ECONOMIC OUTLOOK 

UPDATE

QUARTERLY

4Q 2016

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ECONOMIC UPDATE AT A GLANCE (4Q 2016 SUMMARY)

The U.S. economy—as indicated by GDP—grew at an annual rate of 1.9% in the fourth quarter of 2016, which is 

slower than the 3.5% rate reported in the third quarter of 2016. The slowing rate is due to a decline in exports and 

federal government spending. Imports, however, which are subtracted in the calculation of GDP, increased. For 

the year 2016, GDP increased 1.6% compared with 2.6% in 2015. Consumer spending rose 2.5% in the fourth 

quarter. Increased spending on big-ticket items drove the fourth-quarter rise in consumer spending. Spending on 

long-lasting or durable goods leaped nearly 11.0%. Comparatively, consumer spending rose at a rate of 3.0% in 

the third quarter, although both quarters suggest the economy is growing at a steady pace. Private inventory investment also helped boost GDP. Excluding inventories, GDP rose at a 0.9% rate in the fourth quarter. Total government 

spending rose 1.2% in the fourth quarter, marking the second consecutive quarterly increase, while state and local 

government spending increased following two consecutive quarters of declines. Private fixed investment, which 

includes residential and business spending, increased 4.2%. This marks a trend reversal after private fixed investment dropped for four straight quarters. The trade deficit widened in the fourth quarter, lowering by 1.7 percentage 

points.

The Conference Board reported the Leading Economic Index increased 0.5% in December. Improving consumer 

sentiment towards the outlook for the economy drove the December increase. This indicates that the business 

cycle still showed strong momentum in the final months of 2016, which also suggests the economy will continue 

to grow, at least at a moderate pace, for the early months of 2017. For the last six months of 2016, the Leading 

Economic Index grew 1.4%, well ahead of the 0.2% growth recorded during the first half of the year.

Job growth continued on a solid pace in December, as employment rose by 156,000, but came in lower than the 

170,000 initially projected. Job growth has averaged 165,000 jobs per month over the past three months, well 

above the 80,000-jobs-a-month pace the White House Council of Economic Advisers believes is needed to maintain a low and stable unemployment rate. For year-end 2016, job gains totaled nearly 2.2 million, a decline of more 

than a half a million from the previous year. The unemployment rate increased 0.1 percentage point in December, 

to 4.7%, while the labor-force participation rate remained unchanged, at 62.7%.

As job growth continued to move forward in December, wage growth also rose. Average hourly earnings for all 

private-sector employees increased 10 cents in December. Average hourly earnings grew at a 2.9% annual rate in 

2016, which is the fastest year-over-year gain in nearly seven years and much faster than the rate of inflation.

In December, the Federal Open Market Committee voted unanimously to raise its target range for the federal funds 

rate by 0.25%, to between 0.5% and 0.75%. This was the second increase in the federal funds rate since the 2008 

financial crisis. In making its decision to raise the federal funds rate, the Federal Open Market Committee cited a 

change for the better in the economic environment since the election of President Trump.

Readings for consumer confidence improved in December. The Consumer Confidence Index improved 6.6 points, 

to 113.7, reaching its highest level since August 2001. The post-election surge in the index reflects consumer 

Subscribers are permitted to quote all or parts of the Economic Outlook Update. Please see the Disclaimer and Copyright Permission 

Statement at the end of the report for the terms and conditions of this grant of permission.

ECONOMIC OUTLOOK UPDATE QUARTERLY

4Q 2016

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

optimism in the economy, jobs, and their personal income. The survey is a leading indicator of consumer attitudes, measures of confidence toward business conditions, short-term outlook, and personal finances and 

jobs. The Consumer Sentiment Index rose 4.4 points in 

December, to 98.2, reaching its highest total since 2004. 

The median projection in a Bloomberg survey called 

for a reading of 98.0. The Thomson Reuters/University 

of Michigan’s Consumer Sentiment Index survey found 

that 18.0% of consumers became more optimistic about 

prospects for the economy and the expected favorable 

impact of the new president’s policies on the economy. 

Notably, this is twice as high as the 9.0% peak in 1981, 

when Ronald Reagan took office. 

The 4Q 2016 Wells Fargo/Gallup Small Business Index, 

which was reported in August, surged 12.0 points, to a 

reading of 80.0. This represents the highest optimism 

reading since January 2008 and the largest quarterly increase in a year. The report highlighted that small-business owners are more optimistic about the operating environment in 2017. The 4Q survey asked small-business 

owners about their priorities for the incoming president 

and Congress. Eighty-one percent said actions relating 

to the tax code, tax regulations, and tax rates for small 

businesses were most important. Other top priorities included the healthcare law (76.0%), government regulation 

of small business (70.0%), and actions that could affect 

oil prices or energy costs (59.0%). The report went on to 

note that in six key areas—financial situation, cash flow, 

revenues, capital spending allocation, hiring, and credit 

availability—the present situation dipped 5.0 points, from 

a reading of 29.0 in July to 24.0 points in November, while 

the future expectations score rose 17.0 points, from 39.0 

in July to 56.0 in November. 

The RSM U.S. Middle Market Business Index (MMBI) 

jumped 4.5 points in the fourth quarter of 2016, climbing to a reading of 120.1. The MMBI reading indicated 

that overall growth in the U.S. middle market is likely to 

slow in the final quarter of the year, though the information was gathered before the results of the presidential 

election. Data for six months ahead are more encouraging, particularly with respect to capital expenditures, investments, and compensation, when compared to three 

A well-prepared business valuation contains a thorough and 

relevant economic section. Revenue Ruling 59-60 requires 

consideration of “the economic outlook in general and the 

condition and outlook of the specific industry in particular.” 

An understanding of the economic outlook is fundamental to developing reasonable expectations about a subject 

company’s future prospects. In any business valuation, the 

general economic outlook as of the appraisal date should be 

considered, since the national economic outlook is often the 

basis of how investors perceive alternative investment opportunities at any given time. Appraisers and analysts should 

integrate the information presented in the Economic Outlook 

Update with their valuation assignment and discuss how the 

economic information impacts their valuation assumptions 

and conclusions.

In this analysis, we examine the general economic climate 

that existed at the end of the fourth quarter of 2016. This summary provides an overview of some selected economic factors that prevailed at that time as well as a discussion of the 

factors that are crucial over an extended time period. Topics 

addressed include general economic conditions, gross domestic product, consumer prices and inflation rates, energy 

prices, interest rates, unemployment, consumer spending, 

the stock and bond markets, construction, manufacturing, 

real estate markets, and the future economic outlook.

Kenny Woo Economics and Data Editor

Doug Twitchell Publisher

David Foster CEO

Lucretia Lyons President

Retta Dodge Customer Service

The Economic Outlook Update (ISSN 1558-4062) is published 

monthly and quarterly by Business Valuation Resources, LLC, 

1000 SW Broadway, Ste. 1200, Portland, OR, 97205. The 

annual subscription price for the Economic Outlook Update 

(EOU) is $349. Site licenses are available for those who wish 

to distribute EOU throughout their firms. Contact sales@

bvresources.com or 503-291-7963 ext. 2 for details. Please 

also visit www.BVResources.com.

Although the information in this publication has been 

obtained from sources that BVR believes to be reliable, we 

do not guarantee its accuracy, and such information may be 

condensed or incomplete. This publication is intended for 

information purposes only, and it is not intended as financial, 

investment, legal, or consulting advice. No portion of this 

document can be republished without the express written 

consent of Business Valuation Resources, LLC.

About the Analysis in this Report

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Source of data: U.S. Department of Commerce.

Note: Figures are seasonally adjusted at annual rates. As the U.S. Department of Commerce issues revised data, some historically 

reported figures may change.

-9.0%

-7.0%

-5.0%

-3.0%

-1.0%

1.0%

3.0%

5.0%

7.0%

1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 4Q2010 

1Q2011 2Q2011 3Q2011 4Q2011 

1Q2012 2Q2012 3Q2012 4Q2012 1Q2013 2Q2013 3Q2013 4Q2013 

1Q2014 2Q2014 3Q2014 4Q2014 

1Q2015 2Q2015 3Q2015 4Q2015 1Q2016 2Q2016 3Q2016 4Q2016 

Annual Growth Rate 

GDP Growth Rate 

Moving Average (Four Quarters) 

Moving Average (Two Quarters) 

EXHIBIT 1A: Real Gross Domestic Product and Moving Averages

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

2Q 2013 3Q 2013 4Q 2013 

1Q 2014

2Q 20143Q 20144Q 2014

1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 

Government Spending 

Net Exports 

Private Investment 

Consumer Spending 

GDP (% rate) 

EXHIBIT 1B: GDP Components—Contribution to GDP Rate

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

months prior. U.S. long-term growth rebounded to 3.2%, from 1.4%, based on the Bureau of Economic Analysis’s 

second estimate of gross domestic product. Of particular note, the analysis shows improvement in hiring and compensation, both of which stand near cyclical highs and are indicative of the sharp tightening seen in the U.S. labor 

markets, arriving at a point in the business cycle where rising wages and salaries are now likely to create narrowing 

profit margins for the middle market. The manufacturing sector continued to expand in December. The Institute for 

Supply Management (ISM) reported that its manufacturing index (PMI) rose 1.5 percentage points in December, to 

54.7%. The component of the index that measures new orders rose 7.2 percentage points, and the component for 

production advanced 4.3 percentage points. Industrial production edged up 0.8% in December, which was the biggest increase for the index since November 2014. The manufacturing component, which is the biggest component 

of industrial production, advanced 0.2%. The production of durable goods increased 0.5% in December, while the 

production of nondurable goods declined 0.3%.

Growth in the services sector was unchanged in December and remained at the strong growth levels established in 

November. The ISM reported that its Non-Manufacturing Index (NMI) stayed at 57.2%, which is a 12-month high. 

EXHIBIT 2A: Historical Economic Data 2004-2016 and Forecasts 2017-2026

HISTORICAL DATA CONSENSUS FORECASTS**

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022-

2026

Real GDP* 3.8 3.3 2.7 1.8 -0.3 -2.8 2.5 1.6 2.2 1.7 2.4 2.6 1.6 2.3 2.3 2.2 2.2 2.2 2.2

Industrial 

production* 2.6 3.3 2.2 2.5 -3.6 -11.5 5.5 2.9 2.8 1.9 2.9 0.3 -1.0 1.5 2.3 2.4 2.5 2.4 2.3

Consumer 

spending* 3.8 3.5 3.0 2.2 -0.3 -1.6 1.9 2.3 1.5 1.5 2.9 3.2 2.7 2.5 2.5 2.3 2.3 2.3 2.3

Real disposable 

personal income* 3.6 1.5 4.0 2.1 1.5 -0.4 1.0 2.5 3.1 -1.4 3.5 3.5 2.7 2.5 2.7 2.5 2.3 2.2 2.3

Business 

investment* 5.2 7.0 7.1 5.9 -0.7 -15.6 2.5 7.7 9.0 3.5 6.0 2.1 -0.4 2.7 3.7 3.8 3.7 3.8 3.6

Nominal pretax 

corp. profits* 21.5 15.1 11.4 -7.1 -16.0 8.4 25.0 4.0 10.0 1.7 5.9 -3.0 -0.3 4.0 3.7 4.1 3.4 3.6 3.9

Total government 

spending* 1.6 0.6 1.5 1.6 2.8 3.2 0.1 -3.0 -1.9 -2.9 -0.9 1.8 0.9 0.8 1.2 NA NA NA NA

Consumer price 

inflation* 2.7 3.4 3.2 2.8 3.8 -0.4 1.6 3.2 2.1 1.5 1.6 0.1 1.3 2.4 2.3 2.3 2.3 2.3 2.3

3-month Treasury 

bill rate 1.40 3.22 4.85 4.48 1.40 0.15 0.14 0.05 0.09 0.06 0.03 0.1 0.5 1.1 1.9 2.8 2.9 3.0 3.1

10-year Treasury 

bond yield 4.27 4.29 4.80 4.63 3.66 3.26 3.22 2.78 1.80 2.35 2.54 2.1 2.5 2.7 3.3 3.7 3.8 3.9 4.1

Unemployment 

rate 5.5 5.1 4.6 4.6 5.8 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.9 4.6 4.5 NA NA NA NA

Housing starts 

(millions) 1.956 2.068 1.801 1.355 0.906 0.554 0.587 0.609 0.781 0.925 1.003 1.112 1.17 1.26 1.4 NA NA NA NA

Source of historical data: U.S. Department of Commerce, U.S. Department of Labor, U.S. Census Bureau and The Federal Reserve Board.

Source of forecasts: Consensus Forecasts - USA, December 2016.

Notes: 

*Numbers are based on percent change from preceding period. 

Historic consumer price inflation, unemployment rate, 3-month Treasury rate, and 10-year Treasury yield are the annual averages.

