SIFMA US Economic Survey 1H20...• GDP growth estimate for 2020 was 1.8% (median forecast, 4Q/4Q) • Top factors effecting economic growth: trade policy, business confidence & private

Setting the Scene

Page 1 of 27

SIFMA Research: 2020 Mid-Year US Economic Survey Forecasts from the SIFMA Economic Advisory Roundtable

June 2020

SIFMA Economic Advisory Roundtable

The SIFMA Economic Advisory Roundtable brings together Chief U.S. Economists of

26 global and regional financial institutions. This semiannual survey compiles the

median economic forecast of Roundtable members, published prior to the upcoming

Federal Open Market Committee (FOMC) meeting. We analyze economists’

expectations for: GDP, unemployment, inflation, interest rates, etc. We also review

expectations for policy moves at the upcoming FOMC meeting and discuss key

macroeconomic topics and how these factors impact monetary policy.

Note: The survey was populated between April 30 and May 28.

Key Takeaways

• 2020 GDP forecast -5.5% for 2020 (median forecast, 4Q/4Q); 2021 +4.7%

• Economists do not expect the Fed to take its target interest rate negative

Setting the Scene

Page 2 of 27

Contents

Setting the Scene .................................................................................................................................................................... 3

Recapping Pre COVID-19 Forecasts ...................................................................................................................................... 4

2H20 Survey Results Summary .............................................................................................................................................. 5

The Economy .......................................................................................................................................................................... 6

GDP Growth Expectations ...................................................................................................................................................... 6

COVID-19 Impact on the Economic Outlook .......................................................................................................................... 7

Risks to Economic Forecasts .................................................................................................................................................. 9

Employment and the Consumer............................................................................................................................................ 10

Monetary Policy ..................................................................................................................................................................... 11

The Big Rate Debate ............................................................................................................................................................. 11

Inflation Expectations ............................................................................................................................................................ 14

Interest Rates and Credit Markets ........................................................................................................................................ 16

Macro Policy .......................................................................................................................................................................... 20

Legislation ............................................................................................................................................................................. 20

Trade Policy .......................................................................................................................................................................... 21

Regulatory Policy .................................................................................................................................................................. 23

SIFMA Economic Advisory Roundtable Forecasts................................................................................................................ 24

Reference Guide: Economic Landscape .............................................................................................................................. 25

US GDP Growth and Comparison Across Regions .............................................................................................................. 25

US Employment Landscape .................................................................................................................................................. 26

SIFMA Economic Advisory Roundtable Members ................................................................................................................ 27

SIFMA is the leading trade association for broker-dealers, investment banks and asset managers operating in the U.S. and global capital markets. On

behalf of our industry’s nearly 1 million employees, we advocate on legislation, regulation and business policy, affecting retail and institutional investors,

equity and fixed income markets and related products and services. We serve as an industry coordinating body to promote fair and orderly markets,

informed regulatory compliance, and efficient market operations and resiliency. We also provide a forum for industry policy and professional

development. SIFMA, with offices in New York and Washington, D.C., is the U.S. regional member of the Global Financial Markets Association (GFMA).

For more information, visit http://www.sifma.org.

This report is subject to the Terms of Use applicable to SIFMA’s website, available at http://www.sifma.org/legal. Copyright © 2020

http://www.sifma.org/

http://www.sifma.org/legal

Setting the Scene

Page 3 of 27

Setting the Scene

The emergence of the global pandemic COVID-19 in the first quarter of 2020 has created a severe economic and

capital markets shock. In an unprecedented move, federal, state and local governments purposely shut down

economic activity to prevent the spread of the virus. Everything from restaurants to theme parks to manufacturing

plants closed, and people self-isolated in their homes. According to the official data provided by the Bureau of Labor

Statistics (BLS), more than 23 million jobs have been lost, with the reported U3 unemployment rate at a record-high

14.7% in April. However, the U6 statistic (a broader measure of underemployment) painted an even bleaker picture

in April: over 36 million unemployed, for a 22.8% unemployment rate.

Source: St. Louis Fed

Yet, even U6 may not fully capture the extent of the pain. Betsey Stevenson, currently a Professor of Economics

and Public Policy at University of Michigan’s Gerald R. Ford School of Public Policy and formerly a member of the

Council of Economic Advisers and Chief Economist of the U.S. Department of Labor, indicated April data included

some incorrect classifications. “Interviewers were told to classify people who were employed but absent from work

due to COVID-19 related reasons as temporarily unemployed. Many did this incorrectly – correcting for this error

raises the [U3] unemployment rate to nearly 20%.” With these miscalculations and backlogs in registering

unemployment claims in many states, the shadow unemployment number could be closer to 30%.

In light of these economic dislocations, we have switched up the format of the semi-annual survey of our Economic

Advisory Roundtable members. Typically, we would compare movements in current forecasts to the last survey.

