‘GOOD VIBRATIONS’ December 5, 2018

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Presentation transcript:

‘GOOD VIBRATIONS’ December 5, 2018 Campaign rhetoric versus economic reality Changing of the guard, 2016 versus others If not in crisis, all the more difficult to find consensus Polarized in the first place Short- versus long-term issues

Uneven (but Still-Growing) Progress … Real GDP in selected regions (percent change from four quarters earlier) Note: Global real GDP is constant 2016 dollars (PPP basis). Sources: Haver Analytics; OECD; World Bank; IMF; CIA; U.S. Department of Commerce; J.P. Morgan. Updated through 2018 Q3. To insert additional slides: Right click the thumbnail image to the left and select “Duplicate Slide” To insert chart into table: Click the center of the table Go to the “Insert” tab at the top of the menu Select chart Formatting Notes: (note- When pasting, select “Paste Special”, then unformatted text – this will preserve the formatting showcased above) Chart Title: Font: Helvetica Bold Size: 9 pt Color: RGB 136/171/213 Chart Subtitle: Font: Helvetica Italic Color: Black: RGB 0/0/0 Chart “Source”: Font: Helvetica Size: 7 pt Color: Black RGB 0/0/0 Copy Header (if applicable): Space after – 9 pt Copy Subhead (if applicable): : Font: Helvetica; Underlined Copy: Line Spacing: 1.5 (Click square on lower-right-hand of the “Paragraph Tab” on the menu bar at the top and the paragraph dialogue box will open) Space between paragraphs is a single line Header/Footer: Size: 8 pt Color: RGB 128/128/128 Global and National Economic Outlook Appendices

North America Real GDP in selected regions (percent change from four quarters earlier) Note: Nafta real GDP is constant 2016 dollars (PPP basis). Sources: Haver Analytics; U.S. Department of Commerce; World Bank; Statistics Canada. Updated through 2018 Q3. To insert additional slides: Right click the thumbnail image to the left and select “Duplicate Slide” To insert chart into table: Click the center of the table Go to the “Insert” tab at the top of the menu Select chart Formatting Notes: (note- When pasting, select “Paste Special”, then unformatted text – this will preserve the formatting showcased above) Chart Title: Font: Helvetica Bold Size: 9 pt Color: RGB 136/171/213 Chart Subtitle: Font: Helvetica Italic Color: Black: RGB 0/0/0 Chart “Source”: Font: Helvetica Size: 7 pt Color: Black RGB 0/0/0 Copy Header (if applicable): Space after – 9 pt Copy Subhead (if applicable): : Font: Helvetica; Underlined Copy: Line Spacing: 1.5 (Click square on lower-right-hand of the “Paragraph Tab” on the menu bar at the top and the paragraph dialogue box will open) Space between paragraphs is a single line Header/Footer: Size: 8 pt Color: RGB 128/128/128 Global and National Economic Outlook Appendices

Economic Slack Gives More Insight … Real GDP gap¹ (percent of potential real GDP) ¹ Actual real GDP less potential real GDP as a percent of potential real GDP. Sources: OECD; World Bank; IMF; CIA; U.S. Department of Commerce; J.P. Morgan. Updated through 2018 Q3. To insert additional slides: Right click the thumbnail image to the left and select “Duplicate Slide” To insert chart into table: Click the center of the table Go to the “Insert” tab at the top of the menu Select chart Formatting Notes: (note- When pasting, select “Paste Special”, then unformatted text – this will preserve the formatting showcased above) Chart Title: Font: Helvetica Bold Size: 9 pt Color: RGB 136/171/213 Chart Subtitle: Font: Helvetica Italic Color: Black: RGB 0/0/0 Chart “Source”: Font: Helvetica Size: 7 pt Color: Black RGB 0/0/0 Copy Header (if applicable): Space after – 9 pt Copy Subhead (if applicable): : Font: Helvetica; Underlined Copy: Line Spacing: 1.5 (Click square on lower-right-hand of the “Paragraph Tab” on the menu bar at the top and the paragraph dialogue box will open) Space between paragraphs is a single line Header/Footer: Size: 8 pt Color: RGB 128/128/128 Global and National Economic Outlook Appendices