**Forecast numbers are based on percent change from preceding period (excludes unemployment rate, housing starts, 3-month Treasury rate, and 10-year 

Treasury yield). Consumer price inflation information is annual averages. The 2016 through 2021 forecasts for the 3-month Treasury rate and 10-year Treasury 

yield are for the end of each period. Forecasts for 2022-2026 signify the average for that period. 

Consumer spending, also known as personal consumption expenditures, includes spending on services, durable, and nondurable goods. Business 

investment is also referred to as nonresidential fixed investment. Total government spending includes federal, state, and local government spending.

Every month, Consensus Economics surveys a panel of 30 prominent United States economic and financial forecasters for their predictions on a range of 

variables including future growth, inflation, current account and budget balances, and interest rates.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The December reading marked the 89th consecutive month of growth for the services sector. The majority of respondents’ comments were positive about business conditions and the overall economy, citing a very busy fourth 

quarter due to customers’ year-end spending boost. The component that measures business activity decreased 

0.3 percentage point, to 61.4%, but still indicated growth in business activity, while the component for new orders 

climbed 4.6 percentage points, to 61.6%.

The major stock indexes recorded gains in the fourth quarter and closed out 2016 with positive figures. The Dow 

Jones climbed 7.9% in the quarter and finished the year with a 13.4% gain. The Nasdaq Composite Index saw 

gains of 2.5% in the quarter and finished at 87% for the year. The Russell 2000 Index posted an 8.4% quarterly 

increase and finished the year up 19.5%, while the S&P 500 Index achieved a total return of 3.3% in the fourth quarter and recorded gains of 9.5% for the year. Treasury yields rose throughout the fourth quarter as a combination of 

anticipated higher levels of growth and inflation drove long-term yields higher. In addition, the Federal Reserve’s 

decision to raise interest rates in December and raise their guidance of the pace of future rate hikes drove shorterterm yields higher. The 10-year Treasury peaked at a yield of 2.6% on December 15 as yield curves steepened and 

Treasury yields rose, putting downward pressure on bond prices in anticipation of the future economic policies of 

President Trump.

EXHIBIT 2B: Historical Energy Data 2005-2016 and Forecasts 2017-2018

HISTORICAL DATA EIA 

FORECASTS % CHANGE

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2017 2018

Brent crude oil spot 

price* 54.60 65.18 72.49 96.94 61.75 79.64 111.33 111.65 108.56 98.89 52.32 43.74 53.50 56.18 22.3% 5.0%

West Texas 

intermediate crude oil 

price*

56.65 66.06 72.34 99.67 61.96 79.50 94.90 94.08 97.98 93.17 48.67 43.33 52.50 55.18 21.2% 5.1%

Heating oil retail price** 219.50 247.30 266.40 350.90 252.40 297.10 365.70 378.60 378.30 371.40 264.90 211.90 259.80 211.90 22.6% -18.4%

Gasoline regular grade 

retail price** 227.10 257.60 280.60 325.70 234.90 278.10 352.60 362.70 350.60 336.40 242.80 212.30 226.10 212.30 6.5% -6.1%

Electricity residential 

retail price*** 9.43 10.40 10.65 11.26 11.51 11.54 11.72 11.88 12.13 12.52 12.67 12.54 12.95 12.54 3.3% -3.2%

Electricity commerical 

retail price*** 8.72 9.46 9.65 10.26 10.16 10.19 10.23 10.09 10.26 10.74 10.59 10.37 10.64 10.37 2.6% -2.5%

Electricity industrial 

retail price*** 5.57 6.16 6.39 6.96 6.83 6.77 6.82 6.67 6.89 7.10 6.90 6.75 6.90 6.75 2.2% -2.2%

Natural gas Henry Hub 

spot price**** 8.81 6.74 6.98 8.86 3.95 4.39 4.00 2.75 3.73 4.39 2.72 2.60 3.67 3.85 41.2% 4.9%

Airline Ticket Price 

Index 236.60 247.30 251.70 282.00 258.00 278.20 304.00 305.00 312.70 307.70 292.23 282.95 294.40 309.07 4.0% 5.0%

Producer Price Index: 

Petroleum 1.65 1.93 2.14 2.72 1.76 2.25 2.99 3.07 2.95 2.78 1.76 1.44 1.66 1.44 15.3% -13.3%

Producer Price Index: 

all commodities 1.57 1.65 1.73 1.90 1.73 1.85 2.01 2.02 2.03 2.05 1.90 1.86 1.92 1.86 3.2% -3.1%

Source of historical and forecast data: U.S. Energy Information Administration.

Notes: 

*Dollars per barrel

**Cents per gallon, U.S. average

***Cents per kilowatthour, U.S. average

****Dollars per million Btu

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Housing starts rose 11.3% in December. The 2016 growth in housing starts, the strongest since 2007, came in 

5.7% higher than figures for 2015. The increase can be partly attributed to a rebound in multifamily units. Building 

permits authorized fell 0.2% in December but remained 0.7% above their levels from a year ago due to a rise in 

both single-family and multifamily permits. Existing-home sales fell 2.8% in December, halting a three-month upswing. Regardless, it was the best year for home sales in a decade. In December, homebuyers dealt with a lack of 

listings and quickly rising home prices as the major headwinds. Meanwhile, the surge in rates since early November 

ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 

ended. Three of the four major regions saw sales decrease in December, and the share of distressed home sales 

increased to 7%, up from 6% in November but down from 8% one year ago.

The National Association of Realtors Confidence Index for current conditions decreased 1.0 point in December, to 

a reading of 62.0 points, but remained 5.0 points higher than one year ago. Builder confidence, as measured by the 

National Association of Home Builders/Wells Fargo Housing Market Index, increased 7.0 points in December, to 

70.0. The report noted that the indicators show that the housing market will continue on an upward path into 2017.

NAR’s most recent “Commercial Real Estate Market Survey,” analyzing the second quarter of 2016 (the thirdquarter survey was not yet available as of this EOU publication date), found that commercial real estate investments 

continued to keep a positive pace. The report stated that 66.0% of realtors closed a commercial sale and sales 

volumes were up 8.4% from the same period one year ago. 

-18.0 

-16.0 

-14.0 

-12.0 

-10.0 

-8.0 

-6.0 

-4.0 

-2.0 

0.0 

2.0 

4.0 

6.0 

8.0 

10.0 

12.0 

2004 

200520062007200820092010

2011

20122013

2014 

201520172018201920202021

2022-2026

Percent change per year 

Real GDP* 

Industrial production* 

Consumer spending* 

Consumer price inflation* 

Business investment* 

EXHIBIT 3: Key Economic Variables Actual 2004-2016 and Forecast 2017-2026

Source of historical data: U.S. Department of Commerce, U.S. Department of Labor and The Federal Reserve Board.

Source of forecasts: Consensus Forecasts.

*Numbers are based on percent change from preceding period. Consumer price inflation information is annual averages.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

MONTHLY DATA

1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16

Real GDP 0.8 1.4 3.5 1.9

Consumer Spending 1.6 4.3 3.0 2.5

Business investment -3.4 1.0 1.2 2.4

Total government spending 1.6 -1.7 0.8 1.2

Exports -0.7 1.8 10.0 -4.3

Imports -0.6 0.2 2.2 8.3

CPI (one-month % change) 0.0 -0.2 0.1 0.4 0.2 0.2 0.0 0.2 0.3 0.4 0.2 0.3

Unemployment rate 4.9 4.9 5.0 5.0 4.7 4.9 4.9 4.9 4.9 4.8 4.6 4.7

PMI 48.2 49.5 51.8 50.8 51.3 53.2 52.6 49.4 51.5 51.9 53.2 54.7

NMI 53.5 53.4 54.5 55.7 52.9 56.5 55.5 51.4 57.1 54.8 57.2 57.2

HMI 61.0 58.0 58.0 58.0 58.0 60.0 58.0 54.0 60.0 63.0 63.0 70.0

Housing starts (millions) 1.128 1.213 1.113 1.155 1.128 1.195 1.218 1.164 1.052 1.320 1.102 1.226

Building permits (millions) 1.188 1.162 1.077 1.130 1.136 1.153 1.144 1.152 1.225 1.260 1.212 1.210

Notes: Real GDP and subcomponents data only available on a quarterly basis and therefore, are quarterly figures. GDP and its subcomponents, along with housing starts and 

building permits, are seasonally adjusted at annual rates. PMI is the Institute of Supply Management’s Manufacturing Index—any reading above 50.0% suggests growth in the 

manufacturing economy, whereas a reading below 50.0% indicates contraction. NMI is the Institute of Supply Management’s Non-Manufacturing Index, which measures the 

strength of the services sector—any reading above 50.0% suggests growth, whereas a reading below 50.0% indicates contraction. HMI is the National Association of Home 

Builders/Wells Fargo Housing Market Index—any reading over 50 indicates that more builders view sales conditions as good than poor.

QUARTERLY DATA

1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15

Real GDP 2.8 0.8 3.1 4 -1.2 4.0 5.0 2.3 2.0 2.6 2.0 0.9

Consumer Spending 1.9 0.8 1.9 3.4 1.9 3.8 3.7 4.6 2.4 2.9 2.7 2.3

Business investment 5.2 2.5 2.1 9.5 7.0 6.1 8.3 -1.1 1.3 1.6 3.9 -3.3

Total government spending -4.3 -2.0 -2.0 -2.8 -1.0 0.1 2.5 -0.4 2.6 3.2 1.9 1.0

Exports 4.0 5.0 3.1 11.8 -2.7 8.7 2.1 4.5 -5.8 2.9 -2.8 -2.7

Imports 1.3 5.3 1.7 1.6 4.9 9.9 -1.2 11.2 5.6 2.9 1.1 0.7

CPI (3-month % change) 0.5 0.0 0.6 0.5 0.4 0.5 0.2 -0.4 -0.3 0.7 0.0 0.2

Unemployment rate 7.5 7.5 7.2 6.7 6.6 6.1 5.9 5.6 5.5 5.3 5.1 5.0

PMI 52.5 52.3 55.4 55.9 55.1 55.3 55.8 54.9 52.3 53.1 50.0 48.0

NMI 55.1 54.1 53.8 53.4 53.9 56.7 57.9 56.9 56.9 56.2 56.7 55.8

HMI 44.0 51.0 57.0 57.0 46.0 49.0 59.0 58.0 52.0 60.0 61.0 60.0

Housing starts (millions) 0.999 0.852 0.860 1.010 0.963 0.927 1.026 1.080 0.954 1.211 1.189 1.16

Building permits (millions) 0.932 0.951 1.015 1.013 1.061 1.033 1.053 1.077 1.038 1.337 1.129 1.201

Notes: Unemployment rate, housing starts, building permits, PMI, NMI, and HMI are readings from the last month of the quarter. GDP and its subcomponents, along with 

housing starts and building permits, are seasonally adjusted at annual rates.

YEARLY DATA

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Real GDP 3.3 2.7 1.8 -0.3 -2.8 2.5 1.6 2.2 1.7 2.4 2.6 1.6

Consumer Spending 3.5 3.0 2.2 -0.3 -1.6 1.9 2.3 1.5 1.5 2.9 3.2 2.7

Business investment 7.0 7.1 5.9 -0.7 -15.6 2.5 7.7 9.0 3.5 6.0 2.1 -0.4

Total government spending 0.6 1.5 1.6 2.8 3.2 0.1 -3.0 -1.9 -2.9 -0.9 1.8 0.9

Exports 6.3 9.0 9.3 5.7 -8.8 11.9 6.9 3.4 3.5 4.3 0.1 0.4

Imports 6.3 6.3 2.5 -2.6 -13.7 12.7 5.5 2.2 1.1 4.4 4.6 1.1

Consumer Price Index 3.4 3.2 2.8 3.8 -0.4 1.6 3.2 2.1 1.5 1.6 0.1 1.3

Unemployment rate 5.1 4.6 4.6 5.8 9.3 9.6 8.9 8.1 7.4 6.2 5.3 4.9

Housing starts (millions) 2.068 1.801 1.355 0.906 0.554 0.587 0.609 0.781 0.925 1.003 1.112 1.166

Building permits (millions) 2.155 1.838 1.398 0.905 0.583 0.605 0.624 0.830 0.991 1.052 1.183 1.187

Notes: Yearly Consumer Price Index rates and yearly unemployment rates are the annual average rates.

Personal consumption includes spending on services and durable and nondurable goods. Government spending includes federal, state, and local government spending. As the 

government issues revised data, some historical reported figures may have changed.

Source of data: U.S. Department of Commerce, U.S. Department of Labor, U.S. Census Bureau, The Federal Reserve Board, the Institute of Supply Management, and the 

National Association of Home Builders.

EXHIBIT 4: Economic Indicators Historical Data

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

1. GROSS DOMESTIC PRODUCT

The Bureau of Economic Analysis (BEA) reported that the nation’s economy—as indicated by GDP—grew at an annual rate of 1.9% in the fourth quarter of 2016. GDP growth for the fourth quarter represents a slowdown from the 

3.5% growth the economy experienced in the third quarter and is also below analysts’ estimates of 2.2%. This also 

marked the 11th straight year the economy failed to grow at a 3.0% rate. GDP growth for the quarter saw contributions from personal consumption expenditures, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by negative contributions 

from exports and federal government spending. Imports, which are subtracted in the calculation of GDP, increased. 

