US Economy is Stronger Than You Think It Is

SunTrust Chief Economist, Gregory Miller

Thank you to Jules Deas with The Feldman-Deas Team @ Suntrust for inviting us to Gregory L. Miller's "State of the Economy" today! It is certainly our pleasure to share the Talking Points from today’s presentation with you and to share Jules's Facebook Fan Page to keep you updated on the most current and relevant mortgage information!

State of the Economy

Executive Talking Points

November 2013

The US economy is stronger than you think it is

o    The US private economy accelerated in 3Q13, and early 4Q13 data suggest better news is coming in the short-term

o    GDP grew 2.8% in 2Q13; expansion trend = 2.2%

o    Those growth rates disguise significant imbalances among sectors

o    Budget/Debt Ceiling has been a “non-factor” thus far


The Private/Public growth split remains

o    Inventory and “non-negative by Government” generated above-trend 3Q13 GDP

              All else equal, Government posting positive contribution yields 3% GDP

o    The public sector (Government) remains in recession -- contracting trend -1.2%


Public policy grabbed headlines in recent weeks

o    Yellen headed toward easy confirmation to Fed Chair

o    Fed passes on September Taper; debt ceiling politics likely moves Taper to December.

  • Bond yields fell 2-yr 13 BP and 10-yr 27 BP; conventional mortgage rate fell from 4.60% to 4.50%
  • Expect low interest rates at least through mid-2014

o    Fiscal policy remains highly uncertain

  • Default and budget stalemate still a possibility
  • Economic decisions consigned to political solutions ensures inefficient outcomes
  • Deficit FY 2013 = $642 billion

o    Congress’s failure to address structural issues virtually assures reversal to rising within 5 years

  • Debt ceiling takes headlines.

o    Probability of (short-term) default currently less than 50/50

o    Likely little long-term or macro economy effects of political conflict


Inflation: Currently below Fed target (1.6%)

o    Yellen even more dovish/activist than Bernanke

  • Modest low side move (deflation-risk) adds room to keep bond purchases active

o    Energy prices improving; gasoline @ $3.20

  • But consumers and businesses have stemmed growth in mileage driven
  • And motor fuel use is declining


October labor market huge (even with sequester): 204,000 payroll jobs

o    Unemployment improved but for all the wrong reasons

  • Unemployment is currently 7.3%; should hit 6.5% in April 2014
  • Yellen likely to move guidance to 6.0%


Primary risk remains in place from last month: Stagnant wages constrain consumer spending

o    Income growth is the weakest in our lifetimes – in spite of stock and house price gains

o    For 70% of US workers, income was lower in 2012 than it was in 2007    

o    And jobs can’t fix the problem


Business Capital Spending regains footing

o    Industrial production rebounds to second-strongest month of the year

o    Autos, business equipment, and construction lead 3Q13 rebound from March-to-July slowdown


Housing is booming and has farther to go

o    Housing markets driven by high affordability and pent-up demand

o    Mortgage rates remain low and Mortgage originations at their highest level since 2005

o    House prices are now rising at their fastest rate in nearly seven years

o    But “Home Ownership as the American Dream” is severely compromised


Bank lending is back

o    Mortgage originations rise with “purchase” posting second consecutive rebound after two quarter sag and “refinance” accelerating to strongest Y/Y in a year

o    October 2013 C&I loans are growing 8.4% Y/Y; Commercial growing 3.3% Y/Y


Global economy: An appearance of stabilization

o    Euro Zone: Leading indicators accelerating while interest rates stem rise

o    China: Retail growing steadily while industrial production accelerates

o    Middle East: US-led economic sanctions against Iran taking hold. Generating Iran concessions?

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