1. 1 Back to the Future Economic Outlook Issues September 16, 2015

2. 2 “Corrections”¹ (% ch from the peak in the most recent 6 months) Wilshire 5000 (12/31/70 = 830.27) ¹The percent change of the Wilshire 5000 index from the peak level reached in the most recent 6-month span. Sources: Haver Analytics; Dow Jones. Updated through September 16, 2015. Markets Will Be Markets (i.e., Don’t Have to be About Anything)

3. 3 Real GDP in selected regions (percent change from four quarters earlier) Sources: World Bank; U.S. Dep. of Commerce; JPMorgan Chase & Co. Updated through 2015 Q2. Global Engines (DM) Are Warming Up

4. 4 Petroleum Used Less Petroleum Produced (percent of nominal GDP) Sources: U.S. Department of Energy; U.S. Department of Commerce. Updated through 2014 Q4. The Big ($2 Trillion) Story

5. 5 Real GDP (annualized percent change) Source: U.S. Department of Commerce. Updated through 2015 Q2. We Have More Wood to Chop

6. 6 Jobless claims in Ohio (ratio to 2007 Q4 level) Source: U.S. Department of Labor. Updated through September 5, 2015 (state) and September 12, 2015 (U.S.). In Ohio, All Systems Go

7. 7 Real GDP (percent change from four quarters earlier) Source: U.S. Department of Commerce. Updated through 2015 Q2. Moving Along

8. 8 Nonfarm employment in Ohio versus the U.S. (percent change from 12 months earlier) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). Job Growth, Steady and Solid

9. 9 Unemployment rate in Ohio and the U.S. (percent of the labor force) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). Good Riddance

10. 10 THREE CENTRAL QUESTIONS

11. 11 What Data Are the Most Useful?

12. 12 Real GDP (annualized percent change) Source: U.S. Department of Commerce. Updated through 2015 Q2. Most Data Are Noisy or Poorly Measured …

13. 13 Real GDP (% ch. from 4 quarters earlier) Jobless claims (‘000 weekly, scale reversed) Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q2 (GDP) and September 12, 2015 (claims). … but Jobless Claims Know Everything

14. 14 What Inning Are We In?

15. 15 Wilshire 5000 (December 31, 1970 = 830.27 After-tax GDP profits (billions of dollars) Sources: Haver Analytics; Dow Jones. Updated through September 4, 2015 (stocks) and 2015 Q2 (profits). It’s Key for Stocks and the Fed

16. 16 Unemployment rate (percent) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Labor. Updated through August 2015 (unemployment) and June 17, 2015 (FOMC forecast). We Look Fully Employed …

17. 17 Unemployment rate (percent) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Labor. Updated through August 2015 (unemployment) and June 17, 2015 (FOMC forecast). … Even the “Structurally” Unemployed …

18. 18 Selected unemployment metrics (percent of the labor force) Sources: NBER-designated recession bars; U.S. Department of Labor. Updated through August 2015. … but Unemployment Doesn’t See All

19. 19 Selected unemployment metrics (percent of the labor force) Sources: NBER-designated recession bars; U.S. Department of Labor. Updated through March 2015. Two Unemployed Groups Are Invisible …

20. 20 Involuntary part-time (thousands) Source: U.S. Department of Labor. Updated through August 2015. … (1) Involuntary Part-Timers …

21. 21 Involuntary part-time (percent of the labor force) Source: U.S. Department of Labor. Updated through August 2015. … In Proportionate Terms …

22. 22 Working populations (percent of the respective population that is employed) Sources: NBER-designated recession bars; U.S. Department of Labor. Updated through August 2015. … and (2) Discouraged Young Adults … Shortfall: 6 million 4 million

23. 23 Participation rate for selected age groups (percent of the respective population) Source: U.S. Department of Labor. Updated through August 2015. … 2.7 Million Gave Up, Temporarily

24. 24 Core PCE chain price index (percent change from 12 months earlier) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Commerce. Updated through July 2015 (inflation) and June 17, 2015 (FOMC forecast). … and (2) Inflation is Below 2%

25. 25 How Fast Do We Have to Grow?

