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Confidential. © 2017 IHS Markit TM . All Rights Reserved. US Economic Outlook The US Economic Outlook 25 September 2017 Economics and Country Risk Patrick Newport, Economics Executive Editor +1 781 301 9125, [email protected]
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Page 1: The US Economic Outlook - TaxAdmin.org · US Economic Outlook / September 2017 20 Key indicators Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Industrial production 1.6 5.2

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US Economic Outlook

The US Economic Outlook 25 September 2017

Economics and Country Risk

Patrick Newport, Economics Executive Editor +1 781 301 9125, [email protected]

Page 2: The US Economic Outlook - TaxAdmin.org · US Economic Outlook / September 2017 20 Key indicators Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Industrial production 1.6 5.2

Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Harvey is expected to be the second-costliest US hurricane since 1980.

US Economic Outlook / September 2017

2

0 40 80 120 160

Charley (2004)

Rita (2005)

Wilma (2005)

Ivan (2004)

Irma (2017)

Ike (2008)

Andrew (1992)

Sandy (2012)

Harvey (2017)

Katrina (2005)

Billions of 2017 dollars, adjusted for CPI inflation

Source: NOAA , IHS Markit (Harvey and Irma cost projection) © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Economic impacts of hurricanes

US Economic Outlook / September 2017

•  Lost production due to damaged facilities, logistics constraints, shortages of raw materials, and electricity outages

•  Inventory drawdowns resulting from idled productive capacity

•  Lost wages and salaries of displaced workers, affecting spending

•  Rising credit delinquencies associated with uninsured property losses

•  Losses in population and tourism in storm-damaged areas

•  Additional government and NGO spending during relief efforts

•  Increased construction activity as buildings and infrastructure are repaired or replaced over several years

•  Spending to replace damaged vehicles, equipment, and supplies, partly supported by insurance payouts

3

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Natural Disasters, GDP, and the BEA

•  The BEA is not able to estimate the effects of a natural disaster on GDP because the effects car occur with a lag and they cannot be separated from the regular source data

•  GDP is a measure of the Nation’s current production of goods and services, therefore it isn’t directly affected by the loss of property

•  GDP can be affected indirectly by the actions that consumers, businesses, and governments take in response to disruptions in production or to the loss of property caused by natural disasters

•  But these effects cannot be precisely estimated

•  Responses to the natural disaster could be spread out over time

•  Under a new methodology adopted in 2003, the value of insurance services produced for policy holders (included in GDP) is not directly affected by the payment of benefits in the wake of a disaster

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The US economy on a solid growth path

US Economic Outlook / September 2017

•  Real GDP growth picked up from an annual rate of 1.2% in the first quarter to 3.0% in the second quarter as consumer spending accelerated.

•  Hurricanes Harvey and Irma have disrupted economic activity in the third quarter, but recovery and rebuilding will boost growth in subsequent quarters.

•  Consumer spending continues to drive US economic growth, supported by rising employment, real incomes, and household wealth.

•  Business fixed investment will benefit from strengthening global markets and an easing of regulatory policies, although commercial building is slowing.

•  Increasing demand, low inventories of homes for sale, and rising prices will encourage more homebuilding, even as interest rates rise.

•  The Federal Reserve will gradually raise interest rates (taking the federal funds rate to 3% in late 2019) and reduce its asset holdings.

•  The economy’s long-term potential growth rate is near 2%.

5

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Job Openings at an all-time high

US Economic Outlook / September 2017

6

2000

3000

4000

5000

6000

7000

2002 2005 2008 2011 2014 2017

Labor market, job openings

Source: Bureau of Labor Statistics © 2017 IHS Markit

Thou

sand

s

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Quits back to normal

US Economic Outlook / September 2017

7

1.2

1.4

1.6

1.8

2.0

2.2

2.4

2002 2005 2008 2011 2014 2017

Labor market, quit rate

Source: Bureau of Labor Statistics © 2017 IHS Markit

Perc

enta

ge

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Steady job growth

US Economic Outlook / September 2017

8

-800

-600

-400

-200

0

200

400

2006 2008 2010 2012 2014 2016

Nonfarm payroll gains

Source: Bureau of Labor Statistics © 2017 IHS Markit

Thou

sand

s, d

iffer

ence

d, 3

MM

A

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Closing in on full-employment

US Economic Outlook / September 2017

9

4

6

8

10

12

14

16

18

2006 2008 2010 2012 2014 2016

U6 U3

Unemployment rate

Source: Bureau of Labor Statistics © 2017 IHS Markit

Perc

ent

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Wages rising hardly more than inflation

