD and Broad USD Index;
Commodity Prices
Index; Jan 1 2015=100
Equity Prices
Index; Jan 1 2015=100
FX volatility amid lower
equity & commodity
prices
Source: BBVA Research & Haver
-10 0 10 20 30
U.S.
Japan
Europe
U.K.
China
Switzerland
India
Korea
Mexico
Canada
Australia
S. Africa
Turkey
Malaysia
Colombia
Russia
Brazil
70
80
90
100
110
120
130
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Asia ex Japan LATAM MENA
Euro S&P500 Japan
60
80
100
120
Jan15
Feb15
Mar15
Apr15
May15
Jun15
Jul15
Aug15
Sep15
Aluminum Copper
Oil Soybeans
Lead Nickel
4. 4
U.S. Economic Outlook
Oil Prices
West Texas Intermediate
Dpb ($ & constant $2015)
Elevated uncertainty
going forward
WTI: Actual and futures prices, dpb
0
50
100
150
2006-12 2013 2014 2015 2016
Low High
0
20
40
60
80
100
120
140
160
70 73 76 79 82 85 88 91 94 97 00 03 06 09 12 15
Nominal
Real
Average
WTI: Probability of Dec-15 and Dec-16
contract expiring above price levels:
0%
20%
40%
60%
80%
100%
25 30 35 40 45 50 55 60 65 70 75 80 85 90 95
Dec-15 Dec-16
Source: BBVA Research, IEA & Haver
5. 5
U.S. Economic Outlook
U.S. Collateral Damage: FX
Exports of goods, services & income
US$bn, BOP
Exports and Foreign Exchange Rate
YoY % change, REER Major currencies
A strong Dollar pressures exports and foreign sales
Source: BBVA Research & Haver
-15
-10
-5
0
5
10
15
20
91 93 95 97 99 01 03 05 07 09 11 13 15
Exports USD
10
11
12
13
14
15
16
17
18
19
0
500
1000
1500
2000
2500
3000
3500
90 93 96 99 02 05 08 11 14
Goods & Servcies
Income
% GDP (rhs)
6. 6
U.S. Economic Outlook
Collateral Damage: Energy
Energy Capital Expenditures
US$bn
Active Rigs in the U.S.
A sharp Capex adjustment after several booming years
Source: BBVA Research & Haver
EDP= Exploration, drilling, production and OCS
Other= Refining, Petrochem, Marketing, Pipelines, Mining & Misc
0
50
100
150
200
250
300
350
400
90 92 94 96 98 00 02 04 06 08 10 12 14 16
EDP&OCS
Other
Forecast
300
400
500
600
700
800
900
1000
1100
1200
06 07 08 09 10 11 12 13 14 15
US ex TX Texas
U.S. ex TX: 477
TX: 365
7. 7
U.S. Economic Outlook
Collateral Benefits: Energy
Selected Energy-Intensive Sectors
Energy inputs as % of total
Oil and Gasoline Prices
$/bbl & $/gal
A boost to real incomes and energy-intensive industries
1.5
2.0
2.5
3.0
3.5
4.0
4.5
20
40
60
80
100
120
140
06 07 08 09 10 11 12 13 14 15
WTI
Gasoline (rhs)
Industry* Energy Intensity (%)
1 Air transportation 22.6
2 Utilities 22.1
3 Water transportation 22.1
4 Truck transportation 18.7
5 Rail transportation 13.9
6 Federal, State & Local Gov. Enterprises 10.7
7 Transit & Ground Passenger 10.5
8 Real Estate- Other 9.3
9 Mining, except oil and gas 7.0
10 Nonmetallic Mineral Manu. 6.9
Source: BBVA Research & Haver
8. 8
U.S. Economic Outlook
Economic Activity
BBVA Research USA Weekly Activity Index
3 month % Change
U.S. Real GDP Growth
QoQ % change SAAR
We expect slower GDP growth in 2H15
Source: BBVA Research
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
Jan12
May12
Sep12
Jan13
May13
Sep13
Jan14
May14
Sep14
Jan15
May15
Sep15
-1
0
1
2
3
4
5
1Q13
2Q13
3Q13
4Q13
1Q14
2Q14
3Q14
4Q14
1Q15
2Q15
Final Sales Private Domestic
Purchasers
GDP
9. 9
U.S. Economic Outlook
Businesses
Nonresidential Private Investment & S&P500
1Q07=100
Financing Gap and Profits
Nonfinancial corporate sector; $bn & %
Despite solid businesses conditions, private investment
growth remains lackluster
Source: BBVA Research & Haver
0
1
2
3
4
5
6
7
8
9
10
-500
-400
-300
-200
-100
0
100