However, with broad agreement that the U.S. is already in a recession, numbers have fallen off a cliff (or

skyrocketed for metrics like the unemployment rate) and comparisons to prior forecasts have become irrelevant.

The world has changed, and so must this survey.

We are now asking questions like will the Fed take its target interest rate into negative territory? What shape of

economic recovery will the U.S. experience (swoosh-shaped, V-shaped, W-shaped)? What are longer-term

expectations for interest rates and GDP growth? In other words, what might be the new normal and when will we get

there?

14.7%

22.8%

0%

5%

10%

15%

20%

25%

1/1

/00

11/1

/00

9/1

/01

7/1

/02

5/1

/03

3/1

/04

1/1

/05

11/1

/05

9/1

/06

7/1

/07

5/1

/08

3/1

/09

1/1

/10

11/1

/10

9/1

/11

7/1

/12

5/1

/13

3/1

/14

1/1

/15

11/1

/15

9/1

/16

7/1

/17

5/1

/18

3/1

/19

1/1

/20

Assessing Real Unemployment: U3 vs. U6

U3 U6

4.0% 3.8% 3.6% 3.7% 3.5% 3.5% 3.6%4.4%

14.7%

8.0% 7.4% 7.2% 6.9% 6.9% 6.8% 6.9%8.7%

22.8%

0%

5%

10%

15%

20%

25%

1/1

/19

2/1

/19

3/1

/19

4/1

/19

5/1

/19

6/1

/19

7/1

/19

8/1

/19

9/1

/19

10/1

/19

11/1

/19

12/1

/19

1/1

/20

2/1

/20

3/1

/20

4/1

/20

Assessing Real Unemployment: U3 vs. U6

U3 U6

Setting the Scene

Page 4 of 27

Recapping Pre COVID-19 Forecasts

Before digging into this year’s survey results, we recap highlights from our December 2019 survey:

https://www.sifma.org/resources/research/us-economic-outlook-survey-end-year-2019/

• GDP growth estimate for 2020 was 1.8% (median forecast, 4Q/4Q)

• Top factors effecting economic growth: trade policy, business confidence & private credit market conditions

• Top risks to economic forecasts: trade/tariffs and global growth for both the up and downside

• The probability of a recession in the next 12 months was 25% on average (high 65%, low 10%)

• Economists expected the unemployment rate to tick up slightly to 3.7% in 2020

• 50% of respondents believed the Fed’s next rate move would be up (44% down, 6% on hold)

• Economists expected inflation (measured by the PCE deflator) to increase to 2.1% in 2020

• 57% of respondents noted the Phase 1 trade deal with China would prevent future tariffs (36% not enough

information, 7% no change); 80% of respondents expected the final deal to be light (eliminating

tariffs/reducing U.S. trade deficit), with 13% no deal and 7% full (including IP protection)

In summary, while there were concerns around slowing global economic growth, the U.S. economy was holding up

well. Trade and tariffs were top of mind, not labor market conditions or plummeting into a recession. And then came

COVID-19.

https://www.sifma.org/resources/research/us-economic-outlook-survey-end-year-2019/

Setting the Scene

Page 5 of 27

2H20 Survey Results Summary

Unsurprisingly, both the current and forecasted GDP numbers now show an expectation that 2020 is headed for the

deepest recession on record (-5.5% 4Q/4Q), with the U.S. not recovering fully by the end of 2021 (4.7% 4Q/4Q). To

be sure, forecasting during crisis times is difficult at best. There are too many unknowns, and what we think we

know appears to change daily. The majority of state and local economies have begun to open, but what will the new

normal be? Will customer preferences have permanently shifted? How will businesses need to readjust? What

portion of the jobs lost will become permanent? In addition to the demand side, fundamentals factors are shifting on

the supply side as well.

Therefore, instead of comparing to past numbers, we asked our Roundtable of economists to provide their best

assessment of a new normal and when we can get there. We highlight the following from the survey:

(Note: This survey was populated between April 30 and May 28.)

• Economic Growth

o 77% of economists expect a swoosh-shaped economic recovery, followed by 9% for both V-shaped

and U-shaped

o 43% of respondents expect nominal GDP to return to its pre COVID-19 level (in relation to 4Q19) by

the end of 2022

o 77% of economists expect the long-term potential GDP growth rate is between 1.5% and 2%, with

55% stating this has not changed from pre COVID-19 estimates (i.e. COVID-19 is not expected to

have long-term effects)

• Interest Rates

o Will the U.S. follow other countries and regions into negative rate territory? 100% of respondents

said no

o Top factors impacting the Fed’s rate decision: labor impact of COVID-19, large scale return to work,

and if there is a second wave of COVID-19

o 86% of economists think rates will not begin to normalize until after 2021

• Trade Policy

o 45% said the focus will return to tariffs and trade negotiations by 2021; 40% said 2H20 if there is not

a second wave of COVID-19

o 50% of respondents expect no trade deal between the U.S. and China, followed by 45% expecting a

light deal (eliminating tariffs) and 5% expecting a full deal (IP protection)

o Will negative sentiments around China's handling of COVID-19 impact future trade negotiations?

