Economic Update - Center for Automotive Research...Economic Update 2020 Automotive Outlook Webinar April 30, 2020 Federal Reserve Bank of Chicago 1 • Real GDP for the U.S. fell 4.8%

The views expressed here are our own and do not necessarily reflect the views of the Federal Reserve

Bank of Chicago, the Federal Open Market Committee (FOMC) or the Federal Reserve System.

Paul Traub

Senior Business Economist

Federal Reserve Bank of Chicago/Detroit Branch

April 30, 2020

Economic Update2020 Automotive Outlook Webinar

April 30, 2020 1Federal Reserve Bank of Chicago

• Real GDP for the U.S. fell 4.8% in Q1 2020 and a SAAR Basis, the largest

quarterly decline since Q4 2018 with declines in Personal Consumption

Expenditures and Private Domestic Investment being somewhat offset by

contributions from Net Exports and Government Consumption and

Investment.

• University of Michigan’s April release of its Index of Consumer Sentiment

had it largest single month decline since October 2008 falling to its lowest

level since November 2011 on fears of a worsening economy.

• Business fixed investment declined 5.6% in Q1 2020 with nonresidential

investment falling 8.6%, it largest decline since Q2 2009, while residential

investment increased 21.0% on a SAAR basis.

• The U.S. trade deficit fell by $83 billion as imports declined 15.3% while

exports declined just 8.7%

• Labor markets suffer their largest declines in history as over 26 million

workers filed unemployment claims in just five weeks and inflation

remains below the Fed’s target of 2.0%.

Overview


U.S. Real GDP

Source: U.S. Bureau of Economic Analysis.

Percent

Contribution to Percent Change - Q/Q at SAAR, $2012

1.52.3 1.9 1.8 1.8

3.0 2.8 2.3 2.2

4.23.4

2.23.1

2.0 2.1 2.1

-4.8

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2016 Q2 Q3 Q4 2017 Q2 Q3 Q4 2018 Q2 Q3 Q4 2019 Q2 Q3 Q4 2020

PCE Private Investment Net Exports Government GDP

Contributions Q1 2020

-5.26% -0.96% 1.30% 0.13% -4.8%

Note: Contributions by sector may not sum to total due to rounding errors.

Consumer Sentiment

3Federal Reserve Bank of ChicagoApril 30, 2020

University of Michigan

Index

40

50

60

70

80

90

100

110

120

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 2020

Source: Thomson Reuters / University of Michigan

Apr ’20

71.8


Real Disposable Personal IncomeIn Billions of Chained 2012 Dollars - Percent Change Yr./Yr.

Percent

0.0

1.0

2.0

3.0

4.0

5.0

6.0

'14 '15 '16 '17 '18 '19 2020

Feb ‘20

2.2%

Source: Bureau of Economic Analysis.


Stock Market

NYSE Stock Price Index, Daily Close - January 2020 = 100

Source: Haver Analytics data taken from the Wall Street Journal and Coindesk.

40.0

50.0

60.0

70.0

80.0

90.0

100.0

110.0

2020 F M A

Composite Energy Health Care Financial Last Act

Index

4/28/2020

96.8

78.9

70.1

59.1

Restoring Consumer Confidence


University of Michigan

Percent

Source: Thomson Reuters / University of Michigan

61.0

53.0

67.062.0

13.0

25.0

13.011.0

23.0

28.0

16.0

27.0

0.0

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

All Households Bottom Third Middle Third Top Third

Health Isolation Finances

Household Income


30

35

40

45

50

55

60

65

70

'07 '09 '11 '13 '15 '17 '19

Manufacturing Composite

Index

Mar ’20

57.0

49.1

ISM Manufacturing and Composite Index value greater than 50 means expansion. Note:

Source: Institute for Supply Management, Richmond Federal Reserve, and Haver Analytics.