200
300
400
500
92 94 96 98 00 02 04 06 08 10 12 14
Financing Gap
Profits as % of GDP (rhs)
20
40
60
80
100
120
140
160
07 08 09 10 11 12 13 14 15
Structures IT
Industrial Transp
Other eqpt Int. Property
SP500 Total
10. 10
U.S. Economic Outlook
Households
0
2
4
6
8
10
12
-4
-3
-2
-1
0
1
2
3
4
5
04 05 06 07 08 09 10 11 12 13 14 15
PCE Savings rate (rhs)
Personal Spending & Savings Rate
YoY % change & %
Debt to Income Ratio
Debt to Spending Ratio
On better footing to
buttress private
consumption
Source: BBVA Research & Haver
0.70
0.80
0.90
1.00
1.10
1.20
1.30
1.40
90 92 93 95 97 99 01 03 04 06 08 10 12 14
Trend before boom
Actual
0.90
1.00
1.10
1.20
1.30
1.40
1.50
90 92 93 95 97 99 01 03 04 06 08 10 12 14
Trend before boom
Actual
11. 11
U.S. Economic Outlook
Labor Markets
Unemployment Rate & Not In Labor Force
% & Millions
Nonfarm Payroll
Monthly change
Solid job creation and declining unemployment rate
-1000
-800
-600
-400
-200
0
200
400
600
96 98 00 02 04 06 08 10 12 14
Monthly gains
12mma
60
65
70
75
80
85
90
95
100
4
5
6
7
8
9
10
11
90 92 94 96 99 01 03 05 07 09 11 13
UR
Not in Labor Force (rhs)
Source: BBVA Research & Haver
12. 12
U.S. Economic Outlook
-16.0
-14.0
-12.0
-10.0
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
0 20 40 60 80 100
Food
Shelter
ex OER
Autos
Energy
Medical
Srvs
Owner
equivalent
rent
Srvs ex Medical
& Shelter
Comm ex
Energy &
Autos
Inflation
Core Inflation
12m % change
Contributions to CPI
Relative Importance & 12m% change
Downward pressures from lower commodity prices, a
stronger Dollar and technological advances
Relative Importance
Source: BBVA Research & Haver
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
Jan00
Mar01
May02
Jul03
Sep04
Nov05
Jan07
Mar08
May09
Jul10
Sep11
Nov12
Jan14
Mar15
Services Commodities
13. 13
U.S. Economic Outlook
Monetary Policy
FOMC Target Gap: Inflation
Actual inflation-long-run FOMC PCE forecast, pp
FOMC Target Gap: Unemployment Rate
Actual UR-long-run FOMC UR forecast, pp
Fed unconvinced on having reached full employment and
not reasonably confident in meeting the inflation target
-1.1
-0.9
-0.7
-0.5
-0.3
-0.1
0.1
0.3
0.5
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
w/Core PCE w/Trimmed PCE
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
Jul-12
Jan-13
Jul-13
Jan-14
Jul-14
Jan-15
Jul-15
Source: BBVA Research & Haver
14. 14
U.S. Economic Outlook
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2012
2013
2014
2015
2016
2017
2018
Monetary Policy
%, Sept 2015 release
FOMC Appropriate pace of policy firming: Target fed funds rate year-end
Expectations 2012-2015
A dovish Fed uncertain on when to pull the trigger
Source: BBVA Research, Bloomberg & Fed
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
0.40 1.48 2.64 3.34 3.462012
Q1 Q2 Q3 Q4
2013
Q1 Q2 Q3 Q4
2014
Q1 Q2 Q3 Q4
2015
Q1 Q2 Q3
Numbers in shaded area=average
15. 15
U.S. Economic Outlook
Interest Rates
Long-Term Interest Rates
10-year bond decomposition, %
Fed funds Expectations
%
Subpar growth and low inflation will keep interest rates
below historical average
Source: BBVA Research, Haver & FRBSF
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
Mar10
Mar11
Mar12
Mar13
Mar14
Mar15
Risk premium
Inflation expectations
Real rate
Yield
0.00%
0.50%
1.00%
1.50%
2.00%
2.50%
3.00%
3.50%
4.00%
Jun-15
Sep-15
Dec-15
Mar-16
Jun-16
Sep-16
Dec-16
Mar-17
Jun-17
Sep-17
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
BBVA
Survey Median
FOMC avg.
