Markets, He Wrote - FAMA

By: Anirban BasuSage Policy Group, Inc.

October 5th, 2017

Markets, He WroteOn Behalf of

The FEMSA/FAMA 2017 Annual Conference

Macro P.I.(Just How Hairy is the

Global Situation?)

Photo: Flixter.com

0.3%1.9%

1.0%2.6%

7.2%6.7%

6.5%1.4%

3.5%2.7%

4.6%2.1%

3.1%2.5%

1.7%1.3%

3.1%1.3%

1.8%1.5%

1.9%2.0%

-6.0% -4.0% -2.0% 0.0% 2.0% 4.0% 6.0% 8.0% 10.0%Brazil

MexicoLatin America & the Caribbean

Middle East, North Africa, Afghanistan, & PakistanIndia (3)

ChinaEmerging & Developing Asia

RussiaEmerging & Developing Europe

Sub-Saharan AfricaEmerging Market & Developing Economies

United StatesAustralia

CanadaUnited Kingdom

JapanSpain

ItalyGermany

FranceEuro Area

Advanced Economies

Annual % Change

Estimated Growth in Output by Select Global Areas2017 Projected

Source: International Monetary Fund: World Economic Outlook Update, July 2017

2017 Proj. Global Output Growth: 3.5%

2016 Growth (Estimate)World: 3.2% Euro Area: 1.8%United States: 1.6% Japan: 1.0%

International Population Dynamics, 16 Largest NationsNation Population (Millions) % Change2017 2050 Net Change

Nigeria 190.9 410.6 219.8 115.1% Ethiopia 105.0 190.9 85.9 81.9% Egypt 97.6 153.4 55.9 57.3% Pakistan 197.0 306.9 109.9 55.8% Philippines 104.9 151.3 46.4 44.2% Mexico 129.2 164.3 35.1 27.2% India 1,339.2 1,659.0 319.8 23.9% Bangladesh 164.7 201.9 37.3 22.6% Indonesia 264.0 321.6 57.6 21.8% United States 324.5 389.6 65.1 20.1% Vietnam 95.5 114.6 19.1 20.0% Brazil 209.3 232.7 23.4 11.2% China 1,409.5 1,364.5 ‐45.1 ‐3.2% Germany 82.1 79.2 ‐2.9 ‐3.5% Russian Federation 144.0 132.7 ‐11.3 ‐7.8% Japan 127.5 108.8 ‐18.7 ‐14.7% World 7.6 billion 9.8 billion 2.2 billion 29.4%

Source: United Nations, Department of Economic and Social Affairs (DESA)/Population Division. World Population Prospects: The 2017 Revision.

*For statistical purposes, the data for China do not include Hong Kong and Macao, Special Administrative Regions (SAR) of China, and Taiwan Province of China.

Top 15 Bottom 15

Rank* Country Fertility Rate Rank* Country Fertility

Rate

1 Niger 7.29 187 Malta 1.422 Somalia 6.37 188 Italy 1.373 Dem. Rep. of the Congo 6.20 188 Slovak Republic 1.374 Mali 6.15 190 Mauritius 1.365 Chad 6.05 191 Cyprus 1.356 Burundi 5.78 192 Bosnia and Herzegovina 1.357 Angola 5.77 193 Poland 1.328 Uganda 5.68 193 Spain 1.329 Timor-Leste 5.62 195 Greece 1.3010 Nigeria 5.59 196 Macao SAR, China 1.2811 Gambia, The 5.49 197 Moldova 1.2512 Burkina Faso 5.44 198 Singapore 1.2413 Mozambique 5.31 199 Korea, Rep. 1.2414 Tanzania 5.08 200 Portugal 1.2315 Benin 5.05 201 Hong Kong SAR, China 1.20

Niamey Vice(Fertility Rates by Country, 2015)

Source: World Bank, World Development Indicators

*Rank among 201 countries for which data are available for the most recent year (2015)**Total fertility rate represents the number of children that would be born to a woman if she were to live to the end of her childbearing years and bear children in accordance with age-specific fertility rates of the specified year.

Global Debt to Exacerbate Slow Growth?

Sources: 1. International Monetary Fund. October 2016. “World Economic Outlook: Subdued Demand: Symptoms and Remedies.” 2. International Monetary Fund (IMF). October 2016. “Fiscal Monitor: Debt—Use It Wisely.”

