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© 2014 IHS
US Outlook
ihs.com
IHS
US Economic OutlookHow long will the ride last?
Douglas Handler, IHS Chief US Economist, +1 781 301 9283, doug.handler@ihs.com
December 2014
ECONOMICS
© 2014 IHS 2
US Outlook / December 2014
US Economic Overview
© 2014 IHS
Executive Summary - economic growth accelerates a notch from 2.2% in 2014 to 2.7% in 2015.
• Adverse demographics is now an issue
• Labor force growth• Mismatches between available jobs and available people • Household formation
• Gasoline price dividend gets partially absorbed by poorer international trade conditions
• Fiscal policy to remain in “benign neglect” at least through 2016 election; additional defense spending possible
• Fed to take action in mid-2015, but the anticipation will be worse than the impact
3
US Outlook / December 2014
© 2014 IHS 4
US growth will slow in q4, and into 2015, but a gradual acceleration is expected thereafter.
Real GDP growth (annualized percent change)
© 2014 IHSSource: IHS
-10
-8
-6
-4
-2
0
2
4
6
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
US Outlook / December 2014
© 2014 IHS
Since emerging from the recession, the US economy has downshifted. Will it find that next gear?
5
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1995 2000 2005 2010 2015
Real GDP growth
2.2% average2010-2014
Where’s the growth?
• Federal budget deficit reduction
• Consumer retrenchment• Higher taxes• Debt repayment• Poor wage growth
• Fizzled housing recovery
• Business investment rebound did not fully offset the downturn
3.2% average1995-2007
US Outlook / December 2014
© 2014 IHS 6
Looking forward, we will still be counting on consumer spending to drive the bulk of economic growth.
Contributions to real GDP growth
© 2014 IHSSource: IHS
1.6
2.3 2.2 2.22.7 2.5
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
2011 2012 2013 2014 2015 2016
Real GDP Consumer spending Fixed investment Housing
Inventories Exports Imports Government
An
nu
ali
zed
perc
en
tag
e c
han
ge
US Outlook / December 2014
© 2014 IHS 7
Is the labor market getting tight enough to drive wage pressures?
Job creation and the unemployment rate
© 2014 IHSSource: IHS
3
4
5
6
7
8
9
10
11
-200
-100
0
100
200
300
400
500
600
2010 2011 2012 2013 2014
Un
em
plo
ym
en
t ra
te (
%)
Nu
mb
er
of
new
jo
bs (
000s)
Employment growth Unemployment rate
US Outlook / December 2014
© 2014 IHS 8
Growth in the labor force has downshifted.
Employment and labor
© 2014 IHSSource: IHS
62
63
64
65
66
67
68
130
135
140
145
150
155
160
2000 2002 2004 2006 2008 2010 2012 2014
Perc
en
t o
f la
bo
r fo
rce
Lab
or
forc
e (
Mil
lio
ns)
Labor force (Left) Participation rate (Right)
Before the recession: 1.5 million / year pace
After the recession: 0.4 million / year pace
US Outlook / December 2014
© 2014 IHS 9
We’re aging, and entering cohorts with lower participation rates.
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
80.0%
90.0%
100.0%
0
2
4
6
8
10
12
14
16
18
20
16-1
9
20-2
4
25-2
9
30-3
4
35-3
9
40-4
4
45-4
9
50-5
4
55-5
9
60-6
4
65+
Part
icip
ati
on
Rate
(2013, %
of
lab
or
forc
e)
Lab
or
forc
e s
ize (
mil
lio
ns)
Age cohort
2004 2005 2006 2007 2008 2009
2010 2011 2012 2013 2014 Particip. %
US Outlook / December 2014
© 2014 IHS 10
Only the services areas are materially adding jobs.
Employment before and after the recession (millions)
© 2014 IHS*=Recession period: December 2007 through June 2009Source: IHS
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
Change during recession * Change since end of recession *
Losses from recession: 7.4 millionChanges since recession end: 9.1 million
Goods Services Government
US Outlook / December 2014
© 2014 IHS 11
Recent job creation is skewed toward lower-income occupations
$0
$200
$400
$600
$800
$1,000
$1,200
$1,400
$1,600
0
100
200
300
400
500
600
700
800
Avera
ge w
eekly
earn
ing
s
Nu
mb
er
of
job
s (
000s)
# of new jobs over past 12 months (bars, 000s, left axis)
Average weekly earnings (squares, right axis)
Recent job growth and average weekly earnings
Overall average weekly earnings
US Outlook / December 2014
© 2014 IHS 12
Here’s what the Fed is looking at to identify inflation.