26. 26 Real U.S. GDP growth (percent change from four quarters earlier) Sources: Haver Analytics; U.S. Dep of Commerce; NBER Macroeconomic database. Updated through 2015 Q2. GDP Is Slow by Past Standards …

27. 27 Nonfarm payrolls (monthly change in thousands) (annualized percent change) Source: U.S. Department of Labor. Updated through August 2015. … but Employment Is Normal

28. 28 Hours worked (billions of hours) Hours worked (% ch from 7 years earlier annualized) ¹ An estimate of the aggregate amount of hours worked when the official unemployment rate falls to 4.5 percent, when the number working part-time involuntarily falls back to normal, and when the 2.7 million young adults who gave up looking for a job during the recession return. Sources: Haver Analytics; NBER recession bars; U.S. Dep. of Labor. Updated through July 2015. Hours Worked Have Slowed by a Point …

29. 29 Selected elderly populations (percent of the population) Source: U.S. Department of Labor. Updated through January 2015. … as the Population Ages …

30. 30 Noninstitutional population and the working age population (percent change annually) Sources: Haver Analytics; Federal Reserve Board; U.S. Treasury. Updated through June 2015. … and Working Age Numbers Slow

31. 31 Real GDP per hour (2009 dollars) Sources: Haver Analytics; NBER-designated recession bars; U.S. Deps. of Com. & Labor. Updated through 2015 Q2. The Jury’s Out on Productivity

32. 32 THE STOCK MARKET

33. 33 “Corrections”¹ (% ch from the peak in the most recent 6 months) Wilshire 5000 (12/31/70 = 830.27) ¹The percent change of the Wilshire 5000 index from the peak level reached in the most recent 6-month span. Sources: Haver Analytics; Dow Jones. Updated through September 15, 2015. Markets Will Be Markets (It Doesn’t Have to Be About Anything)

34. 34 U.S. and Chinese stock market indexes (1993 = 100) Sources: Haver Analytics; Dow Jones. Updated through September 16, 2015. Blaming China Implies We Have No Clue

35. 35 S&P 500 (percent deviation from the local bottom) Sources: Haver Analytics; Dow Jones. Updated through September 16, 2015. Been Here Before

36. 36 Wilshire 5000 (December 31, 1970 = 830.27 After-tax GDP profits (billions of dollars) Sources: Haver Analytics; Dow Jones. Updated through September 4, 2015 (stocks) and 2015 Q2 (profits). “Cheap” or “Pricey” Is About the Future

37. 37 Selected price-earnings ratios (ratio of value to after-tax GDP¹ earnings) ¹ After-tax GDP profits from current production, with inventory valuation and capital consumption adjustments. Sources: Haver Analytics; Federal Reserve Board. Updated through 2015 Q2. Why P-E Averages Are Misleading

38. 38 “NEW NORMAL” MYTHS

39. 39 U.S. nominal consumer spending (ratio to nominal GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2015 Q2. What’s “New Normal” About Consumers?

40. 40 Light vehicle sales (millions at an annual rate) Sources: Haver Analytics; U.S. Department of Commerce. Updated through July 2015. What’s Not Normal About Car Sales?

41. 41 Household net worth (trillions of dollars) (ratio to disposable income) Sources: Haver Analytics; Federal Reserve Board; U.S. Department of Commerce. Updated through 2015 Q1. Tell “New Normal” to the Balance Sheet

42. 42 Household income and house prices (ratio to 1970) Sources: U.S. Dep. of Commerce; CoreLogic. Updated through 2015 Q2. The Underwater Problem Is Mostly Gone …

43. 43 U.S. house prices (January 2000 = 100) Sources: Haver Analytics; CoreLogic. Updated through 2015 Q2. … After Write-Offs

44. 44 Real GDI per hour (2009 dollars) Sources: Haver Analytics; Federal Reserve Board. Updated through 2015 Q2. Leverage Is Not the Issue … Debt Service Is

45. 45 Business investment ratios (percentage of nominal GDP) Sources: Haver Analytics; NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q2. What’s “New Normal” About Cap X?

46. 46 AIA billings index (>50 means expanding) Construction put in place (billions of dollars) Sources: Haver Analytics; U.S. Department of Commerce; AIA. Updated through June 2015. What’s New or Not Normal About This?