Final sales of domestic product rose in the fourth quarter, increasing at a rate of 0.9%, which is slower than the 

rate of 3.0% in the third quarter. Final sales of domestic product are GDP minus the influence of private inventory 

investment, which tends to be volatile from quarter to quarter. Final sales to domestic purchasers, or GDP excluding trade and inventories, rose at a rate of 2.5% in the fourth quarter compared to a rate of 2.1% in the third quarter. 

The increase in fourth-quarter GDP was the result of positive contributions from personal consumption expenditures, private inventory investment, residential fixed investment, nonresidential fixed investment, and state and 

local government spending that were partly offset by negative contributions from exports and federal government 

spending. Imports, which are subtracted in the calculation of GDP, increased. 

(See Exhibits 1A, 1B, 2A, and 4 for historic and forecasted GDP figures.)

1.1 CONSUMER SPENDING

Consumer spending grew at a rate of 2.5% during the fourth quarter of 2016, maintaining a healthy rate despite 

a slowdown in GDP. Consumer spending growth decelerated from the third-quarter rate of 3.0%. For the year, 

consumer spending grew 2.7%. Consumer spending, also referred to as “personal consumption,” accounts for 

approximately 70% of the U.S. GDP. 

The fourth quarter’s figures in consumer spending reflected a slowdown in spending on services but growth in longlasting goods. Consumer spending contributed 1.70 percentage points to the fourth-quarter GDP rate.

(See Exhibits 2A and 4 for historic and forecasted consumer spending figures.)

Consumer spending on durable goods—items meant to last three years or more, such as computers, cars, and 

machinery—rose at a rate of 10.9% in the fourth quarter. This was a deceleration from the third-quarter rate, when 

durable goods spending increased at an 11.6% pace. Consumer spending on durable goods grew 5.7% in 2016, a 

decline from 6.9% the previous year. Overall, consumer spending on durable goods accounted for 0.79 percentage 

point to the GDP. Consumer spending on nondurable goods—items such as food and gasoline—increased at a rate 

of 2.3% in the fourth quarter, a reversal from the declining rate of 0.5% in the prior quarter. Consumer spending on 

nondurable goods grew 2.4% in 2016, a decline from 2.6% the previous year.

Service expenditures grew at a rate of 1.3% in the fourth quarter of 2016, down from the 2.7% rate in the prior 

quarter. The decrease in spending on household services occurred most notably on housing and utilities. On the 

year, service expenditures grew at 2.3%, down from 2.8% the previous year. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

-1.5% 

-1.0% 

-0.5% 

0.0% 

0.5% 

1.0% 

1.5% 

2.0% 

$400 

$410 

$420 

$430 

$440 

$450 

$460 

$470 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

Monthly Change 

Total Monthly Sales (in billions) 

Total Retail Sales—Past 24 Months 

Change From Prior Month 

Monthly Sales (billions) 

EXHIBIT 5A: Total U.S. Retail Sales—Past 24 Months

0.0% 

1.0% 

2.0% 

3.0% 

4.0% 

5.0% 

6.0% 

7.0% 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

Total Retail Sales Change From One Year Prior—Past 24 Months With Averages 

Change From One Year Prior 

Change from Prior Year - 3 Month Average 

Change from Prior Year - 12 Month Average 

EXHIBIT 5B: Total U.S. Retail Sales Change From One Year Prior—Past 24 Months With Averages

Source of data: U.S. Department of Commerce.

Notes: Monthly retail and food services sale are seasonally adjusted.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

-4.0% 

-3.0% 

-2.0% 

-1.0% 

0.0% 

1.0% 

2.0% 

3.0% 

4.0% 

$300 

$320 

$340 

$360 

$380 

$400 

$420 

$440 

$460 

$480 

$500 

Jan-08 

May-08 

Sep-08 

Jan-09 

May-09 

Sep-09 

Jan-10 

May-10 

Sep-10 

Jan-11 

May-11 

Sep-11 

Jan-12 

May-12 

Sep-12 

Jan-13 

May-13 

Sep-13 

Jan-14 

May-14 

Sep-14 

Jan-15 

May-15 

Sep-15 

Jan-16 

May-16 

Sep-16 

Monthly Change 

Total Monthly Sales (in billions) 

Total Retail Sales—Monthly Change Since 2008 

Monthly Change 

Monthly Sales (billions) 

EXHIBIT 5C: Total Retail Sales—Monthly Change Since 2008

-12.0% 

-9.0% 

-6.0% 

-3.0% 

0.0% 

3.0% 

6.0% 

9.0% 

12.0% 

$300 

$320 

$340 

$360 

$380 

$400 

$420 

$440 

$460 

$480 

$500 

Jan-08 

May-08 

Sep-08 

Jan-09 

May-09 

Sep-09 

Jan-10 

May-10 

Sep-10 

Jan-11 

May-11 

Sep-11 

Jan-12 

May-12 

Sep-12 

Jan-13 

May-13 

Sep-13 

Jan-14 

May-14 

Sep-14 

Jan-15 

May-15 

Sep-15 

Jan-16 

May-16 

Sep-16 

Total Monthly Sales (in billions) 

Change From One Year Prior 

Total Retail Sales—Percent Change From One Year Prior Since 2008 

Change From One Year Prior 

Monthly Sales (billions) 

EXHIBIT 5D: Total Retail Sales—Percent Change From One Year Prior Since 2008

Source of data: U.S. Department of Commerce.

Notes: Monthly retail and food services sale are seasonally adjusted.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

American spending increased in December, marking the eighth monthly increase in the past nine months. Retail 

sales climbed up 0.6% in December. Retail sales remain up 4.1% from one year ago. Economists view retail sales 

as a key economic indicator since consumer spending accounts for nearly two-thirds of the U.S. economy.

The report showed that the sales increases were broad-based in December, with eight of the 13 major categories 

seeing greater sales. Motor vehicle and parts dealers, gasoline stations, and nonstore retailers showed the biggest 

increases in December. Sales at miscellaneous store retailers declined 1.0%, and sales at food services and drinking places declined 0.8%. Sales at gas stations rose 2.0% in December, though some of the rise was attributed 

to higher prices. (The data are not adjusted for changes in prices, so fluctuating fuel costs can affect gas station 

receipts.) 

Core retail sales rose modestly, by 0.2%, in December. Core retail sales have increased 3.3% over the past year. 

The core retail sales figure excludes sales of automobiles, gasoline, building materials, and food services and corresponds most closely with the consumer-spending component of gross domestic product. 

(See Exhibit 5 for total retail and food service sales figures.)

1.2 GOVERNMENT SPENDING

Total government spending grew at a rate of 1.2% in the fourth quarter of 2016, after growing at a rate of 0.8% in 

the prior quarter. The fourth-quarter rise in government spending added 0.21 percentage point to the GDP rate. In 

2016, government spending increased at 0.9% compared to 1.8% in 2015.

(See Exhibits 2A and 4 for historic and forecasted government spending figures.)

Federal government spending declined at a rate of 1.2% in the fourth quarter, the third quarterly decline in 2016. 

Federal government spending subtracted 0.08 percentage point from the fourth-quarter GDP rate. Overall, government spending has been an absentee player in GDP growth since 2010.

National defense spending declined at a 3.6% rate in the fourth quarter of 2016. National defense spending declined 0.7% in 2016, after falling 2.1% in 2015. National defense spending has declined in 13 of the past 16 quarters. 

Federal nondefense spending grew at a rate of 2.3% in the fourth quarter, marking the 10th consecutive quarter of 

increased spending. 

State and local government spending grew at a rate of 2.6% in the fourth quarter, reversing declines from the previous two quarters. For the year, state and local government spending grew at 1.0% compared to 2.6% growth in 

2015. 

1.3 FIXED INVESTMENT

Business investment, also referred to as “nonresidential fixed investment,” rose at a rate of 2.4% in the fourth 

quarter of 2016. This was the third consecutive quarterly rise in business investment and stemmed from increased 

business spending on equipment and intellectual property products. The rise in business investment added 0.30 

percentage point to the fourth-quarter GDP. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

(See Exhibits 2A and 4 for historic and forecasted business spending figures.)

Business spending on structures declined at an annual rate of 5.0% in the fourth quarter, a sharp reversal from 

the growth rate of 12.0% in the prior quarter. Business spending has increased three times in the past 10 quarters 

(in one quarter where spending on structures rose, the rate was only 0.1%). Business spending on equipment increased at a rate of 3.1% in the fourth quarter, breaking a four-quarter consecutive decline. Business spending on 

intellectual property products continued to be positive, rising for the 14th consecutive quarter and increasing at a 

rate of 6.4%. 

Residential fixed investment, often considered a proxy for the housing market, grew at a rate of 10.2% in the fourth 

quarter. Residential fixed investment has grown in nine of the past 11 quarters. The fourth-quarter growth in residential fixed investment added 0.37 percentage point to the fourth-quarter GDP. 

1.4 BUSINESS INVENTORIES

Businesses’ inventory investments rose at a $48.7 billion pace in the fourth quarter of 2016, following a rise of $7.1 

billion in the previous quarter. The fourth-quarter growth in inventory investment contributed 1.00 percentage point 

to GDP, making a second consecutive quarter of gains. Excluding inventories, GDP rose at a 0.9% rate in the fourth 

quarter. 

1.5 EXPORTS AND IMPORTS

The GDP report showed that America’s trade deficit widened in the fourth quarter due to a substantial increase in 

imports and a significant decrease in exports. Exports declined at a rate of 4.3% in the fourth quarter of 2016, after 

rising at a rate of 10.0% in the prior quarter. Exported goods decreased at a rate of 6.9% in the fourth quarter, after 

increasing at a rate of 14.4% in the third quarter. Exported services increased at a rate of 0.9%. 

Imports, which are subtracted in the calculation of GDP, advanced at a rate of 8.3% in the fourth quarter after rising 

at a rate of 2.2% in the previous quarter. Imported goods moved up at a rate of 10.9% in the fourth quarter, while 

imported services declined at a rate of 2.7%. 

Net exports (the value of exports minus the value of imports) subtracted 1.70 percentage points from the fourthquarter GDP, after adding 0.85 point in the prior quarter.

(See Exhibit 4 for historic export and import figures.)

2. CONSUMER PRICES AND INFLATION RATES

According to the Bureau of Economic Analysis, the price index for gross domestic purchases rose 2.0% in the 

fourth quarter of 2016, following an increase from the 1.5% in the previous quarter. The price index for gross domestic purchases measures prices U.S. residents pay for goods and services. The “core” (less food and energy 

prices) personal consumption expenditures index increased 1.3% in the fourth quarter, compared to a 1.7% increase in the prior quarter. The core personal consumption expenditures index measures the prices consumers pay 

for goods and services without the volatility caused by movements in food and energy prices to reveal underlying 

inflation trends.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Consumer prices rose in December, driven by a substantial increase in the indices for gas and for shelter, as in September, October, and November. The Consumer Price Index (CPI) rose 0.3% in December, on a seasonally adjusted 

basis, and is up 2.1% over the past 12 months. CPI is a measure of a basket of products and services—including 

housing, electricity, food, and transportation—and is used as a measure of inflation. CPI is comprised of three main 

indices: the food index, the energy index, and the all items less food and energy index (also known as “Core CPI”). 

Core CPI is a measure of inflation that excludes volatile food and energy costs.

The food index remained unchanged in December for the sixth consecutive month. The food-at-home index declined 0.2%, marking the eighth month in a row of declines and offsetting an increase in the index for food away 

from home. The index for food has declined 0.2% over the past 12 months. 

The energy index increased 1.5% in December, primarily driven by an increase in the gasoline index. The electricity index remained unchanged in December, although, for the year, the index increased 0.7% after declining 1.5% 

in 2015. The index for natural gas fell 0.4% in December, its second straight month of decline after following four 

consecutive months of gains. 

Core CPI increased 0.2% in December, following a rise of 0.2% in the prior month. The indices for transportation 

services advanced 0.6%, while the index for medical care rose 0.1% in December. Core CPI has risen 2.2% over 

the past 12 months. 

(See Exhibits 2A, 4, and 6 for historic and forecasted CPI figures.)

The Producer Price Index (PPI) increased 0.3% in December, on a seasonally adjusted basis. For the year, PPI is 

up 1.6% after falling 1.1% in 2015. The year 2016 posted the largest rise since a 1.3% gain for the 12 months that 

ended November 2014. PPI is a gauge of inflation in the manufacturing process that can be a precursor to inflation 

in consumer prices. PPI for final demand is comprised of two main indices: final demand services and final demand 

goods. 

