The U.S. & Austin Economic Outlook
Sarah House
Senior Economist
November 18, 2020
U.S. Growth
The economy’s momentum is fading with the recovery still far from complete
GDP Growth
GDP Level
-40% -30% -20% -10% 0% 10% 20% 30% 40% -40% -30% -20% -10% 0% 10% 20% 30% 40% 00 02 04 06 08 10 12 14 16 18 20 22U.S. Real GDP
Bars = CAGR Line = Yr/Yr Percent Change
GDP - CAGR: Q3 @ 33.1%
GDP - Yr/Yr Percent Change: Q3 @ -2.9%
Forecast $15 $16 $17 $18 $19 $20 $21 $15 $16 $17 $18 $19 $20 $21 2017 2018 2019 2020 2021 Thousan ds Thousan ds
COVID Output Gap
Level of Real GDP Relative to Dec. 2019 Forecast, Trillions of Dollars
Output Gap: Q4-2021 @ 3.2% WFS December GDP Forecast Real GDP: Q3-2020 @ $18.6T
WFS Forecast
-12
-10
-8
-6
-4
-2
0
2
-12
-10
-8
-6
-4
-2
0
2
06
07
08
09
10
11
12
13
14
15
16
17
18
19
20
Bloomberg Financial Conditions Index
Higher Values = More Accomodative Conditions
Financial Conditions Index: Nov @ 0.21
Monetary Policy: Financial Conditions
Aggressive action by the Fed
has helped financial
conditions ease considerably
since the onset of the
pandemic
-2%
-1%
0%
1%
2%
3%
4%
5%
-2%
-1%
0%
1%
2%
3%
4%
5%
00
02
04
06
08
10
12
14
16
18
20
22
PCE Deflator & "Core" PCE Deflator
Year-over-Year Percent Change
PCE Deflator: Q3 @ 1.2%
"Core" PCE Deflator: Q3 @ 1.4%
Forecast
Monetary Policy: Inflation
Inflation is unlikely to return
to the Fed’s 2% target soon,
even with the fiscal and
monetary stimulus provided
to date
$9.5T
$10.0T
$10.5T
$11.0T
$11.5T
$12.0T
$12.5T
$13.0T
$13.5T
$14.0T
$14.5T
$9.5T
$10.0T
$10.5T
$11.0T
$11.5T
$12.0T
$12.5T
$13.0T
$13.5T
$14.0T
$14.5T
2016
2017
2018
2019
2020
Thousan
ds
Personal Income: Compensation
Trillions of USD, SAAR
Compensation + Benefits & Impact Payments: Sep @ $11.9T
Employee Compensation: Sep @ $11.5T
Fiscal Policy & Personal Income
Fiscal support to the
economy this year has been
extraordinary, but it is fading
COVID-19
The outlook depends heavily on the path of COVID-19, and recent trends are concerning
United States
Texas
0.0K 0.5K 1.0K 1.5K 2.0K 2.5K 3.0K 3.5K 4.0K 0K 20K 40K 60K 80K 100K 120K 140K 160K 180K
Feb-10 Mar-21 Apr-30 Jun-09 Jul-19 Aug-28 Oct-07 Nov-16
COVID in the United States
New Cases & Deaths, 7-Day Mov. Avg; Current Hospitalizations Daily New Cases: Nov-16 @ 155,884 (Left Axis)
Current Hospitalizations: Nov-16 @ 73,014 (Left Axis) Daily New Deaths: Nov-16 @ 1,277 (Right Axis)
0 200 400 600 800 1,000 0 3,000 6,000 9,000 12,000 15,000
Feb-10 Mar-21 Apr-30 Jun-09 Jul-19 Aug-28 Oct-07 Nov-16
COVID in Texas
New Cases & Deaths, 7-Day Mov. Avg; Current Hospitalizations Daily New Cases: Nov-16 @ 9,797 (Left Axis)
Current Hospitalizations: Nov-16 @ 7,468 (Left Axis) Daily New Deaths: Nov-16 @ 117 (Right Axis)
Activity
Activity is still well-below pre-pandemic levels and shows signs of slowing again
Venturing Out
Eating Out
-5% 0% 5% 10% 15% 20% 25% 30% -5% 0% 5% 10% 15% 20% 25% 30%
Feb-21 Mar-27 May-01 Jun-05 Jul-10 Aug-14 Sep-18 Oct-23
Time Spent at Residential Locations