• According to the IMF, global debt reached an all-time highin 2015;

• At $152 trillion, global gross debt of the nonfinancial sector now represents 225% of global GDP;

• About 2/3 of this debt is in the private sector;• Current low nominal-growth environment is making

adjustment difficult, setting the stage for a “vicious feedback loop” in which lower growth hampers deleveraging and the debt overhang exacerbates the slowdown.2

Note: The nonfinancial sector comprises the general government, nonfinancial firms, and households. Gross debt represents the unconsolidated liabilities of the three.

Global Debt Reaches All Time Highs (IIF)

Sources: 1. Institute of International Finance (IFF), Global Debt Monitor. 2. Business Insider. 3. The Telegraph. 4. Reuters.

• According to the International Institute of Finance (IIF), global debt has reached an all-time high in 2016;

• At $215 trillion, global debt—including household, government, and corporate—now represents 325% of global GDP;

• Last year the IMF warned of risks to the global economy:• “sheer size of debt could set the stage for an unprecedented

private deleveraging process that could thwart the fragile economic recovery”

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September 2017:$49.88 /Barrel

NYMEX Crude Oil Future Prices in U.S. DollarsSeptember 2001 through September 2017

*Month of September = average of daily prices from 9/1-9/29Source: U.S. Energy Information Administration

US$ NominalBase metals include aluminum, copper, lead, nickel, tin and zinc.Precious metals include gold, platinum, and silver.

Base Metals

Iron Ore

Precious Metals

25

45

65

85

105

125

145

165

Aug

-07

Dec

-07

Apr

-08

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2010

=100

Metal Price IndicesAugust 2007 through August 2017

Source: The World Bank

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Jan. 4, 1985: 1,000

October 2nd

1,328

The Baltic Dry Index (BDI) is a measure of the price of shipping major raw materials such as metals, grains, and fossil fuels by sea. The BDI is a composite of 3 sub-indices, each covering a different carrier size: Capesize, Panamax, and Supramax.

Baltic Dry IndexOctober 2009 through October 2017

Source: Quandl.com

USA CSI

Photo: AMCNetworks.com

(Commercial Situation Investigation)

Gross Domestic Product1990Q2 through 2017Q2*

Source: Bureau of Economic Analysis

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(SA

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*3rd(final) Estimate

Contributions to GDP Growth by Component2016Q3 – 2017Q2*


-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

PersonalConsumption

GovernmentSpending

Net Exports GrossInvestment

1.92

0.090.36 0.40

1.99

0.03

-1.61

1.341.32

-0.11

0.22

-0.20

2.24

-0.03

0.21

0.64

SAA

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2016Q3 2016Q4 2017Q1 2017Q2

2.8

1.8

1.2

3.1

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1.5

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2.5

3.0

3.5

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2017Q2: +3.1%


Net Change in U.S. Jobs, BLSAugust 2002 through August 2017

Source: U.S. Bureau of Labor Statistics

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August 2017: +156K

National Nonfarm Employmentby Industry SectorAugust 2016 v. August 2017


-678

58

88

108

138

149

214

323

476

602

-100 0 100 200 300 400 500 600 700

Information

Government

Mining and Logging

Other Services

Trade, Transportation, and Utilities

Manufacturing

Financial Activities

Construction

Leisure and Hospitality

Education and Health Services

Professional and Business Services

Thousands, SA

All told 2,097K jobs gained

U.S. Employment to Population RatioAugust 2000 – August 2017


Note: Civilian employment-population ratio, population 16 years and over, seasonally adjusted (SA).

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August 2017:60.1%

Firefighters: Occupational Outlook


• Employment for firefighters is projected to grow 5% from 2014-2024;

• Physically fit applicants with high test scores, some post-secondary firefighter education, and paramedic training have the best job prospects;

• 2/3 of situations that firefighters respond to are medical emergencies, not fires.

High Demand for Volunteer Firefighters

Source: U.S. Bureau of Labor Statistics; Fire Rescue Magazine

• Volunteer firefighters share the same duties as paid firefighters and account for the majority of firefighters in many areas.

• According to the National Fire Protection Association, about 69 percent of fire departments were staffed entirely by volunteer firefighters in 2013.