47. 47 The federal deficit and the current account deficit (percent of nominal GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2015 Q2. Twin Deficits Are Twin Red Herrings

48. 48 The federal deficit (billions of dollars over the most recent 12 months) (percent of nominal GDP) Sources: Haver Analytics; U.S. Department of Commerce; CBO. Updated through July 2015. Cyclical Deficits Come and Go

49. 49 The U.S. current account deficit (billions of dollars) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2015 Q2. Current Account Gaps Are About Others

50. 50 The U.S. current account deficit (percent of nominal GDP) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2015 Q2. … P.S. Oil Helps

51. 51 Net claims on the U.S. (billions of dollars) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2014. Big Claims on the U.S. …

52. 52 Investment income paid and earned by the U.S. (billions of dollars) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2014. … Mask Big Returns on U.S. Investment

53. 53 DON’T FEAR INTEREST RATES

54. 54 What the Federal Reserve Did

55. 55 Nominal funds rate (% per annum) and core inflation (% ch. From 12 months earlier)¹ ¹ Chain price index for personal consumption expenditures excluding food and energy. Source: Federal Reserve Board. Updated through May 2015. The Fed Drove Overnight Rates to 0% …

56. 56 Assets held by the Federal Reserve (billions of dollars) Source: Federal Reserve Board. Updated through June 2015. … and Bought Assets …

57. 57 MBS and Treasury securities outstanding (thousands of dollars) Source: Federal Reserve Board. Updated through June 2015. … Which Reduced Bond Supply …

58. 58 Real versus inflation components of future interest rates (percent per annum) Source: Federal Reserve Board; Bloomberg. Updated through April 7, 2015. … Driving Bond Yields Down

59. 59 Monetary base (billions of dollars) M2 (billions of dollars) Source: Federal Reserve Board. Updated through October 2014. It Has Nothing to do With Money

60. 60 What the Fed Is Set to Do … Gradually

61. 61 Real GDP (% ch. from 4 quarters earlier) Jobless claims (‘000 weekly, scale reversed) Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q2 (GDP) and September 12, 2015 (claims). “Data Dependent” Is Giving a Green Light

62. 62 Nominal funds rate (% per annum) and core inflation (% ch. From 12 months earlier)¹ ¹ Chain price index for personal consumption expenditures excluding food and energy. Source: Federal Reserve Board. Updated through May 2015 (inflation) and July 24, 2015 (funds rate). Two Styles: Sooner/Slower or Later/Faster

63. 63 … The Yield Curve Version Federal funds rate less 10-year Treasury yield (percentage points) Source: Federal Reserve Board. Updated through March 2015.

64. 64 Selected unemployment metrics (percent of the labor force) Sources: NBER-designated recession bars; U.S. Department of Labor. Updated through August 2015. Reasons for “Slow”: (1) Not Home Yet …

65. 65 Core PCE chain price index (percent change from 12 months earlier) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Commerce. Updated through July 2015 (inflation) and June 17, 2015 (FOMC forecast). … and (2) Inflation is Below 2%

66. 66 Forecasts of the federal funds rate (percent) Sources: FRB; Bloomberg. Updated through March 18, 2015 (FOMC) and July 24, 2015 (futures). The End Game

67. 67 Bonds

68. 68 Nominal GDI growth (% ch vs 4 quarters earlier) and long-term Treasury rates (percent) Source: Federal Reserve Board; Bloomberg. Updated through 2015 Q1 (GDI) and July 24, 2015 (bonds). Bonds Are Anchored by Low GDP Growth …

69. 69 Nominal GDI growth (annual growth smoothed¹) and long-term Treasury rates (percent) ¹ Centered four-year moving average of annual growth rates. Source: Federal Reserve Board; Bloomberg. Updated through 2015 Q2 (GDP) and July 24, 2015 (bonds). … or GDI, Whichever You Prefer

70. 70 Real versus inflation components of future interest rates (percent per annum) Source: Federal Reserve Board; Bloomberg. Updated through April 7, 2015. Asset Buying Leaves a Big Mark …

71. 71 Term premium and expected short-term rates in 10-year Treasury yields (% per annum) Source: Federal Reserve Board. Updated through March 31, 2015. … Take II

72. 72 10-year inflation expectations (percent per annum) Source: Federal Reserve Board. Updated through June 12, 2015. This Isn’t a Deflation Story …

73. 73 Inflation expectations over selected horizons (percent per annum) Source: Federal Reserve Board. Updated through June 12, 2015. … It’s the Oil Distortion

74. 74 Core CPI (percent change from 12 months earlier) Sources: Haver Analytics; U.S. Department of Labor; ECB; Bank of Japan. Updated through July 2015. Low Inflation Elsewhere …

75. 75 Output gap in selected regions (actual less potential real GDP, % of potential real GDP) Sources: U.S. Department of Commerce; JPMorgan. Updated through 2015 Q2. … a Lagged Response to Economic Slack …

76. 76 … Forces Others to Unconventional Moves … 10-year risk-free interest rates (percent per annum) Sources: Bloomberg; Federal Reserve Board. Updated through September 4, 2015.