55% of economists responded ‘significantly,’ followed by 40% ‘somewhat.’ None believe that it ends

all chances of negotiation

The Economy

Page 6 of 27

The Economy

GDP Growth Expectations

Our Roundtable economists expect GDP growth to be -5.5% for 2020 (median forecast, 4Q/4Q). For 2021, the

median forecast sees GDP increasing by 4.7% (4Q/4Q).

(December survey: 2020 GDP growth 1.8%; median forecast, 4Q/4Q)

Source: Bureau of Economic Analysis, SIFMA Economic Advisory Roundtable

Note: SAAR = seasonally adjusted annual rate

3.5% 3.1% 2.7% 2.5%

-2.6%

2.6% 2.6%1.90% 1.8%

-5.5%

1.4% 1.8%

-0.1% 0.2%

-10.3%-12%

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

1H18 2H18 1H19 2H19 1H20

Real GDP Growth Forecasts, 4Q/4Q

High Median Low

-2.6%

7.3%

-5.5%

4.7%

-10.3%

1.5%

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

2020 2021

2021 Real GDP Growth Forecasts, 4Q/4Q

High Median Low

2.1%

2.1%

-5.0%

-24.7%

43.0%

18.2%12.1% 8.1%

-33.5%

15.3%7.5% 5.9% 4.9%

-40.0%

-1.2% -3.0%0.6% 1.6%

-50%

-40%

-30%

-20%

-10%

0%

10%

20%

30%

40%

50%

3Q19 4Q19 1Q20 2Q20 3Q20 4Q20 1Q21 2Q21

Real GDP Growth, Q/Q Change (SAAR)

Actual High Median Low

The Economy

Page 7 of 27

COVID-19 Impact on the Economic Outlook

As we mentioned, these are difficult times for forecasting. Therefore, we polled our economists for just how all-

encompassing COVID-19 is for estimates.

• 59% of respondents have taken into consideration COVID-19 and trade tensions

• 77% of economists expect a swoosh-shaped recovery, followed by 9% for both V-shaped and U-shaped

• 43% of respondents expect nominal GDP to return to pre COVID-19 levels (in relation to 4Q19) by End-2022

• 77% of economists expect the long-term potential growth rate is between 1.5% and 2%, with 55% stating

this has not changed from pre COVID-19 estimates (i.e. COVID-19 is not expected to have long-term

effects)

• Economists that lowered their long-term potential growth rate for the U.S. economy listed the following as

the main drivers of the new forecast: reduction in productivity due to precautionary measures; larger role of

the federal government; bankruptcies; and depressed consumer and business expectations

Source: SIFMA Economic Advisory Roundtable

23%

36%

41%

Only Covid-19

Covid-19 & Trade Tensions

No Change to Prior Periods

Factors Considered in Preparing Economic Outlook

77%

9%

9%

5%

0%

Lazy J/Swoosh

V-Shaped

U-Shaped

W-Shaped

L-Shaped

What Type of Economic Recovery Is Expected?

The Economy

Page 8 of 27


0%

13%

17%

26%

43%

End-2020

Mid-2021

Beyond 2022

End-2021

End-2022

Nominal GDP Return to Pre Covid-19 Level?

5%

5%

14%

77%

1%-1.5%

0%-1%

>2%

1.5%-2%

Long-Term Growth Rate for the US Economy?

0%

0%

5%

41%

55%

Somewhat Higher

Good Deal Higher

Good Deal Lower

Somewhat Lower

No, Temporary Effect

Change in LT Growth Rate Forecast Post Covid-19?

The Economy

Page 9 of 27

Risks to Economic Forecasts

When asked to rank the factors that have the greatest impact on forecasts of U.S. economic growth, COVID-19 was

on the top of the list, followed by business confidence and then private credit markets.