Percent Change from Baseline, 7-Day MA, Google Data Texas: Nov-13 @ 8% Austin: Nov-13 @ 13% United States: Nov-13 @ 9%
-100% -80% -60% -40% -20% 0% 20% -100% -80% -60% -40% -20% 0% 20%
Feb-24 Mar-30 May-04 Jun-08 Jul-13 Aug-17 Sep-21 Oct-26
Seated Diners
Year-over-Year Percent Change, 7-Day MA, OpenTable Data Texas: Nov-16 @ -31% Austin: Nov-16 @ -33% United States: Nov-16 @ -47%
Austin: Labor Market
While not immune from the COVID-recession, job losses in the Austin metro have been relatively mild thanks
to the region’s industry structure and employers looking beyond the pandemic
Employment Growth
Employment by Industry
-12% -8% -4% 0% 4% 8% -12% -8% -4% 0% 4% 8% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Nonfarm Employment
Year-over-Year Percent Change of 3-MMA
United States: Sep @ -7.0% Austin, TX: Sep @ -3.2% Texas: Sep @ -4.9% -35% -25% -15% -5% 5% 15% Information Other Services Manufacturing Financial Activities Nat. Res., Min. & Construct. Leisure and Hospitality Educ. & Health Services Government Trade, Trans. & Utilities Prof. & Bus. Svcs. Total Nonfarm
Austin MSA Employment Growth By Industry
Austin, TX: Sept 2020 United States: Oct 2020
Number of Employees
Less More Year-over-Year Percent Change, 3-MMA
**Note: Ranking by Number of Employees Based on Austin Employment Data
Austin: Spending
The relatively strong jobs picture coupled with fiscal stimulus has propelled spending by Austin residents
above pre-pandemic levels
Consumer Spending
Spending by Type
-6.4% -8.3% 8.4% -5.6% -9.0% -2.3% -6.4% -12% -8% -4% 0% 4% 8% 12% United
States Texas Austin AntonioSan Dallas Houston WorthFort
-12% -8% -4% 0% 4% 8% 12%
Changes in Consumer Spending
Nominal, From January 2020 to November 01, 2020
-3% 14% 5% -7% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20% -25% -20% -15% -10% -5% 0% 5% 10% 15% 20%
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20
U.S. Real Personal Consumption Expenditures
Change from February through September 2020
PCE
Durable Goods Nondurable Goods Services
Austin: Small Businesses
The decline in services spending has hit local small businesses hard
Businesses Open
Impact by Industry
-26.7% -31.3% -39.5% -37.8% -22.1% -38.2% -23.7% -50% -40% -30% -20% -10% 0% 10% United
States Texas Austin AntonioSan Dallas Houston WorthFort
-50% -40% -30% -20% -10% 0% 10%
Changes in Small Businesses Open
From January 2020 to October 31, 2020
-17.0% -75.3% -20.9% -28.0% -39.5% -80% -60% -40% -20% 0% 20% Education & Health
Leisure & Hospitality Professional & Business Services Retail & Transportation Total
Austin Change in Number of Small Businesses Open
From January 2020 to October 31, 2020
Austin: Commercial Real Estate Market
The pandemic’s effects on the commercial real estate market are likely to be felt for years
Vacancy Rates
Asking Rent
2% 4% 6% 8% 10% 12% 14% 16% 18% 2% 4% 6% 8% 10% 12% 14% 16% 18% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Austin Vacancy Rates
By Property Type, Percent
