hosted by: james hotchkiss director, member strategy and ... · • weekly interest rate...

Hosted by: James Hotchkiss Director, Member Strategy and Solutions Date: September 12, 2019

Contacts

Federal Home Loan Bank of Chicago | Member owned. Member focused. 2

James Hotchkiss Director, Member Strategy and Solutions [email protected] 312-565-5691 Twitter: @econ_james_

Melissa Deven Director, Member Strategy and Solutions [email protected] 312-552-2717 Twitter: @econ_melissa_

Discussion Topics


• Weekly Interest Rate Comparisons

• Economic Data Releases

• August Employment

• Preview of the Coming Week

• Q and A

Weekly Interest Rate Movements For the Week Ending 09/12/2019


U.S. Treasury Yields

9/12/19 9/5/19

3mo 1.94% 1.95%

2yr 1.66% 1.50%

5yr 1.59% 1.39%

10yr 1.72% 1.53%

FHLBank Chicago Advance Rates

9/12/19 9/5/19

3mo 2.15% 2.15%

2yr 1.85% 1.71%

5yr 1.79% 1.62%

10yr 2.13% 2.00%

Source: U.S. Treasury, FHLBank Chicago

Federal Reserve Interest Rate Probability For the Week Ending 09/12/2019

There is a 0.00% probability of a rate hike in 2019. Following the rate cut in July, the market implied probability of an additional rate cut of at least 25 bps occurring in September 2019 is 100%. The probability of a third rate cut in December 2019 is 83.04%, as of this week.

Federal Home Loan Bank of Chicago | Member owned. Member focused.

Source: Bloomberg

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100.00%

83.04%

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Sep-19Aug-19Jul-19Jun-19May-19Apr-19Mar-19Mar-19Feb-19Jan-19

Federal Reserve Interest Rate Probability Probability of a 25 Basis Point Cut

Second Cut: September 2019Third Cut: December 2019

U.S. Economic Data Releases For the Week Ending 09/12/2019


Producer Price Index (PPI) Final Demand August: 0.1% vs. July: 0.2%. • Increased 0.1% in August, beating expectations. The rise is attributable to a 0.3% increase in the index for final demand services. This was offset by a 0.5% decrease in prices for final demand goods. The final demand index has increased 1.8% year-over-year.

Core PPI Final Demand August: 0.4% vs. July: -0.1% • Excluding food and energy, prices rose 0.4% in August, similarly beating expectations. The core index is up 1.9% year-over-year.

Source: Bureau of Labor Statistics

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Producer Price Index (MoM) Producer Price Index (YoY)

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Core PPI (MoM) Core PPI (YoY)



Consumer Price Index (CPI) August: 0.1% vs. July: 0.3%

• Rose 0.1% in August, in line with expectations. The gasoline index fell 3.5% while the energy fell 1.9%. The food index remained unchanged for the third consecutive month. On a year-over-year basis, CPI is up 1.7%.

Core CPI August: 0.3% vs. July: 0.3%

• Excluding food and energy, the index rose 0.3% in August. Supporting the increase, shelter prices rose 0.2%, medical care services rose 0.9% and airline fares increased 1.7%. On a year-over-year basis, core CPI increased 2.4%.


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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Consumer Price Index (MoM) Consumer Price Index (YoY)

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Core CPI (MoM) Core CPI (YoY)



ADP Employment August: 195K vs. July: 156K

• Rose by 195K in August, surpassing expectations of a 148K growth. The largest growth was seen in midsized businesses, with an increase of 77K, while small business employment increased by 66K and large business employment increased by 52K.

Small Business Optimism August: 103.1 vs. July: 104.7

• Declined 1.6 points to 103.1 in August. Six of ten components that make up the index declined month-over-month, three improved, and one remained unchanged. 27% of small business owners reported finding qualified workers as their primary business problem.

Source: ADP, NFIB

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Small Business Optimism Index

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ADP Employment Change



Initial Jobless Claims September 7: 204K vs. August 31: 219K

• Decreased by 15K to 204K in the week ending September 7. The previous week was upwardly revised by 2K to 219K. As a result, the 4-week moving average decreased by 4.25K to 212.5K.

Continuing Claims August 31: 1,670K vs. August 24: 1,674K

• Decreased by 4K to 1,670K in the week ending August 31. The prior week was upwardly revised by 12K to 1,674K. As a result, the 4-week moving average decreased by 14.5K to 1,680.25K. The insured unemployment rate remained unchanged at 1.2%.

Source: Department of Labor

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2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Initial Claims

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7,000

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Continuing Claims

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August Non-Farm Payroll Report

• The Bureau of Labor Statistics released August’s Non-Farm Payroll Report. Payrolls rose by 130K, falling short of consensus expectations of 160K growth. – The unemployment rate was little changed at 3.7%. – Employment growth by industry was greatest in the federal

government, largely reflecting the hiring of temporary workers for the 2020 census.