The index for final demand goods advanced 0.7% in December following a gain of 0.2% in the prior month. This is 

the largest increase for the index since it rose 0.7% in June. Nearly 80% of the advance in the final demand index 

is attributable to the 0.7% gain for the month. The final demand index increased 1.6% over the year.

The index for final demand services increased 0.1% in December, after increasing 0.5% in November. Most of the 

December advance can be attributed to prices for securities brokerage, dealing, investment advice, and related 

services. The index for final demand trade services advanced 0.2%. Conversely, prices for final demand transportation and warehousing services declined 0.4%.

The index for final demand goods less volatile food and energy rose 0.3% in December. The index for final demand 

goods less food and energy was up 1.7% from its level one year ago.

(See Exhibit 6 for historic PPI figures.)

3. ENERGY PRICES

The Energy Information Administration (EIA) reported that the spot price for a barrel of West Texas Intermediate 

(WTI) crude oil was $53.75 at the end of 2016. This was up from $47.72 at the end of the third quarter and above the 

price of $36.59 per barrel from a year ago. Forecasts project prices to average $53.46 in 2017 and $56.18 in 2018.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

-0.8% 

-0.6% 

-0.4% 

-0.2% 

0.0% 

0.2% 

0.4% 

0.6% 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

U.S. Consumer Price Index—Past 24 Months 

Core CPI 

CPI 

EXHIBIT 6A: U.S. Consumer Price Index—Past 24 Months

-0.8% 

-0.6% 

-0.4% 

-0.2% 

0.0% 

0.2% 

0.4% 

0.6% 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

U.S. Consumer Price Index—Past 24 Months With Averages 

CPI 

CPI 3-Month Average 

CPI 12-Month Average 

EXHIBIT 6B: U.S. Consumer Price Index—Past 24 Months With Averages

Source of data: U.S. Department of Labor.

Note: Data are seasonally adjusted change from the prior month. Core CPI is the All Items Less Food and Energy Index. Core PPI is the 

Final Demand Goods Less Foods and Energy Index. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

-1.0% 

-0.8% 

-0.6% 

-0.4% 

-0.2% 

0.0% 

0.2% 

0.4% 

0.6% 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

U.S. Producer Price Index—Past 24 Months 

Core PPI 

PPI 

EXHIBIT 6C: U.S. Producer Price Index—Past 24 Months

-1.0% 

-0.8% 

-0.6% 

-0.4% 

-0.2% 

0.0% 

0.2% 

0.4% 

0.6% 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

U.S. Producer Price Index—Past 24 Months With Averages 

PPI 

PPI 3-Month Average 

PPI 12-Month Average 

EXHIBIT 6D: U.S. Producer Price Index—Past 24 Months With Averages

Source of data: U.S. Department of Labor.

Note: Data are seasonally adjusted change from the prior month. Core CPI is the All Items Less Food and Energy Index. Core PPI is the 

Final Demand Goods Less Foods and Energy Index. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The regular retail gas price (conventional areas) was $2.25 per gallon at the end of the fourth quarter, up slightly 

from $2.17 per gallon at the end of the previous quarter and up from one year ago when the price was $1.93 per 

gallon. Prices are expected to rise to an average of $2.39 per gallon in 2017 and $2.44 per gallon in 2018.

The Henry Hub natural gas spot price was $3.71 per million Btu (MMBtu) at the end of the fourth quarter, up from 

$2.84 per MMBtu at the end of the previous quarter and above the price of $2.28 per MMBtu from one year ago.

(See Exhibit 2B for historic and forecasted energy price figures.)

4. INTEREST RATES

The Federal Open Market Committee (FOMC) met twice during the fourth quarter of 2016, issuing a statement from 

each meeting. In the December meeting, the FOMC decided to raise the target range for the federal funds rate to 

between 0.5% and 0.75%. The federal funds rate is the interest rate at which a commercial bank lends immediately 

available funds in balances at the Federal Reserve to another commercial bank. The FOMC establishes a target rate 

and expands or contracts the money supply with the aim that the federal funds rate, a market rate, will approximate 

the target rate.

The FOMC stated that it wishes to maintain an accommodative policy to further support improvement in labor 

market conditions and a return to 2.0% inflation. In making its decision to raise the federal funds rate, the FOMC 

acknowledged that economic conditions will evolve in a manner that will warrant only gradual increases in the 

federal funds rate. The federal funds rate is likely to remain below levels that are expected to prevail in the longer 

run. The actual path of the federal funds rate will depend on the economic outlook as informed by incoming data, 

although the FOMC also announced plans to raise rates up to three times in 2017, two to three times in 2018, and 

three times in 2019.

The FOMC stated that it would continue to assess a wide range of information in determining the timing and size of 

future adjustments to the federal funds rate, including measures of labor market conditions, indicators of inflation 

pressures and inflation expectations, and readings on financial and international developments. The statement also 

noted that, based on the Committee’s expectations of economic conditions, the federal funds rate will only rise 

gradually and will likely remain low for some time. 

FOMC stated that it found that the labor market had continued to strengthen and that economic activity has been 

expanding at a moderate pace since midyear. It also noted the job gains have been solid, and unemployment has 

declined. In addition, household spending has been rising moderately, but business investment has remained soft. 

It also noted that inflation increased but has continued to remain below the committee’s 2.0% target, mostly due to 

earlier declines in energy prices and nonenergy imports. 

To maintain accommodative financial conditions, the FOMC maintained its existing policy of reinvesting principal 

payments from its holdings of agency debt and agency mortgage-backed securities. The committee anticipated 

that it would continue this policy until the federal funds rate normalizes to its longer-run level.

During the fourth quarter of 2016, the Board of Governors of the Federal Reserve raised the discount rate 1.00%, 

to 1.25%. The discount rate is the interest rate a commercial bank is charged to borrow funds, typically for a short 

period, directly from a Federal Reserve Bank. This is only the second time in a decade the FOMC has raised rates. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The board of directors of each Reserve Bank establishes the discount rate every 14 days, subject to the approval 

of the Board of Governors.

5. UNEMPLOYMENT AND PERSONAL INCOME

Job growth continued to be solid in December, as employment rose by 156,000. Job growth has averaged 165,000 

jobs per month over the past three months, well above the 80,000-jobs-a-month pace the White House Council of 

Economic Advisers believes is needed to maintain a low and stable unemployment rate. The unemployment rate 

increased 0.1 percentage point in December, to 4.7%, while the labor-force participation rate remained unchanged, 

at 62.7%. In 2016, job gains totaled nearly 2.2 million, a decline of about a half a million from the previous year.

Employment in professional and business services rose by 15,000 in December and has now risen 522,000 over 

the year. The healthcare sector added 43,000 jobs in December and averaged 35,000 jobs per month in 2016. 

Employment in the food services industry continued to rise, increasing by 30,000 in December and 247,000 over 

the past year. Jobs in social assistance increased, growing by 20,000 over the month and 92,000 over the last 12 

months. Employment in mining, construction, wholesale trade, retail trade, information, and government changed 

little in December.

The unemployment rate (also known as the U3 unemployment rate) ticked upward 0.1 point in December, to 4.7%. 

The U3 unemployment rate is the official unemployment rate per the International Labour Organization definition 

and occurs when people who have actively looked for work within the past four weeks are still without jobs. 

The report found that the labor-force participation rate remained unchanged in December, at 62.7%, a figure that 

also remained unchanged for the year. The employment-population ratio, which is the share of the working-age 

population with a job, remained unchanged, at 59.7%, in December. The number of long-term unemployed (those 

jobless for 27 weeks or more) changed little in December, at 1.8 million, or 24.2% of the unemployed. In 2016, this 

figure declined by 263,000. 

The broadest measure of labor underutilization, the U6 unemployment rate, fell 0.1 point in December at a seasonally adjusted 9.2%. U6 unemployment is broader than U3 and includes “marginally attached workers” and people 

who are looking for and want full-time work but have settled for part-time employment. Marginally attached workers are people who are not actively looking for work but who have indicated that they want a job and have looked 

for work (without success) sometime in the past 12 months. This class also includes “discouraged workers,” those 

who have completely given up on finding a job because they feel that they would be unable to find one.

The Hamilton Project calculates that, if the economy adds 180,000 jobs a month, which is the average monthly rate 

of job creation for the past 12 months, then it will take until June 2017 to close the “jobs gap” left by the recession. 

According to the Hamilton Project, the U.S. had a jobs gap of 0.8 million jobs as of December 2016. The jobs gap 

is the number of jobs that the U.S. economy needs to create to return to prerecession employment levels while 

also absorbing the people who enter the labor force each month. The Hamilton Project was launched in 2006 as 

an economic policy initiative at the Brookings Institution. The Hamilton Project is guided by an advisory council of 

academics, business leaders, and former public policymakers.

(See Exhibits 2A, 4, and 7 for historic and forecasted unemployment figures.)

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

4.0% 

4.5% 

5.0% 

5.5% 

6.0% 

0 

50 

100 

150 

200 

250 

300 

350 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

Unemployment (percentage of labor force) 

Nonfarm Payrolls (monthly increase, in thousands) 

U.S. Employment—Past 24 Months 

Nonfarm Payrolls Added 

Unemployment Rate (U3) 

EXHIBIT 7A: U.S. Employment—Past 24 Months

0 

50 

100 

150 

200 

250 

300 

350 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

Nonfarm Payrolls (monthly increase, in thousands) 

U.S. Employment—Past 24 Months With Averages 

Nonfarm Payrolls Added 

3-Month Payrolls Average 

12-Month Payrolls Average 

EXHIBIT 7B: U.S. Employment—Past 24 Months With Averages

Source of data: U.S. Department of Labor.

Notes: U3 is the official unemployment rate per the International Labour Organization definition and occurs when people are without jobs 

and they have actively looked for work within the past four weeks. U6 unemployment is broader than U3 to include “marginally attached 

workers” and people who are looking for and want full-time work but have to settle on part-time employment. “Marginally attached 

workers” are people who are not actively looking for work, but who have indicated that they want a job and have looked for work (without 

success) sometime in the past 12 months. This class also includes “discouraged workers” who have completely given up on finding a job 

because they feel that they just won’t find one.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Source of data: U.S. Department of Labor.

Notes: U3 is the official unemployment rate per the International Labour Organization definition and occurs when people are without jobs 

and they have actively looked for work within the past four weeks. U6 unemployment is broader than U3 to include “marginally attached 

workers” and people who are looking for and want full-time work but have to settle on part-time employment. “Marginally attached 

workers” are people who are not actively looking for work, but who have indicated that they want a job and have looked for work (without 

success) sometime in the past 12 months. This class also includes “discouraged workers” who have completely given up on finding a job 

because they feel that they just won’t find one.

4.0% 

5.0% 

6.0% 

7.0% 

8.0% 

9.0% 

10.0% 

11.0% 

-900 

-700 

-500 

-300 

-100 

100 

300 

500 

700 

Jan-08 

May-08 

Sep-08 

Jan-09 

May-09 

Sep-09 

Jan-10 

May-10 

Sep-10 

Jan-11 

May-11 

Sep-11 

Jan-12 

May-12 

Sep-12 

Jan-13 

May-13 

Sep-13 

Jan-14 

May-14 

Sep-14 

Jan-15 

May-15 

Sep-15 

Jan-16 

May-16 

Sep-16 

Unemployment (percentage of labor force) 

Nonfarm Payrolls (monthly increase, in thousands) 

U.S. Employment—Since 2008 

Nonfarm Payrolls Added 

Unemployment Rate (U3) 

EXHIBIT 7C: U.S. Employment—Since 2008

4.0% 

6.0% 

8.0% 

10.0% 

12.0% 

14.0% 

16.0% 

18.0% 

Jan-08 

Apr-08 

Jul-08 

Oct-08 

Jan-09 

Apr-09 

Jul-09 

Oct-09 

Jan-10 

Apr-10 

Jul-10 

Oct-10 

Jan-11 

Apr-11 

Jul-11 

Oct-11 

Jan-12 

Apr-12 

Jul-12 

Oct-12 

Jan-13 

Apr-13 

Jul-13 

Oct-13 

Jan-14 

Apr-14 

Jul-14 

Oct-14 

Jan-15 

Apr-15 

Jul-15 

Oct-15 

Jan-16 

Apr-16 

Jul-16 

Oct-16 

U3 Unemployment Compared With U6 Unemployment—Since 2008 

Unemployment Rate (U6) 

Unemployment Rate (U3) 

2003 - 2007 (U6) Average 

2003 - 2007 (U3) Average 

EXHIBIT 7D: U3 Unemployment Compared With U6 Unemployment—Since 2008 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Job growth continued to be solid in December, and wage growth also experienced a boost. Average hourly earnings for all private-sector employees climbed 10 cents in December, to $26.00. By contrast, average hourly earnings for all private-sector employees were up 74 cents, or 2.9%, over the past 12 months, a rate much faster than 

the pace of inflation. Average hourly earnings for private-sector production and nonsupervisory employees rose by 

seven cents in December, to $21.80. Over the last 12 months, average hourly earnings for private-sector production 

and nonsupervisory employees have increased 54 cents, or 2.5%. 