Personal consumption price deflators (change versus year-ago)
© 2014 IHSSource: IHS
-2%
-1%
0%
1%
2%
3%
4%
5%
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
All goods and services Excluding food and energy
Fed 2% threshold
US Outlook / December 2014
© 2014 IHS 13
Monetary policy status quo maintained through mid-2015, although long-term rates will rise as expansion gathers steam.
Interest rate outlook
© 2014 IHSSource: IHS
0%
1%
2%
3%
4%
5%
6%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fed funds rate 10-year treasury
Fed tapering
Near zero rates endJune 2015
US Outlook / December 2014
© 2014 IHS 14
Energy and the Economy
US Outlook / December 2014
© 2014 IHS 15
Savings at the pump have added to consumers’ wallets.
$0
$500
$1,000
$1,500
$2,000
$2,500
$3,000
$3,500
$4,000
2000 2005 2010 2015 2020
Per-household spending on gasoline (annual rates)
US Outlook / December 2014
© 2014 IHS
Contributions from unconventional energy sources will continue to add to US GDP.
16
0
50
100
150
200
250
300
350
1995 2000 2005 2010 2015 20200
20
40
60
80
100
120
140
160
180
1995 2000 2005 2010 2015 2020
US Imports of Petroleum Products (billions of 2009 dollars)
US Mining and Petroleum Structures (billions of 2009 dollars)
US Outlook / December 2014
© 2014 IHS 17
US Regional and Indiana Outlook
US Outlook / December 2014
© 2014 IHS
U.S. Regional Outlook
• States in the West and Sunbelt will continue to grow fastest
• These states generally got the worst of housing bust
• Population growth fastest in these regions
• People go where the jobs are, but jobs also go where the people are
• Manufacturing gains, especially from the auto sector supply chain, have been a key to the improving Midwestern economy
• Growth in unconventional oil development makes North Dakota a standout on growth maps
• Supply chain for oil and natural gas boosting construction, manufacturing, transportation, other sectors across countries
18
US Outlook / December 2014
© 2014 IHS
Regional Job GrowthNorthern and Eastern regions lagging rest of United States
19
US Outlook / December 2014
South Atlantic
East North
Central
Pacific
Mid-Atlantic
West South
Central
West North
Central
Mountain
East South Central
New England
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
-0.5 0.5 1.5 2.5 3.5
Last3Months
Year on Year
Expanding
Contracting Slipping
Improving
Employment Momentum in October(Percent change, annual rate)
Last
3 m
on
ths
© 2014 IHS
Midwest Job GrowthIndiana leads the pack over the past year
20
Illinois
Ohio
Michigan
Indiana
Wisconsin
-1
0
1
2
3
-0.5 0.0 0.5 1.0 1.5 2.0
Last
3 M
on
ths
Year on Year
Employment Momentum in October(Percent change, annual rate)
Expanding
Contracting Slipping
Improving
US Outlook / December 2014
© 2014 IHS
Continued modest job growth in 2014
21
State Employment Growth 2014(Percent change vs. year-ago)
© 2014 IHSSource: IHS
Percent
-0.3 to 0.8
0.8 to 1.2
1.2 to 1.8
1.9 to 4.5
US Outlook / December 2014
© 2014 IHS
Employment growth highest in West, South(and the northern oil region)
22
State Employment Growth 2015(Percent change a year ago)
© 2014 IHSSource: IHS
Percent
0.7 to 1.3
1.3 to 1.6
1.6 to 1.9
2.0 to 3.0
US Outlook / December 2014
© 2014 IHS
By end of 2015 most states will have recovered lost jobsIndiana got there in 2014
23
Year of Return to Peak Employment
© 2014 IHSSource: IHS
Return To Peak
2010 - 2013
2014
2015
2016 - 2017
2018+
US Outlook / December 2014
© 2014 IHS
Indiana Employment Forecast
24
2,400
2,500
2,600
2,700
2,800
2,900
3,000
3,100
3,200
3,300
3,400
-7.0
-6.0
-5.0
-4.0
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
2009 2011 2013 2015 2017 2019
Growth Levels
Perc
entC
hange Y
ear
Ago
Thousands
Indiana Employment
© 2014 IHSSource: IHS
US Outlook / December 2014
© 2014 IHS
Indiana Cars and Houses
25
0
5
10
15
20
25
30
0
50
100
150
200
250
300
2009 2011 2013 2015 2017 2019
New Car Registrations Total Housing Starts
Th
ou
sa
nd
sT
ho
usa
nd
s
Indiana Total Housing Starts vs. New Car Registrations
© 2014 IHSSource: IHS
US Outlook / December 2014
© 2014 IHS
Wage Gains
26
-3.0
-2.0
-1.0
0.0
1.0
2.0
3.0
4.0
5.0
6.0
2009 2011 2013 2015 2017 2019
Indiana US
Perc
entC
hange Y
ear
Ago
Indiana Wage Growth Vs. United States(Nominal Total Wages and Salaries)
© 2014 IHSSource: IHS
US Outlook / December 2014
© 2014 IHS
PCE spending will be dragged down by lower spending for gasoline.