… Into Diverse Inflation Trends August 1, 2019 … Into Diverse Inflation Trends Core inflation in selected advanced economies (percent change from 12 months earlier) Note: Japan introduced a consumption tax in 1989, setting it at 3 percent. It raised this to 5 percent in April 1997 and then to 8 percent in April 2014. Source: U.S. Department of Commerce. Updated through October 2018. To insert additional slides: Right click the thumbnail image to the left and select “Duplicate Slide” To insert chart into table: Click the center of the table Go to the “Insert” tab at the top of the menu Select chart Formatting Notes: (note- When pasting, select “Paste Special”, then unformatted text – this will preserve the formatting showcased above) Chart Title: Font: Helvetica Bold Size: 9 pt Color: RGB 136/171/213 Chart Subtitle: Font: Helvetica Italic Color: Black: RGB 0/0/0 Chart “Source”: Font: Helvetica Size: 7 pt Color: Black RGB 0/0/0 Copy Header (if applicable): Space after – 9 pt Copy Subhead (if applicable): : Font: Helvetica; Underlined Copy: Line Spacing: 1.5 (Click square on lower-right-hand of the “Paragraph Tab” on the menu bar at the top and the paragraph dialogue box will open) Space between paragraphs is a single line Header/Footer: Size: 8 pt Color: RGB 128/128/128 Global and National Economic Outlook Appendices Commercial Banking

Fiscal Kicks in the U.S. … Real GDP and aggregate hours worked (percent change from 12 months earlier) Sources: Haver Analytics; Macroeconomic Advisers. Updated through September 2018 (GDP) and October 2018 (hours). The Fed’s View¹ (Range of Forecasts): 2018 2.9-3.2 2019 2.1-2.8 __________ ¹September 25-26, 2018

… Tax Cuts and Spending Boosts Budget impact (billions of dollars) Source: Congressional Budget Office. Updated through August 2018.

Why Tax Reform Was Historic Effective corporate taxes (percent of pre-tax profits) Source: U.S. Treasury. Updated through December 2017.

Growth Is Only Meaningful … Real U.S. GDP growth (percent change from the previous year) Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database; Ray Fair. Updated through 2018 Q3.

… for What It Does Unemployment (percent of the labor force) Sources: Haver Analytics; U.S. Department of Labor. Updated through October 2018.

The Most Reliable View of the U.S. … Initial applications for unemployment benefits (thousands, weekly) Sources: Haver Analytics; U.S. Department of Labor. Updated through November 10, 2018.

… Claims and Claimants … Claimants (number) Initial applications for unemployment benefits (thousands, weekly) Sources: Haver Analytics; U.S. Department of Labor. Updated through November 10, 2018 (claimants) and November 17, 2018 (claims).

Tame Inflation Belies Overheating Ideas Core consumer inflation (percent change from 12 months earlier) Note: Shaded vertical bars denote periods of Fed tightening. Sources: Haver Analytics; U.S. Dep. of Com.; U.S. Dep. of Labor. Updated through September 2018 (chain PCE) and September 2018 (CPI).

The Fed’s Dual Mandates Are Met … Core PCE inflation (% ch from 12 months earlier) Unemployment (% of the labor force) Sources: Haver Analytics; U.S. Department of Commerce; U.S. Department of Labor. Updated through September 2018 (inflation) and October 2018 (unemployment).

… Calling for a Neutral Policy Stance Nominal federal funds rate and core inflation (percent) ¹ The inflation metrics that the Federal Reserve Board uses to communicate its policies. Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through August 2018 (inflation) and October 5, 2018 (federal funds rate).

Recession Predictions (the New Fad) …

… Are Unconvincing Unemployment (percent of the labor force) Sources: Haver Analytics; U.S. Department of Labor; Congressional Budget Office. Updated through September 2018.

Oil’s Long Game Is About Demand Nonfarm payrolls (monthly change in thousands over the most recent 12 months) Sources: Haver Analytics; Federal Reserve Bank of New York. Updated through October 12, 2018.

Perspectives on the Stock Market Stocks and after-tax earnings (Wilshire 5000, flt. adj., December 31, 1970 = 830.27) (after-tax GDP earnings) Sources: Haver Analytics; Wilshire; U.S. Department of Commerce. Updated through 2018 Q3 (profits) and November 30, 2018 (stocks).