The average workweek for all private workers remained unchanged in December, at 34.4 hours, but was down 

slightly from the 34.5-hour workweek a year ago. The manufacturing workweek rose 0.1 hour in December, to 40.7 

hours, while manufacturing overtime rose 0.1 hour, to 3.3 hours. The average workweek for production and nonsupervisory employees remained unchanged, at 33.6 hours.

The Bureau of Economic Analysis reported that current-dollar personal income increased $152.0 billion in the fourth 

quarter of 2016, following an increase of $172.3 billion in the third quarter. The deceleration in personal income 

primarily reflected a deceleration in wages and salaries.

Disposable personal income increased $130.2 billion (+3.7%) in the fourth quarter, compared with an increase of 

$141.5 billion (+4.1%) in the third. Real disposable personal income rose 1.5% in the fourth quarter, compared with 

an increase of 2.6% in the third.

Personal saving—disposable personal income less personal outlays—was $791.2 billion in the fourth quarter, down 

from $818.1 billion in the third. The personal saving rate—saving as a percentage of disposable personal income—

was 5.6% in the fourth quarter, down from 5.8% in the prior quarter. 

6. INDEX OF LEADING INDICATORS

The Conference Board’s Leading Economic Index (LEI) increased 0.5% in December, marking a gain for the fourth 

consecutive month. The gain in December brought the index level to a reading of 124.6%. The gain was fueled by 

positive contributions from the yield spread, stock prices, and average consumer expectations for business conditions. Over the second half of 2016, the leading economic index grew 1.4% (about a 2.8% annual rate), which is 

significantly faster than the 0.2% (0.3% annual rate) during the first half of 2016. With gains in the final months of 

2016, the index suggests that the economy is expected to grow at least at a moderate pace in the early months of 

2017. 

In December, six of the 10 components that comprise LEI rose. The positive contributors, beginning with the largest, were the interest rate spread, stock prices, consumer expectations, ISM new orders, leading credit index, and 

orders for consumer goods and materials. The two negative contributors, beginning with the largest, were initial 

claims and nondefense capital goods excluding aircraft. Manufacturing workweek and building permits were the 

two components that remained unchanged.

The LEI is a leading American economic indicator intended to forecast future activity. The Conference Board, a 

nongovernmental organization, calculates the index from the values of 10 key variables, including:

• Average weekly hours, manufacturing;

• Average weekly initial claims for unemployment insurance;

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

• Manufacturers’ new orders, consumer goods and materials;

• Institute for Supply Management’s Index of New Orders;

• Manufacturers’ new orders, nondefense capital goods excluding aircraft orders;

• Building permits, new private housing units;

• Stock prices, 500 common stocks;

• Leading Credit Index;

• Interest rate spread, 10-year Treasury bonds less federal funds; and

• Average consumer expectations for business conditions.

7. CONSUMER CONFIDENCE

Following a considerable increase in November, the Consumer Confidence Index increased in December by 6.6 

points, to 113.7. This is the best reading since August 2001. The post-election surge in the index reflects consumer 

optimism in the economy, jobs, and their personal income. The survey is a leading indicator of consumer attitudes, 

measures of confidence toward business conditions, short-term outlook, and personal finances and jobs. 

Consumers’ impressions of current economic situations declined in December. The Present Situation Index dropped 

5.9 points, to 126.1, although at levels that still show signs of confidence in the present and near-term future economy. The index’s November levels had reported the highest levels since July 2007. The share of respondents who 

said that jobs were plentiful declined 0.9 points in December, to 26.9, while those who believed jobs are hard to 

get increased 1.3%, to 22.5%.

Consumers were more optimistic about the short-term outlook in December. The Expectations Index surged up 

11.1 points, to 105.5. The share of consumers who expect business conditions to improve over the next six months 

increased by 7.2 points, to 23.6%, while the percentage who expect their incomes to increase also improved, gaining 3.6 points, moving up to 21.0%. The percentage of consumers expecting business conditions to worsen fell by 

1.2%, to 8.7%.

The Conference Board found that consumers’ expectations for buying plans improved modestly. Plans to purchase 

major appliances and homes improved slightly, while plans to purchase an automobile declined modestly. 

The Consumer Confidence Index is an indicator designed to measure the degree of optimism about the state of the 

economy that consumers are expressing through their savings and spending. A month-on-month decreasing trend 

in the Consumer Confidence Index suggests consumers have a negative outlook on their ability to secure and retain 

good jobs, whereas a rising trend in consumer confidence indicates improvements in consumer buying patterns. 

Opinions on current conditions make up 40% of the index (the Present Situation Index), while expectations of future 

conditions comprise the remaining 60% (the Expectations Index).

Consumer sentiment increased in December, recording an annual high and reaching the highest total since 2004. 

The Thomson Reuters/University of Michigan’s Consumer Sentiment Index climbed 4.4 points to end December 

with a reading of 98.2. The median projection in a Bloomberg survey called for a reading of 98.0. The Current 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Conditions Index increased 4.6 points in December, to 111.9, reaching its highest level since 2005. Meanwhile, the 

Index of Consumer Expectations increased by 4.3 points, to 89.5, its highest level since January 2015. Overall, the 

data indicate that expectations for personal finances will improve in 2017.

The survey found that 18% of consumers became more optimistic about prospects for the economy and the expected favorable impact of the new president’s policies on the economy. Notably, this is twice as high as the 9% 

peak in 1981, when Ronald Reagan took office.

Respondents’ buying plans soured in December due to concerns about higher interest rates, which affect the purchases of housing and vehicles. 

The Thomson Reuters/University of Michigan’s Survey of Consumers is a rotating panel survey based on a nationally representative sample that gives each household in the contiguous U.S. an equal probability of being selected. 

Interviews are conducted by telephone throughout the month. The Index of Consumer Sentiment is composed of 

the Expectations Index and the Current Conditions Index and is intended to gauge how consumers feel the economic environment will change. The survey’s Index of Consumer Expectations is an official component of the U.S. 

Leading Economic Index.

(See Exhibit 8 for consumer confidence and consumer sentiment figures.)

8. BUSINESS OPTIMISM

Business-owner optimism continued to climb in December. The National Federation of Independent Business’s 

(NFIB) Small Business Optimism Index rose 7.4 points, to 105.8, its highest levels since 2004. This marks the second consecutive month in which small-business owners reported a much brighter outlook for the economy and 

higher expectations for their business. The December reading remained above the 42-year average of 98.0. 

Seven of the 10 components that make up the Small Business Optimism Index posted a gain in December. The 

component that measures whether owners expected the economy to improve surged 38.0 points, to a net 50.0%, 

while the component that measures the expectations for higher real sales improved 20.0 points, to a net 31.0% in 

December. However, the component that measures owners’ expectations of current job openings fell 2.0 points, to 

a net 29.0%. The index that measures plans to increase inventory remained unchanged. 

The Small Business Optimism Index is compiled from a survey of the NFIB’s 350,000 members that it conducts 

each month. NFIB, founded in 1943, began conducting its survey quarterly in 1974, transitioning to a monthly survey in 1986. The index is a composite of 10 seasonally adjusted components based on questions about the following: plans to increase employment, plans to make capital outlays, plans to increase inventories, whether members 

expect the economy to improve, whether they expect real sales will be higher, current inventory, current job opening, expected credit conditions, whether now is a good time to expand, and earnings trend. Analysts watch the 

index because small businesses are responsible for the majority of new job creation and the NFIB focuses on this 

sector of the economy.

The 4Q 2016 Wells Fargo/Gallup Small Business Index, which was reported in August, surged up 12.0 points, 

to 80.0. This represents the highest optimism reading since January 2008 and the largest quarterly increase in a 

year. The report highlighted that small-business owners are more optimistic about the operating environment in 

2017. The 4Q survey asked small-business owners about their priorities for the incoming president and Congress. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

Eighty-one percent said actions relating to the tax code, tax regulations, and tax rates for small businesses were 

most important. Other top priorities included the healthcare law (76%), government regulation of small business 

(70%), and actions that could affect oil prices or energy costs (59%). The report went on to note that, in six key areas—financial situation, cash flow, revenues, capital spending allocation, hiring, and credit availability—the present 

situation dipped five points, from 29 points in July to 24 points in November, while the future expectations score 

rose 17 points, from 39 in July to 56 in November. 

Since August 2003, the Wells Fargo/Gallup Small Business Index has surveyed small-business owners on current 

and future perceptions of their business’s financial situation. The Small Business Index is published once a quarter. 

The Small Business Index consists of owners’ ratings of their business’s current situation and their expectations 

for the next 12 months, measured in terms of their overall financial situation, revenue, cash flow, capital spending, 

number of jobs, and ease of obtaining credit. Before the recession and financial crisis of 2008-2009, Small Business 

Index scores were generally in triple digits. The Small Business Index reached its peak of 114.0 in December 2006 

and hit its low point of -28.0 in July 2010. 

The RSM U.S. Middle Market Business Index (MMBI) jumped 4.5 points in the fourth quarter of 2016, climbing to a 

reading of 120.1. The MMBI reading indicated that overall growth in the U.S. middle market is likely to slow in the 

final quarter of the year, though the information was gathered before the results of the presidential election. Data for 

six months ahead are more encouraging, particularly with respect to capital expenditures, investments, and compensation, when compared to three months prior. U.S. long-term growth rebounded to 3.2%, from 1.4%, based 

on the Bureau of Economic Analysis’s second estimate of gross domestic product. Of particular note, the analysis 

shows improvement in hiring and compensation, both of which stand near cyclical highs and are indicative of the 

sharp tightening seen in the U.S. labor markets, arriving at a point in the business cycle where rising wages and 

salaries are now likely to create narrowing profit margins for the middle market. 

The RSM U.S. Middle Market Business Index is based on quarterly survey data collected by RSM U.S. LLP and 

Nielsen N.V. and is developed in partnership with Moody’s Analytics. The MMBI survey and data began in the first 

quarter of 2015, and the survey panel consists of 700 middle-market executives. An MMBI reading above 100 generally indicates that the middle market is expanding, and a reading below 100 generally indicates that the middle 

market is contracting. 

(See Exhibit 8 for business optimism figures.)

9. STOCK MARKETS AND VOLATILITY

The major stock indexes recorded gains in the fourth quarter, carrying on the previous quarter’s upward momentum. The Nasdaq Composite Index saw strong gains, as did the Russell 2000 index. Within the S&P 500 sectors, 

financial stocks jumped 21.1%, while telecommunication services stocks—which are dividend-heavy—fell nearly 

4.4% as expectations grew for competition from higher bond yields. 

The Dow Jones Industrial Average (Dow) saw a 7.9% price return in the fourth quarter. In 2016, the Dow had a total 

return of 16.5%, while also posting its best annual gains in three years. The Dow is an index of 30 of the largest and 

most widely held public companies in the U.S. and is considered the most-watched index in the world.

The Nasdaq Composite Index, consisting mainly of high-tech stocks, rose 2.5% in the fourth quarter and was up 

7.5% for the year. 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

90 

92 

94 

96 

98 

100 

102 

70 

75 

80 

85 

90 

95 

100 

105 

110 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 Sep-16 

Oct-16 

Nov-16 Dec-16 

Small Business Optimism 

Consumer Confidence and Sentiment 

Consumer Confidence and Small Business Optimism—One Year 

Consumer Sentiment Index* 

Consumer Confidence Index** 

Small Business Optimism*** 

EXHIBIT 8A: Consumer Confidence and Small Business Optimism—One Year

80 

85 

90 

95 

100 

105 

20 

30 

40 

50 

60 

70 

80 

90 

100 

110 

120 

Jan-06 Jun-06 

Nov-06 

Apr-07 

Sep-07 

Feb-08 

Jul-08 

Dec-08 

May-09 

Oct-09 

Mar-10 

Aug-10 

Jan-11 Jun-11 

Nov-11 

Apr-12 

Sep-12 

Feb-13 

Jul-13 

Dec-13 

May-14 

Oct-14 

Mar-15 

Aug-15 

Jan-16 Jun-16 

Nov-16 

Small Business Optimism 

Consumer Confidence and Sentiment 

Consumer Confidence and Small Business Optimism—Since 2006 

Consumer Sentiment Index* 

Consumer Confidence Index** 

Small Business Optimism*** 

EXHIBIT 8B: Consumer Confidence and Small Business Optimism—Since 2006 

Source of data: The Conference Board, Thomson Reuters/University of Michigan, National Federation of Independent Business.

