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#NMHCstudent@ApartmentWire
As Good as it GetsThe Aging Expansion Powers On. . . but for How Much Longer?
Andrew J. NelsonChief Economist | USA, Colliers International
Ten Years After: A Full if Imperfect Recovery
> Growth still below average; GDP “potential” keeps dropping
> Jobs well above prior peak and still going strong
> Consumers financially stronger and confident
> Record household wealth
> Home prices above prior peak nationally
> College enrollment still strong (if down modestly)
> GDP growing stronger and now back to “full potential”
> Wage growth finally rising
> Numerous homes still seriously underwater; affordability reducing homeownership rates
> Student debt levels soaring
> Most Americans still live paycheck to paycheck
> Wealth (and income) even more highly concentrated at the top
> Inflation negating wage gains
> Fewer people working; more low-end and part-time jobs
The Aging Moderate
Expansion. . . Deserves
more respect
As Good as it Gets? (1)Economy surges . . . but less than it seems
As Good as it Gets? (2) Job growth strong but slowing
2%
4%
6%
8%
10%
12%
14%
16%
18%
U3 U6
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
Quarterly Nonfarm Jobs Growth at Annualized Rate Unemployment (U3) vs. Underemployment (U6) Rates
. . . as unemployment falls
As Good as it Gets? (3) Job openings now exceed hires
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
4.5%
Hires Openings
Hires vs. Job Openings (3-Mo. MA)
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
Unemployed Openings
Unemployed Workers vs. Job Openings
. . . and unemployed workers!
Leading Indicators Still High – but for how long?Virtually all states to keep expanding into 2019
State Leading Indexes: Expected Six-Month Change U.S. Leading Economic Indicator Index
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
Business and Consumer Confidence Both near high point for this cycle
Consumer Confidence vs. Manufacturing and Services PMI*
55
60
65
70
75
80
85
90
95
100
105
30
35
40
45
50
55
60
65
PMI: Manufacturing PMI: Nonmanufacturing Consumer Confidence
At/near high point in this cycle
Home Sales Strong-ish but StallingBoth new and existing home sales flat to falling since the spring
Existing Home Sales, SAAR (000s) New Home Sales, SAAR (000s)
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
2000 2003 2006 2009 2012 2015 2018
Thou
sand
s
0
200
400
600
800
1,000
1,200
1,400
1,600
2000 2003 2006 2009 2012 2015 2018
Thou
sand
s
New Home Sales - US
Yield Curve FlatteningLong-term yields still > short-term yields – but barely
10-year minus 2-year Treasury Yields
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
GDP Output Gap is Positive and RisingOverheating economy prompting Fed to cool growth with rate hikes
GDP Output Gap = (Actual GDP – Potential GDP) / Potential GDP
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Key Economic Themes for 2018+New life for a maturing expansion . . . but comes with risks
Drivers› Tax cut / reform and new budget spending provide short-term boost› Exuberant business sector to keep investing (though pace softening)› Consumers confident but tapped out› Global growth (and trade) slowing again after brief peak in 2017› Fed increasingly pivots from expansionary to neutral (to contractionary)› Increasingly tight labor markets raise wages, cool job growth
Near-Term Risks› Rising dollar and growing costs of trade wars› Equity prices (still) looking pricey, risk of correction› Emerging market contagion from oil / currency shocks› Accelerating inflation: wages, fiscal overdrive, deficit spending› Overcorrection from Fed
2018+ U.S. Economic Forecast“Mostly sunny with increasing clouds and a chance of T-storms”
› We’re (much) closer to the end of the expansion than the beginning• 2018 will be very good year but economy starts to cool in late 2019• Job growth slowing as we near “full employment”• Inflation and interest rates finally rising in earnest• Another one to two good years left but rising downside risks by 2020
› We’re much (much!) closer to the top of the market cycle than the bottom• Absorption and sales transactions to continue slowing.• Financial returns will continue easing as cap rates stabilize / rise . . .• But strong investor interest will maintain asset values for now.
› Next recession / downturn likely to be kinder to property sector• “Great Recession” was unusually deep / long / broad . . . and focused on property sector.• Next recession likely to be shallower / shorter / regional, and focused on other sectors. . . • But does Fed have tools to fight the next one?
colliers.com/Andrew.Nelson
http://knowledge-leader.colliers.com/author/andrew-nelson/