US Economic Outlook / September 2017

10

1.2

1.6

2.0

2.4

2.8

3.2

3.6

4.0

2007 2009 2011 2013 2015 2017

Average hourly earnings

Source: Bureau of Labor Statistics © 2017 IHS Markit

Perc

ent c

hang

e y/

y

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Prime age workers coming back finally

US Economic Outlook / September 2017

11

80

81

82

83

84

85

1996 1999 2002 2005 2008 2011 2014 2017

Labor force participation rate, ages 25-54

Source: Bureau of Labor Statistics © 2017 IHS Markit

Perc

ent

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

A 2018 pickup in real GDP growth will push the US unemployment rate down to 4%

12

0

2

4

6

8

10

-9

-6

-3

0

3

6

2007 2009 2011 2013 2015 2017 2019

Perc

ent o

f lab

or fo

rce

Ann

ual p

erce

nt c

hang

e

Real GDP growth (Left scale) Unemployment rate (Right scale)

Real GDP and unemployment

Source: IHS Markit © 2017 IHS Markit

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

With labor productivity rising, real GDP growth will outpace employment growth

13

-9

-6

-3

0

3

6

2007 2009 2011 2013 2015 2017 2019

Ann

ual p

erce

nt c

hang

e

Real GDP Employment

Real GDP and payroll employment

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

IHS Markit PMIs signal moderate economic growth

14

48

50

52

54

56

58

60

62

2010 2011 2012 2013 2014 2015 2016 2017

+50

indi

cate

s ex

pans

ion

Manufacturing Services

Markit PMI indexes

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Industrial production is reviving as growth in capital spending and exports picks up

15

-12

-8

-4

0

4

8

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

ent c

hang

e

Real GDP Industrial production

Real GDP and industrial production

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Will the US economy ride the virtuous cycle?

16

Income

Spending Jobs

Positive forces •  ICT innovation •  asset •  Tax and regulatory reforms

Negative forces •  Skilled labor shortages •  Rising interest rates •  Trade restrictions

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US economic growth by sector

US Economic Outlook / September 2017

17

Real GDP and its components Percent change 2016 2017 2018 2019 Real GDP 1.5 2.1 2.8 2.3 Consumption 2.7 2.7 2.8 2.6 Residential investment 5.5 2.3 5.4 2.8 Business fixed investment -0.6 4.3 3.7 4.1 Federal government 0.0 0.2 0.3 -0.8 State & local government 1.2 -0.3 0.8 1.3 Exports -0.3 3.4 3.9 3.4 Imports 1.3 3.7 4.4 5.1 Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US economic growth by sector

US Economic Outlook / September 2017

18

Real GDP and its components Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Real GDP 1.2 3.0 2.1 2.7 3.4 Consumption 1.9 3.3 2.5 2.8 3.1 Residential investment 11.1 -6.5 0.7 7.0 8.6 Business fixed investment 7.1 6.9 3.0 4.0 2.5 Federal government -2.4 1.9 2.6 0.8 0.0 State & local government 0.5 -1.7 -1.5 1.4 1.9 Exports 7.3 3.7 4.2 3.1 4.2 Imports 4.3 1.6 1.5 4.5 4.9 Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Other key US indicators

US Economic Outlook / September 2017

19

Key indicators Percent change 2016 2017 2018 2019 Industrial production -1.2 1.8 3.0 2.5 Payroll employment 1.8 1.5 1.5 1.2 Light-vehicle sales (Million units) 17.5 17.0 17.2 17.0 Housing starts (Million units) 1.18 1.21 1.35 1.41 Consumer Price Index 1.3 2.0 1.6 2.3 Core CPI 2.2 1.8 1.9 2.0 Brent crude oil price (USD/barrel) 44 52 48 55 Federal funds rate (%) 0.4 1.0 1.7 2.6 10-year Treasury yield (%) 1.8 2.4 3.1 3.8 Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Other key US indicators

US Economic Outlook / September 2017

20

Key indicators Percent change, annual rate 17Q1 17Q2 17Q3 17Q4 18Q1 Industrial production 1.6 5.2 0.7 2.1 4.4 Payroll employment 1.5 1.3 1.4 1.3 1.5 Light-vehicle sales (Million units) 17.1 16.8 16.6 17.4 17.5 Housing starts (Million units) 1.24 1.17 1.20 1.25 1.32 Consumer Price Index 3.1 -0.3 1.7 1.9 1.4 Core CPI 2.5 0.6 1.4 2.3 2.0 Brent crude oil price (USD/barrel) 55 51 51 50 50 Federal funds rate (%) 0.7 1.0 1.2 1.3 1.5 10-year Treasury yield (%) 2.4 2.3 2.2 2.5 2.8 Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Consumer sentiment is upbeat, supported by improving household finances