Notes:

* Thomson Reuters/University of Michigan Index of Consumer Sentiment

** The Conference Board Consumer Confidence Index®

*** National Federation of Independent Business Small Business Optimism Index

  Wells Fargo/Gallup Small Business Index 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

-20 

-10 

0 

10 

20 

30 

40 

50 

60 

70 

80 

1Q 2014 2Q 2014 3Q 2014 4Q 2014 

1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016 

Small Business Index 

Small Business Index—Prior 12 Quarters 

Small Business Index** *** 

EXHIBIT 8C: Small Business Index—Prior 12 Quarters

-40 

-20 

0 

20 

40 

60 

80 

100 

120 

140 

1Q 2004 

3Q 2004 

1Q 2005 

3Q 2005 

1Q 2006 

3Q 2006 

1Q 2007 

3Q 2007 

1Q 2008 

3Q 2008 

1Q 2009 

3Q 2009 

1Q 2010 

3Q 2010 

1Q 2011 3Q 2011 

1Q 2012 

3Q 2012 

1Q 2013 

3Q 2013 

1Q 2014 

3Q 2014 

1Q 2015 

3Q 2015 

1Q 2016 

3Q 2016 

Small Business Index 

Small Business Index—Since 2004 

Small Business Index**** 

EXHIBIT 8D: Small Business Index—Since 2004 

Source of data: The Conference Board, Thomson Reuters/University of Michigan, National Federation of Independent Business.

Notes:

* Thomson Reuters/University of Michigan Index of Consumer Sentiment

** The Conference Board Consumer Confidence Index®

*** National Federation of Independent Business Small Business Optimism Index

**** Wells Fargo/Gallup Small Business Index 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The S&P 500 Index increased 3.3% in the fourth quarter. Including dividends, the S&P 500’s total return was 3.8% 

in the fourth quarter and 12.0% in 2016. The S&P 500 consists of a representative sample of 500 leading companies of the U.S. economy and is one of the most commonly used benchmarks for the overall U.S. stock market.

The S&P MidCap 400 index improved 7.0% in the fourth quarter. The total return for the S&P MidCap 400 in 2016 

was 20.1%. The S&P MidCap 400, which is distinct from the large-cap S&P 500, measures the performance of 

midsized companies and is the most widely followed midcap index.

The Russell 2000 Index advanced 8.4% this quarter. The total return for the Russell 2000 in 2016 was 21.3%. The 

Russell 2000 Index serves as a benchmark for small-cap stocks in the U.S. stock market.

(See Exhibit 9 for stock price figures.)

Market volatility eased somewhat in the fourth quarter. The Chicago Board Options Exchange Volatility Index (VIX)—

a popular volatility measure—saw a high reading of 22.5, up from a high of 18.1 in the third quarter. The average VIX 

reading for the fourth quarter was comparable to that in the second: 14.1 compared to 13.2. 

The VIX represents the implied volatility of 30-day options on the Standard & Poor’s 500 stocks and has been 

termed by analysts and investors as the “fear gauge.” Accordingly, the VIX represents the expected volatility of 

the market, as represented by the S&P 500. Stock market professionals use the VIX to gauge investor sentiment. 

Values greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty, while values below 20 generally correspond to less stressful, even complacent, times in the markets.

(See Exhibit 9 for VIX figures.)

10. BOND MARKETS

Treasury yields rose throughout the fourth quarter, as markets reacted to potential economic policies implemented 

under President Trump. Pro-growth policy proposals such as infrastructure spending, tax cuts, and deregulation 

would cause inflation to accelerate and force the Fed to raise interest rates, which in turn would push yields higher. 

The 30-day T-bill rate was 0.25% at the beginning of the fourth quarter of 2016 and rose to 0.44% by the end of 

the quarter. The five-year Treasury ended the fourth quarter with a yield of 1.93%, up from a yield of 1.18% at the 

beginning of the quarter.

The 10-year Treasury bond yield rose from 1.63% at the beginning of the fourth quarter to 2.45% at the end of 

December. The 20-year Treasury bond yield advanced from 2.01% at the start of the fourth quarter to 2.79% at the 

end. 

The prime lending rate began the fourth quarter at 3.50% before finishing December at 3.75%. The discount window (primary credit) also rose in the fourth quarter, gaining 0.25 percentage point, to 1.25%.

(See Exhibits 2A, 10, 11, and 12 for historic and forecasted Treasury, bond, and federal funds rate figures.)

11. CONSTRUCTION

Housing starts increased in December, with privately owned housing starts rising at a seasonally adjusted annual 

rate of 1,226,000 in December, up 11.3% from the previous month and up 5.7% over the past 12 months. The 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

EXHIBIT 9: Stock Market Historical Data

QUARTERLY PRICE RETURNS

(%) 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16

DJIA -0.7 2.2 1.3 4.6 -0.3 -0.9 -7.6 7.0 1.5 1.4 2.1 7.9

Nasdaq Composite 0.5 5 1.9 5.4 3.5 1.8 -7.4 8.4 -2.7 -0.6 9.7 2.5

S&P 500 1.3 4.7 0.6 4.4 0.4 -0.2 -6.9 6.5 0.8 1.9 3.3 3.3

S&P MidCap 400 2.7 3.9 -4.3 5.9 4.9 -1.4 -8.9 2.2 3.3 3.6 3.7 7.0

Russell 2000 0.8 1.7 -7.7 9.4 4 0.1 -12.2 3.2 -1.9 3.4 8.7 8.4

YEARLY PRICE RETURNS FORECAST*

(%) 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

DJIA 6.4 -33.8 18.8 11.0 5.5 7.3 26.5 7.5 -2.2 16.5

Nasdaq Composite 9.8 -40.5 43.9 16.9 -1.8 15.9 38.3 13.4 5.7 7.5

S&P 500 3.5 -38.5 23.5 12.8 0.0 13.4 29.6 11.4 -0.7 12.0 2.9

S&P MidCap 400 6.7 -37.3 35.0 24.9 -3.1 16.1 31.6 8.2 -3.7 20.7

Russell 2000 -2.7 -34.8 25.2 25.3 -5.5 14.6 37.0 3.5 -5.7 21.3

MONTHLY DATA

1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16

DJIA 16,466.3 16,516.5 17,685.1 17,773.6 17,787.2 17,930.0 18,432.2 18,400.9 18,308.2 18,142.4 19,123.6 19,762.6

Nasdaq Composite 4,614.0 4,558.0 4,869.9 4,775.4 4,948.1 4,842.7 5,162.1 5,213.2 5,312.0 5,819.1 5,323.7 5,444.5

S&P 500 1,940.2 1,932.2 2,059.7 2,065.3 2,097.0 2,098.9 2,173.6 2,171.0 2,168.3 2,126.2 2,198.8 2,238.8

S&P MidCap 400 1,317.7 1,334.2 1,445.2 1,461.7 1,493.1 1,496.5 1,559.5 1,564.8 1,552.3 1,509.5 1,627.5 1,660.6

Russell 2000 1,035.4 1,033.9 1,114.0 1,130.9 1,154.8 1,151.9 1,219.9 1,239.9 1,251.7 1,191.4 1,322.3 1,357.1

VIX** 27.6 28.1 18.7 16.3 16.3 25.8 15.6 13.7 18.1 17.1 22.5 14.1

Quarterly Data

1Q 13 2Q 13 3Q 13 4Q 13 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15

DJIA 14,578.54 14,909.60 15,129.67 16,576.66 16,457.66 16,826.60 17,042.90 17,823.07 17,776.12 17,619.51 16,284.70 17,425.03

Nasdaq Composite 3,267.52 3,403.25 3,771.48 4,176.59 4,198.99 4,408.18 4,493.39 4,736.05 4,900.88 4,986.87 4,620.16 4,736.05

S&P 500 1,569.19 1,606.28 1,681.55 1,848.36 1,872.34 1,960.23 1,972.29 2,058.90 2,067.89 2,063.11 1,920.03 2,058.90

S&P MidCap 400 1,153.68 1,160.82 1,243.85 1,342.53 1,378.50 1,432.94 1,370.97 1,452.44 1,524.03 1,502.17 1,368.91 1,452.44

Russell 2000 951.54 977.48 1,073.79 1,163.64 1,173.04 1,192.96 1,101.68 1,204.70 1,252.77 1,253.95 1,100.69 1204.7

VIX** 19.0 20.5 17.0 20.3 21.4 12.7 17.0 25.3 22.4 18.9 40.7 25.3

YEARLY DATA FORECAST*

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

DJIA 13,264.82 8,776.39 10,428.05 11,577.51 12,217.56 13,104.14 16,576.66 17,823.07 17,425.03 19,762.60 

Nasdaq Composite 2,652.28 1,577.03 2,269.15 2,652.87 2,605.15 3,019.51 4,176.59 4,736.05 5,007.41 5,383.12 

S&P 500 1,468.36 903.25 1,115.10 1,257.64 1,257.60 1,426.19 1,848.36 2,058.90 2,043.94 2,238.83 2,314.50 2,400.00 

S&P MidCap 400 858.20 538.28 726.67 907.25 879.16 1,020.43 1,342.53 1,452.44 1,398.58 1,660.58 

Russell 2000 766.03 499.45 625.39 783.65 740.92 849.35 1,163.64 1204.7 1,135.89 1,357.13 

VIX** 31.1 80.9 56.7 45.8 48.0 26.7 20.5 25.3 40.7 28.1

Source of data: Yahoo! Finance

Index Tickers: ^DJI, ^IXIC, ^GSPC, ^MID, ^RUT, ^VIX

Notes: Quotes are closing prices on the last day of trade for the month.

*Source: The Livingston Survey, June 2016

**VIX values reported are the highest value of the respective time period. VIX is a popular volatility measure; higher values correspond to 

greater volatility.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

EXHIBIT 10: Bond Market Historical Data

PERIODIC DATA

10/16 11/16 12/16

(%) BM MM EM BM MM EM BM MM EM

30-day Treasury Bill1 0.25 0.26 0.20 0.24 0.30 0.38 0.32 0.48 0.44

5-year Treasury Note1 1.18 1.28 1.31 1.30 1.68 1.83 1.90 2.10 1.93

10-year Treasury Bond1 1.63 1.80 1.84 1.83 2.23 2.37 2.45 2.60 2.45

20-year Treasury Bond1 2.01 2.22 2.25 2.24 2.64 2.73 2.82 2.89 2.79

Prime lending rate 3.50 3.50 3.50 3.50 3.50 3.50 3.50 3.75 3.75

Federal funds rate 0.29 0.41 0.31 0.41 0.41 0.31 0.41 0.66 0.55

Discount window primary credit rate 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.25 1.25

Corporate Bonds Moody's 

Seasoned Aaa4 N/A N/A N/A N/A N/A N/A 3.24 3.52 3.44

Corporate Bonds Moody's 

Seasoned Baa4 N/A N/A N/A N/A N/A N/A 4.19 4.43 4.29

Notes: BM=beginning of month, MM = mid-month, EM = end of month

MONTHLY DATA

(%) 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16

30-day Treasury Bill1 0.23 0.26 0.25 0.19 0.23 0.22 0.26 0.26 0.19

5-year Treasury Note1 1.52 1.22 1.38 1.26 1.30 1.17 1.07 1.13 1.18

10-year Treasury Bond1 2.09 1.78 1.89 1.81 1.81 1.64 1.50 1.56 1.63

20-year Treasury Bond1 2.49 2.20 2.28 2.21 2.22 2.02 1.82 1.89 2.02

Prime lending rate2 3.50 3.50 3.50 3.50 3.50 3.50 0.35 0.35 0.35

Federal funds rate2 0.34 0.38 0.36 0.37 0.37 0.38 0.39 0.40 0.40

Discount window primary credit rate2 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00

Corporate Bonds Moody's 

Seasoned Aaa4 4.00 3.96 3.82 3.62 3.65 3.5 3.28 3.31 3.41

Corporate Bonds Moody's 

Seasoned Baa4 5.45 5.34 5.13 4.79 4.68 4.53 4.22 4.24 4.31

YEARLY DATA

(%) 2008 2009 2010 2011 2012 2013 2014 2015 2016

30-day Treasury Bill1 1.29 0.10 0.11 0.04 0.07 0.05 0.03 0.04 0.25

5-year Treasury Note1 2.80 2.20 1.93 1.52 0.76 1.17 1.64 1.53 1.33

10-year Treasury Bond1 3.66 3.26 3.22 2.78 1.80 2.35 2.54 2.14 1.84

20-year Treasury Bond1 4.36 4.11 4.03 3.62 2.54 3.12 3.07 2.55 2.22

Prime lending rate3 5.09 3.25 3.25 3.25 3.25 3.25 3.25 3.26 3.51

Federal funds rate3 1.92 0.16 0.18 0.10 0.14 0.11 0.09 0.13 0.39

Discount window primary credit rate3 2.39 0.50 0.72 0.75 0.75 0.75 0.75 0.76 1.01

Corporate Bonds Moody's 

Seasoned Aaa4 5.63 5.31 4.94 4.64 3.67 4.23 4.16 3.89 N/A

Corporate Bonds Moody's 

Seasoned Baa4 7.44 7.29 6.04 5.66 4.94 5.10 4.85 5.00 N/A

Source of data: The Federal Reserve Board.

