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2020 SYMPOSIUM
Mark Dotzour
2020 SYMPOSIUM
Good Fishing Ahead, but Keep an Eye on the Clouds Dr. Mark G. Dotzour
Longest U.S. Economic Expansions Current expansion began in June 2009 • Mar 1991 to Mar 2001 • Feb 1961 to Dec 1969 • Nov 1982 to Jul 1990 • Jun 1938 to Feb 1945 • Nov 2001 to Dec 2007
120 months 106 months 92 months 80 months 73 months
Current expansion as of January 2020 is 128 months
HOW LONG CAN IT LAST?
First Focus: The Good Fishing
Why 2020 Will Be Slower • Auto industry appears to have peaked • Trucking and shipping industry has peaked • Low oil and gas prices will pressure energy sector • Trade negotiations with China cause uncertainty • Businesses not using tax benefits to expand • Congress won’t be interested in growth • Federal budget deficits can’t get too much higher • Presidential election uncertainty
Monthly Increase in Jobs 2005 to present
300K
266,000 in November
Source: Bureau of Labor Statistics
Rate of Wage Growth 1960 to present
4%
Source: Federal Reserve Bank of St. Louis
Job Openings in America Looking for Workers
Source: Bureau of Labor Statistics
Texas Employment Since 1940
13.6 million in Nov 19
Source: Bureau of Labor Statistics
Household Net Worth since 1952
Now exceeds $113 trillion
Source: Federal Reserve Bank of St. Louis
Household Owners Equity in Real Estate $18 trillion
Source: Federal Reserve Bank of St. Louis
150 140 130 120 110 100 90 80 70 60 50 40 30 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19
Consumer Confidence Index 2006 to present
Source: The Conference Board
Household Debt Service Payments as a Percent of Disposable Personal Income
Lots of fuel left!
1980
Source: Federal Reserve Bank of St. Louis
40 35 30 25 20 15 10 5 0
Source: National Federation of Independent Business Nov-19
Aug-19
May-19
Feb-19
Nov-18
Aug-18
May-18
Feb-18
Nov-17
Aug-17
May-17
Feb-17
Nov-16
Aug-16
May-16
Feb-16
Nov-15
Aug-15
May-15
Feb-15
Nov-14
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Small Business Confidence: “Now is a Good Time to Expand” Percent of Respondents
0
Source: National Federation of Independent Business Nov-19
Aug-19
May-19
Feb-19
Nov-18
Aug-18
May-18
Feb-18
Nov-17
Aug-17
May-17
Feb-17
Nov-16
Aug-16
May-16
Feb-16
Nov-15
Aug-15
May-15
Feb-15
Nov-14
Aug-14
May-14
Feb-14
Nov-13
Aug-13
May-13
Feb-13
Small Business Confidence:
“Hiring Plans in the Next Three Months” Net Percent of Respondents
30
25
20
15
10
5
New Single-Family Houses Sold Since 1963
Source: Federal Reserve Bank of St. Louis
New Single-Family Housing Starts Since 1959
1 million units
1965 Population: 194 million
Source: Federal Reserve Bank of St. Louis
Leading Index of Economic Indicators 1982 to present
Source: Federal Reserve Bank of St. Louis
Texas Leading Index
Source: Federal Reserve Bank of Dallas
Houston Business-Cycle Index
Source: Federal Reserve Bank of Dallas
Looking For Signals of Change
Corporate Profits
After Tax
Before Tax
Source: Federal Reserve Bank of St. Louis
Large Corporate Hiring Plans: Next 6 Months
Q3-19 Q2-19 Q1-19 Q4-18 More Jobs
43%
41%
48%
56%
Less Jobs
20%
16%
16%
14%
Source: Business Roundtable
Corporate Bond Spread BB Corporate – 10 Year Treasury
Source: Federal Reserve Bank of St. Louis
The Future of Interest Rates
Inflation Moves the 10-Yr Treasury Rate (unless the Fed intervenes)
10-Year Treasury rate
Inflation rate
Source: Federal Reserve Bank of St. Louis
Inflation Rate since 2000
2%
Source: Federal Reserve Bank of St. Louis
Economists Have Overestimated Inflation Since 2007 Predicted Inflation
Actual Inflation
Source: University of Michigan and Federal Reserve Bank of St. Louis
Effective Fed Funds Rate 1954 to Present
19.00
13.00 9.25
10.00 6.50 5.25 2.50
Source: Federal Reserve Bank of St. Louis
10-Year Government Bond Rates January 9, 2020
United States 1.851% Canada 1.593% UK 0.812% Germany - 0.225% France 0.062% Italy 1.393% Japan
- 0.005% Source: CNBC.com
Treasury has Refinanced the Federal Debt Average Interest Rate on:
March 1, 2000
Total Debt 6.555%
T-Bonds 8.505%
March 1, 2007
5.055%
7.551%
March 1, 2018
2.347%
4.162%
Source: U.S. Treasury
If rates went up 2%, interest expense would Increase by $440 billion.
2018
Just the increase of 2% would consume 13% of all federal income. Source: Congressional Budge Office
If rates went up 2%, interest expense would increase by $440 billion.
2018
Source: Congressional Budge Office
Just the increase of 2% would consume 75% of all Medicare payments, or 45% of Soc Sec payments.
CRE Trajectories: Sales Volume CoStar reported sales volume in 12 months ended November 2019 was 3.7% higher than a year earlier.
CoStar reported that sales that include secondary and tertiary markets were up 5.7% in the same period.
Sources: CoStar release 12/26/2019; NREI Online; Green Street Advisors Release 1/7/2020
Earliest Warning Sign: Big Decline in Transaction Volume
Source: CNBC.com 1/3/2020
CRE Trajectories: Absorption CoStar reported aggregate absorption of CRE space in 3Q2019 was much lower than previous years: Million square feet
2016 3Q
575.7
2017 3Q
261.1
2018 3Q
270.9
2019 3Q
55.9
Sources: CoStar release 12/26/2019; NREI Online; Green Street Advisors Release 1/7/2020
CRE Prices Continue to Escalate
CRE Trajectories: Prices RCA reported Nov prices 8.7% higher YOY. Green Street Advisors Index up 2.5% YOY.
Industrial up 13.6% Apartments up 9.3% CBD Office up 5% Retail up 3.4%
Sources: CoStar release 12/26/2019; NREI Online; Green Street Advisors Release 1/7/2020
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