(December survey: U.S. trade policy, business confidence in the U.S. and then private credit market conditions)


Therefore, our Roundtable of economists list the following top risks to their economic forecasts:

• Upside – vaccine for COVID-19, business confidence, and labor market

• Downside – no vaccine or 2nd wave of COVID-19, lower business confidence, and escalation in trade/tariffs


Note: Ranked by number of times an economist listed a factor, those with the most responses on top. Business confidence = growth in confidence,

spending, income

Other

Geopolitical Conflicts

US Monetary Policy

US Fiscal Policy

Brexit

Eurozone Economy

China Economy

US Trade Policy

Private Credit Markets

Business Confidence

Covid-19

Rank: Factors Impacting US Economic Growth

Labor Market

Business Confidence

Covid-19 Vaccine

Rank: Upside Risks to Economic Forecast

Trade/Tariffs

Low Business Confidence

No Vaccine/2nd Wave

Rank: Downside Risks to Economic Forecast

The Economy

Page 10 of 27

Employment and the Consumer

As of April 2020, the U.S. unemployment rate was at a historically high 14.7% - versus 3.6% to start the year – as

the economy was shut down to stop the spread of COVID-19. Economists expect the already elevated

unemployment rate to move higher in 2020 before ending the year at 9.5% in 2020 and ending 2021 at 7.2%

(4Q/4Q). Employment growth (average monthly change in non-farm payroll employment) is expected to be negative

in 2020, at -1,106k.

(December survey: +139,000 for 2020)

Source: Bureau of Labor Statistics, SIFMA Economic Advisory Roundtable

Note: Average monthly change for non-farm payroll employment, 4Q/4Q for unemployment rate

In light of these unemployment expectations, economists expect real personal consumption growth to come in at

-6.3% at the end of 2020, then rebound to 4.7% in 2021 (4Q/4Q). There is an expected decrease in average hourly

earnings to 2.7% in 2020 and 1.9% in 2021.

(December survey: 2.1% real personal consumption growth; 3.2% average hourly earnings)


176 193 178

(1,106)

430

4.1%3.8%

3.5%

9.5%

7.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

2017 2018 2019 2020 2021

(1,200)

(1,000)

(800)

(600)

(400)

(200)

0

200

400

600

Unemployment Rate & Non-Farm Payroll Employment

Employment (K; RHS) Unemployment

2.9%

2.6% 2.7%

-6.3%

4.7%

2.5%

3.3% 3.2%2.7%

1.9%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

2017 2018 2019 2020 2021

Consumption Earnings

Consumer Spending (4Q/4Q) & Hourly Earnings (4Q/4Q)

Monetary Policy

Page 11 of 27

Monetary Policy

The Big Rate Debate

Normally, we would ask the Roundtable to share expectations of the Fed’s next rate move at the upcoming FOMC

meeting.

(December survey: 50% up, 44% down, 6% hold; if up, 88% said after 2020; if down, 43% said 2Q20, 29% for both

1Q20 and 4Q19; terminal rate 2.1%)

With the current Federal Funds rate target range at 0.00%-0.25%, as part of the Fed’s actions to use its full range of

tools to support the economy hit by the COVID-19 crisis, the question shifts to whether the U.S. will follow other

countries and regions into negative rate territory? 100% of our Roundtable economists said the U.S. won’t take its

target rate into negative territory. If rates were to go negative, respondents were split 50%/50% as to timing, further

out in 2020 or not until 2021.

No, 100%

Negative Rates in the US?

0%

0%

0%

0%

50%

50%

June FOMC

July FOMC

September FOMC

Beyond 2021

Not Until 2021

Further out in 2020

When Will the Fed Move to Negative Rates?

Monetary Policy

Page 12 of 27

Our economists opined on other rate and Fed balance sheet questions:

• 86% of respondents think rates will not begin to normalize until after 2021

• Top factors to the Fed’s decision making: labor impact of COVID-19 and large scale return to work

• Given the Fed’s increase of asset holdings and the credit facilities, 59% of economists expect the Fed’s

balance sheet to reach $8-$10 trillion by the end of 2021, followed by 27% forecasting $10-$12 trillion


0%

14%

86%

2H20

2021

Longer

When Will Rates Begin to Normalize?

Other

Global Economic Developments

Inflation Indicators

Resumption of Economic Activity

Second Wave of Covid-19

Large Scale Return to Work

Labor Impact of Covid-19

Rank: Important Factors to Fed's Rate Decision

5%

9%

27%

59%

>$12T

<=$8T

$10T-$12T

$8T-$10T

Size of Fed's Balance Sheet by the End of 2021?

Monetary Policy

Page 13 of 27

One monetary tool the Fed could use (in addition to forward guidance or quantitative easing/QE) to boost the

economy when short-term interest rates hit zero is yield curve caps or control (YCC), alternatively called interest

rate pegs. Instead of raising or lowering very short-term interest rates (ex: rate banks earn on overnight deposits) to

move the economy, YCC targets some longer-term rate, with the Fed prepared to buy long-term bonds to keep the

rate from rising above its target. 78% of economists surveyed expect the Fed to embark on some form of YCC. 53%

of respondents expect the Fed to begin YCC by mid-2020, with 47% forecasting the end of 2020.


Yes, 78%

No, 22%

Will the Fed Embark on YCC?

0%

0%

47%

53%

End-2021

Beyond 2021

End-2020

Mid-2020

When Will Fed Begin Yield Curve Caps (YCC)?

