FOLLOW US CONTACT US A CEIC Insights Report US Economy in a Snapshot Q3 20192 Executive Summary Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, all rights reserved. A CEIC Insights Report US Economy in a Snapshot, Q3 2019 2Source: A CEIC Insights Report 3 Economic Outlook The US economy expanded by close to 2.3% in Q2 2019, in line with expectations following the anticipated slowdown in economic activity. The federal funds rate was reduced to 2.25% in the first of an expected series of interest rate cuts in support of the economy, but the dollar remained relatively strong. Fiscal deficit remained high and government debt continued to accumulate gradually but investors seem to show little doubts in the countys ability to service its debt. Stock market indices entered a period of higher volatility amid overstretched Price/Earnings ratios and the impending economic slowdown. The smoothed CEIC Leading Indicator for the US economy slowed down to 90.3 in July 2019, in line with the downward trend observed since February 2018. With the US economy recording slower growth in Q2 relative to Q1, the first signs of a slowdown are observed in line with the leading indicators performance since 2018. These signs also became evident on the stock market where volatility increased in what some analysts see as a prelude to a major correction over the following months. Despite slowing growth, growth differential relative to the rest of the world is still evident and amid negative yields of state issued debt in the rest of the developed world, investors still see US treasuries as a secure investment offering relatively good return. The yield curve has been inverted since August, a phenomenon often claimed to precede recessions. Thirty-year treasury yields fell further to record lows of close to 2% in August and are expected to remain at these levels over the coming months, providing evidence of the continuing trust of investors in the economys ability to service its debts. Over the coming months growth and economic activity are expected to stabilise at more modest levels. Overall expectations point to a continuation of the moderate slowdown throughout 2019 and 2020. Fed projects lower median growth rates of 2.1% and 1.9% for 2019 and 2020, respectively. The IMF has also lowered growth expectations, with annual GDP growth rates projected at 2.6% in 20191, backed by steady internal consumption and fixed investment, though at lower levels compared to 2018. Private consumption is forecast to grow by 2.4% and 2% in 2019 and 2020, respectively, while government spending is expected to grow by 1.6% and 1.2%, respectively. Gross investment as a share of GDP is projected to be higher for the entire 2019, at 21.56%, and to remain close to these levels in 2020. Unemployment is likely to bottom at some point over the next 18 months, according to an IMF projection, and increase thereafter. Inflation is forecast to be higher at the end of the current and first quarter of next year and remain close to the 2% target after that. Key Highlights EXECUTIVE SUMMARY US Economy in a Snapshot, Q3 2019A CEIC Insights Report 4 Risks to the forecast are mainly political. A major factor that might disrupt the US economy would be the uncertainty over the US-China trade relations, despite the presidents latest decision to delay the imposition of new tariffs. Another factor eventually affecting world trade and global economic activity might be a potential currency war amid the US presidents continuing remarks to trading partners about keeping their currencies artificially low. CEIC Leading Indicator (Long-term Trend=100) Source: CEIC Data EXECUTIVE SUMMARY US Economy in a Snapshot, Q3 2019 Purchasing Managers Index Recession ProbabilityA CEIC Insights Report Summary 5 Real gross domestic product (GDP) expanded by 2.3% y/y in Q2 2019, in line with expectations, down from 2.7% in the previous quarter. The slowdown reflects positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, non-residential fixed investment and residential fixed investment. The finance and insurance industry, which accounted for 22% of total GVA, grew at 4.3% y/y, decelerating marginally from its performance in Q1, while the business and professional services industry, and the government sector . The industrial and production index (IPI) growth measuring real output in manufacturing has indicated small increases in industrial activity, ranging from 0.74% to 3.29% since the beginning of 2019. In Q2 2019 headline inflation measured by the Personal Consumption Expenditures price index (PCE) generally remained below the limits prescribed by the US neutral monetary policy. It trended downward in the second quarter after reaching a peak of 1.5% in April. Inflation has generally remained below the prescribed range over the last twelve months. Fed lowered the overnight lending rate, also known as fed funds rate once to 