21

50

60

70

80

90

100

110

120

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016

196

6 =

100

University of Michigan Index of Consumer Sentiment

US Economic Outlook / September 2017

Source: University of Michigan Surveys of Consumers © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US small business sentiment soared after the November 2016 election and remains high

22

80

85

90

95

100

105

110

1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017

198

6 =

100

NFIB index of small business optimism

US Economic Outlook / September 2017

Source: National Federation of Independent Business © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US stock prices have reached new highs in 2017

23

0

500

1,000

1,500

2,000

2,500

1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Inde

x, 1

941-

43 =

10

S&P 500 stock price index

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US interest rates will rise as the Federal Reserve normalizes monetary policy

24

0

2

4

6

8

10

12

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

ent

Federal funds 10-year Treasury 30-year mortgage BAA corporate

Interest rates

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

President Trump will have an opportunity to recast the Federal Reserve’s Board of Governors Board of Governors End of term

Janet Yellen, chair Chair until 3 February 2018, member to 31 January 2024

Stanley Fisher, vice chairman Resigning on 13 October 2017 from a term that ends in January 2020

Lael Brainard 2026

Jerome Powell 2028

3 vacancies* 2018, 2022, and 2030

25

*President Trump has nominated Randal Quarles, who is awaiting Senate confirmation. Other Federal Open Market Committee voting members in 2017 are Reserve Bank presidents William Dudley (New York), Charles Evans (Chicago), Patrick Harker (Philadelphia), Robert Kaplan (Dallas), and Neel Kashkari (Minneapolis).

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Potential real GDP growth is projected to average 2.0% from 2017 to 2027

26

-4

-2

0

2

4

6

8

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Perc

ent c

hang

e, 2

009

USD

Actual real GDP Full-employment potential real GDP

Actual and potential real GDP

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

-100 0 100 200 300 400 500 600 700

Information Retail trade

State government Utilities

Federal government Local government

Mining & logging Wholesale trade

Transport & warehousing Education

Other services Manufacturing

Financial services Construction

Leisure & hospitality Health & social services

Prof. & business services

Services and recorded the largest employment gains during the 12 months ended August 2017

27

Total change = 2.1 million

Change in payroll employment, thousands

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

With baby boomers aging, labor-force participation and employment rates will not return to earlier peaks

28

52

54

56

58

60

62

64

66

1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

% o

f pop

ulat

ion

aged

16

& o

ver

Labor-force participation rate Employment rate (Household survey)

Labor-force participation and employment rates

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Western and southern states will lead in job growth

29

US Economic Outlook / September 2017

© 2017 IHS Markit. All rights reserved. Provided “as is”, without any warranty. This map is not to be reproduced or disseminated and is not to be used nor cited as evidence in connection with any territorial claim. IHS Markit is impartial and not an authority on international boundaries which might be subject to unresolved claims by multiple jurisdictions.

Nonfarm employment, annual percent change, 2017-22

Source: IHS Markit

Percent0.3 to 0.60.7 to 0.91.0 to 1.41.5 to 2.0

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

-200

-150

-100

-50

0

50

100

150

2006 2008 2010 2012 2014 2016 2018

Bill

ions

, ann

ual r

ate

A gradual return to normal inventory investment will boost economic growth in 2018

30

Change in nonfarm inventories, 2009 dollars

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Industrial production is recovering as global demand strengthens and oil output rises

31

-3

-2

-1

0

1

2

3

4

2012 2013 2014 2015 2016 2017 2018 2019

Year

-ove

r-ye

ar %

cha

nge

Industrial production Manufacturing production Real GDP

Industrial production and real GDP

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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US manufacturing production growth

US Economic Outlook / September 2017

32

Industrial production Percent change 2016 2017 2018 2019 All manufacturing 0.2 1.4 2.8 2.7 Motor vehicles & parts 4.1 0.0 2.2 1.5 Computers & electronics 1.4 3.4 5.1 4.3 Electrical equip. & appliances 2.2 0.5 2.6 3.6 Machinery -3.2 4.4 4.3 4.2 Textiles 2.5 -0.2 -0.5 -1.3 Furniture -0.1 0.1 2.1 3.0 Chemicals 0.7 0.5 4.2 4.1 Source: IHS Markit © 2017 IHS Markit

