Slide 1: Q4 Economic Update October 2023
Q4 Economic Update October 2023 1
Slide 2: Moderator: Scott McClain
MODERATOR Scott McClain EVP & Managing Director – Equipment Finance & Renewable Energy Finance First Horizon E C O N O M I C U P D A T E | October 2023 2
Slide 3: Presenter: Sophia Kearney-Lederman
PRESENTER Sophia Kearney-Lederman Senior Economist FHN Financial E C O N O M I C U P D A T E | October 2023
Slide 4: Disclaimer
Disclaimer This document or presentation was prepared by an FHN Financial Economist and is not subject to all of the independence and disclosure standards applicable to retail investors. This report may not be independent of FHN Financial’s proprietary interests. FHN Financial sales representatives,
Slide 5: Higher for longer is here
Higher for longer is here Sophia Kearney-Lederman Senior Economist October 19, 2023
Slide 6: The Fed's policy vision
7.00% Recession shading 6.50% Fed funds rate 6.00% 5.50% 5.00% 4.50% 4.00% 3.50% 3.00% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 The Fed’s policy vision Interest Inflation Rates Unemployment Rate GDP Source: Federal Reserve, NBER 6
Slide 7: Q3 tracking fastest growth since Q4-21
Q3 tracking fastest growth since Q4-21 Real GDP, with Atlanta Fed GDPNow estimate Qtr/Qtr% Annualized with Sector Contributions 8.0% Atlanta Fed GDPNow 6.0% 4.0% 2.0% 0.0% -2.0% -4.0% Consumption Res Investment Bus. Fixed Invest Inventories Net exports Government GDP -6.0% Q1-22 Q2-22 Q3-22 Q4-22 Q1
Slide 8: Consumers are still spending
Consumers are still spending Retail Sales: Food & Beverage Stores Retail Sales: Bars & Restaurants $85bn Nominal (left) $95bn Nominal (left) Real* (left) Real* (left) $85bn $80bn $75bn $75bn $65bn $70bn $55bn $45bn $65bn $35bn $60bn $25bn 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 *Inflation
Slide 9: Real income has risen this year
Real income has risen this year Disposable Income $22.0tn Disposable Personal Income (SAAR, Bil.$) $21.0tn Real Disposable Personal Income (SAAR, Bil.Chn.2017$) $20.0tn $19.0tn $18.0tn $17.0tn $16.0tn $15.0tn $14.0tn 2017 2018 2019 2020 2021 2022 2023 Source: Bureau of Economic Analysis 9
Slide 10: Consumers continue to take on debt
Consumers continue to take on debt NY Fed Household Debt New Delinquent Loan Balances % of Current Balance $13.0tn $1.7tn 16.0% Auto Auto (right) Credit Card Credit Card (right) 14.0% $12.0tn $1.5tn Student Loan Student Loans (right) Mortgage Mortgage (left) 12.0% $11.0tn $1.3tn $10.0tn 10.0% $1.1tn
Slide 11: Higher rates and housing
Higher rates and housing New & Existing Home Sales Mortgage Rates SAAR 1200k 9.0% Fed Tightening Existing home sales (left) 6.5m FHLMC 30-Yr Fixed Mortgage Rate New home sales (right) 1000k Effective Mortgage Rate 8.0% 5.5m 800k 4.5m 7.0% 600k 3.5m 400k 2015 2017 2019 2021 2023 6.0% Zillow Home Valu
Slide 12: Employment trend looking very healthy
Employment trend looking very healthy Nonfarm Payrolls Change, 000s Goods 600k Pvt services Government 500k Payrolls 12-mo average 400k 300k 200k 100k 0k -100k Jun-22 Aug-22 Oct-22 Dec-22 Feb-23 Apr-23 Jun-23 Aug-23 Source: Bureau of Labor Statistics and FHN Financial 12
Slide 13: Unemployment rate unchanged
Unemployment rate unchanged Unemployment rate 15.0% 2022-23 4.00% 3.75% 13.0% 3.50% 11.0% 3.25% Jan '22 Jul '22 Jan '23 Jul '23 9.0% 7.0% 5.0% 3.0% 1990 1994 1998 2002 2006 2010 2014 2018 2022 Source: Bureau of Labor Statistics 13
Slide 14: Wage growth is slowing
Wage growth is slowing Average Hourly Earnings Growth 9.00% SA, YoY% 8.00% 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2017 2018 2019 2020 2021 2022 2023 Source: Bureau of Labor Statistics 14
Slide 15: Inflation no longer falling
Inflation no longer falling CPI Inflation Contributions Core services, m/m (left) 1H-22: 0.8% avg 2H-22: 0.2% avg 1H-23: 0.3% avg 1.50% 10.0% Core goods, m/m (left) Food, m/m (left) 9.0% 1.25% Energy, m/m (left) Q3-23: 8.0% Yr/Yr % (right) 1.00% 0.4% avg 7.0% 0.75% 6.0% 0.50% 5.0% 4.0% 0.25% 3.0% 0.