Notes: (1) Yields on actively traded non-inflation-indexed issues adjusted to constant maturities (2) Monthly figures are averages of 

each calendar day in the month (3) Annualized figures use a 360-day year or bank interest (4) Average yield to maturity on selected 

long-term bonds

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

0 

1 

2 

3 

4 

5 

6 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 

Average Yield (%) 

30-day Treasury Bill 

5-year Treasury Note 

10-year Treasury Bond 

20-year Treasury Bond 

EXHIBIT 11: Treasury Historical Data

0 

1 

2 

3 

4 

5 

6 

7 

8 

9 

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 

 Average Rate (%) 

Prime Lending Rate 

Federal Funds Rate 

EXHIBIT 12: Prime Lending and Federal Funds Historical Data

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

construction of single-family homes decreased 4.0% in December but rose 3.9% over the past 12 months. The 

construction of multifamily homes increased 53.9% in December and 10.3% over the past year. The multifamilyhome sector, which consists of buildings with five units or more, tends to be more volatile than the single-familyhome sector. 

(See Exhibits 2 and 4 for historic and forecasted housing starts figures.)

Building permit authorizations for privately owned housing units, considered a leading indicator of demand for new 

homes, rose at a seasonally adjusted rate of 1,210,000 in December. This is 0.2% below the rate reported in the 

prior month but 0.7% above the rate from one year ago. Building permits for single-family housing units edged up 

4.7% in December and were up 10.7% from one year ago. Building permits for multifamily housing units fell 10.1% 

in December and were down 17.1% from one year ago.

(See Exhibit 4 for building permit authorization figures.)

The U.S. Census Bureau reported that overall spending on construction was at a seasonally adjusted annual rate of 

$1,181.5 billion in December. This figure was 0.2% below the November rate of $1,184.4 billion but 4.2% above the 

$1,133.7 billion rate from one year ago. Overall construction spending amounted to $1,162.4 billion in 2016, 4.5% 

above the $1,112.4 billion spent in 2015.

Spending on all private construction was at a seasonally adjusted annual rate of $897.0 billion in December, 0.2% 

above the November rate of $894.8 billion and 6.3% above the rate from one year ago. Private residential construction spending was at a seasonally adjusted annual rate of $466.9 billion in December, 0.5% above the rate of 

$464.8 billion in November and 3.7% above the rate from one year ago. Private nonresidential construction was at 

a seasonally adjusted annual rate of $430.1 billion in December, nearly the same as the November rate of $430.1 

billion but 9.2% above the rate from a year ago.

The total amount spent on private construction was $876.3 billion in 2016, up 6.4% from the amount spent during 

that same period in 2015. Spending on residential construction was $456.2 billion in 2016, 5.2% greater than the 

amount spent during that same period in 2015. Spending on nonresidential private construction was $420.1 billion 

in 2016, 7.8% above the amount spent during the same period in 2015.

The seasonally adjusted annual rate of total public construction spending was $284.5 billion in December, a 1.7% 

decrease from the November rate of $289.6 billion and 1.8% below the rate from a year ago. Educational construction was at a seasonally adjusted annual rate of $70.1 billion in December, 2.2% below the November rate of $71.6 

billion but 1.5% above the rate from a year ago. Highway and street construction was at a seasonally adjusted 

annual rate of $94.3 billion in December, 0.6% below the November rate of $94.9 billion but 1.5% above the rate 

from one year ago.

The total amount spent on public construction was $286.0 billion in 2016, down 1.0% from the amount spent during that period in 2015. Spending on educational construction was $69.7 billion in 2016, 4.7% above the amount 

spent during that period in 2015. Spending on highway and street construction was $91.2 billion in 2016, up 2.0% 

from the amount spent during the same period in 2015.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

12. MANUFACTURING

The Federal Reserve reported that total industrial production rose 0.8% in December, after falling 0.7% in November. Capacity utilization for the industrial sector increased 0.6% in December, to 75.5%, a rate that is 4.5 percentage points below its long run (1972 to 2015) average. Industrial production was up 0.5% over the past 12 months. 

Industrial production is an output measure of the industrial sector of the economy. The industrial sector includes 

manufacturing, mining, and utilities. Manufacturing accounts for approximately 75% of total industrial production. 

Manufacturing increased 0.2% in December and remained above 0.2% from a year ago. The production of durable 

goods improved 0.5% in December, while the production of nondurable goods fell 0.3%.

In December, the jump in the output of utilities contributed substantially to gains in the indexes for consumer goods, 

business supplies, and materials through their energy components. The increases in utilities were due to a return 

to more normal temperatures following unseasonably warm weather in November. The gain last month was the 

largest since December 1989.

The mining index remained unchanged in December. In December, most mining industries, with the exception of 

coal mining, posted increases. The gains posted in crude oil extraction and in oil and gas well drilling and servicing 

were offset by declines reported in other mining categories. After falling for six consecutive quarters, the index for 

mining advanced 3.4% at an annual rate in the third quarter and jumped nearly 12.0% in the fourth quarter.

(See Exhibit 1 for historical and forecasted industrial production figures.)

Industrial capacity utilization moved up 0.6 percentage point in December, to 75.5%. Capacity utilization is the 

percentage of production capacity manufacturers actually use. The December capacity utilization rate is 0.4 percentage point above its level from a year ago but 4.5 percentage points below its long-run average between 1972 

and 2015.

The U.S. Census Bureau announced that new orders for manufactured durable goods decreased $1.0 billion (-0.4%) 

in December, to $227.0 billion. December marks the second consecutive month of decline, following a 4.8% decline in November. Excluding transportation, new orders increased 0.5%. Excluding defense, new orders increased 

1.7%. Orders for transportation equipment, also down for the second consecutive month, drove the December 

decrease by falling $1.7 billion, or 2.2%. New orders for nondefense capital goods excluding volatile aircraft orders—an indicator of business spending strength—increased 0.8% in December after rising 1.5% in February.

The manufacturing sector continued to expand in December. The Institute for Supply Management (ISM) reported 

that its manufacturing index (PMI) rose 1.3 percentage points in December, to 54.7%. PMI is an indicator of the 

economic health of the manufacturing sector and is based on data compiled from purchasing and supply executives nationwide. 

A reading above 50.0% indicates that the manufacturing economy is generally expanding; a reading below 50.0% 

indicates that it is generally contracting. A PMI in excess of 43.2%, over a period of time, generally indicates an 

expansion of the overall economy. Therefore, the PMI reading indicates that December was the third consecutive 

month of growth in the manufacturing sector and the 90th straight month of growth in the overall economy.

Eleven of the 18 manufacturing sectors surveyed in December reported growth. The report stated that, based on 

the past relationship between PMI and the overall economy, if the average PMI for January through December 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

(51.5%) were annualized, it would correspond to a 2.6% increase in real GDP annually. If PMI for December were 

annualized (54.7%), it would correspond to a 3.6% increase in GDP annually.

The component for new orders increased 7.2 percentage points in December, to 60.2%. This reading indicates 

growth in new orders for the fourth consecutive month. A New Orders Index above 52.2%, over time, is generally 

consistent with an increase in the census bureau’s series on manufacturing orders.

The component for production increased 4.3 percentage points in December, improving to 60.3%. This indicates 

growth in new orders for the fourth consecutive month. An index above 51.3%, over time, is generally consistent 

with an increase in the Federal Reserve Board’s industrial production figures. 

The manufacturing employment component improved 0.8 percentage points in December, to 53.1%, indicating 

growth in manufacturing in December for the third consecutive month. An Employment Index above 50.6%, over 

time, is generally consistent with an increase in the Bureau of Labor Statistics’ data on manufacturing employment.

The index that tracks inventory declined 2.0 percentage points in December, to 47.0%, and indicated that raw materials inventories contracted for the 18th consecutive month. This indicates that manufacturers’ inventory levels 

were in line with current and expected demand. An Inventories Index greater than 42.8%, over time, is generally 

consistent with expansion in the Bureau of Economic Analysis’s figures on overall manufacturing inventories.

The component that measures prices surged in December, up 11.0 percentage points, to 65.5%. This measure 

indicates growth. In December, 21.0% of respondents reported paying higher prices, 12.0% reported paying lower 

prices, and 67.0% reported paying the same prices. A Prices Index above 52.4%, over time, is generally consistent 

with an increase in the Bureau of Labor Statistics’ Index of Manufacturers Prices.

(See Exhibits 4 and 13 for historical PMI figures.)

13. SERVICES

Growth in the services sector was unchanged in December, remaining at the strong levels established in November. 

The ISM reported that its Non-Manufacturing Index (NMI) stayed at 57.2%. 

NMI measures the strength of the services sector and is based on data compiled from purchasing and supply executives nationwide. A reading above 50.0% indicates that the services sector of the economy is generally expanding, whereas a reading below 50.0% indicates that the services sector is generally contracting. An NMI in excess of 

48.9%, over time, generally indicates an expansion in the overall economy. Therefore, the December NMI indicates 

an expansion in the services sector for the 83rd consecutive month and growth in the overall economy for the 89th 

consecutive month. 

Twelve of the 18 nonmanufacturing sectors surveyed in December reported growth. The majority of the respondents’ comments were positive about business conditions and the direction of the overall economy. The report 

noted that, based on the past relationship between the NMI and the overall economy, if NMI for December were 

annualized (57.2%), it would correspond to a 3.3% increase in GDP.

The component that measures business activity declined 0.3 percentage points in December, to 61.4%, although 

the index indicates that business activity grew for the 89th consecutive month. Eleven of the industries in the index 

reported growth in business activity for the month. The new orders component of the index climbed 4.6 percentage 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

30 

35 

40 

45 

50 

55 

60 

65 

70 

75 

46 

48 

50 

52 

54 

56 

58 

60 

62 

Jan-15 

Feb-15 

Mar-15 

Apr-15 

May-15 

Jun-15 

Jul-15 

Aug-15 

Sep-15 

Oct-15 

Nov-15 Dec-15 

Jan-16 

Feb-16 

Mar-16 

Apr-16 

May-16 

Jun-16 

Jul-16 

Aug-16 

Sep-16 

Oct-16 

Nov-16 Dec-16 

HMI Levels 

PMI and NMI Levels 

Manufacturing, Services, and Housing Indicators—Past 24 Months 

PMI 

NMI 

HMI 

EXHIBIT 13A: Manufacturing, Services, and Housing Indicators—Past 24 Months

0 

10 

20 

30 

40 

50 

60 

70 

30 

35 

40 

45 

50 

55 

60 

65 

70 

Jan-08 

May-08 

Sep-08 

Jan-09 

May-09 

Sep-09 

Jan-10 

May-10 

Sep-10 

Jan-11 

May-11 

Sep-11 

Jan-12 

May-12 

Sep-12 

Jan-13 

May-13 

Sep-13 

Jan-14 

May-14 

Sep-14 

Jan-15 

May-15 

Sep-15 

Jan-16 

May-16 

Sep-16 

HMI Levels 

PMI and NMI Levels 

Manufacturing, Services, and Housing Indicators—Since 2008 

PMI 

NMI 

HMI 

EXHIBIT 13B: Manufacturing, Services, and Housing Indicators—Since 2008

Source of data: Institute for Supply Management and the National Association of Home Builders.

Notes: PMI is the Institute of Supply Management’s Manufacturing Index—any reading above 50.0% suggests growth in the 

manufacturing economy, whereas a reading below 50.0% indicates contraction. NMI is the Institute of Supply Management’s NonManufacturing Index, which measures the strength of the services sector—any reading above 50.0% suggests growth, whereas a 

reading below 50.0% indicates contraction. HMI is the National Association of Home Builders/Wells Fargo Housing Market Index—any 

reading over 50 indicates that more builders view sales conditions as good than poor.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

points, to 61.6%, signaling growth in new orders for the 89th consecutive month. Ten of the industries in this index 

reported a growth in new orders for the month. The employment component declined 4.4 percentage points, to 

53.8%, in December, although it remained at a reading indicating employment grew for the seventh consecutive 

month. Nine of the industries reported increased employment, while four industries reported decreased employment for the month. 

(See Exhibits 4 and 13 for historical NMI figures.)

14. REAL ESTATE

NATIONAL ASSOCIATION OF HOME BUILDERS

Builder confidence rose in December, indicating that homebuilders continue to be positive about the housing 

market. The National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) reached a 

reading of 70.0 in December, the index’s highest level since July 2005. An HMI reading above 50.0 indicates that 

more builders view sales conditions as good, rather than poor. HMI has now been above the 50.0-point benchmark 

for 29 consecutive months. The report noted that the indicators show that the housing market will continue on an 

upward path into 2017.

All of the three HMI components increased in December. The component that measures expectations for singlefamily sales in the next six months increased 9.0 points, to 78.0, while the component measuring traffic of prospective buyers rose 6.0 points, to 53.0. The component that measures current sales conditions increased 7.0 points, 

to 76.0. 