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US inflation dynamics

33

Inflationary pressures

•  Skilled labor shortages •  Dollar depreciation

Deflationary pressures

•  Excess productive capacity •  Monetary policy tightening

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Core consumer price inflation is fluctuating around 2%

34

-2

-1

0

1

2

3

4

5

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

All-urban CPI Core CPI (excluding food and energy)

Consumer price indexes

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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A divergence between goods and services inflation

35

-3

-2

-1

0

1

2

3

4

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Core goods and services Core goods Core services

US consumer price indexes excluding food and energy

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Consumer price inflation will pick up in 2019–20 as labor and product markets tighten

36

-1

0

1

2

3

4

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Personal consumption deflator Excluding food and energy

Personal consumption deflators

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Wages and benefits will accelerate in response to a tightening US labor market

37

0

2

4

6

8

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Total compensation Wages & salaries Benefits

Labor compensation

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Hourly compensation, productivity, and unit labor costs

38

-4

-2

0

2

4

6

8

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

ent c

hang

e

Hourly compensation Productivity Unit labor costs

Private nonfarm sector

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Industrial materials prices are recovering but remain well below their previous peaks

39

1

2

3

4

5

6

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

All industrial materials Chemicals Nonferrous metals

IHS

wee

kly

inde

xes,

200

2:1=

1

IHS Markit Materials Price Index

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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After a mild correction, industrial materials prices will gradually rise

40

0

1

2

3

4

5

6

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027

IHS

wee

kly

inde

x, 2

002:

1=1

IHS Materials Price Index

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Crude oil prices will decline in 2018 before recovering

•  Prices have firmed in recent weeks, with Brent trading above USD50/barrel.

•  Strong seasonal demand, declining US crude oil inventories, and expectations that US supply growth will moderate have outweighed rising OPEC output.

•  Hurricane Harvey briefly disrupted crude oil production along the Texas coast; chemical plants and refineries were hit harder but most are restarting.

•  Although world oil demand growth will remain firm, a production surplus will reemerge through 2018. North America, Brazil, the United Kingdom, and Kazakhstan will contribute to global production growth.

•  OPEC will likely continue to restrict its output next year. This decision could be made at its 30 November ministerial meeting.

•  A 2018 drop in oil prices will lead to a downturn in US drilling activity.

•  Price recovery is expected after 2018, when supply growth slows.

41

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Crude oil prices will gradually recover after 2018

42

0

25

50

75

100

125

150

2000 2003 2006 2009 2012 2015 2018 2021 2024 2027

Dol

lars

/bar

rel

Current US dollars 2016 US dollars

Price of Dated Brent crude oil

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

North American natural gas markets

•  With seasonal electricity loads declining and gas production increasing, Henry Hub gas prices are currently below $3/million Btu.

•  Electricity outages resulting from hurricanes Harvey and Irma have temporarily reduced gas demand. More gas is flowing into storage.

•  Industrial gas demand is increasing as new capacity at ammonia, methanol, and ethylene facilities comes online.

•  Exports to Mexico by pipeline and liquefied natural gas (LNG) exports will also support total gas demand growth.

•  Global LNG supply will, however, increase 50% over the next three years, creating excess supply.

•  The North American gas resource base is expanding and costs are declining, due to improved resource recovery and new discoveries.

43

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US crude oil and natural gas prices

44

0

2

4

6

8

10

12

14

0

20

40

60

80

100

120

140

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Dol

lars

/mill

ion

Btu

Dol

lars

/bar

rel

Crude oil, WTI (Left scale) Natural gas, Henry Hub (Right scale)

Crude oil and natural gas prices

US Economic Outlook / September 2017

Source: IHS Energy © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Retail gasoline prices have increased temporarily in the aftermath of Hurricane Harvey

45

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1.0

1.5

2.0

2.5

3.0

3.5

4.0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Thou

sand

USD

/hou

seho

ld

USD

/gal

lon

Retail gasoline price Spending on motor fuels per household (right scale)

Retail gasoline price and annualized spending on motor fuels

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US households are spending less than 4% of disposable income on energy

46

0

2

4

6

8

10

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

% o

f dis

posa

ble

inco

me

Motor fuels consumption All energy consumption

Household energy consumption

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US oil and gas production has resumed growth

47

20

30

40

50

60

70

1990 1995 2000 2005 2010 2015 2020 2025

Qua

drill

ion

Btu

, ann

ual r

ate

Oil and gas production

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US energy production will catch up with demand in the decade ahead

