Hosted by: Melissa Deven Director, Member Strategy and ......• Third Estimate of Q3 GDP • Survey...

Hosted by:Melissa DevenDirector, Member Strategy and Solutions

Date:January 3, 2019

Contacts

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

James HotchkissDirector, Member Strategy and [email protected]: @econ_james_

Melissa DevenDirector, Member Strategy and [email protected]: @econ_melissa_

Discussion Topics


• Weekly Interest Rate Comparisons

• Economic Data Releases

• Third Estimate of Q3 GDP

• Survey of Consumer Expectations

• Preview of the Coming Week

• Q and A

Weekly Interest Rate MovementsFor the Week Ending 1/3/2019


U.S. Treasury Yields

1/03/19 12/27/18

3mo 2.42% 2.41%

2yr 2.50% 2.56%

5yr 2.48% 2.60%

10yr 2.64% 2.77%

FHLBank Chicago Advance Rates

1/03/19 12/27/18

3mo 2.63% 2.62%

2yr 2.70% 2.78%

5yr 2.78% 2.92%

10yr 3.25% 3.35%

U.S. Economic Data ReleasesFor the Week Ending 1/3/2019

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

FHFA House Price IndexOctober: 0.3% vs. September: 0.2%

• Rose 0.3% in October. House prices are up 5.7% from one year ago. The East North Central division—including Michigan, Wisconsin, Illinois, Indiana, and Ohio—increased 0.7% from the prior month and is up 6.6% year-over-year.

S&P Case-Shiller Home Price IndexOctober: 0.41% vs. September: 0.73%

• Rose 0.41% as the prior month was upwardly revised. Nine of the 20 cities reported an increase, three showed no change, and eight declined. Chicago declined 0.3% from the prior month, but is up 3.3% year-over-year. Home prices are 5.5% higher than one year ago.

Source: FHFA, S&P Case-Shiller

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Pending Home SalesNovember: -0.7% vs. October: -2.6%

• Decreased 0.7% in November. Home prices are 7.7% lower than one year ago. Regional data was mixed. The West increased 2.8%, the Northeast rose 2.7%, while the Midwest fell 2.3%, and the South declined 2.7%.

Personal IncomeNovember: 0.2% vs. October: 0.5%

• One-tenth below expectations, only growing 0.2% in November. Wages and salaries rose 0.2%, its slowest pace of growth since May 2018.

Source: National Association of Realtors, Bureau of Economic Analysis

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Durable Goods Orders November: 0.8% vs. October: -4.3%

• New orders increased by 0.8% to $250.8B in November. This is the first increase following two consecutive monthly decreases. October was revised from a decrease of 2.1% to a decrease of 4.3%. Transportation equipment, up three of the last four months, drove the increase, up 2.9% percent to $87.0B.

Durable Goods Ex TransportationNovember: -0.3% vs. October: 0.4%

• Excluding transportation, orders decreased 0.3%. A 1.7% fall in machinery orders was only partially offset by a 0.8% increase in communications equipment orders.

Source: U.S. Census Bureau

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ISM Manufacturing IndexDecember: 54.1 vs. November: 59.3

• Declined 5.2 percentage points to 54.1 in December. The index for new orders decreased 11.0 percentage points, inventories fell 1.7 percentage points, and prices dropped 5.8 percentage points.

Chicago Fed Natl. Activity IndexNovember: 0.22 vs. October: 0.00

• Rose to 0.22 in November. The prior month was downwardly revised from 0.24 to a flat reading, pushing the three-month moving average down from 0.23 to 0.12. In November, two of the four components that make up the index rose from one month ago, and three of the four posted positive contributions.

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Source: Institute for Supply Management, Chicago Federal Reserve



Richmond Fed Manufacturing IndexDecember: -8 vs. November: 14

• Dropped to -8 in December. Weighing on the index, new orders declined from 17 to -9. Shipments fell 37 points to -25, its lowest reading since April 2009. Furthermore, respondents reported a 30-point drop in local business conditions to -25, the lowest reading on record.

ADP Employment ReportDecember: 271K vs. November: 157K

Rose by 271K in December. The prior month was downwardly revised to157K from the initial 179K. The goods-producing sector rose by 47K, and the service-providing sector grew by 224K. Source: Richmond Federal Reserve, ADP

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Initial Jobless ClaimsDec. 29: 231K vs. Dec. 22: 221K

• Claims increased by 10K week-over-week to 231K. The prior week’s level was upwardly revised by 5K to 221K. Despite the weekly incline, the 4-week moving average edged lower by 500 to 218.75K.

