The Comerica U.S. Economic Outlook
Reflation, The Swerve, Reflexivity and The Budget
Robert A. Dye Ph.D.
Chief Economist, Comerica Bank
June 2017
Definitions
Reflation
Noun
1. An increase in economic activity and prices
2. An increase in the supply of money and credit designed
to cause such an increase
Swerve
Verb
Noun
Change or cause to change direction abruptly
An abrupt change of direction.
Reflexivity
Noun
A circular relationship between cause and effect, with the
cause and the effect affecting one another in a relationship in
which neither can be assigned as causes or effects.
2
The Diagram
The Outlook
Auto Sector
Reflexivity Dollar
Stocks
Oil
Fed Monetary Policy
The Trump Swerve
Inventories
Bus. Investment
Defense Spending
Housing
Consumer
Other Government
Trade
Fed Budget Constraints
Expectation of:
Deregulation
Business Friendly Environment
Tax Cuts
Infrastructure Spending
Healthcare Policy
U.S., China, India, Japan
Europe, Commodity Countries
Global Money Surge
Global Reflation
3
U.S. Reflation Metrics Positively Correlated 2016H2-17Q1
Various Reflation Metrics
30
10
20
10
5
0
-10
-20
-30
-40
0
M2 pchya, (R)
S&P 500 pchya (L)
GDP pchya (R)
CPI pchya (R)
Credit % (L)
Commodities pchya (L)
-5
-50
-10
2013Q1
2014Q1
2015Q1
Sources: BEA, BLS, Federal Reserve, CRB, S&P
2016Q1
2017Q1
4
GDP Forecast: Ongoing Moderate Expansion, Weighing the
Trump Bump
U.S. Real GDP Growth, Annualized Percent Change
5
History
Forecast
3
1
-1
2.6
1.6
2.3
2.7
-3
-5
-7
-9
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: BEA, Comerica Bank
5
Labor Metrics Remain Solid
+138k in May, U. Rate 4.3 Percent
Forecast
400
Payroll Employment, avg monthly diff, ths (L)
10
200
9
0
8
-200
7
-400
6
Unemployment Rate,
percent (R)
-600
5
-800
4
'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
Sources: BLS, Comerica Bank
6
More Upward Pressure on Wages to Come
Unemployment Rate and Hourly Earnings
12
Unemployment Rate
10
8
6
4
2
Average Hourly Earnings, percent change year ago
0
'90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16
Source: BLS
7
Moderating Oil Prices Means Less Inflation Ahead
Consumer Price Index and WTI Oil Price, pchya
6
5
4
3
2
1
0
-1
-2
-3
120
100
80
60
40
20
0
-20
-40
-60
Consumer Price Index, pchya (L)
WTI oil price, pchya (R)
'05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17
Sources: BLS, EIA
8
Interest Rate Outlook, Moderate Increases Through 2018
Yield, percent
7
6
5
30-Year FRM
4
3
2
1
10-Year Treasury Bond
Fed Funds
0
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Sources: Federal Reserve, Comerica Bank
9
2017 Forecast…The 360 View
Downside Risks
Upside Risks
•
Failure of the Trump Agenda
•
Tax reform, personal and corporate
•
Stock market correction
•
Infrastructure program
•
Global volatility, China, Japan,
•
Consumer/business confidence
•
Business investment
Eurozone/Brexit, Russia, MENA
•
Higher interest rates
•
Wealth effects
•
Housing stalls
•
Deregulation, including financial
•
Pushback from trade agreements
•
Expansive energy policy w/higher prices
•
Strong dollar/weak trade
•
Single-family housing market
•
Terrorist event
•
Job growth stays strong
•
Consumer spending slumps
•
Second leg for autos
10
Mind the Gap
1
1
A Dire Prediction by the CBO
Federal Deficit as Percent of GDP
4
2
0
-2
-4
-6
-8
-10
'66 '72 '78 '83 '90 '96 '02 '08 '14 '20 '26 '32 '38 '44
Source: Congressional Budget Office
12
Robert A. Dye, Chief Economist
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