Purchasing Managers Index

ISM Manufacturing and Composite Indexes


Real Gross Private Domestic Investment

Contribution to Percent Change to GDP - Q/Q at SAAR, $2012

2.2

0.1-0.1

-1.1

-0.3 -0.30.1

1.5

0.6 0.6

1.3

0.81.1

-0.3

2.3

0.5

1.1

-1.2

-0.2

-1.1 -1.0

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2015 2016 2017 2018 2019 2020

Nonresidential Residential Change in Inventories Total

Percent

Source: U.S. Bureau of Economic Analysis

Contributions Q2 2019

-1.17% 0.74% -0.53% -0.96%


-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

98.0

100.0

102.0

104.0

106.0

108.0

110.0

112.0

2017 2018 2019 2020

Y/Y % Chg (RHA) Index (LHA)

Industrial Production - Total

Index 2012 = 100 & Percent Change M/M

Source: Federal Reserve Board

Index Percent

Mar 2020

103.7

-5.4%


-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

2017 2018 2019 2020

Y/Y % Chg (RHA) Production (LHA)

Industrial Production - Automotive

Millions of Units – SAAR & Percent Change M/M

Source: Federal Reserve Board

Millions Percent

Mar 2020

7.2

-36.1%


-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

0.0

200.0

400.0

600.0

800.0

1,000.0

1,200.0

1,400.0

1,600.0

1,800.0

2017 2018 2019 2020

Y/Y % Chg (RHA) Production (LHA)

Housing Starts

Thousands of Units – SAAR & Percent Change M/M

Source: U.S. Census Bureau

Millions Percent

Mar 2020

1,216

-22.3%

Percent Change Q/Q – SAAR

-0.8

5.3 4.9

2.6

12.3

2.60.8

-2.4

1.4

-4.1

-12.6-16.0

-12.0

-8.0

-4.0

0.0

4.0

8.0

12.0

16.0

2016 2017 2018 2019 2020

Total Trade Pre-Tariffs Average 2.8% Post-Tariffs & Pre-COVID-19 Average 0.5%


Total Real Trade - Imports and Exports


Percent

-0.60

-0.40

-0.20

0.00

0.20

0.40

0.60

-800

-600

-400

-200

0

200

400

2014 2015 2016 2017 2018 2019 2020

Monthly Change (LHA) Percent Change Y/Y (RHA)


U.S. Nonfarm Payrolls

Monthly Change (000)’s and Percent Change M/M

Thousands

Source: U.S. Department of Labor: Bureau of Labor Statistics

Mar ’20

-0.5%

-701

Percent


U.S. Unemployment

In percent of Labor Force

Sources: U.S. Department of Labor and Chicago Fed Staff calculations.

Percent

0.00

2.00

4.00

6.00

8.00

10.00

12.00

'05 '07 '09 '11 '13 '15 '17 '19

Unemployment Rate NAIRU

Mar ’20

4.6%

4.4%


Initial Unemployment Claims

Weekly Claims and Continued Claims, In Thousands

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

18,000

20,000

2020 Feb Mar Apr

Initial Claims Continued Claims

Source: U.S. Labor and Training Administration

Thousands4/18/2020

17,992

Note: In the three weeks since March 14, 2020, 30,307,000 workers have filed for unemployment.

4/18/2020

3,839


Labor Force Participation Rate

In Thousands

63.4

62.7

62.2

62.4

62.6

62.8

63.0

63.2

63.4

63.6

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

2019 2002

Source: U.S. Bureau of Labor Statistics

Percent

Note: Since January 2020 the labor forces has declined by 380,000 workers.