77. 77 … Depressing the Euro and Yen Selected foreign exchange rates (ratio to summer 2012 level) Source: Federal Reserve Board. Updated through June 2015.

78. 78 [P.S. Local Perspectives] Trade-weighted currency indexes (January 3, 2012 = 1.0) Source: Bank of England; Bloomberg. Updated through February 2, 2015.

79. 79 ‘Normal’ Doesn’t Mean the End

80. 80 Nominal and real funds rate (% per annum) Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through May 2015. Easing the Throttle, Not Hitting the Brakes

81. 81 Unemployment rate (percent) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Labor. Updated through August 2015 (unemployment) and June 17, 2015 (FOMC forecast). Fed Normalization Doesn’t Stop Recovery

82. 82 Wilshire 5000 (December 31, 1970 = 830.27) After-tax GDP profits (billions of dollars) Sources: Haver Analytics; US Department of Commerce; Wilshire Associates. Updated through 2015 Q2 (profits) and September 8, 2015 (stocks). Nor Does It Harm the Stock Market

83. 83 APPENDIXES. THE GLOBAL OUTLOOK

84. 84 Real GDP in selected regions (percent change from four quarters earlier) Sources: World Bank; U.S. Dep. of Commerce; JPMorgan Chase & Co. Updated through 2015 Q2. Slightly Faster In Store

85. 85 Petroleum Used Less Petroleum Produced (percent of nominal GDP) Sources: U.S. Department of Energy; U.S. Department of Commerce. Updated through 2014 Q4. Low Oil Prices Help Many

86. 86 THE U.S. OUTLOOK

87. 87 I. Confusing U.S. Metrics

88. 88 Real GDP (annualized percent change) Source: U.S. Department of Commerce. Updated through 2015 Q2. Really?

89. 89 Cargo handled in ship ports (20-foot equivalent units) ¹ Seattle and Tacoma. Source: Various port administrations. Updated through May 2015. (1) “Transitory” Jolts—Port Jams– and …

90. 90 Heating degree days, population weighted (deviation from normal) Source: National Oceanic and Atmospheric Administration. Updated through March 2015. … and Bad Winter Weather

91. 91 U.S. oil production (thousands of barrels daily) WTI (dollars per barrel) Source: U.S. Department of Energy; International Energy Agency. Updated through June 2015. (2) Oil’s Supply Shock …

92. 92 Employment in energy-related sectors (thousands) Source: U.S. Department of Labor. Updated through June 2015. … Forces Drilling Cuts …

93. 93 Jobless claims in Texas (ratio to 2007 Q4 level) Source: U.S. Department of Labor. Updated through May 16, 2015 (state) and May 23, 2015 (U.S.).. … Some Layoffs, Accounting for …

94. 94 Payrolls in selected industries (monthly change in thousands over the most recent 6 months) Source: U.S. Department of Labor. Updated through June 2015. … Most of the Hiring Slowdown in 2015

95. 95 Unemployment rate, Texas versus the U.S. (percent of the labor force) Source: U.S. Department of Labor. Updated through March 2015 (Texas) and April 2015 (U.S.). But Texas Benefits Too

96. 96 Petroleum Used Less Petroleum Produced (percent of nominal GDP) Sources: U.S. Department of Energy; U.S. Department of Commerce. Updated through 2014 Q4. And So Do Many Others

97. 97 Seasonally adjusted GDP less published GDP (percentage points) Sources: Haver Analytics; U.S. Department of Commerce. Updated through 2015 Q2. (3) Seasonal Distortions Skew GDP

98. 98 Deviation of monthly payroll change from trend (percentage points) Sources: NBER-designated recession bars; U.S. Department of Labor. Updated through March 2015. (4) Statistical Noise

99. 99 Real GDP (% ch. from 4 quarters earlier) Jobless claims (‘000 weekly, scale reversed) Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q1 (GDP) and August 15, 2015 (claims). When Confused, Trust Jobless Claims …

100. 100 Real GDP (% ch. from 4 quarters earlier) Jobless claims (% of labor force, scale reversed) Sources: U.S. Deps. of Labor and Com. Updated through 2015 Q1 (GDP) and August 15, 2015 (claims). … Which Say ‘All Systems Go’ …