Appendix 1. International Trade Issues

Myopia … Trade imbalances Protection of intellectual property Forced technology transfers Open access to markets China 2025 Belt and Road project

… Versus the Long Game … Global real GDP per capita (2016 dollars, PPP basis) Sources: Haver Analytics; CIA. Updated through 2018.

… Which Is About This Real GDP per capita of selected economies (percentage of U.S. level, 2016 dollars, PPP basis) Sources: Haver Analytics; CIA. Updated through 2018 Q3.

Trade Is Bigger than ‘Merchandise’ Components of the U.S. current account balance (billions of dollars annually) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

Absolute Magnitudes Are Irrelevant Components of the U.S. current account balance (percent of GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

U.S. Versus China … Current account balance with China (billions of dollars annually) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

… in Relative Terms Current account balance with China (percent of GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

U.S. Versus the EU … Current account balance with the EU (billions of dollars annually) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

… in Relative Terms Current account balance with the EU (percent of GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

U.S. Versus Canada … Current account balance with Canada (billions of dollars annually) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

… in Relative Terms Current account balance with Canada (percent of GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q2.

We Shied Away from Tariffs for a Reason Tariffs (percentage of merchandise imports) (percentage of nominal GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2017.

Others Have Options Too … Trade-weighted Renminbi (¥/$) Renminbi (¥/$) Sources: Haver Analytics; Federal Reserve Board. Updated through November 15, 2018.

… I.e., Tariffs Aren’t the Only Cost Factor Tariffs (percentage of merchandise imports) (percentage of nominal GDP) 25% tariffs on $50 billion of imports from China $12.5 billion 10% tariffs on $200 billion of imports from China $20.0 billion (Potential additional 15% tariffs on $200 billion of imports From China) $30 billion 10% depreciation of the Chinese Yuan (implication for $528 billion of merchandise imports from China) -$52.8 billion Memo: net impact of 10% Yuan depreciation of China’s value added of the $528 billion of merchandise exports to the U.S) -$26.4 billion Sources: Haver Analytics; U.S. Department of Commerce. Updated through June 2018 (BIS series) and August 3, 2018 (¥/$ rate)

Or, Globalism Is Nationalism, because …

… a Useful GPS Says … Relative real GDP per capita (ratio to U.S. real GDP per capita, 2009 dollars, PPP basis) Sources: Haver Analytics; World Bank; JPMorgan Chase & Co. Updated through 2017 Q3.

… Helping Others Helps Ourselves Consumer opportunities (chained 2009 dollars) Sources: Haver Analytics; World Bank; JPMorgan Chase & Co. Updated through 2017 Q3.

Appendix 2. Kentucky Cover Image Update: - Right click the image - Select “Change Picture” - Insert desired cover option 38

Humming … Jobless claims (ratio to 2007 Q4 level) Sources: Haver Analytics; U.S. Department of Labor. Updated through November 24, 2018.

… a Second Wind Recipients of unemployment insurance benefits in Kentucky (number) Source: U.S. Department of Labor. Updated through November 17, 2018.

Back In the Zone Unemployment (percent of the labor force) Sources: Haver Analytics; U.S. Department of Labor. Updated through October 2018.

GDP Picks Up Speed … Real GDP (percent change from four quarters earlier) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

… but the State Has Lagged In the Recovery Real GDP (ratio to 2000 Q4 level) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

Job Growth Is Slower … Nonfarm employment (percent change from 12 months earlier) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

… But Not Bad Here Nonfarm employment (ratio to 2000 Q4 level) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

Not Everyone Feels It Nonfarm employment (ratio to 2000 Q4 level) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

Middle of the Pack In This Recovery … Nonfarm payroll employment across the nation (ratio to 2007 Q4) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

… and In This Millennium Nonfarm payroll employment across the nation (ratio to 2007 Q4) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2018 Q1 (state) and 2018 Q3 (U.S.).

Appendix 3. Motor Vehicles

Years of Famine Need Years of Plenty Consumer opportunities (chained 2009 dollars) Sources: Haver Analytics; World Bank; JPMorgan Chase & Co. Updated through October 2018.

CONTACT: James E. Glassman Telephone: (212) 270-0778 jglassman@jpmorgan.com © 2018 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.