Monetary Policy

Page 14 of 27

Inflation Expectations

In terms of inflation, economists expect it to decrease to 0.3% for the PCE deflator and 0.9% for the core PCE

deflator in 2020 (year-over-year). This compares to 1.4% and 1.6% in 2019, respectively.

(December survey: 2.1% and 2.2% respectively for 2020)


Digging further into inflation, and the potential for deflation, respondents indicated: (charts on the next page)

• Top factors in outlook for core inflation: COVID-19 recovery time and economic slack/unemployment

• There is a divergence of opinions as to whether the Fed can achieve its 2% inflation target in a sustainable

way, with 48% of economists very confident versus 39% not confident at all

• 41% of respondents expect a 15% to 25% probability the U.S. will experience a period of deflation (falling

headline prices) in the next two years, followed by 32% responding 0% to 15% probability

• 45% of respondents expect a 0% to 15% probability the U.S. will experience structurally higher inflation over

the long-term, followed by 36% responding 15% to 25%

• Top factors to push inflation higher: reversal of globalization and sustained breakdown of supply chains

(December survey: top factors = inflation expectations and economic slack/unemployment; 36% somewhat

confident, 36% doubtful the Fed can achieve its 2% goal)

1.8%1.9%

1.4%

0.3%

1.6%1.7%

1.9%1.6%

0.9%

1.4%

-0.3%

0.2%

0.7%

1.2%

1.7%

2.2%

2017 2018 2019 2020 2021

PCE Deflator & Core PCE Deflator

PCE Core PCE

Monetary Policy

Page 15 of 27


Other

Fiscal Policy/Deficit Trends

Value of the Dollar

Global Economic Conditions

Commodity Price Pass Through

Monetary Policy

Inflation Expectations

Economic Slack/Unemployment

Covid-19 Recovery Time

Rank: Factors Important to Core Inflation Outlook

0%

0%

13%

39%

48%

Not Sure

Somewhat Confident

Doubtful

Not Confident At All

Very Confident

Confidence in Fed Achieving 2% Inflation Target?

9%

18%

32%

41%

25%-50%

>50%

0%-15%

15%-25%

Probability of US Deflation in the Next Two Years?

5%

14%

36%

45%

>50%

25%-50%

15%-25%

0%-15%

Probability of Structurally Higher Inflation in the US?

Other

Sustained Higher Deficit

Costs Increase as SupplyChains Move Back to US

Sustained Breakdown ofSupply Chains

Reversal of Globalization

Rank: Factors Contributing to Higher Inflation

Monetary Policy

Page 16 of 27

Interest Rates and Credit Markets

Below we rank respondents’ factors that have the greatest impact on expectations for long-term Treasury yields in

2020: risk aversion/flight to quality and U.S. economic conditions were the top factors.

(December survey: global and U.S. economic conditions ranked at the top, followed by FOMC policy)


Other

Geopolitical Risks

Monetary Policy Outside US

Value of the Dollar

Budget Deficit/Supply New T-Bonds

Global Economic Conditions

Inflation/Inflation Expectations

FOMC Policy

US Economic Conditions

Risk Aversion/Flight to Quality

Rank: Greatest Impact on LT Treasury Yields

Monetary Policy

Page 17 of 27

Respondents expect the following movements in key rates:

• Yield curve (Fed funds-to-10-year Treasury yield) = 63% steepen

• TED (Treasury-to-Eurodollar, now LIBOR) = 59% remain the same

• Investment-grade corporate-to-Treasury spreads = 61% narrow

• High-yield corporate-to-Treasury spreads = 61% narrow

(December survey: YC 70% steepen; TED 69% remain the same; IG/UST 50% widen; HY/UST 69% widen)

Source: Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable

Note: Monthly averages. Fed funds = midpoint of target rate range

16%

21%

63%

Flatten

About the Same

Steepen

Expectations (by End-2020): Yield Curve

12%

29%

59%

Widen

Narrow

About the Same

Expectations (by End-2020): TED Spread

11%

28%

61%

Widen

About the Same

Narrow

Expectations (by End-2020): IG Corp/UST Spread

11%

28%

61%

Widen

About the Same

Narrow

Expectations (by End-2020): HY Corp/UST Spread

Monetary Policy

Page 18 of 27

Surveyed economists expect the following rates and therefore yield curve: (additional chart on next page)

• Fed Funds = 2Q20 0.13%, 4Q20 0.13%

• 2-Year UST = 2Q20 0.20%, 4Q20 0.35%

• 10-Year UST = 2Q20 0.68%, 4Q20 0.80%

• 30-Year Mortgage = 2Q20 3.26%, 4Q20 3.03%

(December survey: FF 1.625%-1.620%; 2Y 1.563%-1.600%; 10Y 1.715%-1.850%; 30Y mort 3.655%-3.775%)


