1

Analysis. Answers.

Analysis. Answers

Beacon Economics, LLC

The Economic OutlookNovember 2016

Christopher ThornbergFounding Partner, Beacon Economics

Director, UC Riverside Center for Forecasting and Development

Trumped! What does it mean for the economy?

Analysis. Answers.

The shocker!

2

The Perils of Political Forecasts

Nate Silver 538, Tuesday November 8

2

Analysis. Answers.

The Anger of the Electorate

• American families haven’t had a raise in 15 years• Domestic secular stagnation / declining

productivity • Excessive taxes and regulations• US manufacturing output decimated by trade

agreements• Federal debt levels out of control• Crime on the rise, inner cities in decline• Undocumented migrants stealing US jobs• Income inequality at record high levels• The Fed holding rates “dangerously” low, fears of

inflation• Technology, real estate, bond, stock, (choose your

favorite asset category) bubble brewing

3

Analysis. Answers.

Word of the Day

MiserabilismThe philosophy of pessimism – or –

Trying really hard to convince everyone that things are really bad when, in reality, they aren’t.

3

Analysis. Answers.

The RealityThe Reality

• GDP is growing slower than we like, but it is growing

• Fundamentals are fine, there was no chance of recession at this point in time

• U.S.: 5% of the world’s population, 20% of the world’s consumption

• Trade has been, on net, good for the US• Real incomes have been rising, true

well-being even more so• Labor markets are strong• Housing still in recovery mode• Inflation slow, commodities cheap• There is no financial bubble (yet)

The real issues• Slow growth due in part to self-inflected

wounds and political gridlock• Global economy weak, particularly Asia• State and Local budgets still stressed • Decaying Infrastructure driven by a lack

of investment• The commodity bust• State water, revenue and housing

policies• Bad Financial Regulations (Dodd-Frank)• The growing crisis in pensions and

entitlements• Growing Wealth Inequality

5

Analysis. Answers.

Short Run GDP Growth

6

-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

6.00

GDP and Final Demand Growth (SAAR)

GDP Final Demand

Annual Averages 13-14 14-15 15-16

GDP 2.95 2.23 1.50

Final Demand 3.15 3.04 1.69

Consumption 2.16 2.11 1.75

Goods 0.98 0.90 0.68

Services 1.18 1.22 1.07

Gross investment 0.77 0.65 -0.44

Structures 0.22 -0.11 -0.09

Equipment 0.57 0.12 -0.27

Intellectual property 0.17 0.18 0.21

Residential 0.07 0.43 0.04

Change inventories -0.25 0.04 -0.33

Net exports 0.06 -0.85 0.14

Exports 0.65 -0.04 0.24

Imports -0.59 -0.80 -0.10

Government -0.06 0.32 0.06

Federal -0.09 -0.06 0.08

State and local 0.03 0.38 -0.01

4

Analysis. Answers.

In Consumers We Trust

7

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Y-o-Y Growth Real Consumer Spending

Goods Services

-3

-2

-1

0

1

2

3

4

5

6

2006

I

2007

I

2008

I

2009

I

2010

I

2011

I

2012

I

2013

I

2014

I

2015

I

2016

I

Growth in Real Disposable Incomes (smoothed)

Analysis. Answers.

Labor Markets

8

15-16 13-15 DiffManufacturing -47.0 140.0 -187.0

Logistics 42.6 179.4 -136.8

Mining -107.3 -38.3 -69.1

Leisure 366.0 434.0 -68.0

Construction 218.0 275.5 -57.5

Admin 220.9 256.0 -35.1

Information 8.0 28.5 -20.5

Wholesale 60.1 62.0 -1.9

Education 71.7 55.1 16.6

Other 90.0 61.5 28.5

Finance 166.0 124.5 41.5

Government 145.0 95.0 50.0

Professional 312.1 259.3 52.8

Retail 316.6 262.3 54.4

Health 536.0 469.4 66.6

Sum 2447.7 2719.8 -272.1

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

0

50

100

150

200

250

300

Jan

-11

Sep

-11

May

-12

Jan

-13

Sep

-13

May

-14

Jan

-15

Sep

-15

May

-16

Payroll Employment Trends

Smoothed Change Y-o-Y Growth

5

Analysis. Answers.

