IHS ECONOMICS
US Outlook
US Economic Outlook
How long will the ride last?
ihs.com
December 2014
Douglas Handler, IHS Chief US Economist, +1 781 301 9283, doug.handler@ihs.com
© 2014 IHS
US Outlook / December 2014
US Economic Overview
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2
US Outlook / December 2014
Executive Summary - economic growth accelerates a
notch from 2.2% in 2014 to 2.7% in 2015.
• Adverse demographics is now an issue
• Labor force growth
• Mismatches between available jobs and available people
• Household formation
• Gasoline price dividend gets partially absorbed by poorer
international trade conditions
• Fiscal policy to remain in “benign neglect” at least through
2016 election; additional defense spending possible
• Fed to take action in mid-2015, but the anticipation will be
worse than the impact
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3
US Outlook / December 2014
Since emerging from the recession, the US economy
has downshifted. Will it find that next gear?
Real GDP growth
6.0
Where’s the growth?
3.2% average
1995-2007
5.0
2.2% average
2010-2014
4.0
• Federal budget deficit
reduction
3.0
• Consumer retrenchment
• Higher taxes
• Debt repayment
• Poor wage growth
2.0
1.0
0.0
• Fizzled housing recovery
-1.0
• Business investment
rebound did not fully offset
the downturn
-2.0
-3.0
-4.0
1995
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2000
2005
2010
2015
4
US Outlook / December 2014
Is the labor market getting tight enough to drive wage
pressures?
600
11
500
10
400
9
300
8
200
7
100
6
0
5
-100
4
-200
3
2010
Source: IHS
© 2014 IHS
2011
2012
Employment growth
2013
Unemployment rate (%)
Number of new jobs (000s)
Job creation and the unemployment rate
2014
Unemployment rate
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5
US Outlook / December 2014
Growth in the labor force has downshifted.
Employment and labor
Labor force (Millions)
160
After the recession:
0.4 million / year pace
68
155
67
150
66
145
65
140
64
135
63
130
2000
62
2002
2004
2006
Labor force (Left)
Source: IHS
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2008
2010
2012
Percent of labor force
Before the recession:
1.5 million / year pace
2014
Participation rate (Right)
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US Outlook / December 2014
50.0%
8
40.0%
6
30.0%
4
20.0%
2
10.0%
0
0.0%
Participation Rate (2013, % of labor force)
10
65+
60.0%
60-64
12
55-59
70.0%
50-54
14
45-49
80.0%
40-44
16
35-39
90.0%
30-34
18
25-29
100.0%
20-24
20
16-19
Labor force size (millions)
We’re aging, and entering cohorts with lower
participation rates.
Age cohort
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Particip. %
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US Outlook / December 2014
Only the services areas are materially adding jobs.
Employment before and after the recession (millions)
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
Services
Goods
Change during recession *
*=Recession period: December 2007 through June 2009
Source: IHS
© 2014 IHS
Government
Change since end of recession *
Losses from recession: 7.4 million
Changes since recession end: 9.1 million
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US Outlook / December 2014
Recent job creation is skewed toward lower-income
occupations
800
700
600
500
400
300
200
100
0
Overall average
weekly earnings
$1,600
$1,400
$1,200
$1,000
$800
$600
$400
$200
$0
Average weekly earnings
Number of jobs (000s)
Recent job growth and average weekly earnings
# of new jobs over past 12 months (bars, 000s, left axis)
Average weekly earnings (squares, right axis)
© 2014 IHS
9
US Outlook / December 2014
Here’s what the Fed is looking at to identify inflation.
Personal consumption price deflators (change versus year-ago)
5%
Fed 2% threshold
4%
3%
2%
1%
0%
-1%
-2%
2007
2008
2009
2010
2011
All goods and services
Source: IHS
© 2014 IHS
2012
2013
2014
2015
2016
Excluding food and energy
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10
US Outlook / December 2014
Monetary policy status quo maintained through mid-2015,
although long-term rates will rise as expansion gathers steam.
Interest rate outlook
6%
5%
4%
Fed tapering
3%
2%
1%
Near zero
rates end
June 2015
0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Fed funds rate
Source: IHS
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10-year treasury
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US Outlook / December 2014
Energy and the Economy
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12
US Outlook / December 2014
Savings at the pump have added to consumers’ wallets.
Per-household spending on gasoline (annual rates)
$4,000
$3,500
$3,000
$2,500
$2,000
$1,500
$1,000
$500
$0
2000
© 2014 IHS
2005
2010
2015
2020
13
US Outlook / December 2014
Contributions from unconventional energy sources will
continue to add to US GDP.
US Mining and Petroleum Structures
(billions of 2009 dollars)
180
US Imports of Petroleum Products
(billions of 2009 dollars)
350
160
300
140
250
120
100
200
80
150
60
100
40
50
20
0
0
1995
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2000
2005
2010
2015
2020
1995
2000
2005
2010
2015
2020
14
US Outlook / December 2014
An Economist’s wishes for 2015
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US Outlook / December 2014
Santa wish list for 2015 – Just one:
Improve productivity!
Productivity growth
(output / hour, year-over-year change)
• Education, education and
education
• Infrastructure investment
5.0
4.5
4.0
• Technology investment –
improve internet speed, cost
and security
3.5
• Remove impediments to
labor force participation
2.0
• Reduce risk of doing
business
1.0
• Increase economic
awareness
0.0
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3.0
2.5
1.5
0.5
2000 2002 2004 2006 2008 2010 2012 2014
(est.)
16
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US Outlook / December 2014
Current account deficit steadies around 2.4% of GDP.
US. current account balance ($ billions and percent of GDP)
200
1.5
0
0.0
-200
-1.5
-400
-3.0
-600
-4.5
-800
-6.0
-1,000
-7.5
1970
1975
1980
1985
1990
1995
2000
2005
2010
2015
Current Account Deficit (left axis)
Deficit as a % of GDP (right axis)
Source: IHS
© 2014 IHS
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US Outlook / December 2014
US growth will slow in q4, and into 2015, but a gradual
acceleration is expected thereafter.
Real GDP growth (annualized percent change)
6
4
2
0
-2
-4
-6
-8
-10
2007
Source: IHS
© 2014 IHS
2008
2009
2010
2011
2012
2013
2014
2015
2016
© 2014 IHS
19
US Outlook / December 2014
Looking forward, we will still be counting on consumer
spending to drive the bulk of economic growth.
Annualized percentage change
Contributions to real GDP growth
2.7
3.0
2.3
2.5
2.0
2.5
2.2
2.2
1.6
1.5
1.0
0.5
0.0
-0.5
-1.0
-1.5
2011
Source: IHS
© 2014 IHS
2012
2013
2014
2015
2016
Real GDP
Consumer spending
Fixed investment
Housing
Inventories
Exports
Imports
Government
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