2.25% on July 31. In the last several months the economy has been operating at full employment and relatively low inflation levels which supported the arguments for lowering. One or two more rate cuts by year end, appear more likely now. Fiscal deficit was USD 8.48bn in June 2019, down 88.7% y/y. Revenues were USD 333.95bn, up 5.6% y/y, and outlays amounted to USD 342.43bn, down 12.5% y/y. The total US debt changed little in Q2 2019, with total amount of federal debt down by 0.02% against end-Q1, and amounted to a little more than USD 22tn. Treasury yields, however, are still close to record low levels. Total trade deficit in Q2 increased compared to Q1 and stood at USD 221.67bn, up 8.9% y/y due to both higher imports and a slight drop in exports. The main trading partners remain China, Germany, Japan and neighbouring Mexico and Canada, all running relatively large surpluses in mutual trade with the US. Tariffs did not significantly affect the balance, amount and sector composition of the US foreign trade. EXECUTIVE SUMMARY US Economy in a Snapshot, Q3 2019A CEIC Insights Report 6 US Economy: Statistics at a Glance Source: CEIC Data EXECUTIVE SUMMARY US Economy in a Snapshot, Q3 2019 Unit 09/01/2019 08/01/2019 07/01/2019 06/01/2019 05/01/2019 04/01/2019 Real GDP: YoY: sa % 2.28 Industrial Production Index: YoY % 0.31 0.38 1.04 1.58 0.56 House Prices: YoY % 5.46 Consolidated Fiscal Balance: % of Nominal GDP % -4.37 Government Debt: USD mn USD mn 22,719,402 22,023,283 Unemployment Rate: sa % 3.50 3.70 3.70 3.70 3.60 3.60 Monthly Earnings: USD: sa USD 3,865 3,867 3,840 3,840 3,828 3,818 Employed Persons: sa Person 158,269,000 157,005,000 Retail Sales: Value: YoY: sa % 3.49 3.62 3.24 3.01 3.94 Motor Vehicles Sales Unit 1312337.00 1688154.00 1443862.00 1554625.00 1628073.00 1372696.00 Consumer Price Index: YoY % 1.71 1.75 1.81 1.65 1.79 2.00 Producer Price Index: YoY % 1.37 1.80 1.71 1.72 2.07 2.42 Total Exports: YoY % -1.04 -0.63 -5.03 -2.07 -2.12 Total Imports: YoY % -2.93 0.92 -2.07 2.01 1.76 Current Account Balance: % of Nominal GDP % -2.58 Foreign Direct Investment: USD mn USD mn 82,278 Direct Investment Abroad: USD mn USD mn 95,566 Foreign Portfolio Investment: USD mn USD mn 167,492 M2: YoY % 5.38 5.13 4.74 4.26 4.03 Total Deposits: YoY % 5.15 4.91 5.06 4.76 4.53 Total Loans: YoY % 5.20 4.96 5.08 5.17 4.89 Household Debt: USD mn USD mn 13,860,000 Policy Rate: Month End: Effective Federal Funds Rate % pa 1.90 2.13 2.40 2.40 2.40 2.45 Electricity Generation GWh 411,024 351,685 328,124 295,119 Manufacturing PMI: Headline: sa NA 51.10 50.30 50.40 50.60 50.50 52.60 Services PMI: Headline: sa NA 50.90 50.70 53.00 51.50 50.90 53.00Source: A CEIC Insights Report 7 Real GDP Growth: QoQ Headline & Core Inflation CEIC Data EXECUTIVE SUMMARY US Economy in a Snapshot, Q3 2019 Initial Jobless Claims8 Real Sector Any redistribution of this information is strictly prohibited. Copyright 2019 CEIC, all rights reserved. A CEIC Insights Report 8 US Economy in a Snapshot, Q3 2019A CEIC Insights Report Real Sector 9 Real GDP increased by 2.3% y/y in the second quarter of 2019, compared to 2.7% in Q1 and 3.2% in Q2 2018. The slowdown reflects positive contributions from personal consumption expenditures (PCE), federal government spending, and state and local government spending that were partly offset by negative contributions from private inventory investment, exports, non-residential fixed investment and residential fixed investment. At the same time imports increased. Consumer spending grew by 4.3% and US government spendings contribution to GDP growth was 4.8% - the highest since 2009. Net exports subtracted 1.5% from GDP growth due to the persistently strong USD and the ongoing trade tensions with some of the major trading partners. Nominal GDP in Q2 stood at USD 21.3tn (seasonally adjusted at annualized rate) with PCE contributing roughly 67.9% of total. PCE increased by 1.6% q/q, following quarterly increases in both services and goods consumption. Gross private domestic investment declined by 1.4% q/q, following a drop in private inventories and a small upward revision in fixed investment. The impending slowdown makes companies more prone to rely on inventories and less likely to increase investment in fixed assets, which is absolutely in line with the late stage of the business cycle. The finance and insurance industry made up 22% of total GVA, the share remaining unchanged compared to the previous quarter. It was followed by the business and professional services, and the government sectors with 13.5% and 12.94%, respectively. Out of the major industries, the largest annual growth in GVA was reported in wholesale trade (7.9%), scientific and technical services (6.33%) and professional and business services (5.96%). IPI growthhas indicated small increases in industrial activity, ranging from 0.74% to 3.29% since the beginning of 2019. Industrial activity