Slide 1: Q2 Economic Update April 2024
Q2 Economic Update April 2024 1
Slide 2: Moderator: Renee Drake
MODERATOR Renee Drake EVP, Middle TN Commercial Banking Division Manager First Horizon E C O N O M I C U P D A T E | April 2024 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 | April 2024
Slide 4: Higher for even longer
Higher for even longer April 18 2024 Sophia Kearney-Lederman Senior Economist
Slide 5: Market expectations backtrack past the Fed's
Market expectations backtrack past the Fed’s Fed funds forecasts 5.50% 5.25% 5.00% 4.75% Actual 4.50% FOMC Median (Mar '24) 4.25% FHN Financial (Apr 5, 2024) Fed funds futures (Jan 16) 4.00% Fed funds futures (Feb 2) 3.75% Fed funds futures (Mar 22) Fed funds futures (Apr 10) 3.50% Fed funds futures
Slide 6: The "bumpy road" to 2.0% got a bit bumpier
The “bumpy road” to 2.0% got a bit bumpier CPI Inflation Contributions Core services, m/m (left) Food, m/m (left) 1.50% 10.0% Core goods, m/m (left) Energy, m/m (left) 9.0% 1.25% Yr/Yr % (right) 8.0% 1.00% Q1-24 Avg: 0.37% 7.0% 0.75% Q4-23 Avg: 0.27% 6.0% 0.50% 5.0% 4.0% 0.25% 3.0% 0.00% 2.0% -0.25%
Slide 7: Core inflation progress stalled
Core inflation progress stalled Core CPI vs Core PCE 7.0% 6.5% Core CPI Yr/Yr% 6.0% Core PCE Yr/Yr% 5.5% 5.0% 4.5% 4.0% 3.5% 3.0% 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2019 2020 2021 2022 2023 2024 Source: Bureau of Economic Analysis, Bureau of Labor Statistics, Bloomberg, FHN Financial 7
Slide 8: Q1-24 growth tracking close to 3.0%
Q1-24 growth tracking close to 3.0% Atlanta Fed GDPNow: Q1 2024 4.5% Retail Sales (Jan) Employment Report (Feb) 2.9% 3.2% 4.0% Initial Retail Sales (Mar) 3.0% 2.8% 3.5% Retail Sales (Feb) 2.3% 3.0% 2.5% Employment Report (Jan) 3.5% 2.0% ISM Mfg (Feb) Employment Report (Mar) 1.5% Construction Spendin
Slide 9: A forecast for steady growth this year
A forecast for steady growth this year Real GDP w/ forecast 6.0% Qrt/Qtr Annualized w/ Sector Contributions Forecast 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% -4.0% Consumption Bus. Fixed Invest Residential Invest. Inventories Net Exports Government Real GDP, Qtr/Qtr -5.0% Q1-22 Q2-22 Q3-22 Q4
Slide 10: Housing market still tight
Housing market still tight Housing Units Under Construction 1100k New & Existing Home Sales SAAR Existing home sales (left) 1000k 7.0m 1200k New home sales (right) 1 Unit 900k 5 or more units 1000k 6.0m 800k 800k 700k 5.0m 600k 600k 4.0m 500k 400k 400k 3.0m 200k 2018 2019 2020 2021 2022 2023 2024 20
Slide 11: Housing impacts inflation with a lag
Housing impacts inflation with a lag 20% Zillow Observed Rent Index, Yr/Yr% Zillow Home Value Index, Yr/Yr% 18% PCE Index: Housing, Yr/Yr% 16% PCE: Net Household Insurance, Yr/Yr% 14% 12% 10% 8% 6% 4% 2% 0% 2016 2017 2018 2019 2020 2021 2022 2023 2024 -2% Source: Bureau of Economic Analysis, Zillow.
