Old Dominion University2017 National Economic Forecast

January 25, 2017

Larry “Chip” FilerAssociate Professor of Economics

Strome College of Business

www.odu.edu/forecasting

Real GDP Growth United States and Virginia

1.6

1.6 0.5

3.5

-4

-3

-2

-1

0

1

2

3

4

5

6

19

98

19

99

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

Q1

20

16

Q2

20

16

Q3

20

16

Q4

Virginia United States

Source: Bureau of Economic Analysis and Center for Economic Analysis and Policy Forecasts

Total Nonfarm Payroll Employment

129,774

145,303

120,000

125,000

130,000

135,000

140,000

145,000

150,000

1/1

/08

5/1

/08

9/1

/08

1/1

/09

5/1

/09

9/1

/09

1/1

/10

5/1

/10

9/1

/10

1/1

/11

5/1

/11

9/1

/11

1/1

/12

5/1

/12

9/1

/12

1/1

/13

5/1

/13

9/1

/13

1/1

/14

5/1

/14

9/1

/14

1/1

/15

5/1

/15

9/1

/15

1/1

/16

5/1

/16

9/1

/16

+ 15.5 Million Jobs

Source: Bureau of Labor Statistics

Percentage Growth in Total Nonfarm EmploymentUnited States and Virginia

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

U.S. VA

Source: Bureau of Labor Statistics

Monthly Net Job Creation For Virginia During 2016

-600

14,800

2,800

-10,600

-4,500

7,700 8,400

11,800 11,900

3,500

-9,700

14,100

4,858

-15,000

-10,000

-5,000

-

5,000

10,000

15,000

20,000

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

Source: Bureau of Labor Statistics and Center for Economic Analysis and Policy Calculations

Rate of Headline Unemployment (U3)United States and Virginia

0

1

2

3

4

5

6

7

8

9

1/1/12 7/1/12 1/1/13 7/1/13 1/1/14 7/1/14 1/1/15 7/1/15 1/1/16 7/1/16

United States Virginia

Source: Bureau of Labor Statistics

Labor Force Participation Rates Are Starting to Stabilize

56.0

58.0

60.0

62.0

64.0

66.0

68.0

19

70

19

72

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

20

16

20

18

20

20

20

22

20

24

Labor Force Participation BLS Projection

Source: Bureau of Labor Statistics

Labor Force Flows from Prior Month

0

1000

2000

3000

4000

5000

6000

1/1

/10

4/1

/10

7/1

/10

10

/1/1

0

1/1

/11

4/1

/11

7/1

/11

10

/1/1

1

1/1

/12

4/1

/12

7/1

/12

10

/1/1

2

1/1

/13

4/1

/13

7/1

/13

10

/1/1

3

1/1

/14

4/1

/14

7/1

/14

10

/1/1

4

1/1

/15

4/1

/15

7/1

/15

10

/1/1

5

1/1

/16

4/1

/16

7/1

/16

10

/1/1

6

Emp. To NLF Unem. To NLF

Source: Bureau of Labor Statistics

Virginia Labor Force Participation Rates

69.8

64.8

61.0

62.0

63.0

64.0

65.0

66.0

67.0

68.0

69.0

70.0

71.0

1/1

/06

6/1

/06

11

/1/0

6

4/1

/07

9/1

/07

2/1

/08

7/1

/08

12

/1/0

8

5/1

/09

10

/1/0

9

3/1

/10

8/1

/10

1/1

/11

6/1

/11

11

/1/1

1

4/1

/12

9/1

/12

2/1

/13

7/1

/13

12

/1/1

3

5/1

/14

10

/1/1

4

3/1

/15

8/1

/15

1/1

/16

6/1

/16

11

/1/1

6

Source: Bureau of Labor Statistics

The Fed in 2017

• There is an expectation of 3 rate increases during 2017 (75 basis points total). This would leave the Fed Funds Target at the range 1.25% to 1.50% by December.

• Meeting dates in 2017:• Jan/Feb• March• May• June• July• Sept/Oct• December

Fed Dot Chart versus Taylor Rule

Source: Janet Yellen, Speech to Stanford Institute for Economic Policy Research on January 19, 2017.

Treasury Yield Curves

Jan. 2014

Jan. 2015

Jan. 2017

0

0.5

1

1.5

2

2.5

3

3.5

4

1m 3m 6m 1y 2y 3y 5y 7y 10y 20y 30y

Source: US Department of the Treasury

The Trump Administration

• Very difficult to forecast. Campaign rhetoric is always more political and ideological than actual policy proposals.

• A few things we know (or don’t know):

• Repeal of ACA

• Infrastructure Bill

• Immigration reform

• Repeal of Dodd-Frank

• Renegotiation of Trade Agreements

Trump’s Trade Conundrum

-900,000

-800,000

-700,000

-600,000

-500,000

-400,000

-300,000

-200,000

-100,000

-

100,000

0

20

40

60

80

100

120

140

19

74

19

76

19

78

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

20

10

20

12

20

14

$ M

illio

ns

19

97

=10

0

Source: Bureau of Economic Analysis and Board of Governors of the Federal Reserve System

$ Appreciation Trade Deficits

The Current National Recovery

Recession End Expansion Duration

October 1945 80 months

February 1961 106 months

March 1991 120 months

November 2001 73

June 2009 91 (ongoing)

Source: National Bureau of Economic Research

Real GDP Growth ForecastsUnited States and Virginia

1.6

2.2

1.5

2.42.6

1.6

2.2

0.6 0.70.4

0.02

1.4

0.8

1.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2011 2012 2013 2014 2015 2016E 2017F

United States

Virginia

Source: Bureau of Economic Analysis and Center for Economic Analysis and Policy Forecasts

2016 2017

Forecast Actual Forecast

Real Gross Domestic Product 2.03% 1.60% est. 2.2%

Employment Growth 1.50% 1.74% 1.5%

Unemployment Rate 5.1% 4.9% 4.7%

Consumer Price Index 1.34% 1.28% 2.80%

CPI - Core 2.03% 2.21% 2.40%

3-Month Treasury Bill 1.25% 0.32% 1.31%

10-Year Treasury Bond 3.15% 1.84% 3.15%

30-Year Conventional Mortgage Rate 4.25% 3.65% 4.25%

National Economic Outlook for 2017