Labor Markets

9

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Unemployment Rate

U3 U6

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

Dec

-00

Ap

r-02

Au

g-03

Dec

-04

Ap

r-06

Au

g-07

Dec

-08

Ap

r-10

Au

g-11

Dec

-12

Ap

r-14

Au

g-15

Job Opening Rate (National)

Analysis. Answers.

Participation Rates

10

59.0%

60.0%

61.0%

62.0%

63.0%

64.0%

65.0%

66.0%

67.0%

68.0%

Jan

-96

Sep

-97

May

-99

Jan

-01

Sep

-02

May

-04

Jan

-06

Sep

-07

May

-09

Jan

-11

Sep

-12

May

-14

Jan

-16

Participation RateMen Women

1995 2015 Diff 1995 2015 Diff

16 years and over 75.0% 69.0% -5.9% 58.9% 56.7% -2.3%

16 to 19 years 54.8% 34.2% -20.6% 52.2% 34.4% -17.8%

20 to 24 years 83.1% 73.0% -10.1% 70.3% 68.3% -2.0%

25 to 34 years 93.0% 88.8% -4.2% 74.9% 73.4% -1.6%

35 to 44 years 92.3% 90.3% -2.0% 77.2% 74.3% -2.9%

45 to 54 years 88.8% 85.9% -2.9% 74.4% 73.4% -1.0%

55 to 64 years 66.0% 69.8% 3.8% 49.2% 58.5% 9.3%

65 years and over 16.8% 23.4% 6.6% 8.8% 15.3% 6.5%

No High School 54.0% 58.3% 4.3% 29.6% 32.3% 2.7%

High School 76.6% 67.2% -9.4% 56.6% 47.6% -9.0%

Some College 82.2% 73.1% -9.1% 68.4% 61.1% -7.3%

Bachelor Plus 85.1% 79.0% -6.1% 75.3% 70.2% -5.1%

6

Analysis. Answers.

Local Economic Performance

11

15 16Ch 15 16Ch 15 16Ch

Alaska 6.5 6.9 0.4 Wyoming 4.3 5.3 1 Iowa 3.6 4.2 0.6

New Mexico 6.5 6.7 0.2 Missouri 4.6 5.2 0.6 Maryland 5.1 4.2 -0.9

Louisiana 6 6.4 0.4 Oklahoma 4.2 5.2 1 Maine 4.2 4.1 -0.1

DC 6.7 6.1 -0.6 Georgia 5.6 5.1 -0.5 Wisconsin 4.6 4.1 -0.5

Mississippi 6.4 6 -0.4 Kentucky 5.4 5 -0.4 Arkansas 5 4 -1

Nevada 6.6 5.8 -0.8 New York 5 5 0 Minnesota 3.6 4 0.4

West Virginia 6.6 5.8 -0.8 South Carolina 5.5 4.9 -0.6 Virginia 4.2 4 -0.2

Pennsylvania 4.9 5.7 0.8 Ohio 4.6 4.8 0.2 Idaho 4.1 3.8 -0.3

Rhode Island 5.6 5.6 0 Texas 4.5 4.8 0.3 Colorado 3.6 3.6 0

Washington 5.7 5.6 -0.1 Florida 5.1 4.7 -0.4 Massachusetts 4.8 3.6 -1.2

Arizona 5.9 5.5 -0.4 North Carolina 5.7 4.7 -1 Utah 3.5 3.4 -0.1

California 6 5.5 -0.5 Michigan 5.1 4.6 -0.5 Hawaii 3.4 3.3 -0.1

Illinois 5.9 5.5 -0.4 Tennessee 5.6 4.6 -1 Vermont 3.7 3.3 -0.4

Oregon 5.7 5.5 -0.2 Indiana 4.5 4.5 0 Nebraska 3 3.2 0.2

Alabama 6.1 5.4 -0.7 Kansas 4 4.4 0.4 North Dakota 2.7 3 0.3

Connecticut 5.3 5.4 0.1 Delaware 4.9 4.3 -0.6 New Hampshire 3.3 2.9 -0.4

New Jersey 5.2 5.3 0.1 Montana 4.1 4.3 0.2 South Dakota 3.1 2.9 -0.2

Analysis. Answers.