Inflation Expectations

TIPS 5-10 Year Inflation Compensation

Source: Survey of Consumers – University of Michigan and Federal Reserve Board

Percent

0.0

1.0

2.0

3.0

4.0

'12 '13 '14 '15 '16 '17 '18 '19 '20

5 - 10 Year Rate

4/24/20

1.49

-40.00

-20.00

0.00

20.00

40.00

60.00

80.00

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

2020 Feb Mar Apr

Gasoline (LHA) Oil (RHA)


U.S. Gasoline and Crude Oil Prices

Unleaded Regular & WTI Spot Price – In Current Dollars

Source: Energy Information Administration and Haver Analytics

$/barrel$/gal

4/28/2020

$12.40

4/27/2020

$0.598

New York Harbor Conventional Gasoline Regular Spot Price FOB (US$/Gal)

Cushing OK WTI Spot Price FOB (US$ per Barrel)


$12.34

$17.60

$21.17

$23.77

$26.48

$30.77

$34.81

0.00

5.00

10.00

15.00

20.00

25.00

30.00

35.00

40.00

1st Expiring 2-month 3-month 4-month 6month 1-year 2-year

Light Sweet Crude Oil Futures

WTI, Cushing, OK - 1st Expiring to 2-year Contract Settlement

Source: Chicago Mercantile Exchange

$/barrel

Note: On April 20, 2020 the 1st expiring futures fell to -$37.63.


17.3

11.7

6.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0


2016 2020

U.S. Light Vehicle Sales

In Millions of Units - SAAR

Source: Standard & Poor’s and Haver Analytics

Millions


90.0

94.0

98.0

102.0

106.0

110.0

105.0

115.0

125.0

135.0

145.0

155.0


2019 (LHA) 2020 (LHA) Seasonal Pattern (RHA)

Real Incentive Spend

Index – 2012 = 100* & Seasonal Pattern

Source: Author’s Calculations using J.D. Power and FOMC data.

IndexSeasonal

Factor

* Incentive spend inflation adjusted using average new vehicle price.

Incentive spending started 2020 well above the normal seasonal pattern.


-400

-300

-200

-100

0

100

200

300

M A M J J A S O N D J F M

2019 2020

Stock Market Volatility

S&P 500 Daily Change – Mar 1, 2019 to Apr 20, 2020

Source: Standard & Poor’s and Haver Analytics

Points


0.0000

0.5000

1.0000

1.5000

2.0000

2.5000

3.0000

3.5000

M A M J J A S O N D J F M A

Prime Credit Rate Federal Funds Rate

2019 2020

Federal Funds & Prime Credit Rates

Mar 6, 2019 to Apr 15, 2020

Source: Federal Reserve and Haver Analytics


Unclogging the Treasury and MBS Markets

Source: Federal Reserve Bank of Chicago, Sam Schulhofer-Wohl, Senior Vice President and Director of Financial Policy


$66.8 $74.8

$176.5 $165.0

$354.6

$610.9

$826.9

$241.8

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

800.0

900.0

Sep 3 Sep 10 Sep 17 Sep 24 Mar 4 Mar 11 Mar 18 Mar 25

Temporary Open Market Operations

In Billions of Dollars, Weekly Operations

Source: Federal Reserve Bank of New York and Haver Analytics

September 2008

$ Billions

March 2020


Unclogging the Treasury and MBS Markets

Source: Federal Reserve Bank of Chicago, Sam Schulhofer-Wohl, Senior Vice President and Director of Financial Policy


Yield Curve

10 Year Minus 1 Yr. and 3 Mo. Treasuries in Basis Points

4/28/2020

51 bps

46 bps

Basis

Points

Source: Board of Governors – Federal Reserve System

-80

-60

-40

-20

0

20

40

60

80

100

120

140

J F M A M J J A S O N D J F M A

10yr - 3mo 10yr - 1yr Zero

Daily Market Bid Yield at Constant Maturity January 2, 2019 to Most Current


National Financial Conditions Index

Federal Reserve Bank of Chicago, Positive = Tighter

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2007 '08 '09 2010 '11 '12 '13 '14 '15 '16 '17 '18 '19 2020