48

0

25

50

75

100

125

2007 2010 2013 2016 2019 2022 2025

Qua

drill

ion

Btu

Oil and gas production Nuclear, hydro, and other production Energy imports Energy demand

US energy supply and demand

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Labor productivity and total factor productivity growth have been exceptionally weak in recent years

49

-2

-1

0

1

2

3

4

5

1965 1975 1985 1995 2005 2015 2025

Perc

ent c

hang

e

Private nonfarm labor productivity Total factor productivity

1966-2016 average = 1.9%

Productivity

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Consumer spending

US Economic Outlook / September 2017

50

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Forces affecting consumer spending

51

Positive forces

• Employment growth

• Real wage growth

• Rising asset values

•  Income tax cuts in 2018

• Expansion of e-commerce

Negative forces

• High student debt burdens

• Saving for retirement

• Asset and income inequality

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The consumer market environment is favorable

US Economic Outlook / September 2017

52

Consumer market indicators Percent change 2016 2017 2018 2019 Real consumption 2.7 2.7 2.8 2.6 Real disposable income 1.4 1.5 3.5 3.2 Real household net worth 4.6 4.3 2.5 1.9 Payroll employment 1.8 1.5 1.5 1.2 Real wage rate 1.1 1.0 1.6 1.4 Consumption price deflator 1.2 1.6 1.3 1.9 Light-vehicle sales (Millions) 17.5 17.0 17.2 17.0 Single-family home sales (Millions) 5.39 5.58 5.71 5.65 Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Consumer spending will be supported by solid growth in real disposable income

53

Real consumer spending and disposable income

-2

0

2

4

6

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Perc

ent c

hang

e

Real consumer spending Real disposable income

Tax cuts boost growth in 2018

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Durable goods lead growth in real consumer spending

54

-6

-3

0

3

6

9

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Perc

ent c

hang

e

Durable goods Nondurable goods Services

Real consumer spending

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

-1

0

1

2

3

4

5

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Employment Cost Index, wages & salaries Consumption deflator

Wage gains will continue to outpace inflation

55

Wages and prices

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Household net worth and the personal saving rate

56

4.5

5.0

5.5

6.0

6.5

7.0

0

3

6

9

12

15

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Rat

io

% o

f dis

posa

ble

inco

me

Saving rate (Left scale) Household net worth/disposable income (Right scale)

Household saving rate and net worth

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The personal saving rate is below its historical average

57

0

3

6

9

12

15

1960 1967 1974 1981 1988 1995 2002 2009 2016 2023

% o

f dis

posa

ble

inco

me

Personal saving rate

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Real household net worth has reached a new high

58

0

20

40

60

80

100

120

1980 1985 1990 1995 2000 2005 2010 2015 2020

Trill

ions

of 2

016

dolla

rs

Assets Liabilities Net worth

Household assets and liabilities

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Household debt will increase at a moderate pace

59

-4

0

4

8

12

16

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

% c

hg. i

n ou

tsta

ndin

g lo

ans

Mortgages Consumer credit

Household debt

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Households’ financial obligations ratio will increase slightly as interest rates rise

60

14

15

16

17

18

19

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

% o

f dis

posa

ble

inco

me

Household financial obligations*

US Economic Outlook / September 2017

* Debt service, rent on primary residences, auto lease payments, property taxes, and homeowners’ insurance Source: IHS Markit © 2017 IHS Markit

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Household financial and real estate assets are rising

61

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Trill

ions

of U

SD

Equities Other financial assets Nonfinancial assets (includes real estate)

Household asset holdings

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US light-vehicle sales have reached their peak; light trucks will continue to outsell cars

62

0

4

8

12

16

20

1980 1985 1990 1995 2000 2005 2010 2015 2020

Mill

ion

units

, ann

ual r

ate

Total Cars Light trucks

Light-vehicle sales

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Nominal consumer spending growth by category

63

0 1 2 3 4 5 6 7 8 9

Computers & software

Recreation services

Medical care & products

Food & beverages

Home furnishings

Transportation services

Vehicles & parts

Apparel

2018 2017 2016

Nominal consumer spending, percent change

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Healthcare will account for a rising share of personal consumption

64

0

4

8

12

16

20

24

28

1960 1967 1974 1981 1988 1995 2002 2009 2016 2023

Food Energy Health Housing services

% o

f tot

al c

onsu

mpt

ion

Personal consumption by category

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Housing markets

US Economic Outlook / September 2017

65

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Homebuilding continues its slow recovery

•  Housing demand is supported by sustained growth in employment and real incomes. Mortgage rates are low, but will rise through 2019.