Standard of Living?

12

$50,000

$60,000

$70,000

$80,000

$90,000

$100,000

1980

1984

1988

1992

1996

2000

2004

2008

2012

Real Mean Household Incomes

Census Cash BEA Disposable

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

19

85

Q1

19

86

Q4

19

88

Q3

19

90

Q2

19

92

Q1

19

93

Q4

19

95

Q3

19

97

Q2

19

99

Q1

20

00

Q4

20

02

Q3

20

04

Q2

20

06

Q1

20

07

Q4

20

09

Q3

20

11

Q2

20

13

Q1

20

14

Q4

Real GDP Growth Y-o-Y

7

Analysis. Answers.

Household Wealth

13

Real Net Worth

1989 2001 2013

Mean Net Worth by Percentile of Net Worth

Less than 25

-$1.0 $0.1 -$13.0

25–49.9 $41.8 $58.4 $35.9

50–74.9 $162.2 $219.9 $177.7

75–89.9 $411.6 $594.0 $546.3

90–100 $2,294 $3,631 $3,962

2015 2015-2025 2025-2035

Total 321,369 25,966 8.1% 23,003 6.6%

<18 years 73,635 1,380 1.9% 2,431 3.2%

18 to 24 31,214 (478) -1.5% 154 0.5%

25 to 44 84,657 8,772 10.4% 3,552 3.8%

45 to 64 84,032 (1,797) -2.1% 3,553 4.3%

65 years+ 47,830 18,090 37.8% 13,313 20.2%

85 years+ 6,304 1,178 18.7% 4,427 59.2%

Population Growth Projections

Analysis. Answers.

Healthcare

14

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

18.0%

20.0%

196

0

198

0

200

0

200

1

200

3

200

5

200

7

200

9

201

1

201

3

National Health Spending % GDP

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

Jan

-90

No

v-93

Sep

-97

Jul-

01

May

-05

Mar

-09

Jan

-13

Healthcare Employment % Total

Switzerland 9,673Norway 9,522USA 9,402Sweden 6,807Denmark 6,463Australia 6,031Netherlands 5,693Austria 5,580Germany 5,410Canada 5,291France 4,959Belgium 4,884Finland 4,612United Kingdom 3,934Japan 3,703

Per Capita Spending on Healthcare

8

Analysis. Answers.

The Obama-care situation

15

Percent of Workers Covered by Their Employer’s Health Benefits*

Firm Size 2016 200610-Yr. Chg.

Small Firms (3 - 199 Workers) 44% 53% -9%

Large Firms (200 or more

workers) 61% 63% -2%

All Firms 55% 59% -4%

2015 09-15 Change

< 18 Public 31,322 4,024Private 38,636 -2,055Uninsured 3,534 -2,835

18-34 Public 15,384 4,611Private 45,897 6,467Uninsured 12,061 -7,536

35-64 Public 25,671 5,283Private 83,739 4,086Uninsured 13,771 -5,570

65+ Public 44,731 7,913Private 1,314 558Uninsured 392 34

Total Public 117,107 21,831Private 169,586 9,055Uninsured 29,758 -15,907

Analysis. Answers.

Manufacturing

16

0%

2%

4%

6%

8%

10%

12%

14%

16%

18%

20%

Feb

-82

Ap

r-8

4

Jun

-86

Au

g-8

8

Oct

-90

Dec

-92

Feb

-95

Ap

r-9

7

Jun

-99

Au

g-0

1

Oct

-03

Dec

-05

Feb

-08

Ap

r-1

0

Jun

-12

Au

g-1

4Manufacturing Share Total

Employment

95

115

135

155

175

195

215

235

19

85

19

87

19

89

19

91

19

93

19

95

19

97

19

99

20

01

20

03

20

05

20

07

20

09

20

11

20

13

20

15

Real VA Output

GDP Manufacturing

9

Analysis. Answers.