Apartment Vacancy: Q3 @ 9.5% Office Vacancy: Q3 @ 11.4% Retail Vacancy: Q3 @ 4.6% Industrial Vacancy: Q3 @ 7.1% -20% -15% -10% -5% 0% 5% 10% 15% 20% 25% -20% -15% -10% -5% 0% 5% 10% 15% 20% 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20
Austin Asking Rents
By Property Type, Year-Over-Year Percent Change
Apartment: Q3 @ -2.8% Office: Q3 @ -0.5% Retail: Q3 @ -0.2% Industrial: Q3 @ 2.3%
Austin: Housing
Housing construction has remained hot through the pandemic, while price appreciation for single-family
homes has strengthened
New Construction
Home Prices
0 5 10 15 20 25 30 0 5 10 15 20 25 30 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20 Th o u san d s Th o u san d s
Austin MSA Housing Permits
Single-Family: Sep @ 22,116
Single-Family, 12-MMA: Sep @ 19,491 Multifamily, 12-MMA: Sep @ 19,162
Single-Family Average (1998-2003): 7,778
Thousands of Permits, Seasonally Adjusted Annual Rate
-20% -15% -10% -5% 0% 5% 10% 15% 20% -20% -15% -10% -5% 0% 5% 10% 15% 20% 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
CoreLogic HPI: U.S. vs. Austin, TX
Year-over-Year Percent Change
United States: Aug @ 5.9% Austin, TX: Aug @ 7.1%
Austin: Population & Housing
The pickup in home construction has outpaced population growth and should help with the area’s affordability
issues and longer-term growth
Population Growth
Housing Permits
0 10 20 30 40 50 60 70 80 0 10 20 30 40 50 60 70 80 91 93 95 97 99 01 03 05 07 09 11 13 15 17 19
Austin MSA Population Growth
By Components of Change, Thousands Natural Increase: 2019 @ 14.7K
International Net Migration: 2019 @ 5.3K Domestic Net Migration: 2019 @ 41.3K
0.000 0.002 0.004 0.006 0.008 0.010 0.012 0.014 0.016 0.018 0.020 0.000 0.002 0.004 0.006 0.008 0.010 0.012 0.014 0.016 0.018 0.020 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Housing Permits Per Capita
2020 Est. Based on YTD Permit Growth and 5-Yr. Avg. Pop. Growth Austin, TX: 2020 @ 0.017
United States: 2020 @ 0.003
Expectations
The Outlook
Monetary Policy
Fiscal Policy
COVID-19
Austin
The recovery from the COVID shock is underway, but
momentum is slowing with the recovery far from complete
We assume a vaccine will be widely available in the second
half of 2021
The Fed wasted no time supporting the economy and financial
system functioning through QE and lending programs
Interest rates will remain depressed for the foreseeable
future as the Fed emphasizes the labor market over inflation
Fiscal stimulus helped shore-up income in the early stages of
the pandemic, but the timing and degree of further support
remains in question and could jeopardize the recovery over the
near term
Economic activity will depend on the virus, but the relationship
between cases and the virus is weakening
The pandemic has led to a unique downturn: services have been
hit hardest, with job losses most acute in lower-paying industries
The Austin economy continues to be an outperformer, but the
pandemic has not hit local businesses and industries evenly