1.88%

1.63%

0.13% 0.1% 0.1% 0.1%

0.4%

0.6%

0.13% 0.13% 0.13% 0.13% 0.13%

0.1% 0.1% 0.1% 0.1% 0.1%

0.0%

0.5%

1.0%

1.5%

2.0%

Sep-19 Dec-19 Mar-20 Jun-20 Sep-20 Dec-20 Mar-21 Jun-21

Federal Funds Target Rate


1.65% 1.61%

0.45% 0.4%

0.6%

0.8%

1.0%1.1%

0.20%0.25%

0.35% 0.38% 0.35%

0.2% 0.1% 0.1% 0.1% 0.1%0.0%

0.5%

1.0%

1.5%

2.0%

2.5%


2 Year UST Rate


1.70%1.86%

0.87%

1.0%1.2%

1.3%1.4%

1.6%

0.68% 0.73%0.80%

0.88% 1.01%

0.5%

0.4% 0.4% 0.4% 0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


10 Year UST Rate


3.61% 3.72%

3.45%

3.7%

5.2%

3.6% 3.7%4.0%

3.26% 3.21%3.03% 3.01% 3.04%

2.9% 2.9%2.7% 2.6%

2.8%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%


30 Year Fixed Mortgage Rate


Monetary Policy

Page 19 of 27


3.6%3.7%

3.5%3.3% 3.2%

3.0% 3.0% 3.0%1.9%

1.6%

0.1%0.1% 0.1% 0.1% 0.1% 0.1%

1.7%1.6%

0.5%

0.2%0.3% 0.4% 0.4% 0.4%

1.7%

1.9%

0.9%

0.7% 0.7%0.8%

0.9%1.0%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%


Expected Rates

30-Y Mortgage (RHS) Fed Funds

Macro Policy

Page 20 of 27

Macro Policy

Legislation

67% of respondents expect no major non COVID-19 related legislation during the upcoming election cycle. If further

major legislation is passed, it would be around fiscal stimulus or healthcare, both related to COVID-19. The

economists were asked to describe the 2020 election outcome they were assuming when answering. 82%

responded a divided government with Republicans leading Senate, followed by 18% expecting a Democratic sweep.

(December survey: pre-COVID only 7% responded yes; expected legislation is in infrastructure)


Yes, 33%

No, 67%

Non Covid-19 Legislation in Election Cycle?

0%

0%

18%

82%

Republicans Sweep

Divide: Dem Lead Senate

Democrats Sweep

Divide: Rep Lead Senate

Expectation: Election Outcome

Macro Policy

Page 21 of 27

Trade Policy

In the trade policy section of the survey (focused on tariffs on China and the EU), we analyzed the shift in sentiment

prior to COVID-19 versus currently. (charts continued on next page)

Note: This survey was put into the field and populated prior to China’s passing of the Hong Kong security

law and the certification to Congress by Secretary of State Mike Pompeo that Hong Kong no longer enjoys a

high degree of autonomy from China.

• U.S. to proceed with trade negotiations with China with: 65% responded increased trade pressures, 30%

start up where they left off

• U.S. to proceed with trade negotiations with Europe with: 55% responded start back up where they left off,

30% relax trade pressures

• 45% of economists expect the focus to return to tariffs and trade negotiations by 2021, with 40% believing

this will happen in 2H20 if there is no second wave of COVID-19

• Economists indicated their expectations for tariffs/trade policy over the medium term include tariff

escalation/trade restrictions and deglobalization

• 50% of respondents expect the U.S. and China to eventually agree on no trade deal, followed by 45% a light

deal (around only eliminating tariffs, reducing the U.S. trade deficit with China) and 5% still holding out hope

for a full deal (includes IP protection)

• When asked if the current negative sentiments around China’s handling of COVID-19 will impact future trade

negotiations, 55% of economists responded significantly, followed by 40% somewhat – (happily,) 0%

responded it ends all chances of negotiation

• When asked if they assumed no change in the presidential party or makeup of Congressional leadership

when responding, i.e. a political status quo, 76% said yes

(December survey: US and China to agree on 80% light deal, 13% no deal, 7% full deal)

5%

30%

65%

Relax Trade Pressures

Start Up Where Left Off

Increase Trade Pressures

US to Proceed with Trade Negotiations with China

15%

30%

55%

Increase Trade Pressures

Relax Trade Pressures

Start Up Where Left Off

US to Proceed with Trade Negotiations with Europe

Macro Policy

Page 22 of 27


0%

15%

40%

45%

Beyond 2021

2H20, Independent of Covid-192nd Wave

2H20, If No Covid-19 2nd Wave

2021

When Will Focus Return to Tariffs/Trade?

Tariff Escalation/Trade Restrictions

Deglobalization

No Major Changes

Expectations: Trade Policy Over Medium Term

5%

45%

50%

Full Deal

Light Deal

No Deal

Type of Final US-China Trade Deal?