Industrial Production

17

95

97

99

101

103

105

107

109

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Industrial Production Index

70

71

72

73

74

75

76

77

78

79

80

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Jan

-16

Jul-

16

Capacity Utilization (%)

0

50

100

150

200

250

300

350

20

02

I

20

03

II

20

04

III

20

05

IV

20

07

I

20

08

II

20

09

III

20

10

IV

20

12

I

20

13

II

20

14

III

20

15

IV

Real Business Investment

Mining exploration

Transportation equipment

Other equipment

Analysis. Answers.

Commodities Production

18

0.00

20.00

40.00

60.00

80.00

100.00

120.00

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

IP (2012=100): Drilling Oil/Gas Wells to August

3000

4000

5000

6000

7000

8000

9000

10000

Daily Oil Production (000s Brls to September)

10

Analysis. Answers.

Oil Outlook

19

3,000

3,500

4,000

4,500

5,000

5,500

6,000

Dec

-13

Mar

-14

Jun

-14

Sep

-14

Dec

-14

Mar

-15

Jun

-15

Sep

-15

Dec

-15

Mar

-16

Jun

-16

Sep

-16

Uncompleted Wells

800000

900000

1000000

1100000

1200000

1300000

1400000

1500000

Jan

06

, 20

12

May

06

, 20

12

Sep

06

, 20

12

Jan

06

, 20

13

May

06

, 20

13

Sep

06

, 20

13

Jan

06

, 20

14

May

06

, 20

14

Sep

06

, 20

14

Jan

06

, 20

15

May

06

, 20

15

Sep

06

, 20

15

Jan

06

, 20

16

May

06

, 20

16

Sep

06

, 20

16

Crude Oil Stocks (excl SPR) Th BB

Analysis. Answers.

Global Environment

20

75

80

85

90

95

100

105

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

U.S. Dollar Broad Index, Real

100

105

110

115

120

125

130

135

140

Indexed Values: Real Exports and Imports

Exports Imports

11

Analysis. Answers.

Foreign Trade

21

Exports Imports Balance Share

Total, All $1,075 $1,621 -$546 100.0%

China $79 $337 -$258 15.4%

Canada $201 $207 -$6 15.1%

Mexico $172 $219 -$47 14.5%

Japan $46 $97 -$51 5.3%

Germany $37 $86 -$49 4.5%

Korea, South $31 $54 -$23 3.1%

UK $42 $40 $2 3.0%

France $23 $35 -$12 2.2%

India $15 $35 -$19 1.8%

Taiwan $19 $29 -$10 1.8%

Italy $12 $33 -$21 1.7%

Goods Trade (No Services)

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

19

72

I

19

75

IV

19

79

III

19

83

II

19

87

I

19

90

IV

19

94

III

19

98

II

20

02

I

20

05

IV

20

09

III

20

13

II

Nominal Trade Flows as % GDP

Total Trade % GDP Trade Gap % GDP

Analysis. Answers.

Chinese Output

22

-5.00

0.00

5.00

10.00

15.00

20.00

Jan

20

01

Mar

20

02

May

20

03

Jul 2

00

4

Sep

20

05

No

v 2

00

6

Jan

20

08

Mar

20

09

May

20

10

Jul 2

01

1

Sep

20

12

No

v 2

01

3

Jan

20

15

Mar

20

16

Y-o-Y Growth Industrial Production

0.00

50,000.00

100,000.00

150,000.00

200,000.00

250,000.00

China Imports and Exports (Nominal, $US)

12

Analysis. Answers.

China: External Dynamics

23

Analysis. Answers.

Trade with China

24

Exhibit 4: Share of China's Exports to the US Has Been Lower than inthe 2003-07 Period...

Source: CEIC, Morgan Stanley Research

Exhibit 5: ...but the US Has Remained China's Top Export Destination

Source: CEIC, Morgan Stanley Research

Exhibit 6: China's Top Ten Goods Exports to the US

Source: CEIC, Morgan Stanley Research

Exhibit 7: Top Ten Sectors That Are Most Exposed to US Demand

Source: CEIC, Morgan Stanley Research

Exhibit 8: Weak Correlation Between the Chinese and US StockMarkets

Source: Bloomberg, Morgan Stanley Research

Exhibit 9: The US Makes Up a Small Share of China's Inward FDI

Source: CEIC, Morgan Stanley Research

4

13

Analysis. Answers.