101. 101 Real GDP (annualized percent change) Source: U.S. Department of Commerce. Updated through 2015 Q2. … And Assume GDP Will Catchup

102. 102 II. New Growth Spurs

103. 103 Motor vehicle sales (millions at a seasonally adjusted annual rate) Source: U.S. Department of Commerce. Updated through June 2015. Full Recovery in Autos Speaks Volumes

104. 104 Employment and household formation (thousands over the most recent 12 months) Sources: Haver Analytics; U.S. Department of Labor. Updated through June 2015 (household formation) and June 2015 (employment) and March 2015 (households). New Life for Jobs and Housing Market

105. 105 The Shale Revolution … Petroleum production in selected U.S. shale formations (barrels per day) Source: U.S. Department of Energy. Updated through January 2015.

106. 106 … Changed the Supply-Demand Balance … U.S. oil production (thousands of barrels daily) Oil prices (WTI, dollars per barrel) Source: U.S. Department of Energy. Updated through January 2015.

107. 107 Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) Source: American Petroleum Institute; Oil & Gas Journal. Updated through May 8, 2015. … Brought Prices Down …

108. 108 Petroleum Used Less Petroleum Produced (percent of nominal GDP) Sources: U.S. Department of Energy; U.S. Department of Commerce. Updated through 2014 Q4. … Promising Relief for Many …

109. 109 Annual Petroleum Outlays and Revenues for the U.S. Source: JPMorgan Chase & Co. Updated through 2015 Q1. … Even for the U.S. Economy, Net Net

110. 110 Use of petroleum to produce GDP (barrels per dollar of real GDP) Sources: Oil & Gas Journal; JPMorgan & Co. Updated through 2014 Q4. Because Oil Use Is Tied to Growth …

111. 111 Global petroleum demand (thousands of barrels per day) Sources: Oil & Gas Journal; JPMorgan & Co. Updated through 2014 Q4. … Global Oil Needs Will Grow …

112. 112 Prices of oil and natural gas, thermally-equivalent comparison (dollars per barrel) Source: American Petroleum Institute; Oil & Gas Journal. Updated through May 8, 2015. … Requiring Shale’s Help & Higher Prices

113. 113 Nominal and real disposable income (percent change from 12 months earlier) Source: U.S. Department of Commerce. Updated through March 2015. Jobs Plus Low Gas Prices Help Consumers

114. 114 Real consumer spending and disposable income (percent change from 12 months earlier) Source: U.S. Department of Commerce. Updated through January 2015. But Jobs and Income Are the Key Support

115. 115 Real GDP (annualized percent change) Source: U.S. Department of Commerce. Updated through 2015 Q2. Bottom Line, Faster U.S. Growth for a Spell

116. 116 BEYOND CYCLICAL ISSUES

117. 117 1) Labor Productivity

118. 118 Real GDP (percent change over the four quarters of the year) Sources: NBER-designated recession bars; U.S. Departments of Commerce. Updated through 2014 Q4. GDP Has Been Slow …

119. 119 Real GDP (percent change over the four quarters of the year) Sources: NBER-designated recession bars; U.S. Departments of Commerce. Updated through 2014 Q4. … GDI Less So …

120. 120 Nonfarm payroll employment (monthly change in thousands) (annualized percent change) Source: U.S. Department of Labor. Updated through August 2015. … but Employment Normal …

121. 121 Nonfarm payroll employment Percent change over the period indicated (annual rate) Source: U.S. Department of Labor. Updated through April 2015. … Even in Percentage Terms

122. 122 a)Labor productivity and labor force growth are slow b)GDP isn’t keeping up with evolving trends  Evolving retail trends: o the growing subsidy provided by online shopping; o the failure to account for the falling price of economic value tapped by smart phones; o the growing purchases of energy commodities from big box retailers The failure to account for price pressures driven by consumer driven health initiatives (Affordable Care Act and high deductible health insurance plans are pushing healthcare providers to move away from fee- for-service to pay-for-performance) Slow Productivity or Bad Measurement?