Survey 25%
Survey 75%
16. 16
U.S. Economic Outlook
60
70
80
90
100
110
120
130
140
150
75 79 83 87 91 95 99 03 07 11 15
Nominal Real
Foreign Exchange Rate
USD vs. Other Important Currencies
Index 1997=100
USD vs. Major Currencies
Index 1973=100
Economic conditions support a strong dollar,
particularly against EMs currencies
Strong Dollar
Strong Dollar
Weak Dollar
Weak Dollar
0
20
40
60
80
100
120
140
160
75 79 83 87 91 95 99 03 07 11 15
Nominal Real
Source: BBVA Research & Haver
17. 17
U.S. Economic Outlook
Fiscal Policy
-10
-8
-6
-4
-2
0
2
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
Cyclical
Structural
Federal Debt
% of GDP
Budget Balance
% of GDP
Diminishing short-term fiscal pressures incentive
kicking the can once again
Source: BBVA Research, CBO & Haver
0
20
40
60
80
100
120
2007
2009
2011
2013
2015
2017
2019
2021
2023
2025
Held by the Public Intragoverment
19. 19
U.S. Economic Outlook
Long-Term Outlook
Real Potential Output Growth
%, Nonfarm business sector
Real Potential GDP Growth
%
Status quo is not good enough
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
50556065707580859095000510 152025
1.0
0.1
0.4
1.1
0.6
0.8
1.6
0.9
1.3
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
1950-07 2008-14 2015-25
Hours
Capital
Productivity
Source: BBVA Research & Haver
20. 20
U.S. Economic Outlook
Long-Term Outlook
Federal Spending and Revenues
Share of each $1 of federal spending
Effective policies are needed to boost potential growth
Source: BBVA Research & Haver
0.0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
0.9
1.0
2013
2019
2025
2031
2037
2043
2049
2055
2061
2067
2073
2079
2085
Social Security
Medicare
Medicaid+CHIP+ACA
Other
Net Interest
Revenues
Education
Infrastructure
Health Care
Tax/Regulation
ImmigrationEnergy
Increase potential GDP growth
between 1.5% and 2%
21. 21
U.S. Economic Outlook
Long-Term Outlook
Share of Patent Grants
%
The U.S. still remains highly competitive
0
10
20
30
40
50
60
1997 2012
U.S. Asia
Index Ranking
Technological Readiness (WEF) 16
Technological adoption 7
ICT use 20
Global Innovation (Cornell U.) 6
Institutions 17
Human capital & research 11
Infrastructure 14
Market sophistication 1
Business sophistication 10
Knowledge & technology outputs 4
Creative outputs 20
U.S. Competitiveness: Technology
Source: BBVA Research, WEF, Cornell University & NSF
22. 22
U.S. Economic Outlook
Texas: Slower But Solid Growth
BBVA Research USA State Monthly Activity Index
3-Month Moving Average
Housing Price Index (Purchase Only)
Year over Year % Change
Unemployment Rate
%
Total Exports
Year over Year % Change, Moving Average
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
04 05 06 07 08 09 10 11 12 13 14 15
US Texas -15
-10
-5
0
5
10
15
04 05 06 07 08 09 10 11 12 13 14 15
US Texas
-30
-20
-10
0
10
20
30
40
04 05 06 07 08 09 10 11 12 13 14 15
US
Texas
0.0
2.0
4.0
6.0
8.0
10.0
12.0
04 05 06 07 08 09 10 11 12 13 14 15
US Texas
Source: BBVA Research, & Haver
23. 23
U.S. Economic Outlook
Texas Outlook
Texas Real GDP Growth & Oil Prices
Dotted lines= 95% C.I., Markers represent median estimate
Oil price drop increases downside risks to Texas growth
*Source: BBVA Research
**Forecasts as of Jan 9, 2015
• GDP growth will slow from torrid
pace
• Employment growth flat in 2015
• Texas diversification and milder
cycles implies less severe risk
scenario than 1980s
• The main risks are to oil-dependent
cities like Midland, Odessa, Abilene,
Longview and Wichita Falls
• Smaller impact for Austin and Dallas-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
@50 @40 @30 @20
24. 24
U.S. Economic Outlook
Texas Outlook
Unemployment Rate: Oil Risk Scenarios
Unemployment rates will rise as a result of oil price
declines. High wage earners at risk of job losses
%
Source: BBVA Research
Highest Risk Occupations & Wages
K, Average: 2009-2013, U.S. data
0 25 50 75 100 125
Pipeline**
Truck**
Air**
Chemical*
Nonmetallic Mineral*
Utilities
Petroleum & Coal*
O&G Extraction
Support Activ.
