FOLOWUSCONTACT US A CEIC Insights Report US Economy in a Snapshot Q2 2019 2 Executive Sumary Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report US Economy in a Snapshot, Q2 2019 Source: A CEIC Insights Report 3 Economic Outlok TheUSeconomyexpandedbycloseto3.2%inQ12019,up0.2ppfromthepreviousquarter, underpinedbystronginternalconsumptionandstableinvestment Fedkeptthekeyinterestrateat2.50%sincethebeginingoftheyearbutispreparingforrate cutsinsupportoftheeconomyamidtheapproachingglobalslowdown. Fiscaldeficitremainshighandgovernmentdebtcontinuedtoacumulategradualybutinvestors seemtoshowlitledoubtsinthecountysabilitytoserviceitsdebt. Inflationremainslow,whichjustifiesratecutsinthenearterm. Foreigntradetarifsdidnotaffectsignificantlythebalance,amountandsectorcompositionofUS externaltrade.TheUSrunsforeigntradedeficitswithallofitsmajortradingpartners. Amidtalksofslowingglobalgrowth,theUSeconomyrecordedanotherstrongquarterinQ12019in oneofthelaststagesofthecurrentbusinescycle,backedbystrongconsumptionandbothdirect andportfolioinvestments.Retailsalesandconsumersentiment,themaindriversoftheUSeconomy, showedcontinuedstrength.Theexistinggrowthratedifferentialwiththerestofthedevelopedworld ledtoinvestorsonceagainpumpingbilionsofdollarsinUSdebtandequity,leavinglitledoubtin theeconomysabilitytoserviceitsgrowingprivateandpublicdebt.Overthecomingmonthsgrowth andeconomicactivityisexpectedtostabilizeatmoremodestlevels. Overalexpectationspointtoamoderateslowdownsomewhereattheendof2019or2020.Fed projectsalowergrowthrateof2.1%for2019.TheIMFhasalsolowereditsgrowthexpectations,with anualGDPgrowthratesprojectedat2.4%and1.7%in2019and2020respectively,backedbysteady internalconsumptionandfixedinvestment,thoughatlowerlevelscomparedto2018.Private consumptionisforecasttogrowby2.4%and2%in2019and2020,respectively,whilegovernment consumptionisexpectedtogrowby1.6%and1.2%.Grosinvestmentin2019isprojectedtobehigher thanin2018,at21.56%ofGDP,andremainclosetotheselevelsin2020.Unemploymentislikelyto botomatsomepointoverthenext18monthsandincreasethereafter.Inflationisforecasttobe higherthanin2018attheendof2019andthefirstquarterofnextyearandremainwithinthe2% targetlevelafterthat. Key Highlights EXECUTIVE SUMARY US Economy in a Snapshot, Q2 2019 A CEIC Insights Report 4 Riskstotheforecastareeconomicaswelaspolitical.ThesmothedCEICLeadingIndicatorfelto 90.6inMay,itslowestvaluesincethe2007-2009financialcrisis,signifyingthatdespitethe somewhatpositiveperformance,theUSeconomycouldfaceseriouschalengesinthenearmonths. ManufacturingPMIhasbeendecliningforayearnow,falingto50.5andclosetoitsthresholdvalue of50.Inadditiontothis,accordingtotheFedsrecesionprobabilityindicatorsone-yearahead prognosisthereisa29.7%chanceofarecesioninMay2020.Amajorfactorthatmighteventualy disrupttheUSeconomywouldbethegrowinguncertaintyovertheUS-Chinatraderelations.Stock marketsalsostarttoappearalitleovervaluedandaperiodofhighervolatilitymightbeexpected. Leading Economic Index (Long-term Trend=10) Source: CEIC Data EXECUTIVE SUMARY US Economy in a Snapshot, Q2 2019 Purchasing Managers Index Recesion Probability A CEIC Insights Report Sumary 5 Realgrosdomesticproduct(GDP)expandedbycloseto3.2%inQ12019,up0.2ppfromtheprevious quarter.Growthwasagainunderpinedbystrongprivateandgovernmentconsumption,aswelas stableprivateinvestment.ThelargestgrowthinGVAwasregisteredinthescientificandtechnology servicesindustry(7.2%),wholesaletrade(6.7%)andprofesionalandbusinesservices(6.4%).The industrialproductionindex(IPI),measuringrealoutputinmanufacturing,hasindicatedsmal increasesinindustrialactivity,rangingfrom0.7%to3%inallmonthssincethebeginingof2019. Headlineinflation,measuredbytheConsumerPriceIndex(CPI),hastrendeddownwardinthe