123. 123 After-tax GDP profits of all U.S. businesses (percent of nominal Gross Domestic Income) Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2015 Q1. Record Profits Say Don’t Blame Productivity

124. 124 Selected economic indicators (annualized percent change from the previous quarter) Sources: U.S. Department of Commerce; U.S. Department of Labor. Updated through 2015 Q1. Traditional Metrics Don’t All Agree …

125. 125 Selected economic indicators (annualized percent change from 2009 Q2 to date) Sources: U.S. Department of Commerce; U.S. Department of Labor. Updated through 2015 Q2. … Looking at the Recovery to Date

126. 126 Real GDP per hour (2009 dollars) Sources: Haver Analytics; NBER-designated recession bars; U.S. Deps. of Com. & Labor. Updated through 2015 Q2. On Productivity …

127. 127 Real GDI per hour (2009 dollars) Sources: Haver Analytics; NBER-designated recession bars; U.S. Department of Commerce; U.S. Department of Labor. Updated through 2015 Q2. … Trends Take Decades to See

128. 128 2) Demographics

129. 129 Selected elderly populations (percent of the population) Source: U.S. Department of Labor. Updated through January 2015. How Important Are Demographics?

130. 130 Employment and the labor force (percent change from 12 months earlier) Source: U.S. Department of Labor. Updated through June 2015. You Do Have to Keep It In Mind

131. 131 3) Innovation

132. 132 Gini Coefficient (0 = perfectly equal and 1 = perfectly unequal) Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2013. Behind the Skewed Income Distribution …

133. 133 Labor productivity versus real compensation, nonfarm business (ratio to 1970’s average) Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2014 Q4. … A Smoking Gun …

134. 134 After-tax GDP profits of all U.S. businesses (percent of nominal Gross Domestic Income) Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2014 Q3. … And Another One, Because …

135. 135 Wilshire 5000 (Dec 31, 1970 = 830.27) After-tax GDP profits (billions of dollars) Note: scales aligned to reflect the historical P/E of 11 times ex. the multiples of 1997 through 2001. Sources: U.S. Department of Commerce; Dow Jones. Updated through 2014 Q3 (profits) and Nov. 26, 2014. … Markets Smell Innovation

136. 136 After-tax GDP profits (percent of nominal Gross Domestic Income) Gini Coefficient Sources: NBER-designated recession bars; U.S. Department of Commerce. Updated through 2014 Q3. … And That Drives Capital Income

137. 137 Selected surveys of hourly labor compensation (percent change from four quarters earlier) Sources: U.S. Departments of Commerce and Labor; Updated through 2015 Q2. (4) Why Are Pay Trends So Tame?

138. 138 Hourly labor compensation (percent change from four quarters earlier) Sources: U.S. Departments of Commerce and Labor; Updated through 2015 Q2. What Comp Increases We See …

139. 139 Hourly labor compensation (percent change from four quarters earlier) Sources: U.S. Departments of Commerce and Labor; Updated through 2015 Q2. … Are About Incentive Based Pay

140. 140 Hourly labor compensation (percent change from four quarters earlier) Sources: U.S. Departments of Commerce and Labor; Updated through July 2015 (ahe) and 2015 Q2 (others). Ditto for Wages …

141. 141 … Broadly Steady Selected measures of hourly wages (percent change from four quarters earlier) Source: U.S. Dep. of Labor; Updated through March 2015 (ECI) and May 2015 (average hourly earnings).

142. 142 Core PCE chain price index (percent change from 12 months earlier) Sources: Vertical bars denote recessions and are designated by the NBER; U.S. Department of Commerce. Updated through March 2015 (inflation) and March 18, 2015 (FOMC forecast). (5) The 2% Inflation Mandate Still Eludes

143. 143 4) Higher Education

144. 144 Relative price of college education (ratio: CPI for college expenses to CPI, 1982-84 = 1.0) Source: U.S. Department of Labor. Updated through April 2015. Rising Higher Education Costs

145. 145 Disposable personal income per capita (dollars) Source: U.S. Department of Commerce. Updated through April 2015. Rising Living Standards …

146. 146 Household outlays for higher education (percent of nominal consumer spending) Source: U.S. Department of Commerce. Updated through April 2015. … Drive Budget Shares More than Prices

147. 147 Participation rate for selected age groups (percent of the respective population) Source: U.S. Department of Labor. Updated through August 2015. Challenging Times …

148. 148 Actual and counterfactual school enrollment (thousands) Source: U.S. Department of Education. Updated through 2014. … Push People Back for More Schooling …

149. 149 Unemployment rate by education attained (percent of the labor force) Source: U.S. Department of Labor. Updated through April 2015. … Because College is Better than No College

150. 150 Enrollment by sex at higher education institutions (thousands) Source: U.S. Department of Education. Updated through 2014. New Opportunities for Women …