Mining ex O&G
75th Percentile Median
4.0
4.5
5.0
5.5
6.0
6.5
7.0
7.5
8.0
8.5
9.0
Jan-05
Jan-06
Jan-07
Jan-08
Jan-09
Jan-10
Jan-11
Jan-12
Jan-13
Jan-14
Jan-15
Jan-16
Jan-17
*Manufacturing, **Transportation
U.S. Median
25. 25
U.S. Economic Outlook
Houston: Employment
Net job creation has stalled as labor demand rebalances
Change in Nonfarm Payroll, thousands
Source: BBVA Research & Haver
Nonfarm Payroll, thousands
2,200
2,300
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
0304050607080910 11 12 13 14 15
-10
-5
0
5
10
15
20
3m 2014
26. 26
U.S. Economic Outlook
Houston: Economic Conditions
MSA Real GDP
US$ 2009, Index: 2005=100
Employment
Index 2005=100
Still a remarkable performance relative to other metros
Source: BBVA Research & Haver Analytics
90
95
100
105
110
115
120
125
130
135
140
Houston Chicago
Los Angeles Miami
New York
90
95
100
105
110
115
120
125
130
135
140
Houston Chicago
Los Angeles Miami
New York
28. 28
U.S. Economic Outlook
BBVA Research State Attractiveness
Regulation
Industry
Technology
Fiscal
Based on 314 variables
Source: BBVA Research
Stronger Weaker
29. 29
U.S. Economic Outlook
BBVA Research Industry Attractiveness
Demographics, innovation, globalization and sustainability
determine industry attractiveness
Superior
High
Medium
Ambulatory Health Services, Medical Devices, Information
Technology, Professional Services, Support for Mining,
Software Development, Biotech, Pipeline Transportation,
Warehousing, Education, Pharmaceuticals
Food Manufacturing, Machinery & Equipment, Freight
Transportation, Chemicals, Oil and Gas Extraction,
Wholesale Trade, Hospitals, Home Healthcare
Construction, Utilities, Recreation, Nursing, Waste
Management, Accommodation, Renewables,
Autos, Scrap Metal
Source: BBVA Research
30. 30
U.S. Economic Outlook
Houston: More Than an Oil Town
BBVA Target Occupation Concentration
Location quotient: (share of local employment) / (share of U.S. employment)
*High-value added occupations incorporate a wide range of industries including high-tech manufacturing, healthcare, science and technology
Major metro areas, including Houston, are aligned with
21st century employment needs
31. 31
U.S. Economic Outlook
Houston: Strong Fundamentals
Mid-term Real GDP Growth
%
Houston Economic Forecasts
%
Expected Population Growth
2010-2030, Average, %
0
2
4
6
8
10
12
GDP Employment Home Prices
2013 2014 2015
BBVA Research USA Rankings of 381 MSAs, 2014, preliminary.
Source: BBVA Research & Haver
BBVA Research MSA Rankings: Houston
Structure 1
Growth 19
Financial 1
Industry 12
Cycle 339
Overall 1
0.0
0.5
1.0
1.5
2.0
2.5
US Texas Houston
2.6
2.7
2.8
2.9
3.0
3.1
3.2
3.3
US Texas Houston
32. 32
U.S. Economic Outlook
Texas & Houston: FDI Magnets
0 50 100 150
Sweden
Norway
Netherlands
Australia
Spain
France
Japan
Canada
Germany
UK
Texas: Top 10 Countries for FDI Projects
2009-2013
0 50 100 150
IT & Electronics
Energy
Industrial Goods
Chemicals
Professinal Services
Texas: Top 5 Industries for FDI Projects
2009-2013
Metro Area Jobs
% of total
FOE Jobs
%of total U.S.
Jobs
New York 490,300 8.7% 6.4%
Los Angeles 271,200 4.8% 4.0%
Chicago 223,500 4.0% 3.4%
Dallas 134,100 2.4% 2.3%
Philadelphia 137,000 2.4% 2.1%
Washington 126,200 2.2% 2.1%
Houston 178,000 3.2% 2.0%
Boston 142,800 2.5% 1.9%
Atlanta 134,600 2.4% 1.8%
Miami 91,700 1.6% 1.7%
10 Largest 1,929,000 34.2% 27.7%
100 Largest 4,156,600 73.8% 68.3%
U.S. 5,634,300
Texas and Houston are top
destinations for foreign direct
investment
Source: BBVA Research & Office of the Governor
33. 33
U.S. Economic Outlook
Texas: A Highly Attractive Market
The combined GDP of Texas four
largest metro areas is
equivalent to Spain’s economy
Source: BBVA Research, IMF & Haver; IMF figures may not match national official data
Texas US Spain
Land (Thou. Sq mi) 269 3,718 195
GDP (US$ bn, 2014) 1,648 17,419 1,407
Population (Millions, 2014) 27.0 319.0 46.5
GDP per Capita (US$, 2014) 61,136 54,597 30,278
Employment (Millions, 2014) 12.4 146.3 17.3
GDP/Employment (US$, 2014) 132,519 119,061 81,115
Employment/Population (%) 46.1 45.9 37.3
Inflation (% 5yr-avg, deflator) 2.6 1.8 0.1
Potential GDP (%) 3.0 2.5 1.3
Everything is
bigger in Texas
Houston
Dallas/Ft.
Worth
San
Antonio
Austin
34. 34
U.S. Economic Outlook
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35. U.S. Economic Outlook
Spain-Texas Investment &
Trade Conference
Nathaniel Karp
Chief Economist
BBVA Compass
Houston, Texas October 1, 2015