Source: Federal Reserve Bank of Chicago

Index

4/24/2020

-0.23


1.9

-24.5

7.4 7.9

3.3

-30.0

-25.0

-20.0

-15.0

-10.0

-5.0

0.0

5.0

10.0

Q4 '19 2020 Q2 Q3 Q4 2021 Q2 Q3 Q4 2022 Q2 Q3 Q4

Jan 10, 2020 Apr 10, 2020

U.S. Real GDP – Blue Chip Forecast

Percent Change Q/Q - SAAR

Source: January 10, 2020 and April 10, 2020 Blue Chip Forecast

Real GDP, Index Q4 ‘19 = 100

Q1 ‘20: 99.0

Q2 ‘20: 92.3

Q3 ‘20: 94.0

Q4 ’20: 95.8

Q1 ’21: 97.4

Q2 ’21: 98.6

Q3 ‘21: 99.6

Q4 ’21: 100.4

Percent

Center for Disease Control


U.S. COVID-19 Cases

Source: Institute for Health Metrics and Evaluation (IHME), April 23, 2020.

Earliest date social distancing may be relaxed with containment strategies that include testing,

contact tracing, isolation, and limiting gathering size. Threshold of 1 infection per million residents.

CDC Death Projections


Contact Reduction Scenarios

Thousands

Source: Center for Disease Control (CDC), Institute for Health Metrics and Evaluation (IHME), and Columbia University

51.359.9

63.6 65.0

55.2

74.5

88.598.0

55.2

74.6

89.5

101.9

55.2

74.9

92.0

112.2

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

4/25/2020 5/2/2020 5/9/2020 5/16/2020

Thousands

IHME CU 40% Reduction CU 30% Redustion CU 20% Reduction


Summary

• U.S. economic activity has suffered an unprecedented decline since the

start of the COVID-19 pandemic.

• Labor markets are showing sighs of extreme stress as companies cut

workers and prepare for and extended period of lost revenue.

• The Federal Reserve has taken extreme actions, using its full range of tools

to support the U.S. economy in an effort to promote maximum

employment and price stability.

• With some states still experiencing day-to-day increases in COVID-19

cases, others are looking for ways to re-open their economies.

• However, concerns of a resurgence of the virus remain high, especially if

states open their economies too soon without the appropriate amount of

testing, contact tracing, isolation, and contact reduction.

Source: Federal Reserve

Thank You!

Appendix


Billions Chained $2012 and Percent Change Q/Q at SAAR

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

14,000

15,000

16,000

17,000

18,000

19,000

20,000

'07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20

$ Billions

Q1 ‘20

$18,988

-4.8%

U.S. Real GDP

Percent


Q1 ‘19

$18,927


Chicago Fed National Activity Index

Federal Reserve Bank of Chicago

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2007 2011 2015 2020

CFNAI CFNAI_MA3

Source: Federal Reserve Bank of Chicago

Index

4/20/2020

-0.32

-1.47


-9.0

-6.0

-3.0

0.0

3.0

6.0

9.0

180

185

190

195

200

205

210

2017 2018 2019 2020

Thousands

% Chg Y/Y (RHA) Retail Sales (LHA)

Real Advanced Retail Sales

In Millions of Dollars and Percent Change M/M

Source: FRB St. Louis

Millions Percent

Mar 2020

$187.3

-8.3%


6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

'06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21

Annual Sales Annual Forecast

Millions of Units

Millions

U.S. Light Vehicle Sales

Source: WardsAuto Intelligence, BEA, and April 10, 2020 Blue Chip Consensus Forecast

16.516.1

13.2

10.4

11.6

12.7

14.4

15.516.4

17.4 17.5 17.1 17.217.0

15.4

13.1

Blue Chip Consensus

Documents

Economic Update - Center for Automotive Research...Economic Update 2020 Automotive Outlook Webinar April 30, 2020 Federal Reserve Bank of Chicago 1 • Real GDP for the U.S. fell 4.8%