Continuing ClaimsDec. 22: 1.740M vs. Dec. 15: 1.708M

• Likewise, continuing claims increased by 32K to 1.740M. The previous week’s level was revised up 7K to 1.708M. Consequently, the 4-week moving average increased by 26K to 1.703M. The insured unemployment rate held steady at 1.2%.

Source: Department of Labor

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GDP increased at an annual rate of 3.4% in the third and final estimate for the third quarter of 2018, compared to 3.5% in the first and second estimates.

Positive contributions quarter-over-quarter were from PCE, private inventory investment, business fixed investment, and government spending. These positive contributions were only partially offset by negative contributions from exports and residential fixed investment.

In the third estimate, GDP was revised lower due to downward revisions to PCE and exports, although partially offset by an upward revision to private inventory investment and residential fixed investment.

Dragging down GDP, PCE was revised lower from 3.6% to 3.5%, while private fixed investment was revised lower from 1.4% to 1.1%.

Partially offsetting the downward revisions, residential fixed investment was revised higher from -3.6% to -2.6%.

Source: Bureau of Economic Analysis


U.S. GDP Revised Lower in Third Q3 Estimate

Personal consumption added 2.37 percentage points to GDP, compared to 2.57 percentage points in Q2.

Business investment increased 0.21 percentage points, while net exports declined 1.99 percentage points.


GDP Increased in Q3GDP Growth Supported by Personal Consumption and Inventories

Source: Bureau of Economic Analysis

Survey of Consumer Expectations

• The Federal Reserve Bank of New York recently released its Survey of Consumer Expectations (SCE) for November 2018.

• What is the SCE?– The SCE is an internet-based survey of a rotating panel of approximately

1,300 households.– Respondents participate in the panel for up to 12 months, with a roughly equal

number rotating in and out of the panel each month.– Respondents are surveyed on expectations for various topics, including:

inflation, wage growth, house prices, job search, access to credit, and other similar topics.

• The survey consists of two separate components.– Monthly data: expectations about macroeconomic and household-level data– Quarterly data: special topics covering different aspects of household

economic behavior


Survey of Consumer ExpectationsEarnings Expectations

The first set of questions concern changes in the respondents’ household income.

Expected earnings growth rose from 2.91% in October to 2.95% in November, its highest level since February 2018 when it was 2.97%.


Source: Federal Reserve Bank of New York

Survey of Consumer ExpectationsEarnings Expectations By Age Group

Expectations of earnings declined across all age groups.

As of November 2018, consumers over the age of 60 expect earnings to slow the fastest, followed by those aged 40 to 60, and then those under age 40.



Survey of Consumer ExpectationsEarnings Expectations By Income Level

Similarly, earnings expectations declined across all income levels. Although these expectations still show positive growth, expected earnings growth is slowing.

Expectations of consumers with income over $50K slowed the most month-over-month.



Survey of Consumer ExpectationsProbability of Losing Job or Quitting Job on the Rise

The November report shows that consumers have increased the probability of quitting or losing their job in the next year.

The probability of losing one’s job in the next year rose by 1.2 percentage points to 14.7%, while the probability of quitting in the next year rose by 2.0 percentage points to 22.8%.



Survey of Consumer ExpectationsProbability of Finding a Job

If a consumer lost his or her job today, the mean probability of finding a new job in the next three months has been increasing since 2013.

In November, the probability rose to 58.59% compared to 45.66% probability in August 2013.



Survey of Consumer ExpectationsSpending Expectations

After a sharp increase last month, median household spending growth expectations decreased by 0.2 percentage points in November to 3.5%.

The median household expectation of spending growth has been steadily declining since 2013.



Survey of Consumer ExpectationsExpected Changes in Credit Availability in the Next 12 Months



Perceptions regarding expected credit access 12 months from now show that consumers have mixed opinions.

About 22.54% expect “somewhat easier” or “much easier” credit, compared to 21.28% one year ago.

Those that anticipate credit to be “somewhat harder” or “much harder” worsened, increasing from 28.67% in November 2017 to 31.34% in November 2018.

Survey of Consumer ExpectationsInflation Expectations

The median one-year ahead expected rate of inflation edged lower from 3.00% in October, to 2.97% in November.

The expected rate of inflation has been hovering around 3.0% for eight consecutive months.



Survey of Consumer ExpectationsHome Price Expectations

Home price growth expectations continued to decline in November, falling to 3.05% compared to 3.26% in October. This marks the lowest level since October 2017.