Volunteers Tougher to Find

Source: U.S. Bureau of Labor Statistics; Fire Rescue Magazine; National Fire Protection Association

• At the same time, the number of volunteer firefighters has declined significantly and volunteers continue to age;

• The number of firefighters that are strictly volunteers declined by more than 10 percent from 2000 to 2015;

• Departments are having trouble attracting younger volunteers:• Increased demands on people’s time and longer commutes;

• Growth of two-income households;

• Increased training requirements and costs

RANK STATE % RANK STATE % RANK STATE %1 NEVADA 3.0 18 CALIFORNIA 1.6 35 INDIANA 1.02 GEORGIA 2.7 18 KENTUCKY 1.6 35 OHIO 1.03 FLORIDA 2.6 18 MASSACHUSETTS 1.6 35 PENNSYLVANIA 1.03 UTAH 2.6 18 MONTANA 1.6 38 NEW JERSEY 0.95 TEXAS 2.5 18 NORTH CAROLINA 1.6 39 SOUTH DAKOTA 0.86 MARYLAND 2.3 23 MINNESOTA 1.5 40 DELAWARE 0.66 OREGON 2.3 23 VIRGINIA 1.5 40 HAWAII 0.68 IDAHO 2.2 25 ALABAMA 1.4 40 MISSISSIPPI 0.69 NEW HAMPSHIRE 2.1 25 MICHIGAN 1.4 40 VERMONT 0.69 WASHINGTON 2.1 25 NEW YORK 1.4 40 WISCONSIN 0.611 ARKANSAS 1.9 28 ARIZONA 1.3 45 CONNECTICUT 0.411 RHODE ISLAND 1.9 28 NEBRASKA 1.3 45 ILLINOIS 0.413 COLORADO 1.8 28 NORTH DAKOTA 1.3 45 MAINE 0.413 MISSOURI 1.8 31 LOUISIANA 1.2 48 ALASKA 0.113 TENNESSEE 1.8 31 OKLAHOMA 1.2 48 WEST VIRGINIA 0.116 DISTRICT OF COLUMBIA 1.7 33 IOWA 1.1 50 KANSAS 0.616 SOUTH CAROLINA 1.7 33 NEW MEXICO 1.1 51 WYOMING 0.9

Employment Growth, U.S. States (SA) August 2016 v. August 2017 Percent Change


U.S. Year-over-year Percent Change: +1.4%

Rank MSA % Rank MSA %

1 Orlando-Kissimmee-Sanford, FL MSA 3.3 13 Washington-Arlington-Alexandria, DC-VA-MD-WV MSA 2.1

2 Atlanta-Sandy Springs-Roswell, GA MSA 3.2 14 Denver-Aurora-Lakewood, CO MSA 2.0

3 Tampa-St. Petersburg-Clearwater, FL MSA 3.1 15 Houston-The Woodlands-Sugar Land, TX MSA 1.8

4 Dallas-Fort Worth-Arlington, TX MSA 2.8 15 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA 1.8

5 Seattle-Tacoma-Bellevue, WA MSA 2.7 15 Phoenix-Mesa-Scottsdale, AZ MSA 1.8

6 Charlotte-Concord-Gastonia, NC-SC MSA 2.6 18 San Francisco-Oakland-Hayward, CA MSA 1.7

7 Portland-Vancouver-Hillsboro, OR-WA MSA 2.5 19 New York-Newark-Jersey City, NY-NJ-PA MSA 1.5

7 Riverside-San Bernardino-Ontario, CA MSA 2.5 20 Baltimore-Columbia-Towson, MD MSA 1.4

9 Miami-Fort Lauderdale-West Palm Beach, FL MSA 2.4 21 San Diego-Carlsbad, CA MSA 1.3

10 Boston-Cambridge-Nashua, MA-NH Metro NECTA 2.3 22 St. Louis, MO-IL MSA 1.1

10 Detroit-Warren-Dearborn, MI MSA 2.3 23 Los Angeles-Long Beach-Anaheim, CA MSA 0.6

10 Minneapolis-St. Paul-Bloomington, MN-WI MSA 2.3 24 Chicago-Naperville-Elgin, IL-IN-WI MSA 0.5

Employment Growth, 24 Largest Metros (NSA)August 2016 v. August 2017 Percent Change

Source: U.S. Bureau of Labor Statistics, Current Employment Statistics (CES) Survey

Rank MSA UR Rank MSA UR1 Denver-Aurora-Lakewood, CO MSA 2.2 10 Seattle-Tacoma-Bellevue, WA MSA 4.2