secondhalfof2018andreacheditslowestpointoverthelasttwoyearsinFebruaryat1.5%.Inflation thenincreasedtotheFeddesiredlevelof2%inMarch,beforedecliningagainto1.8%inApril.Core CPI,whichexcludestheveryvolatilefoodandenergy,hasgeneralyfollowedthesamepatern.Core CPIreadingssincethebeginingof2019havebeenthehighestintransport,medicalcareand housing. Fedhaskeptitsovernightlendingrate,alsoknownasFedfundsrateat2.50%sincethebeginingof theyear.Inthelastseveralmonthstheeconomyhasbeenoperatingatfullemploymentand relativelylowinflationlevels,whichsupportedtheargumentsforloweringinterestratesasearlyas July.TheFedisnotyetfullycomitedtoaJulyratecut,buttwotothredownwardratesmovesby year-endappearmorelikelynowafterthelatestFedmeeting. Fiscaldeficitcontinuedgrowingandreached3.8%inQ12019,onthebackonceagainofhigh medicare,socialsecurityandnationaldefenceexpenditures.Publicdebtcontinuedtoacumulate gradualyandinMay,USgovernmentdebtstodatUSD22tnandwasalitlemorethan104%ofGDP. Treasuryyields,however,areclosetorecordlowrates,suggestingthatinvestorstrusttheUS governmentsabilitytoserviceitsdebts. TradedeficitincreasedslightlyinApriltoUSD73.9bn,duetohigherimportsandlowerexports.Tarifs didnothaveasignificantimpactonthebalance,theamountandsectorcompositionoftheUS foreigntrade.Theseasonaly-adjustedtotaltradedeficitstodatUSD213.6bninQ12019,litle changedrelativetothepreviousquarter.TheUSrundeficitswithChina,Japan,GermanyandMexico, whichareitsmajortradingpartners. EXECUTIVE SUMARY US Economy in a Snapshot, Q2 2019 A CEIC Insights Report 6 US Economy: Statistics at a Glance Source: CEIC Data EXECUTIVE SUMARY US Economy in a Snapshot, Q2 2019 Unit 05.201904.201903.201902.201901.201912.2018 Real GDP: YoY: sa % 3,20 2,97 Industrial Production Index: YoY % 1,87 0,71 2,20 2,71 3,27 3,31 House Prices: YoY % 5,83 6,48 Consolidated Fiscal Balance: % of Nominal GDP% -4,19 -4,25 Government Debt: USD mn USD mn 22 027 880,00 21 974 096,00 Unemployment Rate: sa % 3,60 3,60 3,80 3,80 4,00 3,90 Monthly Earnings: USD: sa USD 3 829,403 821,163 824,003 806,003 803,283 799,16 Employed Persons: sa Person 156 748 000,00 156 945 000,00 Retail Sales: Value: YoY: sa % 2,68 3,86 3,73 2,05 3,18 1,08 Motor Vehicles Sales Unit 1 626 729,001 370 129,001 642 751,001 288 278,001 171 540,001 665 906,00 Consumer Price Index: YoY % 1,79 2,00 1,86 1,52 1,55 1,91 Producer Price Index: YoY % 1,81 2,16 2,17 1,91 1,92 2,64 Total Exports: YoY % -2,07 -2,12 -1,06 1,91 3,68 -1,39 Total Imports: YoY % 1,86 1,75 -0,08 -0,68 0,62 3,33 Curent Account Balance: % of Nominal GDP % -1,95 -2,84 Foreign Direct Investment: USD mn USD mn 103 739,00 48 231,00 Direct Investment Abroad: USD mn USD mn 65 408,00 -3 755,00 Foreign Portfolio Investment: USD mn USD mn -7 740,00 14 884,00 M2: YoY % 4,14 3,86 3,79 3,98 4,11 3,71 Total Deposits: YoY % 4,61 4,37 4,42 4,10 3,80 3,68 Total Loans: YoY % 4,96 4,72 5,47 5,48 5,39 5,13 Household Debt: USD mn USD mn 13 668 000,00 13 544 000,00 Policy Rate: Month End: Effective Federal Funds Rate % pa 2,40 2,45 2,43 2,40 2,40 2,40 Electricity Generation GWh 295 119,00323 187,00313 278,00357 690,00337 334,00 Manufacturing PMI: Headline: sa NA50,50 52,60 52,40 53,00 54,90 53,80 Services PMI: Headline: sa NA50,90 53,00 55,30 56,00 54,20 54,40 Source: A CEIC Insights Report 7 Real GDP Growth: QoQ Headline & Core Inflation CEIC Data EXECUTIVE SUMARY US Economy in a Snapshot, Q2 2019 Initial Jobles Claims 8 Real Sector Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report US Economy in a Snapshot, Q2 2019 A CEIC Insights Report Real Sector 9 RealGDPincreasedby3.18%y/yinthefirstquarterof2019,comparedto2.97%inthepreviousquarter and2.58%inthefirstquarterof2018.Theincreasereflectsupwardrevisionstopersonalconsumption