•  Supply is constrained by shortages of labor and developed lots.

•  As demand outpaces supply, home prices are rising.

•  After hitting a 51-year low in 2016, the homeownership rate is rising in 2017, led by an upturn in homeownership among young adults.

•  Lean inventories, strong demand, rising prices, and builder optimism will lead to increasing home construction.

66

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

A slow recovery in housing starts is contributing to upward pressure on home prices

67

150

175

200

225

250

275

300

0.0

0.5

1.0

1.5

2.0

2.5

2004 2006 2008 2010 2012 2014 2016 2018

Inde

x, 1

991Q

1 =

100

Mill

ions

of u

nits

Housing starts (Left scale) FHFA house price index* (Right scale)

Housing starts and home prices

US Economic Outlook / September 2017

* Purchase-only index Source: IHS Markit © 2017 IHS Markit

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Housing affordability will deteriorate through 2020 as home prices and mortgage rates rise

68

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Housing affordability index*

US Economic Outlook / September 2017

* A value of 1.00 indicates a household earning the median income can afford a median-priced single-family home Source: IHS Markit © 2017 IHS Markit

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Household formation and rebuilding after hurricanes will support further gains in housing starts

69

0.0

0.3

0.6

0.9

1.2

1.5

1.8

2.1

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Mill

ions

Housing starts Household formation

Housing starts and formation

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US housing starts continue their gradual recovery

70

0.0

0.4

0.8

1.2

1.6

2.0

2.4

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Mill

ions

of u

nits

Single-family Multifamily

Housing starts

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Single-family home sales and construction are not expected to regain their 2005 peaks

71

1

2

3

4

5

6

7

8

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020

Housing starts (Left scale) Home sales (Right scale)

Single-family housing starts and sales, millions

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Business investment

US Economic Outlook / September 2017

72

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Forces driving business fixed investment

US Economic Outlook / September 2017

•  Expected market growth

•  Cost of capital

•  Technological advances

•  Efficiency gains

•  Corporate profits

73

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Corporate economic profits’ share of GDP

74

0

2

4

6

8

10

12

14

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Perc

ent o

f GD

P

Economic profits

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Corporate economic profits are rising again

75

-20

-10

0

10

20

30

1990 1995 2000 2005 2010 2015 2020 2025

Perc

ent c

hang

e

Economic profits

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US corporate cash flow’s share of GDP peaked in 2010

76

9

10

11

12

13

14

15

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Perc

ent o

f GD

P

Net cash flow*

US Economic Outlook / September 2017

* Excluding capital transfers Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Core capital goods orders and shipments are recovering

77

45

50

55

60

65

70

2000 2002 2004 2006 2008 2010 2012 2014 2016

New orders Shipments

3-m

on m

ovin

g av

g., b

il. U

SD

Nondefense capital goods excluding aircraft

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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The upturn in real capital spending is led by structures

78

-30

-20

-10

0

10

20

30

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Equipment Structures Intellectual products

Real business fixed investment

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Real business equipment investment growth by type

79

-12

-8

-4

0

4

8

Total Information technology

Industrial equipment

Transportation equipment

Other equipment

Perc

ent c

hang

e

2016 2017 2018 2019

Real business equipment investment

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Investment in manufacturing structures is down, while investment in mines and wells is up

80

0

25

50

75

100

125

150

1990 1995 2000 2005 2010 2015 2020

Bill

ions

of 2

009

dolla

rs

Manufacturing Mines & wells Utilities

Investment in structures

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US oil drilling follows crude oil prices

81

0

30

60

90

120

150

0.0

0.4

0.8

1.2

1.6

2.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Oil rigs (Left scale, thousands) WTI price (Right scale, USD/barrel)

Weekly oil rig count and West Texas Intermediate crude oil price

US Economic Outlook / September 2017

Sources: Baker Hughes [http://phx.corporate-ir.net/phoenix.zhtml?c=79687&p=irol-reportsother] and EIA [http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=rwtc&f=w] © 2017 IHS Markit

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US real construction growth by sector

US Economic Outlook / September 2017

82

Real investment in structures Percent change 2016 2017 2018 2019 Total construction 1.1 3.5 3.7 3.5

Residential 5.5 2.2 5.4 2.8 Commercial 18.8 7.1 4.2 5.5 Manufacturing -6.4 -10.0 -0.1 11.3 Mines & wells -43.2 51.6 -1.8 5.5 Healthcare -3.9 -3.1 5.3 7.6 Public utilities 2.8 -5.6 -1.8 -1.5 Highways & streets 0.3 -5.9 3.4 5.3 Public education 2.9 -3.1 0.0 6.7