Corporate Taxes / Investment

25

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

19

80

I

19

82

II

19

84

III

19

86

IV

19

89

I

19

91

II

19

93

III

19

95

IV

19

98

I

20

00

II

20

02

III

20

04

IV

20

07

I

20

09

II

20

11

III

20

13

IV

20

16

I

Corporate Effective Tax Rate

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%

5.5%

6.0%

6.5%

7.0%

19

99

I

20

00

I

20

01

I

20

02

I

20

03

I

20

04

I

20

05

I

20

06

I

20

07

I

20

08

I

20

09

I

20

10

I

20

11

I

20

12

I

20

13

I

20

14

I

20

15

I

20

16

I

Investment (Real) Share of GDP

Structures Equipment IPP Residential

Analysis. Answers.

Housing Markets

26

4200

4400

4600

4800

5000

5200

5400

5600

5800

Jan

-13

May

-13

Sep

-13

Jan

-14

May

-14

Sep

-14

Jan

-15

May

-15

Sep

-15

Jan

-16

May

-16

Existing Home Sales (NAR)

-15.0%

-10.0%

-5.0%

0.0%

5.0%

10.0%

15.0%

20.0%

Jan

-97

Jan

-99

Jan

-01

Jan

-03

Jan

-05

Jan

-07

Jan

-09

Jan

-11

Jan

-13

Jan

-15

Y-o-Y Growth Home Prices (Case Shiller HPI to June)

US

14

Analysis. Answers.

Affordability and Prices

27

20.0%

22.0%

24.0%

26.0%

28.0%

30.0%

32.0%

34.0%

36.0%

38.0%

40.0%

Jun

-89

Mar

-91

Dec

-92

Sep

-94

Jun

-96

Mar

-98

Dec

-99

Sep

-01

Jun

-03

Mar

-05

Dec

-06

Sep

-08

Jun

-10

Mar

-12

Dec

-13

Sep

-15

Affordability: Median Price for Median HH, Tax Adjustment, DPI

Case Shill HPA Trends

14-15 15-16 14-15 15-16

OR-Portland 8.6% 12.5% NC-Charlotte 4.9% 5.4%

WA-Seattle 7.2% 11.2% NV-Las Vegas 6.2% 5.3%

CO-Denver 10.3% 9.5% AZ-Phoenix 4.6% 5.2%

TX-Dallas 8.8% 8.4% National-US 4.5% 5.1%

FL-Tampa 5.8% 7.8% MN-Minneapolis 3.8% 5.1%

FL-Miami 7.4% 7.1% Composite-20 5.0% 5.1%

CA-San Francisco 10.3% 6.1% MA-Boston 4.3% 4.3%

CA-San Diego 5.4% 6.0% IL-Chicago 1.4% 3.8%

CA-Los Angeles 6.0% 5.5% OH-Cleveland 2.8% 2.5%

MI-Detroit 5.3% 5.4% DC-Washington 1.3% 2.1%

GA-Atlanta 6.0% 5.4% NY-New York 2.2% 1.8%

Analysis. Answers.

SF Construction: Still Depressed

28

0

200

400

600

800

1000

1200

1400

1600

1800

2000

Jan

-06

Jan

-07

Jan

-08

Jan

-09

Jan

-10

Jan

-11

Jan

-12

Jan

-13

Jan

-14

Jan

-15

Jan

-16

Housing Starts (SAAR) to August

Single Family Multi Family

0

2

4

6

8

10

12

14

0

200

400

600

800

1000

1200

1400

1600

Jan

-02

Feb

-03

Mar

-04

Ap

r-0

5

May

-06

Jun

-07

Jul-

08

Au

g-0

9

Sep

-10

Oct

-11

No

v-1

2

Dec

-13

Jan

-15

Feb

-16

New Homes Sales

Sales Supply

15

Analysis. Answers.