expenditures(PCE),grosprivatedomesticinvestment,andchangeinprivateinventories,aswelas governmentandprivateconsumptionexportswereupafteranincreaseinexportsandaslight dropinimports.ThedropinimportscouldbepartlyexplainedbytheincreaseduncertaintyinUS traderelationswithanumberofcountriesandtheimpositionofnewtarifs.NominalGDPinQ12019 stodatUSD21.1tnataseasonaly-adjustedanualizedratewithPCEcontributingto67.6%ofGDP total.PCEincreasedby0.4%q/q,followinganincreaseofservicesconsumptionandaslightdropin goodsconsumptionq/q.Thedropofgoodsconsumption,whichcouldbeaconsequenceofnewtarifs imposition,clearlyshowsthatwhiletarifsmightbesuitableforreducingtradeandcurrentacount deficits,theydonotactualyincreaseconsumersdisposableincome.Grosprivatedomestic investmentincreasedby1.5%q/qduetoupwardrevisionsinbothfixedinvestmentandchangein privateinventories.Theupwardmoveisasignthatbusinesesstilfindinvestmentoportunitiesand theeconomyisnotsubstantialycooling.Governmentexpenditureincreasedonbothfederaland statelevel. Thelargestgrosvalueaddedtotheeconomywasgeneratedbythefinanceandinsurancesector, makingup22%oftotalGVA,followedbythebusinesservicesandgovernmentsectorswith13.48% and12.96%,respectively.Outofthemajorindustries,thelargestgrowthinGVAwasregisteredinthe scientificandtechnologyservicesindustry(7.2%),wholesaletrade(6.7%),andprofesionaland businesservices(6.4%).IPIhasindicatedsmalincreasesinindustrialactivity,rangingfrom0.7%to 3%sincethebeginingof2019.IndustrialactivitytrendeddownwardfromJanuaryuntilApriland recoveredslightlyinMay. Retailsalesremainedstrongandtrendedupwardsincethebeginingoftheyear,registeringa0.3% m/mincreaseinApril.Thisincreasereflectsthegrowthinmotorvehiclesandparts,homefurniture andfoodandbeveragestoresales,partlyoffsetbyadropinelectronicsandappliancestoresales. TheJohnsonRedbokSalesIndex,whichmeasurestheweeklysalesofabout9,000largemerchandise retailersacrostheUS,grewby5%y/yormoreintheMarch-Aprilperiod,showingthecontinuing strengthofUSretailsales.Bothconsumersentimentandconsumerexpectationsforthesameperiod remainedclosetotheiraveragelevelsincethebeginingoftheyear. REAL SECTOR US Economy in a Snapshot, Q2 2019 Source: A CEIC Insights Report 10 CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 Nominal GDP & Real GDP Growth Inviewoftherelativelystableindustrialactivityandretailsales,theUSeconomycontinuesto operateatlevelsclosetofullemployment.Unemploymenthastrendeddownwardsincethe beginingoftheyear,andstodat3.6%inbothAprilandMay,whichisitslowestleveloverthelast 24months.Weeklyjoblesclaimsinthe12weekstoJuneremainedclosetotheir18-monthaverage. Averagehourlyearningsalsokepttheirupwardtrendsincethebeginingoftheyearinlinewiththe relativelystrongeconomicperformanceamidfullemployment.Theseearningsaveragemonthly increasesintheJanuary-Mayperiodwerebetwen0.1%and0.2%,remainingslightlylowerthanlast yearsaverage.TheaveragehourlyearningsinAprilwerethehighestintheinvestmentindustry, followedbypublishing. Privatehousingunitsstartedincreasedstronglyinthefirstfivemonthsoftheyear,comparedtolast yearsend,reaching118,700unitsinMay,althoughthiscanalsobeseenasaseasonaleffect. Meanwhile,theupwardtrendinhousingpricesendedinQ12019,withmedianhousingpricedownby 11.4%comparedtoQ42018.Medianrenthasremainedstable,andacontinuingfalintheprice-to- rentratiowouldindicateaforthcomingcoolingoftheeconomy. Source: A CEIC Insights Report 11 GDP by Expenditure: saar CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 Unit 03.201912.201809.201806.201803.201812.201709.2017 Gros Domestic Product: saar USD bn21 060,120 865,120 658,220 411,920 041,019 831,819 588,1 GDP: saar: Personal Consumption Expenditures USD bn14 238,614 188,414 050,513 875,613 679,613 579,213 359,1 GDP: sar: PCE: Services USD bn9 862,7 9 801,8 9 679,1 9 546,1 9 411,9 9 328,3 9 193,1 GDP: sar: PCE: Goods USD bn4 375,9 4 386,6 4 371,3 4 329,5 4 267,7 4 250,9 4 166,0 GDP: sar: Gros Private Domestic Investment (GPDI) USD bn3 823,3 3 766,3 3 710,7 3 579,5 3 543,8 3 441,4 3 413,9 GDP: sar: GPDI: Fixed Investment (FI) USD bn3 701,6 3 658,8 3 618,0 3 589,9 3 507,4 3 420,0 3 358,5 GDP: sar: GPDI: Change in Private Inventories USD bn 121,7 107,5 92,7 -10,4 36,3 21,5 55,4 GDP: sar: Net Exports of Goods and Svcs (NE) USD bn -606,7 -658,9 -653,5 -549,8 -639,2 -607,9 -557,3 GDP: sar: NE: Exports USD bn2 552,0 2 540,6 2 538,6 2 568,7 2 477,4 2 432,0 2 358,3 GDP: sar: NE: Imports USD bn3 158,6 3 199,5 3 192,1 3 118,5 3 116,6 3 039,9 2 915,5 GDP: sar: Govt Consumption Expenditures & Gros Inv (GCI) USD bn3 604,8 3 569,4 3 550,5 3 506,6 3 456,8 3 419,1 3 372,3 GDP: saar: GCI: Consumption Expenditures USD bn2 889,4 2 880,9 2 864,0 2 831,0 2 797,0 2 765,9 2 732,1 GDP: sar: GCI: Gros Investment USD bn 715,4 688,5 686,5 675,6 659,8 653,2 640,2 GDP: sar: GCI: Federal USD bn1 355,6 1 341,9 1 329,5 1 313,0 1 294,8 1 280,6 1 263,8 GDP: sar: GCI: Federal: Consumption ExpendituresUSD bn1 057,1 1 046,2 1 041,3 1 027,9 1 012,7 997,9 984,7 GDP: saar: GCI: Federal: Gros Investment USD bn 298,4 295,8 288,2 285,1 282,2 282,7 279,1 GDP: sar: GCI: State and Local (SL) USD bn2 249,3 2 227,5 2 221,0 2 193,5 2 162,0 2 138,5 2 108,5 GDP: saar: GCI: SL: Consumption Expenditure USD bn1 832,3 1 834,8 1 822,8 1 803,1 1 784,4 1 768,0 1 747,5 Source: A CEIC Insights Report 12 GDPNowForecast: QoQGrowth Personal Cons Expenditure & Private Domestic Fixed Investment (Real QoQGrowth) CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 Government Cons Expenditure & Gros Investment (Real QoQGrowth) Source: A CEIC Insights Report 13 GDP: Exports of Goods & Services (Real QoQGrowth) Industrial Production Index: YoY Growth CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 GDP: Imports of Goods & Services (Real QoQGrowth) Source: A CEIC Insights Report 14 Retail Sales: YoY Growth House Price Indices: YoY Growth CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 Private Housing Units started Source: A CEIC Insights Report 15 Employment: Non Farm (MoM Growth) Employment to Population Ratio Unemployment Rate CEIC Data REAL SECTOR US Economy in a Snapshot, Q2 2019 16 Monetary & Financial Sector Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, al rights reserved. A CEIC Insights Report US Economy in a Snapshot, Q2 2019 A CEIC Insights Report Monetary & Financial Sector 17 KeyinflationmeasuresinQ12019generalyremainwithinthelimitsprescribedbytheUSneutral monetarypolicy.Headlineinflationhastrendeddownwardinthesecondhalfof2018andreachedits lowestpointoverthelasttwoyearsinFebruaryat1.5%.InflationthenincreasedtotheFeddesired levelof2%inMarch,beforedecliningagainto1.8%inApril.Apartfromenergyprices,whichare traditionalyvolatile,CPIreadingssincethebeginingof2019havebeenthehighestintransport, medicalcareandhousing.CoreCPI,whichisalesvolatilemeasureofinflation,hasbeengradualy declininginthesecondhalfof2018,andincreasingthefirstthremonthsof2019toreach2%in April.PCEandinflationbreakevenson10-yearTreasuryInflationProtectedSecurities(TIPS)have followedtheinflationchangespatern.Returnson5-yearTIPSand10-yearTIPSareclosetoeach otherandremainbelowyieldsontherespectivenominaltreasuries,suggestingthatinvestorsexpect inflationtoremainrelativelylow.TheProducerPriceIndex(PPI),whichisanearlyindicatorof inflation,alsotrendeddownwardinthesecondhalfof2018,sawanuptickinMarch2019,andturned negativeinApril. TheFedfundsratecurrentlystandsinthe2.25%-2.50%rangeandhasnotchangedin2019,following fiveupwardmovesin2018.Si