trended downward from January 2019 until April, recovered slightly in May, and went down again in June. Major economic indicators generally point that the US GDP growth is decelerating to a long-term trend, which justified the July fed funds rate cut and is likely to lead to two more cuts by end-2019 as indicated by the US treasury yield curve. If, however, growth settles to a long-run average, certain doubts appear as to how efficient these cuts would be in spurring consumption and growth, and whether they might actually lead to asset price bubbles instead. Retail sales remained strong and trended upward since the beginning of the year, with total retail June sales up by 0.4% m/m. This increase reflects growth in the sales of automobiles and motor vehicles and parts, home building materials and health and personal care stores, partly offset by a fall in gasoline retail sales. The Johnson Redbook Sales Index, which measures the weekly sales of about 9,000 large merchandise retailers across the US, grew by 5% y/y or more in each week since mid-April and dropped below 5% only in the second and third weeks of July when the readings were 4.7% and 4.9%, respectively. Both consumer sentiment and consumer expectations kept their upward trend since the beginning of the year, after reaching a temporary bottom in December 2018. REAL SECTOR US Economy in a Snapshot, Q3 2019Source: A CEIC Insights Report 10 CEIC Data REAL SECTOR US Economy in a Snapshot, Q3 2019 Nominal GDP & Real GDP Growth Despite the impending slowdown, the US economy continues to operate relatively strongly compared to the rest of the developed world, at levels close to full employment. Unemployment stood at 3.6% in both April and May, which is its lowest level over the last 24 months, and grew only partially in June to 3.7% which is a level also lower than any of the levels recorded over the 24 months before April. Weekly jobless claims in the 12 weeks to June remained at a level close to their 18-month average. Average hourly earnings also kept their upward trend since the beginning of the year, in line with the relatively strong economic performance amid full employment. Average monthly increases between January and June, ranging between 0.11% and 0.36%, remained slightly lower than last years average. Average hourly earnings in June were highest in petroleum and coal industry, followed by utilities and information. Meanwhile housing prices have concluded their upward momentum in Q1 2019, with median housing price down 11.4% q/q. The second quarter of the year saw little change in median housing prices. Positive developments are likely in case of additional rate cuts by year end. Median rent has remained stable in the past two quarters at levels above last years average, and a persistent fall in the price-to-rent ratio would indicate a continuing cooling of the economySource: A CEIC Insights Report 11 GDP by Expenditure: saar CEIC Data REAL SECTOR US Economy in a Snapshot, Q3 2019 Unit 06/01/2019 03/01/2019 12/01/2018 09/01/2018 06/01/2018 03/01/2018 Gross Domestic Product: saar USD bn 21,340 21,099 20,898 20,750 20,510 20,163 GDP: saar: Personal Consumption Expenditures USD bn 14,511 14,266 14,212 14,115 13,940 13,728 GDP: saar: PCE: Services USD bn 10,004 9,869 9,813 9,717 9,577 9,430 GDP: saar: PCE: Goods USD bn 4,507 4,398 4,399 4,398 4,363 4,299 GDP: saar: Gross Private Domestic Investment (GPDI) USD bn 3,749 3,783 3,725 3,684 3,562 3,542 GDP: saar: GPDI: Fixed Investment (FI) USD bn 3,675 3,670 3,625 3,597 3,572 3,501 GDP: saar: GPDI: Change in Private Inventories USD bn 75 113 100 87 -10 41 GDP: saar: Net Exports of Goods and Svcs (NE) USD bn -663 -634 -684 -671 -568 -629 GDP: saar: NE: Exports USD bn 2,504 2,520 2,511 2,510 2,544 2,477 GDP: saar: NE: Imports USD bn 3,167 3,154 3,195 3,182 3,112 3,106 GDP: saar: Govt Consumption Expenditures & Gross Inv (GCI) USD bn 3,742 3,683 3,645 3,623 3,577 3,521 GDP: saar: GCI: Consumption Expenditures USD bn 3,008 2,968 2,949 2,929 2,890 2,849 GDP: saar: GCI: Gross Investment USD bn 734 715 695 694 687 673 GDP: saar: GCI: Federal USD bn 1,415 1,395 1,372 1,359 1,340 1,318 GDP: saar: GCI: Federal: Consumption Expenditures USD bn 1,110 1,092 1,073 1,068 1,053 1,034 GDP: saar: GCI: Federal: Gross Investment USD bn 305 303 299 291 288 284 GDP: saar: GCI: State and Local (SL) USD bn 2,327 2,288 2,273 2,264 2,237 2,203 GDP: saar: GCI: SL: Consumption Expenditure USD bn 1,898 1,876 1,876 1,861 1,838 1,815Source: A CEIC Insights Report 12 GDPNow Forecast: QoQ Growth Personal Cons Expenditure & Private Domestic Fixed Investment (Real QoQ Growth) CEIC Data REAL SECTOR US Economy in a Snapshot, Q3 2019 Government Cons Expenditure & Gross Investment (Real QoQ GrowthSource: A CEIC Insights Report 13 GDP: Exports of Goods & Services (Real QoQ Growth) Industrial Production Index: YoY Growth CEIC Data REAL SECTOR US Economy in a Snapshot, Q3 2019 GD