– Notable gains also occurred in health care and financial activities. – Average hourly earnings rose 0.4% month-over-month and are 3.2%

higher year-over-year. – The labor force participation rate edged up 0.3% to 63.2%.

• Payrolls in July were downwardly revised from 164K to 159K. Payrolls in June were also downwardly revised from 193K to 178K. Employment gains in June and July were 20K less than previously reported.




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August Non-Farm Payroll Report Goods and Service Payrolls Increase

The private service-providing sector increased by 84K jobs in August compared to 133K in July. Employment in the government sector increased by 34K after increasing 28K in the prior month. The goods-producing sector rose by just 12K.


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Non-Farm Payrolls (NFP) Changes by Industry In Thousands

Goods-Producing Private Service-Providing Government Total NFP


August Non-Farm Payroll Report Payrolls by Sector


Most payroll sectors increased in August. Professional Services rose the most, increasing 37K month-over-month. Professional Services and Government rose by 37K and 34K, respectively. Retail Trade decreased the most at 11K while Mining and Logging decreased 5K.

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(20.00) (10.00) - 10.00 20.00 30.00 40.00

Retail Trade

Mining and Logging

Other Services

Transport and Warehouse

Information

Wholesale Trade

Manufacturing

Leisure and Hospitality

Construction

Financial Services

Education and Healthcare

Government

Professional Services

Non-Farm Payroll Change By Sector: August 2019 Thousands of Jobs

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August Non-Farm Payroll Report 3-Month and 6-Month Moving Averages Rise

Both the 3-month and 6-month moving averages rose in August. The 3-month moving average increased by 23K to 156K, while the 6-month increased 12K to 150K.



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Non-Farm Payrolls Trend Thousands, 3- and 6-Month Moving Averages

3-Month Moving Average 6-Month Moving Average

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August Non-Farm Payroll Report Unemployment Rate and Labor Force Participation Rate

The unemployment rate remained unchanged at 3.7% in August. The labor force participation rate, which includes underemployed and discouraged workers, climbed up 0.3% to 63.2% in August.



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Unemployment Rate vs. Labor Force Participation Rate in Percentage

Unemployment Rate Labor Force Participation Rate

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August Non-Farm Payroll Report Job Openings and Unemployment Remain Relatively Flat

The number of job openings was little changed at 7.2M in July. The number of unemployed also remained relatively unchanged at 6.0M in August. The number of job openings still remains above the number of unemployed persons. Job openings initially passed unemployed persons in March 2018.



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Job Openings vs. Unemployment In Millions

Unemployed Persons Openings

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August Non-Farm Payroll Report Full-Time and Part-Time Workers Rise

The number of full-time workers increased by 360K to 130.8M in August. Part-time workers also increased by 113K in August to 26.9M.



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U.S. Workers: Part-Time vs. Full-Time In Millions of People

U.S. Full-Time (Left Axis) U.S. Part-Time (Right Axis)

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August Non-Farm Payroll Report Average Hourly Earnings Surpass Expectations

Average hourly earnings increased 0.4% month-over-month, surpassing expectations of a 0.3% increase. Year-over-year, average hourly earnings have increased 3.2% in August, unchanged from July.



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August Non-Farm Payroll Report Openings Remain Unchanged

Within the components in the Job Openings and Labor Turnover Survey (JOLTS), openings remained unchanged, while hires and separations increased slightly in July. Openings remained flat at 7.2M; hires increased to 6.0M; and separations increased to 5.8M. Layoffs and discharges were mostly unchanged at 1.8M, while quits edged higher to and 3.6M.



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Job Openings, Hires, and Separations Millions of Jobs

Hires Separations Openings Layoffs and Discharges

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August Non-Farm Payroll Report Quits and Layoffs Edge Higher

The steady rise in the number of workers quitting their jobs is an underlying sign of strength in the labor market. Quits edged higher by 130K to 3.6M while layoffs remained relatively flat at 1.8M. While quits have moved lower in the past several months, the level remains historically high and continues to suggest that people are more confident they can find other opportunities.



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August Non-Farm Payroll Report Is the Quits Rate a Leading Indicator of Average Hourly Earnings?

Average hourly earnings have been steadily increasing since 2014. Earnings rose 0.4% in August, and have increased 3.2% year-over-year. As the labor market continues to tighten, wages may continue to increase, leading to more people voluntarily quitting their jobs.



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Average Hourly Earnings and Quits Rate

Average Hourly Earnings Quits 3-Month Moving Average, 1 Year Lead

Summary: • Payrolls increased by 130K in August, following net revisions to June and

July payrolls, resulting in a 20K net decrease. • Both the 3-month and 6-month moving averages increased in August. • The unemployment rate remained unchanged at 3.7% in August. • Hourly earnings increased 0.4% month-over-month and are 3.2% higher

from one year ago.

