Description
Raymond James
Economic Research
Lackluster growth in average hourly earnings is taken as
another sign of slack in the job market. Wage growth should
pick up as the labor market tightens. However, there may be
more slack in the job market than the Fed currently believes.
Labor force participation has fallen, but many on the periphery
(such as recent retirees and stay-at-home spouses) might be
lured back into the workforce if offered a decent wage.
Average Hourly Earnings, y/y % change, smoothed
2.5
2.0
2.0
1.5
1.5
1.0
1.0
nominal
0.5
real
130
0.0
0.0
125
Source: BLS
-0.5
Jan-13
-0.5
Jan-14
Jan-15
U.S. Dollar (December 31,2013 = 100)
135
0.5
stronger dollar
2.5
The dollar has strengthened considerably since mid-2014,
partly reflecting a shift in the central bank policy outlook
(tighter Fed, easier outside the U.S.).
The U.S. economy is still largely self-contained and the impact on foreign trade has appeared somewhat limited. However, trade data can be fickle and there may be significant lags (trade decisions don’t turn on a dime).
The strength of the dollar should be helpful for the economies of our largest trading partners. However, China’s currency has been more in line with the U.S. dollar over the last several months, and China’s decision to benchmark the yuan against a basket of global currencies (rather than against the dollar alone) suggests that a more significant depreciation of the yuan is likely in 2016 (although this is expected to occur gradually over the course of the year).
In short, there is a risk of a larger drag on GDP growth from net exports. 130 Mexican Peso 125 Canadian Dollar 120 Jan-16 The drop in gasoline prices has boosted consumer purchasing power, but did not provide as much to consumer spending growth in 2015 as might have been expected. Consumers are spending more money on food away from home (part of that is a longer-term trend, not just low gasoline prices). Upper income households don’t really care much about the price of gasoline, while lower income households tend to drive a lot less (not as likely to benefit from low gasoline prices). Middle income households are seeing other strains, including higher rents and healthcare costs.
Gasoline prices won’t fall forever, and we’ll need to see a pickup in nominal wage growth as the impact of low gas prices fades. 135 120 115 115 110 110 105 105 100 95 100 Chinese Yuan Source: Federal Reserve, Raymond James Jan-14 95 Jan-15 Jan-16 Still, the consumer sector appears to be in good shape. Housing is expected to recover further. Domestic economic growth should remain relatively strong and we currently see few signs of imbalances in the overall economy. GDP ( contributions) consumer durables nondurables & services bus. fixed investment residential investment Priv Dom Final Purchases government exports imports Final Sales ch.
in bus. inventories 4Q14 2.1 0.4 2.4 0.1 0.3 3.9 -0.3 0.7 -1.6 2.1 0.0 1Q15 0.6 0.1 1.0 0.2 0.3 2.0 0.0 -0.8 -1.1 -0.2 0.9 2Q15 3.9 0.6 1.9 0.5 0.3 3.9 0.5 0.6 -0.5 3.9 0.0 3Q15 2.1 0.5 1.6 0.3 0.2 3.1 0.3 0.1 -0.3 2.7 -0.6 4Q15 2.0 0.3 1.4 0.4 0.3 2.8 0.2 -0.3 -0.1 2.3 -0.2 1Q16 2.0 0.3 1.5 0.4 0.2 2.8 0.2 -0.3 -0.3 2.0 0.0 2Q16 2.4 0.3 1.5 0.4 0.2 2.7 0.2 0.1 -0.3 2.4 0.0 3Q16 2.5 0.3 1.5 0.4 0.2 2.7 0.3 0.2 -0.3 2.5 0.0 4Q16 2.4 0.3 1.4 0.4 0.2 2.6 0.2 0.2 -0.3 2.4 0.0 2014 2.4 0.4 1.4 0.1 0.3 3.2 -0.1 0.4 -0.6 2.4 0.1 2015 2.5 0.4 1.7 0.4 0.3 3.3 0.1 0.2 -0.8 2.3 0.2 2016 2.5 0.3 1.6 0.4 0.2 3.0 0.2 0.0 -0.3 2.4 -0.1 2017 2.4 0.2 1.4 0.4 0.2 2.6 0.2 0.2 -0.3 2.4 0.0 Unemployment, % NF Payrolls, monthly, th. 5.8 324 5.6 195 5.4 231 5.1 171 5.0 185 4.9 185 4.8 185 4.7 180 4.7 175 6.2 260 5.3 196 4.8 181 4.8 163 Cons. Price Index (q/q) excl.
food & energy PCE Price Index (q/q) excl. food & energy -0.9 1.5 -0.4 1.0 -3.1 1.7 -1.9 1.0 3.0 2.5 2.2 1.9 1.6 1.7 1.3 1.3 0.6 2.2 0.6 1.3 1.6 1.9 1.6 1.6 1.8 1.8 1.7 1.7 1.9 1.8 1.8 1.7 1.9 1.9 1.8 1.7 1.6 1.7 1.4 1.5 0.1 1.8 0.3 1.3 1.6 1.9 1.5 1.6 1.9 1.9 1.8 1.7 Fed Funds Rate, % 3-month T-Bill, (bond-eq.) 2-year Treasury Note 10-year Treasury Note 0.10 0.0 0.5 2.3 0.11 0.0 0.6 2.0 0.13 0.0 0.6 2.2 0.14 0.0 0.7 2.2 0.18 0.1 1.0 2.3 0.42 0.5 1.3 2.5 0.65 0.7 1.5 2.8 0.92 0.9 1.8 3.0 1.18 1.2 2.0 3.2 0.09 0.0 0.5 2.5 0.14 0.1 0.7 2.2 0.80 0.8 1.7 2.9 1.80 1.8 2.4 3.3 © 2015 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St.
