United States - The glass is still half empty - Samiran Chakraborty, Standard Chartered

United States – The glass is still half emptyUnited States – The glass is still half empty

Samiran Chakraborty10 November 2013

The glass is still half emptyThe glass is still half empty

G4: The US recovery stands outRebased GDP (Q1-2008=100)

100

102

104

106

108

90

92

94

96

98

100

Q1 2008 Q3 2008 Q1 2009 Q3 2009 Q1 2010 Q3 2010

US

Sources: Datastream, Standard Chartered Research

Euro area

UK

Japan

Q1 2011 Q3 2011 Q1 2012 Q3 2012 Q1 2013 Q3 2013

2

US GDP growth has shifted down a gear since the financial crisis

4

6

8

10

Nominal US GDP growth (since 1990), % y/y

-4

-2

0

2

4

Dec-90 Jul-92 Feb-94 Sep-95 Apr-97 Nov-98 Jun-00 Jan-02

US GDP growth has shifted down a gear since the financial crisis

Source: Bloomberg, Standard Chartered Research 3

3.1

02 Aug-03 Mar-05 Oct-06 May-08 Dec-09 Jul-11 Feb-13

Business surveys are rather upbeatBusinesses seem to have seen through the political uncertainty

Manufacturing

Non

50

55

60

ISM business surveys

30

35

40

45

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10

Business surveys are rather upbeatBusinesses seem to have seen through the political uncertainty

Manufacturing

Non-manufacturing

Sources: Bloomberg, Standard Chartered Research 4

Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13

But consumer surveys are less upbeat

University of Michigan consumer confidence survey (index)

75

80

85

55

60

65

70

Nov-07 Nov-08 Nov-09 Nov

But consumer surveys are less upbeat

University of Michigan consumer confidence survey (index)


72.0

Nov-10 Nov-11 Nov-12 Nov-13

Mortgage rates are higher than in early 2013, but gas prices are lower

4.5

5.0

5.5

Average gasoline prices (USD/gallon) and average 30

3.0

3.5

4.0

4.5

Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Mortgage rates are higher than in early 2013, but gas prices are lower

Average gasoline prices (RHS)

4.0

4.5

Average gasoline prices (USD/gallon) and average 30-year mortgage rates, %


MBA 30Y avg mortgage rate, % (LHS)

2.5

3.0

3.5

12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

Car sales have moderated after a solid summer

14

15

16

17

18

Monthly car sales, mn (annualised)

8

9

10

11

12

13

14

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10

Car sales have moderated after a solid summer


Sep-10 Mar-11 Sep-11 Mar-12 Sep-12 Mar-13 Sep-13

Unemployment vs. GDP growth: something will have to giveThe unemployment rate has dropped more than anticipated given the still

US real GDP growth (%, y/y) vs. 1Y change in the unemployment rate, %

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

Sep-93 Sep-95 Sep-97 Sep-99 Sep-01 Sep-Other assets

Unemployment vs. GDP growth: something will have to giveThe unemployment rate has dropped more than anticipated given the still-soft growth backdrop

US real GDP growth (%, y/y) vs. 1Y change in the unemployment rate, %

Unemployment, 1Y chg. (inverted, LHS)

2

4

6


GDP growth,% y/y (RHS

-03 Sep-05 Sep-07 Sep-09 Sep-11 Sep-13

-6

-4

-2

0

US manufacturing ‘renaissance’: data is inconclusive, so far

US manufacturing employment, mn (LHS)

16

17

18

19

Unemployment rate, %

10

11

12

13

14

15

Oct-93 Feb-95 Jun-96 Oct-97 Feb-99 Jun-00 Oct-01 Feb-03

US manufacturing ‘renaissance’: data is inconclusive, so far

US manufacturing production, index RHS

90

95

100

105

y/y gain: 2.6%

60

65

70

75

80

85

Jun-04 Oct-05 Feb-07 Jun-08 Oct-09 Feb-11 Jun-12 Oct-13


y/y gain: 0.5%

Still no signs that earnings growth is taking off

Earnings growth (private sector), % y/y

3.0

3.5

4.0

1.5

2.0

2.5

3.0

Mar-07 Mar-08 Mar-09 Mar-10

Still no signs that earnings growth is taking off


Mar-11 Mar-12 Mar-13

US growth: still-high headwinds in the near term

Growth expectations are being lowered (again)