Source: IHS Markit © 2017 IHS Markit

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Business fixed investment’s share of GDP remains below historical peaks

83

0

3

6

9

12

15

1960 1967 1974 1981 1988 1995 2002 2009 2016 2023

Perc

ent o

f GD

P

Structures Non-IT equipment IT equipment Intellectual products

Business fixed investment

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Fiscal policy

US Economic Outlook / September 2017

84

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US policy assumptions in the September forecast

US Economic Outlook / September 2017

•  A reduction in the statutory corporate income tax rate from 35% to 25%, partially offset by fewer tax breaks, starting in January 2018

•  No border adjustments

•  No expensing of capital expenditures

•  Repatriation of $800 billion of foreign profits at a reduced tax rate of 10% in 2018

•  Personal income tax reforms that lower the average effective federal tax rate from 20.7% to 20.0% in January 2018

•  Additional public infrastructure investments totaling $250 billion over 2019–28

•  No major changes in healthcare or international trade policies

•  Federal Reserve (Fed) policy rate increases of 75 basis points in 2017, 2018, and 2019, bringing the rate to a long-term equilibrium of 3%

•  The Fed begins to reduce its asset holdings later this year

85

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

US federal budget deficits will increase after fiscal 2018

86

-12

-9

-6

-3

0

3

-2,000

-1,500

-1,000

-500

0

500

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Bill

ions

of U

SD, f

isca

l yea

rs

Unified budget balance (Left scale) Balance as percent of GDP (Right scale)

US federal budget balance

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Federal expenditures will continue to exceed revenues

87

14

16

18

20

22

24

26

1970 1976 1982 1988 1994 2000 2006 2012 2018 2024

Perc

ent o

f GD

P

Federal revenues Federal expenditures

Federal revenues and expenditures*

US Economic Outlook / September 2017

* Fiscal years, unified budget Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Federal spending will keep rising as transfer payments and interest payments surge

88

0

1

2

3

4

5

6

7

8

1995 1998 2001 2004 2007 2010 2013 2016 2019 2022 2025

Trill

ions

of U

SD

Defense spending Nondefense spending Transfer payments

Interest payments Subsidies

Federal budget expenditures

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Government spending on Social Security and healthcare will increase as the population ages

89

0

2

4

6

8

10

12

14

1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025

Perc

ent o

f GD

P

Social Security Medicare State & local medical

Government spending

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The effective federal personal income tax rate will decrease in 2018

90

17

19

21

23

25

1970 1980 1990 2000 2010 2020

Perc

ent o

f tax

able

inco

me

Personal income tax rate

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Federal government debt remains high relative to GDP

91

0

20

40

60

80

100

1970 1980 1990 2000 2010 2020

Perc

ent o

f GD

P

Publically held federal debt

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Forces driving state government revenues

92

0

1

2

3

4

5

6

Nonfarm employment

Wages per worker Wage income Personal income Retail sales

% c

hang

e, c

alen

dar y

ears

2016 2017 2018 2019

State revenue drivers

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Foreign trade

US Economic Outlook / September 2017

93

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Destinations of US exports of goods, 2016

94

Canada 18.3%

Mexico 15.9%

South & Central America

9.4%

Europe 21.9%

Pacific Rim 24.9%

All other 9.6%

China 7.7% Japan 4.2% ASEAN 5.0%

Percent of total goods exports

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Canada 12.7%

Mexico 13.4%

South & Central America

4.9% Europe 22.1%

Pacific Rim 37.0%

All other 9.9%

Sources of US imports of goods, 2016

95

China 21.5% Japan 5.9% ASEAN 6.8%

Percent of total goods imports, customs basis

US Economic Outlook / September 2017

Source: US Census Bureau, IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

Real US exports and imports are rising

96

-20

-15

-10

-5

0

5

10

15

20

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Year

-ove

r-ye

ar %

cha

nge

Real US exports Real US imports

US exports and imports

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Global economic growth will strengthen

•  Global growth will pick up from 2.5% in 2016 to 3.1% in 2017 and 3.2% in 2018, led by the United States and emerging markets.

•  Eurozone growth will be steady, but UK growth is expected to slow through 2018 as Brexit-related uncertainty delays investment.

•  After a good start to 2017, China’s economic growth will slow because of persistent imbalances in credit, housing, and industrial markets.