0%

5%

40%

55%

Ends All Chances ofNegotiations

Not At All

Somewhat

Significantly

Will China's Handling of Covid-19 Impact Trade Talks?

Yes, 76%

No, 24%

Trade Policy Based on Political Status Quo?

Macro Policy

Page 23 of 27

Regulatory Policy

67% of respondents believe the regulatory environment for financial services is improving but still difficult. 89% of

economists do not build estimates for the impact of regulatory reform into their GDP forecast model, and 53%

indicate significant reform would have no impact on their GDP growth forecasts.

(December survey: 77% improving but still difficult; 85% do not build reg reform into forecasts; 50% say reg reform

raise GDP growth estimates 0-20 bps)


Note: Reg = regulatory; est = estimates

0%

6%

11%

17%

67%

Very Negative

Negative

Other

Positive

Improving, Still Difficult

Regulatory Environment for Financial Services

Yes, 11%

No, 89%

Reg Reform Est. in GDP Model

0%

0%

6%

18%

24%

53%

Lower by up to 20bps

Lower by morethan 20 bps

Raise by more than20 bps

Raise by up to 20bps

Do not forecast

No impact

Regulatory Reform Impact on GDP Growth

SIFMA Economic Advisory Roundtable Forecasts

Page 24 of 27

SIFMA Economic Advisory Roundtable Forecasts

Economic Indicators – Annual

(%, unless indicated) 2017 2018 2019 2020E 2021E

Real GDP (4Q/4Q) 2.8 2.5 2.3 -5.5 4.7

Real Personal Consumption (4Q/4Q) 2.9 2.6 2.7 -6.3 4.7

Nonresidential Fixed Investment (4Q/4Q) 5.4 5.9 -0.4 -8.8 4.5

Residential Fixed Investment (4Q/4Q) 4.2 -4.4 1.7 -1.3 4.9

Real Federal Government Spending (4Q/4Q) 1.7 2.7 4.3 4 2.1

Real State and Local Government Spending (4Q/4Q) 0.4 0.9 2.2 0.7 1.2

Non-Farm Payroll Employment (K; avg. monthly change) 176 193 178 -1,106 430

Unemployment Rate (4Q average) 4.1 3.8 3.5 9.5 7.2

Average Hourly earnings (4Q/4Q) 2.5 3.3 3.2 2.65 1.9

Real Disposable Income (4Q/4Q) 3.4 3.9 2.4 -1.7 2

Personal Savings Rate (annual average) 7.0 7.7 7.9 11.5 9.13

CPI (4Q/4Q) 2.1 2.2 2.0 0.2 1.8

Core CPI (4Q/4Q) 1.8 2.2 2.3 0.9 1.6

PCE deflator (4Q/4Q) 1.8 1.9 1.4 0.3 1.6

Core PCE deflator (4Q/4Q) 1.7 1.9 1.6 0.9 1.4

Industrial Production Index (annual % change) 2.3 4.0 0.9 -9.85 5

Housing Starts (K, annual average) 1,209 1,250 1,298 1,170 1,283

S&P Corelogic Case-Shiller Home Prices (Y/Y) 5.8 5.8 3.5 1 2.65

New Home Sales (K, annual average) 617 615 684 637 660

Motor Vehicle Sales (M, annual average) 17.1 17.2 16.9 13 15.3

Federal Budget ($B, FY) 529 -779 -984 -3,775 -2,000

Current Account Deficit ($B) 439.6 491 498.3 415.5 441.5

Economic Indicators – Quarterly

(%) 3Q19 4Q19 1Q20 2Q20E 3Q20E 4Q20E 1Q21E 2Q21E

Real GDP (Q/Q, annualized) 2.1 2.1 -5.0 -33.5 15.3 7.45 5.9 4.85

Real Personal Consumption (Q/Q, annualized) 3.1 1.8 -6.8 -41.4 19.4 9 5.3 5

Nonresidential Fixed Investment (Q/Q, annualized) -2.3 -2.5 -7.9 -30 -0.01 3.5 5 5.1

Residential Fixed Investment (Q/Q, annualized) 4.6 6.5 18.5 -30.1 4.2 6.5 6.5 5

CPI (Y/Y) 1.8 2.0 2.1 0.4 0.33 0.2 0.35 1.8

Core CPI (Y/Y) 2.1 2.1 2.3 1.4 1.05 0.9 0.8 1.5

PCE Deflator (Y/Y) 1.4 1.4 1.3 0.5 0.3 0.3 0.45 1.55

Core PCE Deflator (Y/Y) 1.7 1.6 1.6 1.2 0.9 0.95 0.95 1.3

Interest Rates (Monthly Average)