Mortgage Impediments

29

0

100

200

300

400

500

600

700

03:Q

103

:Q4

04:Q

305

:Q2

06:Q

106

:Q4

07:Q

308

:Q2

09:Q

109

:Q4

10:Q

311

:Q2

12:Q

112

:Q4

13:Q

314

:Q2

15:Q

115

:Q4

Mortgage Credit Origination by Credit Score to Q2

< 720 720+

-800,000

-600,000

-400,000

-200,000

0

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

2010 2011 2012 2013 2014 2015

Change in US Households by Tenure from Previous Year (ACS)

Owned Rented

Analysis. Answers.

Rental Markets (REIS)

30

3

4

5

6

7

8

9

900

950

1000

1050

1100

1150

1200

1250

1300

Q1

-09

Q3

-09

Q1

-10

Q3

-10

Q1

-11

Q3

-11

Q1

-12

Q3

-12

Q1

-13

Q3

-13

Q1

-14

Q3

-14

Q1

-15

Q3

-15

Q1

-16

National Rental Markets

Rents Vacancy

0

10000

20000

30000

40000

50000

60000

Change in Rental Stock

16

Analysis. Answers.

Supply Dynamics

31

0

50

100

150

200

250

300

350

400

450

500

Jan

-98

May

-99

Sep

-00

Jan

-02

May

-03

Sep

-04

Jan

-06

May

-07

Sep

-08

Jan

-10

May

-11

Sep

-12

Jan

-14

May

-15

MF StartsSingle-Family Rentals

2005 2014 2015 05-15

US 11,316 15,195 15,178 3,861

Northeast 1,332 1,654 1,651 318

Midwest 2,342 3,137 3,128 786

South 4,626 6,178 6,214 1,588

West 3,016 4,226 4,185 1,169

Multi-Family Rentals

2005 2014 2015 05-15

US 23,697 26,077 26,532 2,836

Northeast 5,947 6,355 6,342 395

Midwest 4,730 5,138 5,227 498

South 7,290 8,297 8,547 1,257

West 5,731 6,286 6,416 685

Analysis. Answers.

What inning is it?

32

There is STILL no bubble… (at least not yet)

Why?1. Asset prices are being driven by

fundamentals, not speculation2. The global savings glut is driving

interest rates, not Fed policy3. Leverage is not a factor4. The real economy is in balance1800

1850

1900

1950

2000

2050

2100

2150

2-Ja

n-1

5

2-M

ar-1

5

2-M

ay-1

5

2-J

ul-

15

2-S

ep-1

5

2-N

ov-

15

2-Ja

n-1

6

2-M

ar-1

6

2-M

ay-1

6

S&P 500 Index

17

Analysis. Answers.

Profits and Investment

33

Profits to Q1

2016 Y-o-Y

I Gr

Corporate profits with IV 2,257 -4.0%

Nonfinancial 1,485 -3.4%

Other nonfinancial 398.1 2.5%

Motor vehicles 44 16.4%

Transportation 96 15.1%

Information 154 7.7%

Wholesale trade 179 5.7%

Food and beverage 75 -0.9%

Computer etc 70 -4.1%

Retail trade 181 -4.4%

Fabricated metal 27 -5.3%

Chemical products 90 -5.8%

Electrical etc 19 -6.1%

Machinery 22 -40.5%

Utilities 9 -64.3%

Petroleum and coal (8) -117.8%

5.0%

6.0%

7.0%

8.0%

9.0%

10.0%

11.0%

12.0%

13.0%

14.0%

15.0%

19

70

I

IV III II

19

81

I

IV III II

19

92

I

IV III II

20

03

I

IV III II

20

14

I

Share of National Income

Corporate Profits Proprietor Profits

Analysis. Answers.

Federal Budget

34

2014 2015 2016

I II

Current receipts 3,288 3,453 3,443 3,473

Current tax receipts 1,995 2,149 2,107 2,141 61.4%

Personal current taxes 1,402 1,533 1,521 1,537 43.9%

Taxes on production and imports 135 139 138 137 4.0%

Taxes on corporate income 437 455 425 445 12.9%

Taxes from the rest of the world 21 22 23 22 0.6%

Contributions for government social insurance 1,141 1,190 1,215 1,226 34.9%

Income receipts on assets 75 49 51 38 1.6%

Current transfer receipts 86 73 79 80 2.3%

Current surplus of government enterprises (8) (7) (10) (12) -0.3%

Current expenditures 3,901 4,023 4,111 4,137

Consumption expenditures 956 964 969 975 23.9%

Defense 600 591 586 591 14.6%

Current transfer payments 2,449 2,565 2,630 2,632 63.5%

Government social benefits 1,902 1,982 2,029 2,045 49.2%

Other current transfer payments 547 583 601 587 14.3%

Interest payments 441 438 454 472 11.2%

Subsidies 56 56 58 59 1.4%

Net lending or net borrowing (-) (660) (580) (715) (677)

18

Analysis. Answers.