Evolution of the Bloomberg consensus forecast for

annual GDP growth

2014

2.6

3.0

3.5

2013

1.6

2.6

1.0

1.5

2.0

2.5

Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

Time forecast was made

N.B.:Our 2014

forecast is 2.4%

high headwinds in the near term

The Fed’s growth forecasts are too optimistic

Current Fed forecasts (mid-point of central tendency)

Q4-2014 Q4-2015 Q4-2016

GDP growth, % y/y 3.00 3.25 2.90

Unemployment rate, % 6.60 6.05 5.65


PCE inflation, y/y % 1.55 1.80 1.85

Core PCE, y/y % 1.60 1.85 1.95

2.4%

US export growth is plateauing

Top 3 partners: recent trends

US exports, USD bn

Canada

Mexico250

300

350

Other main trade partners: recent trends

Exports, USD

50

60

70

80

China

0

50

100

150

200

Aug-03 Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

10

20

30

40

50


Exports, USD bn

Japan

Germany50

60

70

80


Germany

Korea

Brazil

Netherlands

HK

Australia

10

20

30

40

50


US imports: less reliance on energy suppliers

Top 3 partners: recent trends

US imports, USD bn

China

Canada

Mexico 300

350

400

450

500


Imports, USD

110

130

150

170

Mexico

0

50

100

150

200

250

300


US imports: less reliance on energy suppliers


Imports, USD bn

Japan

Germany

110

130

150

170


KoreaSaudi Arabia

UK

France

India

10

30

50

70

90


October payrolls: revisions helped push up moving averages

3-month avg.

6-month avg.

250

300

350

Non-farm payrolls and averages (3 and 6 months), ‘000s

0

50

100

150

200

Sep-11 Nov-11 Jan-12 Mar-12 May-12 Jul-12 Sep

October payrolls: revisions helped push up moving averages

NFP

farm payrolls and averages (3 and 6 months), ‘000s

Sep-12 Nov-12 Jan-13 Mar-13 May-13 Jul-13 Sep-13


The household survey posts a big drop due to a different methodology for furloughed federal staff

Employment gains (‘000s) according to the two surveys

400

600

800

1,000

-800

-600

-400

-200

0

200

Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

The household survey posts a big drop due to a different methodology for furloughed federal staff

Employment gains (‘000s) according to the two surveys

Payroll survey


12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13

Household survey

A continued fall in the US participaadvanced countries’ situation

Labour-force participation rate, % (seasonally adjusted)

66

67

68

UK

62

63

64

65

Feb-04 Feb-05 Feb-06 Feb-07 Feb-08

ipation rate, contrasting with other

force participation rate, % (seasonally adjusted)

Canada


US

Feb-09 Feb-10 Feb-11 Feb-12 Feb-13

Services jobs continue to lead the job recovery, while the decline in federal jobs has decelerated

Employment by sector, rebased 2005=100

110

120

130

70

80

90

100

Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Services jobs continue to lead the job recovery, while the decline

Other services

Health and education

Government (federal and local)

Note: Oil & mining jobs are not shown (c. 890,000 jobs).Source: Bloomberg, Standard Chartered Research

17

Construction

Manufacturing

Jan-10 Jan-11 Jan-12 Jan-13

Finance & real estate

Part-time employment has moderated recently after strong gains in the spring

Part-time vs. full-time split (rebased Dec 2006=100)

105

110

115

90

95

100

105

Dec-06 Dec-07 Dec-08 Dec-09

time employment has moderated recently after strong gains

Part-time jobs


Dec-10 Dec-11 Dec-12

Full-time jobs

Hours worked have been stagnating

Weekly hours worked (private sector)

Manufacturing (LHS)

40.0

40.5

41.0

41.5

Hours worked (RHS)

37.0

37.5

38.0

38.5

39.0

39.5

Dec-06 Dec-07 Dec-08 Dec-09

Other assets

Hours worked have been stagnating

Manufacturing (LHS)

34.4

34.6

34.8


Hours worked (RHS)

33.6

33.8

34.0

34.2

Dec-10 Dec-11 Dec-12

The increase in mortgage rates over the summer has cooled the housing market, but fundamentals remain supportive