2 Minneapolis-St. Paul-Bloomington, MN-WI MSA 3.4 14 Phoenix-Mesa-Scottsdale, AZ MSA 4.3

3 Boston-Cambridge-Nashua, MA-NH Metro NECTA 3.5 15 Detroit-Warren-Dearborn, MI MSA 4.4

4 Washington-Arlington-Alexandria, DC-VA-MD-WV MSA 3.7 16 Miami-Fort Lauderdale-West Palm Beach, FL

MSA 4.5

5 Orlando-Kissimmee-Sanford, FL MSA 3.8 17 Atlanta-Sandy Springs-Roswell, GA MSA 4.6

6 Dallas-Fort Worth-Arlington, TX MSA 3.9 18 San Diego-Carlsbad, CA MSA 4.7

6 San Francisco-Oakland-Hayward, CA MSA 3.9 19 New York-Newark-Jersey City, NY-NJ-PA MSA 4.8

8 Tampa-St. Petersburg-Clearwater, FL MSA 4.0 20 Los Angeles-Long Beach-Anaheim, CA MSA 5.1

9 St. Louis, MO-IL MSA (1) 4.1 20 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD MSA 5.1

10 Baltimore-Columbia-Towson, MD MSA 4.2 22 Houston-The Woodlands-Sugar Land, TX MSA 5.2

10 Charlotte-Concord-Gastonia, NC-SC MSA 4.2 23 Chicago-Naperville-Elgin, IL-IN-WI MSA 5.3

10 Portland-Vancouver-Hillsboro, OR-WA MSA 4.2 24 Riverside-San Bernardino-Ontario, CA MSA 6.2

Unemployment Rates, 24 Largest Metros (NSA)August 2017

Source: U.S. Bureau of Labor Statistics 1. Area boundaries do not reflect official OMB definitions.

U.S. Unemployment RateAugust: 4.4%

21 Jump Street

(And Other Addresses of Interest)

Photo: TheMoveDatabase.org

15-Year & 30-Year Fixed Mortgage Rates September 1995 through September 2017*

Source: Freddie Mac

*Week ending 9/28/2017

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Rate

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*NSA: not seasonally adjusted

U.S. Homeownership (NSA)1980Q2-2017Q2

Source: U.S. Census Bureau

58%

60%

62%

64%

66%

68%

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1980

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1981

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2017Q2:63.7%

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$ B

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(SA

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)U.S. Private New Multifamily ConstructionAugust 1993 through August 2017


S&P/Case-Shiller Home Price Indices for Select MetrosJuly 2017, 12-Month Percentage Change

Source: Standard & Poor’s

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U.S. Single-Family Housing StartsAugust 1999 through August 2017


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Construction Spending on Public SafetyJanuary 2002 through August 2017


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R ($

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Dec-08$15.1B

Aug-17$8.3B

National Nonresidential Construction Spending by Subsector August 2014 v. August 2017


-23.7%-20.9%

-16.8%-10.3%

-8.4%-4.5%-3.3%

1.7%4.4%5.5%5.9%

32.1%36.7%37.9%

52.5%70.2%

-40% -30% -20% -10% 0% 10% 20% 30% 40% 50% 60% 70% 80%

Sewage and waste disposalConservation and development

Water supplyPublic safety

PowerReligious

Highway and streetTransportationManufacturing

Health careEducationalCommercial

CommunicationAmusement and recreation

OfficeLodging

3-year % Change

Total Nonresidential Construction:

+$57.16B; +9.0%

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S

Foreign investment increases 85.1% in 2015

Cross-border investment remained elevated in 2016: Although down relative to a record 2015, offshore investment levels still exceeded the pre-2015 high in 2007.

Note: Among transactions larger than $5.0 million

Commercial/Multifamily Offshore Investment Sales Volumes Reach New Heights in 2015/16

Source: Jones Lang LaSalle; Real Capital Analytics

14.9%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

YTD

Foreign Participation as a % of Total Office Volume

1.1%1.1%1.4%1.6%1.9%2.1%2.8%

4.8%4.8%5.6%6.8%7.1%8.4%

45.5%

0% 10% 20% 30% 40% 50%

San DiegoPhiladelphia

AustinAtlanta

ChicagoNorthern New Jersey

MiamiSeattle-Bellevue

Los AngelesDallas-Fort Worth

Washington, DCBoston

San FranciscoNew York

Foreign Office Investment by Destination Market (as a % of Total, 2016YTD)

Note: Among transactions larger than $5.0 million; includes all office markets which received > 1.0% of offshore capital.

Primary markets continue to capture the lion’s share of inbound capital, receiving 78.2% of this capital YTD.