Public Investments

35

050

100150200250300350400

199

9I III

200

2I III

200

5I III

200

8I III

201

1I III

201

4I III

Real Gross Investment: Non Defense

Structures

Equipment

Intellectual property products

0

20

40

60

80

100

199

9I III

200

2I III

200

5I III

200

8I III

201

1I III

201

4I III

Real Gross Investment: Defense

Structures

Equipment

Intellectual property products

Analysis. Answers.

Outstanding Debt

36

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

140.0%

19

80

Q1

19

82

Q1

19

84

Q1

19

86

Q1

19

88

Q1

19

90

Q1

19

92

Q1

19

94

Q1

19

96

Q1

19

98

Q1

20

00

Q1

20

02

Q1

20

04

Q1

20

06

Q1

20

08

Q1

20

10

Q1

20

12

Q1

20

14

Q1

20

16

Q1

Business Debt % GDP

Foreign Financial Business

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

19

80

Q1

19

82

Q1

19

84

Q1

19

86

Q1

19

88

Q1

19

90

Q1

19

92

Q1

19

94

Q1

19

96

Q1

19

98

Q1

20

00

Q1

20

02

Q1

20

04

Q1

20

06

Q1

20

08

Q1

20

10

Q1

20

12

Q1

20

14

Q1

20

16

Q1

Consumer / Gov % GDP

Consumer Federal State Local

19

Analysis. Answers.

Inflation / Money

37

0

2

4

6

8

10

12

1992

M1

1993

M11

1995

M9

1997

M7

1999

M5

2001

M3

2003

M1

2004

M11

2006

M9

2008

M7

2010

M5

2012

M3

2014

M1

2015

M11

M2 Growth (Y-o-Y) to August

-1.0%

-0.5%

0.0%

0.5%

1.0%

1.5%

2.0%

2.5%

3.0%

3.5%

4.0%

Jan

-96

May

-97

Sep

-98

Jan

-00

May

-01

Sep

-02

Jan

-04

May

-05

Sep

-06

Jan

-08

May

-09

Sep

-10

Jan

-12

May

-13

Sep

-14

Jan

-16

PCE Inflation

Core Total

Analysis. Answers.

And the Fed?

38

20

Analysis. Answers.

Who drives whom?

39

0.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

18.00

20.00

Jan

-74

Au

g-7

6

Mar

-79

Oct

-81

May

-84

Dec

-86

Jul-

89

Feb

-92

Sep

-94

Ap

r-9

7

No

v-9

9

Jun

-02

Jan

-05

Au

g-0

7

Mar

-10

Oct

-12

May

-15

Interest Rates

10-Year Fed Funds

1.00

1.50

2.00

2.50

3.00

3.50

1May13 1May14 1May15 1May16

10 Year Treasury, Daily

Analysis. Answers.

The Trump Factor

Positives

• Something will get done in Washington DC

• Institutions should be able to control worst impulses

• Infrastructure investment: stimulative

• Tax cuts: stimulative• Americans hate

Obamacare, but they tend to like the Affordable Care Act

Negatives

• Federal deficit likely to explode

• Potential for major trade war

• Corruption factor, personal baggage

• Backwards steps in immigration policies

• Backwards steps in environmental policies

40

21

Analysis. Answers. 41

Economic & Revenue Forecasting

Regional Intelligence Reports

Business & Market Analysis

Real Estate Market Analysis

Ports & Infrastructure Analysis

Economic Impact Analysis

Public Policy Analysis

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Contact Christopher ThornbergChris@BeaconEcon.com310-571-3399

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