Petersburg, Florida 33716 | 800-248-8863 2 .
The U.S. economy is still largely self-contained and the impact on foreign trade has appeared somewhat limited. However, trade data can be fickle and there may be significant lags (trade decisions don’t turn on a dime).
The strength of the dollar should be helpful for the economies of our largest trading partners. However, China’s currency has been more in line with the U.S. dollar over the last several months, and China’s decision to benchmark the yuan against a basket of global currencies (rather than against the dollar alone) suggests that a more significant depreciation of the yuan is likely in 2016 (although this is expected to occur gradually over the course of the year).
In short, there is a risk of a larger drag on GDP growth from net exports. 130 Mexican Peso 125 Canadian Dollar 120 Jan-16 The drop in gasoline prices has boosted consumer purchasing power, but did not provide as much to consumer spending growth in 2015 as might have been expected. Consumers are spending more money on food away from home (part of that is a longer-term trend, not just low gasoline prices). Upper income households don’t really care much about the price of gasoline, while lower income households tend to drive a lot less (not as likely to benefit from low gasoline prices). Middle income households are seeing other strains, including higher rents and healthcare costs.
Gasoline prices won’t fall forever, and we’ll need to see a pickup in nominal wage growth as the impact of low gas prices fades. 135 120 115 115 110 110 105 105 100 95 100 Chinese Yuan Source: Federal Reserve, Raymond James Jan-14 95 Jan-15 Jan-16 Still, the consumer sector appears to be in good shape. Housing is expected to recover further. Domestic economic growth should remain relatively strong and we currently see few signs of imbalances in the overall economy. GDP ( contributions) consumer durables nondurables & services bus. fixed investment residential investment Priv Dom Final Purchases government exports imports Final Sales ch.
in bus. inventories 4Q14 2.1 0.4 2.4 0.1 0.3 3.9 -0.3 0.7 -1.6 2.1 0.0 1Q15 0.6 0.1 1.0 0.2 0.3 2.0 0.0 -0.8 -1.1 -0.2 0.9 2Q15 3.9 0.6 1.9 0.5 0.3 3.9 0.5 0.6 -0.5 3.9 0.0 3Q15 2.1 0.5 1.6 0.3 0.2 3.1 0.3 0.1 -0.3 2.7 -0.6 4Q15 2.0 0.3 1.4 0.4 0.3 2.8 0.2 -0.3 -0.1 2.3 -0.2 1Q16 2.0 0.3 1.5 0.4 0.2 2.8 0.2 -0.3 -0.3 2.0 0.0 2Q16 2.4 0.3 1.5 0.4 0.2 2.7 0.2 0.1 -0.3 2.4 0.0 3Q16 2.5 0.3 1.5 0.4 0.2 2.7 0.3 0.2 -0.3 2.5 0.0 4Q16 2.4 0.3 1.4 0.4 0.2 2.6 0.2 0.2 -0.3 2.4 0.0 2014 2.4 0.4 1.4 0.1 0.3 3.2 -0.1 0.4 -0.6 2.4 0.1 2015 2.5 0.4 1.7 0.4 0.3 3.3 0.1 0.2 -0.8 2.3 0.2 2016 2.5 0.3 1.6 0.4 0.2 3.0 0.2 0.0 -0.3 2.4 -0.1 2017 2.4 0.2 1.4 0.4 0.2 2.6 0.2 0.2 -0.3 2.4 0.0 Unemployment, % NF Payrolls, monthly, th. 5.8 324 5.6 195 5.4 231 5.1 171 5.0 185 4.9 185 4.8 185 4.7 180 4.7 175 6.2 260 5.3 196 4.8 181 4.8 163 Cons. Price Index (q/q) excl.
food & energy PCE Price Index (q/q) excl. food & energy -0.9 1.5 -0.4 1.0 -3.1 1.7 -1.9 1.0 3.0 2.5 2.2 1.9 1.6 1.7 1.3 1.3 0.6 2.2 0.6 1.3 1.6 1.9 1.6 1.6 1.8 1.8 1.7 1.7 1.9 1.8 1.8 1.7 1.9 1.9 1.8 1.7 1.6 1.7 1.4 1.5 0.1 1.8 0.3 1.3 1.6 1.9 1.5 1.6 1.9 1.9 1.8 1.7 Fed Funds Rate, % 3-month T-Bill, (bond-eq.) 2-year Treasury Note 10-year Treasury Note 0.10 0.0 0.5 2.3 0.11 0.0 0.6 2.0 0.13 0.0 0.6 2.2 0.14 0.0 0.7 2.2 0.18 0.1 1.0 2.3 0.42 0.5 1.3 2.5 0.65 0.7 1.5 2.8 0.92 0.9 1.8 3.0 1.18 1.2 2.0 3.2 0.09 0.0 0.5 2.5 0.14 0.1 0.7 2.2 0.80 0.8 1.7 2.9 1.80 1.8 2.4 3.3 © 2015 Raymond James & Associates, Inc., member New York Stock Exchange/SIPC. All rights reserved. International Headquarters: The Raymond James Financial Center | 880 Carillon Parkway | St.
Petersburg, Florida 33716 | 800-248-8863 2 .