Housing construction has been a bright spot, which should help
U.S. Economic Forecast
q 4 2 0 2 0
2 02 0
2019 2020
1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q
Real Gross Domestic Product 1 2.9 1.5 2.6 2.4 -5.0 -31.4 33.1 4.5 4.0 3.1 2.9 2.8 2.8 2.9 2.6 2.4 2.2 -3.5
Personal Consumption 1.8 3.7 2.7 1.6 -6.9 -33.2 40.7 4.9 3.5 3.3 3.1 2.9 2.7 2.7 2.5 2.2 2.4 -3.8 Business Fixed Investment 4.2 0.0 1.9 -0.3 -6.7 -27.2 20.3 9.0 3.7 4.2 4.9 4.9 5.4 5.2 5.2 5.0 2.9 -4.5 Equipment 2.0 -3.8 -1.7 -1.7 -15.2 -35.9 70.1 12.4 5.0 6.0 6.2 6.8 7.1 6.4 6.1 5.8 2.1 -5.5 Intellectual Property Products 4.5 4.1 5.3 4.6 2.4 -11.4 -1.0 1.6 3.0 4.8 6.8 6.3 6.3 5.5 5.6 5.1 6.4 0.0 Structures 8.2 1.6 3.6 -5.3 -3.7 -33.6 -14.6 4.5 1.5 -1.5 -2.2 -3.4 -1.4 1.3 1.9 2.1 -0.6 -10.1 Residential Investment -1.7 -2.1 4.6 5.8 19.0 -35.6 59.3 17.0 5.5 8.0 7.5 7.0 6.5 6.5 6.0 6.0 -1.7 4.7 Government Purchases 2.5 5.0 2.1 2.4 1.3 2.5 -4.5 -1.7 -0.2 -0.6 -0.4 0.2 0.2 0.5 0.5 0.8 2.3 1.1 Net Exports 2 0.6 -0.8 0.0 1.5 1.1 0.6 -3.1 -0.9 0.2 0.2 0.1 -0.1 -0.1 -0.1 -0.2 -0.2 -0.2 0.1
Inventories 2 0.2 -1.0 -0.1 -0.8 -1.3 -3.5 6.6 1.3 0.7 -0.2 -0.2 -0.1 0.0 0.0 0.0 0.0 0.0 -0.7
Nonfarm Payroll Change 3 139 159 203 210 -303 -4427 1309 563 450 328 283 270 257 243 227 213 178 -715
Unemployment Rate 3.9 3.6 3.6 3.5 3.8 13.0 8.8 6.8 6.7 6.5 6.2 5.9 5.6 5.3 5.0 4.7 3.7 8.1
Consumer Price Index 4 1.6 1.8 1.8 2.0 2.1 0.4 1.3 1.2 1.3 2.6 1.7 1.8 2.0 2.0 2.1 2.1 1.8 1.2
Quarter-End Interest Rates 5
Federal Funds Target Rate 2.50 2.50 2.00 1.75 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 2.25 0.25 Conventional Mortgage Rate 4.28 3.80 3.61 3.72 3.45 3.16 2.89 2.80 2.80 2.85 2.90 3.00 3.05 3.10 3.15 3.20 3.94 3.08 2 Year Note 2.27 1.75 1.63 1.58 0.23 0.16 0.13 0.15 0.20 0.20 0.20 0.25 0.25 0.30 0.35 0.45 1.97 0.17 10 Year Note 2.41 2.00 1.68 1.92 0.70 0.66 0.69 0.85 1.00 1.10 1.20 1.30 1.35 1.40 1.45 1.50 2.14 0.73
Forecast as of: November 10, 2020
1 Compound Annual Growth Rate Quarter-over-Quarter 2 Percentage Point Contribution to GDP 3 Average Monthly Change 4 Year-over-Year Percentage Change 5 Annual Numbers Represent Averages
2022 2021
2019 2020
Forecast
Wells Fargo Securities U.S. Economic Forecast
Actual Forecast
Actual
Wells Fargo Securities Economics Group
Jay H. Bryson, Chief Economist
…
jay.bryson@wellsfargo.com
Mark Vitner, Senior Economist
mark.vitner@wellsfargo.com
Sam Bullard, Senior Economist
sam.bullard@wellsfargo.com
Nick Bennenbroek, International Economist
nicholas.bennenbroek@wellsfargo.com
Tim Quinlan, Senior Economist
tim.quinlan@wellsfargo.com
Azhar Iqbal, Econometrician
azhar.iqbal@wellsfargo.com
Sarah House, Senior Economist
sarah.house@wellsfargo.com
Charlie Dougherty, Economist
charles.dougherty@wellsfargo.com
Michael Pugliese, Economist
michael.d.pugliese@wellsfargo.com
Brendan McKenna, International Economist
brendan.mckenna@wellsfargo.com
Shannon Seery, Economist
shannon.seery@wellsfargo.com
Senior Economists
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