151. 151 College degrees by gender (percent of gender with a college degree) Source: http://www.statista.com/statistics/184272/educational-attainment-of-college-diploma-or-higher-by- gender/. Updated through 2014. … as Playing Fields Level

152. 152 Enrollment in selected institutions (thousands) Source: U.S. Department of Education. Updated through 2014. Public Versus Private

153. 153 Selected household obligations (trillions of dollars) Source: Federal Reserve Bank of New York. Updated through 2015 Q1. But Pushback Looms …

154. 154 Selected household obligations (trillions of dollars) Source: Federal Reserve Bank of New York. Updated through 2015 Q1. … With Stresses Building

155. 155 5) Healthcare

156. 156 Health insurance coverage (thousands) Source: U.S. Census Bureau. Updated through 2013. Insurance Coverage Is a Side Issue

157. 157 National healthcare expenditures (percent of GDP) Sources: U.S. Census Bureau; U.S. Department of Labor. Updated through 2013. Healthcare’s Footprint Is Expanding …

158. 158 National healthcare expenditures (percent of GDP) Life expectancy (years) Sources: U.S. Census Bureau; U.S. Department of Labor. Updated through 2013. … Partly Because It’s a “Superior” Good …

159. 159 National healthcare expenditures (percent of GDP) Life expectancy (years) Sources: U.S. Census Bureau; U.S. Department of Labor. Updated through 2013. … Partly Because of Demographics …

160. 160 Users have little personal responsibility, given the outsized role of employers in arranging health insurance coverage. Difficult to break from this feature that began in World War II, given the tax benefit of employer-provided health insurance available to employees. Consumer driven initiatives like high deductible plans and medical savings accounts are only getting off the ground. Limited competition in the healthcare/health insurance industry has held back the adoption of technology and computerized information systems. Competition limits choices of health insurance providers. The private health insurance system manages care from birth to 65 years of age, our healthiest years, and so has little incentive to incentivize behavior when we’re young to manage risks later in life. Challenges managing costs for the aged … But Mostly Because of Economics

161. 161 6) The Fiscal Outlook

162. 162 Federal deficit over the most recent 12 months (percent of nominal GDP) Note: Black boxes denote the fiscal year end. Sources: Vertical columns denote NBER-designated recessions; U.S. Treasury. Updated through December 2014. What We See Isn’t What Matters

163. 163 Long-term revenue and spending projections (percent of GDP) Source: Congressional Budget Office. Updated through October 2012. What’s In Our (the CBO’s) Mind’s Eye Is Key

164. 164 Federal healthcare spending (percentage of GDP) Source: Congressional Budget Office. Updated through 2012. The Real Issue Is About Elderly Healthcare

165. 165 7) Energy Issues

166. 166 Federal healthcare spending (percentage of GDP) 2005 2014 Source: Congressional Budget Office. Updated through 2012. The Greenhouse Gas Rule

167. 167

168. 168 THINGS I DON’T WORRY ABOUT

169. 169 Greece & the European Project 0.4% of Global GDP

170. 170 MUNDELL’S OPTIMAL CURRENCY AREA An optimal currency area, proposed by the late Professor Robert Mundell in the 1960’s, refers to a geographic area in which a single currency would create the greatest economic benefit. Robert Mundell theorized that it may not be the most efficient economic arrangement for countries to maintain their own currencies. He argued that countries that share strong economic ties may benefit from a common currency. That allows for closer integration of capital markets and facilitates trade. However, a common currency results in a loss of each country's ability to direct fiscal and monetary policy interventions to stabilize their economies. EU’s Economic Logic

171. 171 Central government deficits (percent of GDP) Source: European Union. Greece Didn’t but Will Play by the Rules

172. 172 War casualties (annual) (cumulative since the 1800’s) Source: Wikipedia The EMU Is Also About the Scars of History

173. 173 Outstanding debt obligations (€ billions) Source: European Central Bank. Updated through June 2015. Greece’s Debt Obligations

174. 174 Real GDP (U.S. $, PPP basis, ratio to 2007 Q4) Source: Eurostat. Updated through 2015 Q1. Greece’s Economic Performance

175. 175 China 9.3% of Global GDP

176. 176 Chinese real GDP (percent change from the previous year) Source: “The Economy of People’s Republic of China from 1953,” NBER Working Paper 21397, 2012. China’s Long Journey to Modernization