(%) Sep’19 Dec’19 Mar’20 Jun’20E Sep’20E Dec’20E Mar’21E Jun’21E

Federal Funds Target Rate (midpoint) 1.875 1.625 0.125 0.125 0.125 0.125 0.125 0.125

2-Year UST Yield 1.65 1.61 0.45 0.2 0.25 0.35 0.38 0.35

10-Year UST Yield 1.70 1.86 0.87 0.68 0.725 0.8 0.875 1.01

30-Year Fixed Mortgage Rate 3.61 3.72 3.45 3.26 3.21 3.03 3.01 3.04

Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Federal Reserve, Bloomberg, SIFMA Economic Advisory Roundtable

Reference Guide: Economic Landscape

Page 25 of 27


US GDP Growth and Comparison Across Regions

Source: Bureau of Economic Analysis, World Bank, OECD, Bloomberg

Note: NE=net expenditures, Business=business investment, Government=govt consumption & investment, PC=personal consumption expenditure

15.0

21.4

0

5

10

15

20

25

2010 2019

US Real GDP - Total ($T)

-3.4% -2.9%

14.4% 17.5%

67.9%68.0%

21.0% 17.5%

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2019

US Real GDP - By Category

NE Business PC Government

1.0 1.5

2.33.0

6.9

10.1

0

2

4

6

8

10

12

14

16

2010 2019

US Real GDP - Personal Consumption ($T)

Services Nondurable Goods Durable Goods

1.7

2.9

0.4

0.8

0.05

0.07

-0.3

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

2.4

2.7

3.0

3.3

3.6

3.9

2010 2019

US Real GDP - Business Investment ($T)

Inventories Residential Nonresidential

15.0

17.0

2.5

5.7 6.1

19.5

15.5

2.8

5.1

14.1

0

5

10

15

20

25

US EuropeanUnion

UK Japan China

GDP by Region ($T)

2010 2019

48.5

33.7

39.1

44.5

4.6

65.1

35.2

41.0 40.8

10.1

0

10

20

30

40

50

60

70

US European Union UK Japan China

GDP Per Capita by Region ($M)

2010 2019


Page 26 of 27

US Employment Landscape

Source: Bureau of Economic Analysis (as of 2018), Bureau of Labor Statistics

Note: NE = not employed (unemployed), FTE = full time employment, NLF = not in labor force, PTE = part time employment. Employment statistics

based on civilian population 16 years or over

SIFMA Economic Advisory Roundtable Members

6,328

9,321

10,071

12,674

13,925

20,012

21,810

24,837

Fin/Ins

Admin & Waste Mgmt Svces

Ag/Mining/Util/Const

Manufacturing

Food/Lodging

Healthcare

Trade

Govt

0 10,000 20,000 30,000

US Non-Farm Employment by Industry (K)

112 111 113 116 118 121 123 126 127 130

143 137 136 137 140 142 145 148 150 152137 136 137 140 142 145 148 150 152 155

0

20

40

60

80

100

120

140

160

180

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

US Employment (M)

Private Government

FTE50.4%

NLF36.9%

PTE10.4%

NE2.3%

US Employment Statistics (M)

6.8%

4.2%

9.3%

3.7%

66.2%

67.1%

66.2%

63.1%

58%

59%

60%

61%

62%

63%

64%

65%

66%

67%

68%

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

1991 1995 1999 2003 2007 2011 2015 2019

US Unemployment and Labor Participation

Unemployment rate (LHS) Labor force participation rate (RHS)


Page 27 of 27


Chair SIFMA Research

Ellen Zentner Katie Kolchin, CFA, Director of Research

Morgan Stanley Justyna Podziemska

Ali Mostafa

[email protected]

Members

Ethan Harris Michael Gapen Nathaniel Karp

Bank of America Barclays Capital BBVA Compass

Douglas Porter Andrew Hollenhorst Nicholas Van Ness

BMO Financial Citigroup Credit Agricole

James Sweeney Michael Moran Peter Hooper

Credit Suisse Daiwa Capital Markets America Deutsche Bank Securities

Christopher Low Jan Hatzius Michael Feroli

FTN Financial Goldman Sachs J.P. Morgan

Aneta Markowska John Lonski Troy Ludtka

Jefferies Moody’s Analytics Natixis

Michelle Girard Lewis Alexander Carl Tannenbaum

NatWest Markets Securities Nomura Northern Trust

Augustine Faucher Scott J. Brown Tom Porcelli

PNC Financial Raymond James RBC Capital Markets

Stephen Gallagher Lindsey Piegza Seth Carpenter

Société Générale Stifel Financial UBS Securities

Jay Bryson

Wells Fargo Securities

Documents

SIFMA US Economic Survey 1H20...• GDP growth estimate for 2020 was 1.8% (median forecast, 4Q/4Q) • Top factors effecting economic growth: trade policy, business confidence & private