Slide 12: March retail sales stronger-than-expected
March retail sales stronger-than-expected Real Retail Sales 10.0% Component-Specific Deflators 4.0% Hundreds MoM% (right) 7.5% YoY% (left) 3.0% 5.0% 2.0% 2.5% 1.0% 0.0% 0.0% -2.5% -1.0% -5.0% -2.0% Jan '23 Mar '23 May '23 Jul '23 Sep '23 Nov '23 Jan '24 Mar '24 Source: Census Bureau, Bureau of Labor
Slide 13: Delinquencies higher, but debt service ratios steady
Delinquencies higher, but debt service ratios steady New Delinquent Loan Balances Household Debt Service Ratios % of Current Balance Ratio debt-service payments to disposable personal income 16.0% 14.0% Auto Household Debt Service Ratio (SA, %) Credit Card 13.0% 14.0% Mortgage Debt Service Ratio (SA
Slide 14: Real income rose last year
Real income rose last year Disposable Personal Income SAAR $22tn Disposable Personal Income $21tn Real Disposable Personal Income $20tn $19tn $18tn $17tn $16tn $15tn $14tn 2018 2019 2020 2021 2022 2023 2024 Source: Bureau of Economic Analysis, FHN Financial 14
Slide 15: Labor market in better balance
Labor market in better balance Nonfarm Payrolls JOLTS: Job Openings Monthly change 13m 500k Goods Pvt services 450k 12m Government Payrolls 400k 11m 12-mo average 350k 10m 300k 9m 250k 8m 200k 7m 150k 6m 100k 5m 50k 0k 4m -50k 3m Jan '23 Jul '23 Jan '24 2019 2020 2021 2022 2023 2024 Source: Bureau o
Slide 16: Unemployment rate still below 4.0%
Unemployment rate still below 4.0% Unemployment rate 15.0% 2022-24 4.25% 4.00% 13.0% 3.75% 11.0% 3.50% 3.25% 2022 2023 2024 9.0% 7.0% 5.0% 3.0% 1990 1994 1998 2002 2006 2010 2014 2018 2022 Source: Bureau of Labor Statistics 16
Slide 17: Labor force growth was Fed's ally last year
Labor force growth was Fed’s ally last year $23.0tn 170m Recession shading 168m $22.0tn Real GDP, SAAR (left) 166m $21.0tn Civilian Labor Force, SA (right) 164m $20.0tn 162m 160m $19.0tn 158m $18.0tn 156m 154m $17.0tn 152m $16.0tn 150m $15.0tn 148m 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 S
Slide 18: Immigration expected to continue to grow labor force
Immigration expected to continue to grow labor force Civilian Labor Force NSA 138m Native Born Labor Force, 3mth MA (left) 33m 137m Foreign Born Labor Force, 3mth MA (right) 32m 136m 31m 135m 30m 134m 29m 133m 28m 132m 27m 131m 130m 26m 129m 25m 128m 24m 2015 2016 2017 2018 2019 2020 2021 2022 2023
Slide 19: Earnings growth stable at 4.0%
Earnings growth stable at 4.0% Average Hourly Earnings Growth 9.00% Yr/Yr% 8.00% AHE Growth, Yr/Yr% (right) 7.00% 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2018 2019 2020 2021 2022 2023 2024 Source: Bureau of Labor Statistics, FHN Financial 19
Slide 20: Small biz survey highlights sticky inflation
Small biz survey highlights sticky inflation NFIB Small Business Survey: Workers Comp NFIB Small Business Survey: Selling Prices 60% 80% Net % Raising Worker Comp Over Past 3 Mths (right) % Respondents Raising Avg Selling Prices (right) Net % Planning to Raise Worker Comp in Next 3 mths (right) 55%
Slide 21: Progress slowing, inflation still too high
Progress slowing, inflation still too high PCE Index Inflation 11.0% 10.0% PCE Yr/Yr% Core PCE Yr/Yr% 9.0% PCE: Goods Yr/Yr% PCE: Services Yr/Yr% 8.0% 7.0% 6.0% 5.0% 4.0% 3.0% 2.0% 1.0% 0.0% -1.0% -2.0% -3.0% 2018 2019 2020 2021 2022 2023 2024 Source: Bureau of Economic Analysis, Bloomberg, FHN Fina