Builders are still enthusiastic, despite higher rates

NAHB survey (home builders) and new home

sales, ‘000s

New home sales, LHS

NAHB survey, RHS

60

80

2,000

2,500

RHS

0

20

40

0

500

1,000

1,500

Oct-04 Oct-07 Oct-10 Oct-13

The increase in mortgage rates over the summer has cooled the housing market, but fundamentals remain supportive

House prices are recovering from low levels

FHFA and Case-Shiller house price indices

FHFA index (purchase),

RHS

220

230

200

220


Case-Shiller 20, LHS

180

190

200

210

120

140

160

180

Aug-05 Aug-07 Aug-09 Aug-11 Aug-13

Low inflation moving higher on the Fed’s worry list

Selected core inflation measures, % y/y

2.0

2.5

3.0

0.0

0.5

1.0

1.5

Oct-07 Oct-08 Oct-09 Oct-

Low inflation moving higher on the Fed’s worry list

Core CPI index


Core PCE index

-10 Oct-11 Oct-12 Oct-13

US economic dashboardLow inflation and still-moderate growth: no rush to reduce the Fed’s bond

US Economic Dashboard

Unemployment rate10.04.0

4.5

5.0

5.5

6.0

6.57.0

7.5

8.0

8.5

9.0

9.5

7.3

0.0

0.5

1.0

1.52.0

Real GDP growth, y/y

(1) Illustration inspired by a Dallas Fed 2013 presentation; (2) spread of the FINRA US high

payrolls, as of the latest data, compared to trough versus peak;

High-yield bond spread (2)

Unemployment rate

10.03.0

3.5

4.0

4.5

5.0

5.56.0 6.5 7.0

7.5

8.0

8.5

9.0

9.5

4.6-2.0

-1.5

-1.0

-0.5

1.6

moderate growth: no rush to reduce the Fed’s bond-buying programme

US Economic Dashboard (1)

Core PCE inflation, % y/y5.0-1.0

-0.5

0.0

0.5

1.0

1.52.0 2.5

3.0

3.5

4.0

4.5

1.2

2.0 2.53.0

3.5

4.0

22

75.9 (3 months ago)

Legend

Current levels

3 months ago

Percent of jobs recovered (3)

Real GDP growth, y/y

igh-yield corporate index (yield to maturity) to the UST 5Y yield, in percent; (3) total non-farm

payrolls, as of the latest data, compared to trough versus peak; Sources: Bloomberg, Standard Chartered Research

8.28

Core PCE inflation, % y/y

6.0

4.5

5.0

5.5

1.6

The current FOMC on a dovish-hawkish scale

Ben BernankeChairman

Jerome PowellFed Board

Daniel Fed Board

Eric Rosengren

Janet YellenFed Vice Chair

James BullardSt Louis Fed

Narayana KocherlakotaMinneapolis Fed

William DudleyNew York Fed

Dennis Lockhart

Note: Federal Reserve Board Member Elizabeth Duke left in August (vacant seat); Sarah Bloom

Treasury. Sandra

Dove

Eric RosengrenBoston Fed

Dennis LockhartAtlanta Fed

John WilliamsSan Francisco Fed

Charles EvansChicago Fed

Permanent vote – dark blue | Voters in 2013 – dark green

Many doves were

voting this year

hawkish scale

Ben BernankeChairman

Jerome PowellFed Board

Daniel TarulloFed Board

Sandra PianaltoCleveland Fed

Jeremy SteinFed Board

Esther GeorgeKansas City Fed

Charles PlosserPhiladelphia Fed

Richard FisherDallas Fed

Jeffrey LackerDennis Lockhart

Two vocal hawks are

voting next year

Note: Federal Reserve Board Member Elizabeth Duke left in August (vacant seat); Sarah Bloom Raskin was appointed to the

Treasury. Sandra Pianalto indicated she will be leaving the Cleveland Fed in early 2014.

Source: Fed, Standard Chartered Research 23

Hawk

Jeffrey LackerRichmond Fed

Dennis LockhartAtlanta Fed

John WilliamsSan Francisco Fed

dark green | Voters in 2014 – green | Voters in 2015 – blue

voting next year

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