Slide 16: Shelter costs popped in September
Shelter costs popped in September Core Services CPI Inflation Contributions 1.0% 8.0% Shelter, m/m (left) Transportation, m/m (left) 7.0% 0.8% Medical Care , m/m (left) All Other, m/m (left) 6.0% Core Services, Yr/Yr% 0.6% 5.0% 0.4% 4.0% 3.0% 0.2% 2.0% -0.1% 1.0% -0.3% 0.0% Jan '21 Jul '21 Jan '22 J
Slide 17: Fed targets core PCE inflation
Fed targets core PCE inflation Core Inflation 7.0% Yr/Yr% Core CPI (ex food & energy) 6.0% Core PCE (ex food & energy) Supercore PCE (Services ex energy & shelter) 2.0% Target 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 Source: Bureau of Labor Statistics, Bureau of Eco
Slide 18: Rates are restrictive. Now what?
Rates are restrictive. Now what? Core PCE, Yr/Yr% 7.00% 0.29% per month '23 YTD avg 0.19% per month 6.00% 0.09% per month Fed funds target w/ FOMC median projection (Sep '23) 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2019 2020 2021 2022 2023 2024 Source: Bureau of Economic Analysis, Federal Reserve, FHN F
Slide 19: FOMC Members
FOMC Members Permanent Voters 2023 Voters 2024 Voters 2025 Voters Powell Williams Goolsbee Barkin Collins Chair Vice Chair, NY Chicago Richmond Boston Barr Bowman Harker Bostic O’Neill Paese* Board of Gov Board of Gov Philadelphia Atlanta St. Louis Cook Jefferson Kashkari Daly Schmid Board of Gov Bo
Slide 20: The dot plot is a guide, not a promise
The dot plot is a guide, not a promise Median Current rate 20
Slide 21: The yield super-cycle has turned
The yield super-cycle has turned 5.00% US 10-Yr Yield FOMC meetings 4.80% 17.0% 4.60% 16.0% 4.40% 4.20% 15.0% 4.00% 3.80% 14.0% 3.60% 13.0% 3.40% 3.20% 12.0% 3.00% 11.0% May '23 Jun '23 Jul '23 Aug '23 Sep '23 Oct '23 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% 1965 1970 1975 1980 1985 1
Slide 22: Evolution of median FOMC participants' projections
Evolution of median FOMC participants’ projections Real GDP Core PCE Sep '22 Dec '22 Mar '23 June '23 Sep '23 2.5% Sep '22 Dec '22 Mar '23 June '23 Sep '23 4.5% Hundreds Hundreds 4.0% 2.1% 2.0% 3.5% 3.7% 3.0% 1.5% 1.5% 2.5% 2.6% 2.0% 1.0% 1.5% 0.5% 1.0% 0.5% 0.0% 0.0% 2023 2024 2023 2024 Note: Proje
Slide 23: Looking for the NEW-new normal
Looking for the NEW-new normal The federal funds rate 10.0% 8.0% Old-normal 6.0% 4.0% New-normal 2.0% 0.0% Recession -2.0% Fed funds rate (top of range) Real fed funds rate -4.0% -6.0% 1985 1990 1995 2000 2005 2010 2015 2020 Source: Federal Reserve, Bureau of Economic Analysis and NBER
Slide 24: Key takeaways
Key takeaways ▪ GDP stronger-than-expected in Q3 ▪ Fiscal policy still highly stimulative ▪ Inflation moderating but still far too high ▪ Job growth strong in Q3, but labor force growth relieves unemployment squeeze ▪ Wage growth is moderating ▪ Fed believes long-term yields are restrictive. But, as
Slide 25: Disclaimer (FHN Financial Economist)
This document or presentation was prepared by an FHN Financial Economist and is not subject to all of the independence and disclosure standards applicable to retail investors. This report may not be independent of FHN Financial’s proprietary interests. FHN Financial sales representatives, traders an
Slide 26: Q&A
Q&A Scott McClain Sophia Kearney-Lederman EVP & Managing Director – Equipment Senior Economist Finance & Renewable Energy Finance FHN Financial First Horizon E C O N O M I C U P D A T E | October 2023
Slide 27: Closing
Closing Scott McClain EVP & Managing Director – Equipment Finance & Renewable Energy Finance First Horizon E C O N O M I C U P D A T E | October 2023 27
Slide 28: Please reach out to your banker with any questions
Please reach out to your banker with any questions or to set up a meeting with our Economist. A recording of this event will be forwarded next week. Next virtual event: December 14 Market Update: Quarterly Conversations E C O N O M I C U P D A T E | October 2023 28
Slide 29: Thank you.
RY FIRST HORIZON. GY FHN FINANCIAL. Thank you.