Survey of Consumer ExpectationsHome Price Expectations By Region

Median expectations for home prices by region were primarily negative in November.

The South fell 0.50 percentage points to 3.29%, the West fell 0.33 percentage points to 2.97%, and the Northeast fell 0.17 percentage points to 3.00%.

On the other hand, the Midwest remained unchanged at 3.0%.



November Survey of Consumer Expectations

Summary:• After solid gains in the first half of the year, home price expectations have

declined steadily from a high of 3.9% in June, reaching the lowest level in the past 12 months in November.

• The median one-year ahead expected inflation rate was relatively unchanged for the eighth straight month on a rounded basis, at 3.0%, while expectations at the three-year horizon dipped slightly to 2.9% from 3.0%.

• Median one-year ahead earnings growth expectations dropped sharply for the second consecutive month, to 2.0%, from 2.5% in October, reaching the lowest level since February 2017.

• Other areas of the report not covered in this presentation:– The mean probability that interest rates on savings accounts will be

higher one year from now fell to 37.30% from 38.40%.– The median expectation regarding year-ahead change in taxes

maintained the upward trend started in March 2018, increasing 0.2 percentage points in November, to 2.7%.



This and That

In a study conducted by the Federal Reserve, non-cash payments in the U.S. grew significantly between 2016 and 2017, as payments by credit and debit cards increased 10.1% by number and 8.4% by value. Credit cards had the greatest growth rate by value, but debit payments continue to make up the majority of card payments at 66.9% of total transactions. Further, automated clearinghouse (ACH) payments grew faster, increasing 5.7% by number and 6.9% by value from 2016 to 2017. On the other hand, the number of payments by check declined by 4.8% in 2017 compared to declining 3.6% the year prior.


Source: Federal Reserve


Prior to the weekend, all eyes will be focused on the December employment report set to be released tomorrow morning.

Next week, data will be released on job openings and inflation. Further, the FOMC will release minutes from its December meeting on Wednesday.

Economic Data Release CalendarJanuary 2019

26

31 1 New Year's Day 2 3 4

7 8 9 10 11

14 15 16 17 18

21 MLK Day 22 23 24 25

28 29 30 31 Notes:

January 2019Monday Tuesday Wednesday Thursday Friday

Federal Holiday MBA Mortgage Applications Jobless Claims Employment FHLBC Closed ADP Employment Report ISM Manufacturing Index Construction Spending Total Vehicle Sales

Factory Orders Small Business Optimism MBA Mortgage Applications Jobless Claims Consumer Price IndexISM Non-Manufacturing JOLTS FOMC Meeting Minutes Trade Balance

Producer Price Index Final MBA Mortgage Applications Jobless Claims Industrial Production Retail Sales Housing Starts Consumer Sentiment

Business Inventories Philadelphia Fed Outlook NAHB Housing Market Beige Book

Federal Holiday Existing Home Sales MBA Mortgage Applications Jobless Claims Durable Goods OrdersFHLBC Closed FHFA House Price Index New Home Sales

Chicago Fed Natl. Activity S&P Case-Shiller HPI MBA Mortgage Applications Jobless ClaimsDallas Fed Manufacturing ADP Employment Report Personal Income

FOMC Rate Decision

GDP Chicago PMI Pending Home Sales


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 (FHLBank Chicago) does not undertake an obligation, and disclaims any duty, to update any of the information in this presentation.

The data, scenarios and valuations provided to you in this presentation are for information purposes only and are provided as anaccommodation and without charge. 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 any consideration of 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.

This presentation contains forward-looking statements which are based upon the FHLBank Chicago’s current expectations and speak only as of the date hereof. These statements may use forward-looking terms, such as “anticipates,” “believes,” “expects,” “could,” “plans,” “estimates,” “may,” “should,” “will,” or their negatives or other variations on these terms. The FHLBank Chicago cautions that, by their nature, forward-looking statements involve risk or uncertainty, that actual results could differ materially from those expressed or implied in these forward-looking statements, and that actual events could affect the extent to which a particular objective, projection, estimate, or prediction is realized. These forward-looking statements involve risks and uncertainties including, but not limited to, the risk factors set forth in the FHLBank Chicago’s periodic filings with the Securities and Exchange Commission, which are available on its website at www.fhlbc.com.

The FHLBank Chicago makes no representations or warranties about the accuracy, currency, completeness, or suitability of any information in this presentation. 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 to which the information in this presentation may be useful to you and with respect to any legal, tax, business and/or financial matters or questions.

“MPF” is a registered trademark of the FHLBank Chicago.

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