Slide 22: Geopolitical risks for goods and energy inflation
Geopolitical risks for goods and energy inflation WCI Container Freight Index $12,000 Diesel & Gas Prices USD per 40ft box Avg Gas Price, $/gal (left) $6.00 Avg Diesel Price, $/gal (left) $10,000 $5.50 $8,000 $5.00 $4.50 $6,000 $4.00 $4,000 $3.50 $2,000 $3.00 $0 $2.50 2018 2019 2020 2021 2022 2023 2
Slide 23: Fed was already weary of rushing to cut
Fed was already weary of rushing to cut PCE Yr/Yr% Inflation Contributions 1976-1983 2018-Present 20.0% 8.0% Core services 18.0% Core goods 7.0% Food 16.0% Energy 6.0% Fed funds target (upper) 14.0% 5.0% 12.0% 10.0% 4.0% 8.0% 3.0% 6.0% 2.0% 4.0% 1.0% 2.0% 0.0% 0.0% -2.0% -1.0% 1976 1977 1978 1979 19
Slide 24: March FOMC projection updates
March FOMC projection updates Real GDP PCE 3.0% Hundreds 2.5% Hundreds 2.5% 2.4% 2.1% 2.0% 2.2% 2.0% 2.0% 1.5% 1.5% 1.0% 1.0% 0.5% 0.5% 0.0% 0.0% 2024 2025 2024 2025 Note: Projections for change in real GDP are 4Q/4Q% Note: Projections for change in PCE are 4Q/4Q% Unemployment Rate Core PCE 3.0% Hun
Slide 25: March FF median holds in '24; higher in '25 & beyond
March FF median holds in ’24; higher in ‘25 & beyond Evolution of median participants' projections: Fed funds rate 6.00% Current fed funds level: 5.375% Mar '23 June '23 Sep '23 Dec '23 Mar '24 5.50% 5.00% 4.6% 4.50% 4.00% 3.9% 3.50% 3.1% 3.00% 2.6% 2.50% 2.00% 1.50% 1.00% 0.50% 0.00% 2024 2025 2026
Slide 26: March 2024 dot plot
March 2024 dot plot Median’s 26
Slide 27: More questions around natural rate
More questions around natural rate Implied FOMC natural rate estimates Range 3.0% Central Tendency Median 2.5% 2.0% 1.5% 1.0% 0.5% 0.0% 2012 2014 2016 2018 2020 2022 2024 Source: Federal Reserve, FHN Financial 27
Slide 28: FF futures look for fewer cuts in '24 and '25
FF futures look for fewer cuts in ‘24 and ‘25 Market expectations vs FOMC dot plot median 0 Mkt expected cuts in '24 Mkt expected cuts in '24 & '25 1 Median dot end '24 Median dot end '25 CPI report FOMC meeting 2 3 # of 25bp cuts 4 5 6 7 8 9 10 Jan-1 Jan-8 Jan-15 Jan-22 Jan-29 Feb-5 Feb-12 Feb-19 F
Slide 29: No reason for the Fed to cut yet
No reason for the Fed to cut yet With inflation’s progress stalling, growth still tracking steady, and no signs of imminent labor market weakening, there isn’t yet a reason for the Fed to cut rates. Fed was already preaching patience before inflation’s “lack of progress” in March. Comments since
Slide 30: Disclaimer
Although this information has been obtained from sources which we believe to be reliable, we do not guarantee its accuracy, and it may be incomplete or condensed. This is for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any secur
Slide 31: Q&A
Q&A Sophia Kearney- Renee Drake Lederman EVP, Middle TN Commercial Banking Senior Economist Division Manager FHN Financial First Horizon E C O N O M I C U P D A T E | April 2024
Slide 32: Closing: Renee Drake
Closing Renee Drake EVP, Middle TN Commercial Banking Division Manager First Horizon E C O N O M I C U P D A T E | April 2024 32
Slide 33: 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: June 20 Market Update: Quarterly Conversations E C O N O M I C U P D A T E | April 2024 33
Slide 34: Thank you.
RY FIRST HORIZON. GY FHN FINANCIAL. Thank you.