•  The Asia-Pacific region will make the strongest contribution to global in the decade ahead, despite slightly slower growth in China.

•  Risks abound, including potential trade wars, financial-market turbulence, China’s rising debt, conflicts in the Middle East and Africa, and Eurozone banking problems.

97

US Economic Outlook / September 2017

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

-2

0

2

4

6

NAFTA Other Americas

Western Europe

Emerging Europe

Mideast-N. Africa

Sub-Saharan

Africa

Japan Other Asia-

Pacific

Ann

ual p

erce

nt c

hang

e

2016 2017 2018 2019 2020–24

Asia-Pacific (excluding Japan) will achieve the fastest growth in real GDP

98

Real GDP

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The US surplus in services trade partially offsets the deficit in merchandise trade

99

-1,000

-750

-500

-250

0

250

500

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Bill

. of d

olla

rs, a

nnua

l rat

es

Goods and services Goods Services

US net exports, NIPA

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The US current account will remain in deficit

100

-6

-5

-4

-3

-2

-1

0

1

-1,500

-1,250

-1,000

-750

-500

-250

0

250

1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 Current-account balance (Left scale, billion US dollars)

Balance as percent of GDP (Right scale)

Current-account balance

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The dollar’s real exchange value will depreciate against major currencies in the medium term

101

0.8

1.0

1.2

1.4

1.6

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Inde

x, 2

009

= 1.

0

Major trading partners Other important trading partners

Real trade-weighted dollar index

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.

The dollar’s real exchange value will depreciate in the medium term

102

0.8

0.9

1.0

1.1

1.2

1.3

1.4

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Inde

x, 2

009

= 1.

0

Real trade-weighted dollar index

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Risks to the US forecast

US Economic Outlook / September 2017

103

Scenario Characteristics Crisis of confidence damages economic growth (Probability = 25%)

• Congress fails to enact tax reforms or new infrastructure spending. Policy uncertainty undermines confidence, leading to a stock market correction.

• Consumers and businesses delay spending. • US economic growth slows through late 2018.

Lower taxes and fewer regulations (Probability = 15%)

• A rollback of regulations and lower corporate taxes result in higher capital spending and productivity growth.

• Consumer and housing markets benefit from higher incomes, milder inflation, and lower interest rates.

• Stronger global economic growth helps exports.

Baseline forecast (Probability = 60%)

• The Fed gradually raises interest rates through 2019. • Personal and corporate income tax rates are cut in 2018. • Consumer spending, homebuilding, and business fixed investment post moderate growth.

• Global economic growth picks up in 2017–18.

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Real GDP growth in alternative scenarios

104

-1

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017 2018 2019

Perc

ent c

hang

e, a

nnua

l rat

e

Baseline (60%) Pessimistic (25%) Optimistic (15%)

Real GDP

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Real consumer spending growth in alternative scenarios

105

0

1

2

3

4

5

6

2012 2013 2014 2015 2016 2017 2018 2019

Perc

ent c

hang

e, a

nnua

l rat

e

Baseline (60%) Pessimistic (25%) Optimistic (15%)

Real consumer spending

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Light-vehicle sales in alternative scenarios

106

8

10

12

14

16

18

20

2006 2008 2010 2012 2014 2016 2018 2020

Mill

. of u

nits

, ann

ual r

ate

Baseline (60%) Pessimistic (25%) Optimistic (15%)

Light-vehicle sales

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Housing starts in alternative scenarios

107

0.4

0.7

1.0

1.3

1.6

1.9

2.2

2006 2008 2010 2012 2014 2016 2018 2020

Mill

. of u

nits

, ann

ual r

ate

Baseline (60%) Pessimistic (25%) Optimistic (15%)

Housing starts

US Economic Outlook / September 2017

Source: IHS Markit © 2017 IHS Markit

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Bottom line for the US economy

•  Real GDP growth is projected to pick up from 1.5% in 2016 to 2.1% in 2017 and 2.7% in 2018, before settling back to 2.3% in 2019.

•  Consumer spending will be supported by solid gains in employment, real disposable incomes, and household net worth.

•  Business fixed investment will benefit from stronger growth in global markets, along with an improving tax and regulatory environment.

•  Due to supply constraints, the recovery in residential construction will remain on a slow track.

•  Wage and benefit costs will accelerate as labor markets tighten.

•  The Fed will gradually raise the federal funds rate to an equilibrium level of 3% by the end of 2019.

108

US Economic Outlook / September 2017

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US Economic Outlook / September 2017


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