‘good vibrations’ - fdic...‘good vibrations’ march 20, 2018 2 2018 interagency accounting...

3/12/2018

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‘GOOD VIBRATIONS’

March 20, 2018

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2018 Interagency Accounting Conference, Arlington, VirginiaMarch 20, 2018

From ‘Secular Stagnation’ (Really?)

3/12/2018

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Real U.S. GDP growth (percent change from the previous year)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database; Ray Fair. Updated through 2017 Q4.

Despite Slow Growth …

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Unemployment (percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through November 2017.

… We’re Back On Our Feet

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Working-age population (% oya) and labor force (annualized % ch from seven years earlier)

Sources: Haver Analytics; Census. Updated through January 2018.

Demographics Slows Our Speed Limit

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Initial applications for unemployment benefits (thousands, weekly)

Sources: Haver Analytics; U.S. Department of Labor. Updated through March 3, 2018.

No One Knows the Economy Better Than This

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Initial applications for unemployment benefits (weekly, percent of the labor force)

Sources: Haver Analytics; U.S. Department of Labor. Updated through March 3, 2018.

Claims Are At Historical Percentage Lows

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Claimants (number) Initial applications for unemployment benefits (thousands, weekly)

Sources: Haver Analytics; U.S. Department of Labor. Updated through February 24, 2018 (claimants) and March 3, 2018 (claims).

Claims and Claimants

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To ‘Overheating’ Worries (Chill)

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Less monetary support, dearer energy; but …

Global revival;

Diminished energy drags;

Regulatory reform (?);

Hurricane recovery (+½ percentage point boost in 2018);

Tax reform and relief (½ to 1½ percentage point boost) ;

Equity wealth gains (1 to 2 percentage points boost).

Stimulus In the Pipeline …

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Real GDP and aggregate hours worked (percent change from 12 months earlier)

Sources: Haver Analytics; Macroeconomic Advisers. Updated through December 2017 (GDP) and January 2018 (hours).

… Will Lift Growth for a While

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1) Can we handle it?

2) Can we hold high ground?

3) What about the fiscal outlook?

Three Questions

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Selected chain PCE inflation measures (percent change from 12 months earlier)

Sources: Haver Analytics; NBER‐designated recession bars; U.S. Department of Commerce. Updated through December 2017.

Is Overheating a Risk?

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Labor force participation for selected cohorts (percent of the respective population)

Sources: Haver Analytics; U.S. Department of Labor. Updated through January 2018.

Some Unemployment Isn’t Visible

Implied number of dropouts compared with 2007 participation rates:

403,000

532,000

623,000

642,000

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Labor force participation for 20- to 45-year olds (percent of the respective population)


Some Unemployment Isn’t Visible

Implied number of dropouts compared with 2007 participation rates:

1,466,000

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So, 4.1 Percent Isn’t the Whole Story

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Labor force participation for selected cohorts (percent of the respective population)

Sources: Haver Analytics; U.S. Department of Labor. Updated through 2016.

Immigration Is a Safety Valve for the U.S.

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Employment and the labor force (percent change from 12 months earlier)


Why Else Would Job Growth Be So Strong?

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Average hourly earnings (percent change from 12 months earlier)


Why Are Wage Trends So Tame?

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Real GDP per hour ($ per hour) (annualized percent change)

Sources: Haver Analytics; U.S. Department of Labor; U.S. Department of Commerce. Updated through 2017 Q4.

Productivity Is the Key

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Three Questions

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History Books Have a Sober Story to Tell

3/12/2018

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P-E ratio of the Wilshire 5000

Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through 2017 Q2.

“Longevity” Is a Big Issue

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Three Questions

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U.S federal deficit ($ billions) (percent of GDP)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through November 2017.

What CBO Sees Isn’t What We Saw

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Real U.S. GDP growth (percent change from four quarters earlier)

Sources: Haver Analytics; U.S. Department of Commerce; NBER Macroeconomic database. Updated through 2017 Q3.

Promises Reflect a Century of 3.5% Growth

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Long-term revenue and spending projections (percent of GDP)

Sources: Haver Analytics; Congressional Budget Office. Updated through 2016.

2% Growth Doesn’t Work …

Actual Projected

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… 3% Growth Does …

Actual Projected

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… 3.5% Even Better

Actual Projected

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Appendix 1. The Fed’s Long Goodbye

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Core PCE inflation (% ch from 12 months earlier) Unemployment (% of the labor force)

Sources: Haver Analytics; U.S. Department of Commerce; U.S. Department of Labor. Updated through January 2018 (inflation) and January 2018 (unemployment).

With the Economy Back Home …

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CPI and core CPI (percent change from 12 months earlier)

Sources: Haver Analytics; U.S. Department of Commerce. Updated through January 2018

And Inflation Working It’s Way to 2%

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Nominal federal funds rate and core inflation (percent)

Sources: Haver Analytics; U.S. Department of Commerce; Federal Reserve Board. Updated through September 2017 (inflation) and November 10, 2017 (federal funds rate).

The Fed’s End Game … 1% Over Inflation …

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Federal Reserve liabilities (billions of dollars)

Sources: Haver Analytics; Federal Reserve Board. Updated through February 28, 2018.

Balance Sheet Normalization …

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Excess reserves (billions of dollars)

Sources: Haver Analytics; Federal Reserve Board. Updated through November 8, 2017.

… Means Draining Excess Reserves

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Components of the 5 x 5 nominal Treasury yield (percent)

Sources: Haver Analytics; Federal Reserve Board. Updated through November 10, 2017.

Uncertain Implications for Bonds

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CONTACT:James E. GlassmanTelephone: (212) 270‐0778 [email protected]

© 2018 JPMorgan Chase & Co. All rights reserved. Chase, JPMorgan and JPMorgan Chase are marketing names for certain businesses of JPMorgan Chase & Co. and its subsidiaries worldwide (collectively, “JPMC”). The material contained herein is intended as a general market commentary. To the extent indices have been used in this commentary, please note that it is not possible to invest directly in an index. Opinions expressed herein are those of James Glassman and may differ from those of other J.P. Morgan employees and affiliates. This information in no way constitutes J.P. Morgan research and should not be treated as such. Further, the views expressed herein may differ from that contained in J.P. Morgan research reports. The above summary/prices/quotes/statistics have been obtained from sources deemed to be reliable, but we do not guarantee their accuracy or completeness.

‘good vibrations’ - fdic...‘good vibrations’ march 20, 2018 2 2018 interagency accounting...

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