1. SECOND-LONGEST us EXPANSION IN HISTORY, CAN IT SET A RECORD?
ECONOMIC OUTLOOK
SECOND-LONGEST us EXPANSION IN HISTORY, CAN IT SET A RECORD?
Augustine Faucher
Chief Economist
Accounting CPE Conference 2018
Power Center Ballroom, Duquesne University, Pittsburgh
November 15, 2018
Gus Faucher
Chief Economist
Stuart Hoffman
Senior Economic Advisor
William Adams
Senior Economist
Kurt Rankin
Economist

2. NOW THE SECOND-LONGEST EXPANSION IN HISTORY
Length of expansion, months, by starting date of recovery
Source: NBER 2

3. BETTER CONFIDENCE SINCE THE ELECTION
Small business optimism
index, 1986=100 (R)
Consumer confidence
index, 1985=100 (L)
Sources: The Conference Board, NFIB 3

4. INTEREST RATES CONTINUE TO MOVE HIGHER…
10-year Treasury bond (R)
3-month Treasury bill (L)
Source: Federal Reserve 4

5. …AND STOCK MARKET IS NOT SIGNALLING PROBLEMS
Sources: S&P, CBOE 5

6. GRADUAL ACCELERATION IN GROWTH OVER THE PAST FEW YEARS
Real, % change year ago
Gross domestic income
Gross domestic product
Source: BEA 6

7. SYNCHRONIZED GLOBAL GROWTH, FOR FIRST TIME SINCE GLOBAL FINANCIAL CRISIS…

8. …AND WEAKER DOLLAR IS HELPING EXPORTS
Sources: BEA, Federal Reserve 8

9. ENERGY NO LONGER A DRAG ON GROWTH, LOW PRICES ARE GOOD NEWS FOR LONGER RUN
Sources: Federal Reserve, NYMEX 9

10. MOST PRIVATE INDUSTRIES ARE DRIVING JOB GROWTH
Payroll employment, change year ago, mil
Source: BLS 10

11. TAX CUTS ARE HERE…
Budget impact, fiscal year, $ bil
Source: JCT 11

12. …AND MORE SPENDING, TOO Increase in spending caps, fiscal year, $ bil
Source: CBO 12

13. WITH UPWARD REVISION TO INCOME, CONSUMERS IN GOOD SHAPE IN 2018…
Real, % change year ago
Personal disposable income
after revisions
Consumer
spending
Personal disposable income
before revisions
Source: BEA 13

14. …AND WAGE GROWTH IS PICKING UP
Average hourly earnings,
all private-sector workers,
% change year ago (R)
Quit rate, % of employment,
3-quarter lead (L)
Private-sector wages,
ECI, % change year ago (R)
Source: BLS 14

15. AUTO SALES SOLID FOR FOURTH STRAIGHT YEAR
Cash for clunkers
Sources: AutoData, BLS 15

16. STILL ROOM FOR IMPROVEMENT IN HOMEBUILDING…
Residential construction
employment, ths (R)
Housing starts,
SAAR, 3-month
moving average, ths (L)
Sources: Census, BLS 16

17. …WITH HOUSE PRICE GROWTH RUNNING AT A SUSTAINABLE PACE
Sources: S&P/Case-Shiller, CoreLogic, PNC 17

18. SLOW RECOVERY IN Business INVESTMENT
Real business fixed investment, 2012$ bil
Source: BEA 18

19. Small Business Hiring Intentions ARE VERY strong
Expectations of own hiring, % of respondents
Source: PNC 19

20. TARIFFS WILL DO LITTLE TO REDUCE TRADE DEFICIT
Net lending or borrowing, % of GDP
Source: BLS 20

21. SHORT-TERM INTEREST RATES WILL CONTINUE TO RISE AS FED KEEPS AN EYE ON INFLATION…
Personal consumption expenditures price index, % change year ago
Excluding food
and energy
Overall
Sources: BEA, PNC 21

22. …BUT WATCH OUT FOR INVERTED YIELD CURVE
Yield spread: interest rate on 10-year U.S. government bond minus interest rate on 3-month U.S. government bill, percentage points
Sources: Federal Reserve Board; NBER 22

23. STRONGER ECONOMIC GROWTH IN 2018 AND 2019, MOVING PAST FULL EMPLOYMENT
Real GDP, % change year ago (L)
Unemployment rate, % (R)
Sources: BEA, BLS, PNC 23

24. POCKETS OF WEAKNESS IN THE FALL OF 2017…

25. …WITH BETTER GROWTH NOW…

26. …AND BROAD-BASED GROWTH IN EARLY 2019

27. JOB GROWTH IN PITTSBURGH HAS STALLED AGAIN…
Payroll employment, 3-month moving average, cyclical peak=100
U.S.
Pittsburgh
Pennsylvania
Source: BLS 27

28. …ACROSS THE BOARD
Payroll employment, 3-month moving average, change year ago, ths
Source: BLS 28

29. expected sales growth in Pennsylvania PICKED UP THIS YEAR…
Expectations of own sales, % of respondents
Source: PNC 29

30. …As did hiring expectations
Expectations of own hiring, % of respondents
Source: PNC 30

31. LIMITED EXPOSURE TO POTENTIAL TRADE WAR
Exports as % of GDP/GSP/GMP
Source: BEA 31

32. FALLING POPULATION A BIG LONG-RUN CONCERN
Population, % change
U.S.
Pennsylvania
Pittsburgh
Source: Census 32

33. BIG RISKS TO THE UPSIDE AND DOWNSIDE
President Trump
↓ Trade war
↕ Fiscal policy
↓ Monetary policy/interest rates
↓ Business leverage/commercial real estate
↕ Global economy/dollar
↕ Stock market
↑ Jobs/income/confidence
↑ Regulatory reform
↓ Immigration
↓ Budget deficit
↓ Brexit/Europe
↕ China/emerging economies
↕ Housing market
↑ Commercial construction
↓ Terrorism

34. STRUCTURAL SLOWDOWN IN PRODUCTIVITY GROWTH IS BAD NEWS FOR LONG RUN
Productivity, nonfarm business sector, 4-quarter MA, % change year ago
Source: BLS 34

35. HIGHER GASOLINE PRICES WILL EAT UP MUCH OF THE TAX CUT
Price of unleaded gasoline,
$ per gallon (L)
Consumer spending on
gasoline, annualized, $ bil (R)
Sources: Oil Price Information Service, BEA 35

36. CONSUMERS WILLING TO TAKE ON MORE DEBT, AND THAT’S NOT A PROBLEM
% of disposable income
Financial obligations ratio (R)
Mortgage debt
service ratio (L)
Source: Federal Reserve 36

37. PUT IT ALL TOGETHER, THREE GOOD YEARS FOR REAL INCOMES
Real median household income, % change
Source: Census Bureau 37

38. …as will long-term rates, but more SLOWly, as fed reduces balance sheet…
Federal Reserve assets, $ tril
Source: Federal Reserve 38

39. Q&A PNC Economic Outlook
For more information from PNC Economics:
Twitter:
@GusFaucherPNC

40. Disclaimer: The material presented is of a general nature and does not constitute the provision of investment or economic advice to any person, or a recommendation to buy or sell any security or adopt any investment strategy. Opinions and forecasts expressed herein are subject to change without notice. Relevant information was obtained from sources deemed reliable. Such information is not guaranteed as to its accuracy. You should seek the advice of an investment professional to tailor a financial plan to your particular needs.
©2018 The PNC Financial Services Group, Inc. All rights reserved.