177. 177 Yuan onshore spot rate and daily fixing (yuan per dollar) Source: Haver Analytics; Bloomberg. Updated through September 11, 2015. China’s FX Strategy and the SDR Campaign

178. 178 Yuan’s dollar link (yuan per dollar) Sources: Haver Analytics; Federal Reserve Board. Updated through September 11, 2015. Up 23% Versus the $ Since July 21, 2005 …

179. 179 Real trade-weighted U.S. dollar index (March 1973 = 100) Source: Haver Analytics; Federal Reserve Board. Updated through August 2015. … but the Yuan-Dollar Link …

180. 180 Trade-weighted yuan indexes (2010 = 100) Source: Bank for International Settlements. Updated through August 2015. … Has Lifted Yuan Even Higher Vs. Others

181. 181 Total Vehicle Sales (units annually) Source: Oil and Gas Journal. Updated through April 2015. ‘Hard Landing’ Is a Western Language

182. 182 Real GDP (2009 dollars) Ratio to U.S. real GDP per capita Sources: U.S. Department of Commerce; JPMorgan Chase & Co. Updated through June 2015. China’s Long Game

183. 183 India 2.8% of Global GDP

184. 184 Real GDP (2009 dollars) Ratio to U.S. real GDP per capita Sources: U.S. Department of Commerce; JPMorgan Chase & Co. Updated through June 2015. India Has a Lot of Wood to Chop Too

185. 185 Iran 0.5% of Global GDP

186. 186 Oil production in Iran (thousands of barrels daily) Source: Oil and Gas Journal. Updated through April 2015. Sanctions and Oil Output -- As a result of the hostage crisis in 1979, the U.S. government froze Iranian government assets in the United States and U.S. banks overseas, totaling $12 billion, according to the U.S. Treasury. That freeze was eventually expanded to a full trade embargo until an accord was signed with Iran in 1981. Most assets were unblocked and the embargo was lifted. -- In 1987, the United States imposed a new embargo on Iranian goods and services, "as a result of Iran's support for international terrorism and its aggressive actions against non-belligerent shipping in the Persian Gulf," the U.S. Treasury says. -- In 1995, the United States banned "involvement with petroleum development in Iran," the U.S. Treasury says. Two years later, the United States banned "virtually all trade and investment activities with Iran by U.S. persons, wherever located." -- In 2010, the United States passed the Comprehensive Iran Sanctions, Accountability, and Divestment Act. It revoked, for example, permission to import "certain foodstuffs and carpets of Iranian origin," the U.S. Treasury says. Those who violated the law could face a fine of up to $1 million and 20 years imprisonment. -- In 2011, the United States added further sanctions, including tightening restrictions on companies that provide Iran with equipment and expertise to run its oil and chemical industry. It prohibited groups that do business with financial institutions in Iran from holding accounts in the United States.

187. 187 Commodities

188. 188 Selected commodity price indexes (1967 = 100) Sources: Haver Analytics; Knight-Ridder; Reuters/Jeffries. Updated through July 2015. Supply and Demand Are Tough to Sort Out

189. 189 THE BUCKEYE STATE

190. 190 Jobless claims in Ohio (ratio to 2007 Q4 level) Source: U.S. Department of Labor. Updated through September 5, 2015 (state) and September 12, 2015 (U.S.). All Systems Go

191. 191 Real GDP (percent change from four quarters earlier) Source: U.S. Department of Commerce. Updated through 2015 Q2. Smooth Sailing

192. 192 Real GDP (ratio to 2000 Q4 level) Source: U.S. Department of Commerce. Updated through 2015 Q2. Smooth Sailing

193. 193 Nonfarm employment in Ohio versus the U.S. (percent change from 12 months earlier) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). Job Growth Is Solid

194. 194 Nonfarm employment in Ohio and the U.S. (ratio to 2000 Q4 level) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). On to New Frontiers

195. 195 Nonfarm payroll employment across the nation (ratio to 2007 Q4) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). Ohio, Coming Along

196. 196 Nonfarm employment at the cycle bottom and now (ratio to December 2007 level) Source: U.S. Department of Labor. Updated through July 2015 (states) and August 2015 (U.S.). … From a Not-So-Deep Hole

197. 197 Unemployment rate in Ohio and the U.S. (percent of the labor force) Source: U.S. Department of Labor. Updated through July 2015 (state) and August 2015 (U.S.). All Gone

198. 198 CONTACT: James E. Glassman Telephone: (212) 270-0778 jglassman@jpmorgan.com © 2015 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.