27
-15.0
-10.0
-5.0
0.0
5.0
10.0
15.0
2009 2011 2013 2015 2017 2019
Total Durable Goods Non-Durable Goods Services
Perc
entC
hange Y
ear
Ago
Personal Consumption Expenditure Growth for Indiana
© 2014 IHSSource: IHS
US Outlook / December 2014
© 2014 IHS
Services earning more and more of consumers’ dollars
28
0
50
100
150
200
250
300
2009 2011 2013 2015 2017 2019
Durable Goods Non-Durable Goods Services
Bill
ions o
fD
olla
rs
Personal Consumption Expenditure for Indiana(Levels by Sector)
© 2014 IHSSource: IHS
US Outlook / December 2014
© 2014 IHS
Indiana Forecast Summary
29
2013 2014 2015 2016
Total Employment 1.2 1.8 1.7 1.3
Unemployment Rate 7.5 5.8 5.5 5.7
Personal Income 1.8 2.1 4.0 4.5
Housing Starts (000s) 16.8 17.3 19.5 21.4
Retail Sales 4.2 1.9 2.3 4.0
Real Gross State Product 2.1 1.9 2.3 2.2
US Outlook / December 2014
(Percent unless otherwise noted)
© 2014 IHS
Professional and Business Services will continue to drive economic growth
30
US Outlook/ October 2014
2013 2014 2015 2016
Total Employment 1.2 1.8 1.7 1.3
Manufacturing 2.1 3.5 2.2 1.3
Construction and Natural Resources -1.0 2.1 3.6 3.5
Trade, Transportation and Utilities 1.3 0.6 1.4 0.8
Information 0.0 -1.1 -1.0 3.0
Finance -0.3 1.5 -0.2 -0.4
Professional and Business Services 2.8 3.2 3.4 3.8
Education and Health Services 1.7 0.8 1.8 1.2
Leisure and Hospitality Services 1.8 2.8 1.9 0.7
Other Services 1.1 2.8 1.5 0.7
Government -0.9 0.5 0.3 0.3
© 2014 IHS
Manufacturing growth will continue to be Indiana’s strength vs. overall US trends.
31
US Outlook/ October 2014
-2.0 -1.0 0.0 1.0 2.0 3.0 4.0 5.0
Total Employment
Manufacturing
Construction and Natural Resources
Trade, Transportation and Utilities
Information
Finance
Professional and Business Services
Education and Health Services
Leisure and Hospitality Services
Other Services
Government
Indiana US
Employment growth by major sector in 2015
© 2014 IHS
Forecast Track Record
32
US GDP Indiana Employment Indiana Income
Forecast Date
2013 2014 2013 2014 2013 2014
Percent change
Dec 2012 1.9 2.7 1.6 1.6 3.3 4.4
Dec 2013 1.8 2.4 1.5 1.6 3.0 4.4
Apr 2014 1.9 2.4 1.2 1.6 2.3 2.8
Dec 2014 2.2 2.2 1.2 1.8 1.8 2.1
US Outlook / December 2014
© 2014 IHS
Bottom Line for Indiana
• Indiana’s economic growth continues to be higher than neighbors
• Midwest growth generally lagging other parts of the United States
• Payrolls regained pre-recession peak in 2014
• Resurgent auto sector a big key to Indiana’s growth
• Indiana’s manufacturers a big part of auto supply chain
• Location as “crossroads of America” also makes it a logistical hub
• Near-term growth should continue to be favorable
• In longer term, lack of population/labor force growth a concern
• This is a common theme among northern and eastern states
33
US Outlook / December 2014
© 2014 IHS 34
An Economist’s wishes for 2015
US Outlook / December 2014
© 2014 IHS
Santa wish list for 2015 – Just one: Improve productivity!
35
• Education, education and
education
• Infrastructure investment
• Technology investment –improve internet speed, cost and security
• Remove impediments to labor force participation
• Reduce risk of doing business
• Increase economic awareness
US Outlook / December 2014
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
2000 2002 2004 2006 2008 2010 2012 2014(est.)
Productivity growth(output / hour, year-over-year change)
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