Foreign Office Investment Activity, as of 2016Q3

Source: Jones Lang LaSalle; Real Capital Analytics

Down to “The Wire”

Photo: RecapGuide.com

Sales Growth by Type of Business August 2016 v. August 2017*


-3.5%-1.4%

0.5%

0.6%

1.5%2.1%

2.3%

2.5%

5.2%

5.4%6.4%

7.5%

8.4%

-5% -2% 1% 4% 7% 10%

Electronics & Appliance Stores

Sporting Goods, Hobby, Book & Music StoresHealth & Personal Care Stores

Clothing & Clothing Accessories Stores

Motor Vehicle & Parts Dealers

Food & Beverage Stores

Food Services & Drinking PlacesGeneral Merchandise Stores

Miscellaneous Store Retailers

Furniture & Home Furn. Stores

Gasoline Stations

Building Material & Garden Supplies DealersInternet, etc. Retailers

12-month % change*August 2017 advanced estimate

Total Retail Sales: +3.2% YOY

U.S. Saving Rate, August 2005 – August 2017 (Savings as Percentage of Personal Disposable Income)


0.0

2.0

4.0

6.0

8.0

10.0

12.0A

ug-0

5D

ec-0

5A

pr-0

6A

ug-0

6D

ec-0

6A

pr-0

7A

ug-0

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pr-0

8A

ug-0

8D

ec-0

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pr-0

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ec-0

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pr-1

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ug-1

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ec-1

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pr-1

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ug-1

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ec-1

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pr-1

2A

ug-1

2D

ec-1

2A

pr-1

3A

ug-1

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ec-1

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pr-1

4A

ug-1

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ec-1

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pr-1

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6A

ug-1

6D

ec-1

6A

pr-1

7A

ug-1

7

Savi

ngs

Rat

e (%

)

August 2017:3.6%

U.S. Gross Private Domestic Investment (SAAR)% Change from Previous Quarter, 2000Q2 – 2017Q2*


-40.0

-30.0

-20.0

-10.0

0.0

10.0

20.0

30.0

40.0

2000

Q2

2000

Q4

2001

Q2

2001

Q4

2002

Q2

2002

Q4

2003

Q2

2003

Q4

2004

Q2

2004

Q4

2005

Q2

2005

Q4

2006

Q2

2006

Q4

2007

Q2

2007

Q4

2008

Q2

2008

Q4

2009

Q2

2009

Q4

2010

Q2

2010

Q4

2011Q

220

11Q4

2012

Q2

2012

Q4

2013

Q2

2013

Q4

2014

Q2

2014

Q4

2015

Q2

2015

Q4

2016

Q2

2016

Q4

2017

Q2

2017Q2:+3.9%


Conference Board Leading Economic Indicators IndexAugust 2007 through August 2017

Source: Conference Board

-1.5%

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%A

ug-0

7

Feb-

08

Aug

-08

Feb-

09

Aug

-09

Feb-

10

Aug

-10

Feb-

11

Aug

-11

Feb-

12

Aug

-12

Feb-

13

Aug

-13

Feb-

14

Aug

-14

Feb-

15

Aug

-15

Feb-

16

Aug

-16

Feb-

17

Aug

-17

On

e-m

onth

Per

cent

Cha

nge

August 2017: 128.8 where 2010: 100

The Closer

Photo: Google

• There are indications of mini-bubbles forming in commercial real estate, particularly in office, lodging and multifamily segments;

• There are also longer-term structural considerations, including the national debt and pending insolvencies of Medicare and Social Security – the longer-term outlook may be deteriorating even as the short-run improves;

• Momentum should see us through 2017, but tighter monetary policy combined with a heavy dose of political intrigue could render 2018 different. By this time in 2019/20, the economy could be in a far different place and likely will be.

*Kyra Sedgwick as Brenda Leigh Johnson

• Global economy remains weak, and correspondingly . . . ;

• Global money has continued to pour into America in search of yield and safety, including into commercial real estate – that was particularly true in 2015, only a bit less true in 2016;

• Inflationary pressures are on the rise – so, too, are interest rates – eventually -- that could begin to squeeze asset prices in 2017/18, triggering negative wealth effects and sentiment in the process;

Thank You� Follow us on Twitter @SagePolicyGroup� You can always reach me at

[email protected]� Please look for updates of information at

www.sagepolicy.com.�Also, if you need us in a hurry, we are at

410.522.7243 (410.522.SAGE)� Please contact us when you require

economic research & policy analysis.

Documents

Markets, He Wrote - FAMA