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August Non-Farm Payroll Report




This and That

Source: Wall Street Journal

According to an article published in The Wall Street Journal on a recent study by the U.S. Census Bureau, American incomes remained essentially flat in 2018 after three straight years of growth. The report found that median household income was $63,179 in 2018, an uptick of 0.9%.

The article reported that income growth over the past decade hasn’t been as strong as some economists would have expected given the tightness of the U.S. labor market. According to Carl Tannenbaum, chief economist for Northern Trust, “part of the reason is employers have become more adept at holding down wages by using technology, and consolidation in industries such as telecommunications and banking also has damped income growth.”

The report showed little change in the overall distribution of income, but it showed a gain for the second-lowest fifth of all households. The bottom fifth of households—with incomes up to $25,600—accounted for 3.1% of all household income last year. The top fifth of households, which had incomes topping $130,000, collected 52%. The top 5%, with incomes above $248,700, collected 23.1%.


Prior to the weekend, economic data will be released on Retail Sales, the Import Price Index, Business Inventories, and Consumer Sentiment. Next week economic data will be released on Industrial Production, the NAHB Housing Market Index, Housing Starts, and the Philadelphia Fed Outlook. All eyes will be focused on the FOMC Rate Decision next Wednesday.

Economic Data Release Calendar September 2019

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2 Labor Day 3 4 5 6

9 10 11 12 13

16 17 18 19 20

23 24 25 26 27

30 Notes:

Dallas Fed Manufacturing

Chicago PMI

Pending Home Sales Consumer Sentiment

Chicago Fed Natl. Activity S&P Case-Shiller HPI MBA Mortgage Applications GDP Durable Goods Orders FHFA House Price Index New Home Sales Jobless Claims Personal Income

NAHB Housing Market Housing Starts Philadelphia Fed Outlook Net TIC Flows FOMC Rate Decision Existing Home Sales

Industrial Production MBA Mortgage Applications Jobless Claims

Wholesale Trade Business Inventories Consumer Sentiment

Small Business Optimism MBA Mortgage Applications Consumer Price Index Retail SalesJOLTS Producer Price Index Final Jobless Claims Import Price Index

ISM Non-Manufacturing

FHLBC Closed Construction Spending MBA Mortgage Applications Jobless Claims Beige Book Factory Orders

September 2019Monday Tuesday Wednesday Thursday Friday

Federal Holiday ISM Manufacturing Index Total Vehicle Sales ADP Employment Report Employment


Certain information included in this presentation speaks only as of a particular date or dates included in this presentation. The information in the presentation may have become out of date. The Federal Home Loan Bank of Chicago (FHLBC) does not undertake an obligation, and disclaims any duty, to update any of the information in this presentation. “Mortgage Partnership Finance®”, “MPF®”, “MPF Xtra®”, “Downpayment Plus®”, “DPP®”, “Downpayment Plus Advantage®”, “DPP Advantage®”, and “Community First®” are registered trademarks of the Federal Home Loan Bank of Chicago . The “MPF Mortgage Partnership Finance” logo is a trademark of the Federal Home Loan Bank of Chicago. The data, scenarios and valuations provided to you in this presentation are for information purposes only and are provided as an accommodation and without charge and are not intended for further distribution. The data, scenarios and valuations are estimates only and may not represent the actual or indicative terms at which new (or economically equivalent) transactions could be entered into or the actual or indicative terms at which existing (or economically equivalent) transactions could be prepaid, terminated, liquidated, assigned or unwound. The scenarios and valuations were derived using proprietary pricing models and estimates and assumptions about relevant future market conditions and other matters, all of which are subject to change without notice. The scenarios and valuations were prepared without specific information about your institution’s balance sheet composition, hedging strategies or financial assumptions and plans, any of which may affect the relevance of these valuations to your own analysis. The Federal Home Loan Bank of Chicago makes no representations or warranties about the accuracy or suitability of any information in this presentation, and no representation of non-infringement. This presentation is not intended to constitute legal, accounting, investment or financial advice or the rendering of legal, accounting, consulting, or other professional services of any kind. You should consult with your accountants, counsel, financial representatives, consultants and/or other advisors regarding the extent these scenarios and valuations may be useful to you and with respect to any legal, tax, business and/or financial matters or questions. This presentation may contain forward-looking statements which are based upon the FHLBC’s current expectations and speak only as of the date hereof. These forward-looking statements involve risks and uncertainties including, but not limited to, the risk factors set forth in the FHLBC’s periodic filings with the Securities and Exchange Commission, which are available on its website at www.fhlbc.com

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hosted by: james hotchkiss director, member strategy and ... · • weekly interest rate...

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