All four HMI regional indexes improved in December. The index for the Midwest rose 7.0 points, to 58.0; the Northeast climbed 10.0 points, to 57.0; the West increased 10.0 points, to 86.0, while the South improved 5.0 points, to 

70.0. 

(See Exhibit 13 for historical HMI figures.)

NATIONAL ASSOCIATION OF REALTORS (NAR)

Existing-home sales fell in December, halting a three-month upswing. In December, homebuyers dealt with a lack of 

listings and quickly rising home prices as the major headwind. Meanwhile, the surge in rates since early November 

ultimately caught some prospective buyers off guard and dimmed their appetite or ability to buy a home as 2016 

ended. Three of the four major regions saw sales decrease in December and the share of distressed home sales 

increased to 7%, up from 6% in November but down from 8% one year ago. 

Existing-home sales fell 2.8% in December, to an annual pace of 5.49 million sales from 5.65 million in November. 

Despite the December slide, home sales remain 0.7% higher than one year ago. In addition, 2016 closed with the 

highest level of sales since 2006, when the U.S. reached 6.48 million sales. Existing-home sales are completed 

transactions that include single-family houses, townhomes, condominiums and co-ops. Existing-home sales are 

expected to increase 1.7% from 2016, to a total of 5.54 million. The national median existing-home price in 2017 is 

expected to increase around 4.0%. The year 2016 saw existing sales increase 3.8% and prices rise 5.2%.

Home sales in the Northeast slid 6.2% in December but remain up 2.7% from a year ago. Sales in the Midwest 

decreased 3.8% in December but were up 2.4% from a year ago. December sales in the South were unchanged 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

from November but are up 0.4% compared to this time last year. Sales in the West declined 4.8% and are down 

1.6% from a year ago. 

The national median existing-home price for all housing types was $232,200 in December, up 4.0% from a year 

ago. This marked the 58th consecutive month of year-over-year price gains. In December, home prices in the Northeast moved down 3.8% from one year ago, while prices in the Midwest climbed 4.6%. Home prices in the South 

rose 0.4%, and prices in the West jumped 6.0% over the last 12 months. 

Distressed home sales comprised 7.0% of all home sales in December, up from 6.0% in November but down from 

8.0% one year ago. Distressed homes include foreclosures and short sales, which are generally sold at deep discounts. In December, 5.0% of home sales were foreclosures and 2.0% were short sales. December foreclosures 

sold for an average discount of 20.0% below market value, and short sales sold at an average discount of 10.0%.

The median time on the market for all homes sold in December was 52 days, up from 43 days in the previous month 

but down from 58 days from a year ago. The median time on the market for short sales in December was 97 days, 

while foreclosures sold in 53 days and nondistressed homes sold in 50 days. In December, 37.0% of all homes on 

the market sold in less than a month. 

Total housing inventory declined 10.8% in December, to 1.65 million existing homes available for sale, which is 

the lowest inventory level since the National Association of Realtors began tracking the supply of housing types in 

1999. Housing inventory remains down 6.3% from one year ago and has fallen year-over-year for 19 consecutive 

months. Unsold inventory was at a 3.6-month supply at the current sales pace in December, down from 4.0 months 

in November. 

NAR reports that, according to Freddie Mac, the national average commitment rate for a 30-year, conventional, 

fixed-rate mortgage surged to 4.20% in December, rising from the 3.77% rate in the prior month. This marked the 

highest rate since April 2014, when it was 4.32%. The average 30-year rate for 2015 was 3.85%.

NAR’s Realtors Confidence Index (RCI) for current conditions decreased in December but remained up from a year 

ago. The RCI for single-family houses dropped 1.0 point in December, to a reading of 62.0, but was up 5.0 points 

over the past 12 months (strong = 100; moderate = 50; weak = 0). The RCI is a key indicator of housing market 

strength based on a monthly survey of over 50,000 real estate practitioners. 

Pending home sales rose in December after dipping in November, and, despite mixed contract activity for the 

month, 2016 closed on a high note. The pending home sales report found that December’s rebound came despite 

pressures of rising mortgage rates and low inventory levels. The early months of 2017 will be important to see 

whether supply can increase to keep price growth at moderate levels for households to absorb higher borrowing 

costs. NAR’s Pending Home Sales Index (PHSI), a forward-looking indicator based on contract signings, rose 1.6 

points in December, to a reading of 109.0. The index was also 0.3 points above its level from a year ago and has 

now risen year-over-year in 24 of the last 28 months.

The PHSI in the Northeast fell 1.6 points in December, to 96.4, but remains 1.2 points above its level from one year 

ago. The Midwest index decreased 0.8 point in December, to 102.7, and is 3.4 points below its level from a year 

ago. The South index rose 2.4 points in December, to a reading of 121.3, and was 0.5 point above its level from a 

year ago. The West index moved up 5.0 points in December, to 106.1, and was 5.0 points above its reading from 

one year ago.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The PHSI is an indicator for the housing sector, based on pending sales of existing homes. A sale is listed as pending when the contract has been signed but the transaction has not closed, though the sale usually is finalized within 

one or two months of signing. There is a closer relationship between annual index changes (from the same month a 

year earlier) and year-ago changes in sales performance than with month-to-month comparisons. An index of 100 

is equal to the average level of contract activity during 2001, which was the first year to be examined, as well as the 

first of five consecutive record years for existing-home sales.

NAR’s most recent Commercial Real Estate Market Survey, analyzing the second quarter of 2016, found that commercial real estate investments continued to keep a positive pace. The report found that 66.0% of Realtors closed 

a commercial sale and sales volumes were up 8.4% from the same period one year ago. 

A shortage of inventory remained the No. 1 concern among respondents, and limited inventory pushed price 

growth upward. Commercial properties traded at average prices that were 5.3% higher in the second quarter, and 

the average transaction price was $1.4 million. 

Average capitalization rates declined slightly across all property types, averaging 7.0% in the second quarter compared with 7.2% in the prior quarter. This rate was 50 basis points lower on a yearly basis. Apartments posted the 

lowest cap rate, at 6.5%, followed by office properties, at 6.8%. Hotel and retail spaces posted cap rates of 7.0% 

and 7.1%, respectively. Industrial properties recorded average cap rates of 7.4%. 

NAR members were positive about the general direction of business opportunities, which is a broad market indicator tracked by NAR. Business opportunities rose 5.6% in the second quarter. This was greater than the 5.2% 

increase in the first quarter.

Leasing volume rose 8.7% in the second quarter, and leasing rates advanced 3.7%. Tenant demand was the greatest in the 5,000-square-foot-or-less space, accounting for 82.0% of all leased properties. Lease terms remained 

consistent, with 36-month and 60-month leases accounting for 59.0% of the market. 

Vacancy rates continued to decline. Office vacancies fell 365 basis points from a year ago, to reach 12.3%. Industrial availability saw a yearly decrease of 95 basis points, bringing the rate to 9.8%. Retail vacancies declined 

70 basis points over the past 12 months, to 11.8%. Hotel properties remained the highest, with vacancy rates of 

13.2%, while apartments were the lowest, at 5.0%. Lease concessions declined 5.5% in the second quarter.

(See Exhibit 14 for forecasted figures from NAR.)

HOMEOWNERSHIP RATES, HOMEOWNER VACANCY RATES, AND RENTAL VACANCY RATES

The U.S. Census Bureau found that the homeownership rate was 63.7% in the fourth quarter of 2016, up from 

63.5% in the third quarter, but slightly below the 63.8% rate from one year ago. The national vacancy rate for rental 

housing was 6.9% in the fourth quarter of 2016, up slightly from 6.8% in the third quarter. Rental vacancy is down 

from this time one year ago, when the rate was 7.0%. The national vacancy rate for homeowners was 1.8% in the 

fourth quarter, unchanged from 1.8% in the third quarter but below the 1.9% rate from a year ago.

MORTGAGE BANKERS ASSOCIATION

The Mortgage Bankers Association (MBA) finance commentary report stated the association believes refinance 

origination volume for 2017 will be $471 billion, a 47.7% decrease from 2016, which totaled $901 billion. The MBA 

projects the 30-year mortgage rate will hit 4.7% by the end of 2017, reach 5% by the second half of 2018, and increase further, to 5.5%, by the end of 2019. With a large segment of borrowers having taken advantage of sub-4% 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

EXHIBIT 14: National Association of Realtors® Market Forecast

Q1 2017 Q2 2017 2017 2018

Housing measures (thousands)

Housing starts 1,271 1,298 1,311 1419

 Single-family 891 911 923 1028

 Multifamily 380 388 388 391

Home sales

 Total existing homes 5,402 5,521 5,520 5746

 New homes 593 615 620 684

Home prices (median)

 Existing homes $225.8 $249.3 $243.3 $251.1

 New homes $313.6 $321.2 $314.7 $322.5

Mortgage Rates

30-year fixed rate 4.1% N/A 4.4% N/A

5/1-year hybrid adjustable 3.0% N/A 3.2% N/A

Source of data: National Association of Realtors®

Notes:

Figures are in thousands, except for rates. Quarterly housing starts and home sales are seasonally adjusted at annual rate. Total existing 

home sales include single-family homes, condos, and co-ops.

EXHIBIT 15: Mortgage Bankers Association® Market Forecast

Q1 2017 Q2 2017 2017 2018 2019

Housing measures (thousands)

Housing starts 1,220 1,260 1,265 1,358 1,465

 Single-family 820 850 860 963 1,075

 Multifamily 400 410 405 395 390

Home sales

 Total existing homes 5,605 5,686 5,740 5,950 6,045

 New homes 621 657 645 695 729

Home prices (median)

 Existing homes $241.7 $249.4 $244.0 $247.7 $251.8

 New homes $312.3 $313.6 $311.8 $315.2 $318.0

Interest Rates

30-year fixed rate mortgage 4.3% 4.4% 4.5% 4.9% 5.3%

10-Year Treasury yield 2.5% 2.5% 2.6% 3.0% 3.4%

Source of data: Mortgage Bankers Association®.

Notes:

Figures are in thousands, except for rates. Quarterly housing starts and home sales are seasonally adjusted at annual rate. 

Total existing home sales include single-family homes, condos, and co-ops.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

EXHIBIT 16: REIT Returns Historical Data

MONTHLY DATA

(%) 1/16 2/16 3/16 4/16 5/16 6/16 7/16 8/16 9/16 10/16 11/16 12/16

All Equity REITs* -3.5 -0.4 10.2 -1.8 2.3 6.9 3.9 -3.5 -1.5 -5.1 -2.4 4.5

 Industrial** -6.1 0.1 13.3 1.1 6.0 7.6 8.4 -2.0 0.4 -3.3 -1.4 4.6

 Office** -8.2 -2.6 12.2 2.8 0.5 5.0 7.5 -1.0 -3.0 -5.2 2.3 3.8

 Retail** 0.2 0.6 7.4 -2.6 -0.2 10.4 5.2 -4.8 -2.8 -9.2 -2.8 1.2

 Residential** -4.9 -1.5 10.5 -6.3 4.1 3.5 2.1 -4.2 1.2 -2.7 -2.9 7.0

 Diversified** -8.4 0.1 10.5 -0.1 3.4 5.2 7.6 -3.6 -1.5 -6.2 -1.5 6.0

 Lodging/Resorts** -9.7 7.6 9.1 -5.4 -2.8 5.7 10.2 -0.1 -9.1 -2.1 13.1 8.7

 Health Care** -4.4 -1.4 10.2 0.3 2.3 9.2 5.9 -1.1 -2.1 -6.8 -8.7 4.8

 Self Storage** 2.7 -3.6 12.0 -10.7 4.9 0.5 -5.9 -6.9 0.1 -5.3 -2.4 8.4

 Timber** -13.2 1.5 19.6 3.5 -1.2 -3.3 9.1 -2.1 0.9 -4.5 2.7 -1.6

 Infrastructure** -1.5 -1.2 7.2 2.0 2.6 10.2 -0.3 -2.0 0.5 0.0 -10.9 4.4

Mortgage REITs -5.3 2.7 7.2 1.7 4.3 3.5 3.2 1.2 0.5 -0.1 1.7 0.7

 Home Financing -4.1 5.4 6.2 1.6 4.2 4.9 2.2 0.4 0.5 -0.4 1.9 0.9

 Commercial Financing -8.5 -5.2 10.1 2.1 4.6 -0.5 6.2 3.6 0.6 0.6 1.2 0.1

YEARLY DATA

(%) 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

All Equity REITs* 12.2 35.1 -15.7 -37.7 28.0 28.0 8.3 19.7 2.9 28.0 2.8 8.6

 Industrial** 15.4 28.9 0.4 -67.5 12.2 18.9 -5.2 31.3 7.4 21.0 2.6 30.7

 Office** 13.1 45.2 -19.0 -41.1 35.5 18.4 -0.8 14.2 5.6 25.9 0.3 13.2

 Retail** 11.8 29.0 -15.8 -48.4 27.2 33.4 12.2 26.7 1.9 27.6 4.6 1.0

 Residential** 13.7 38.9 -25.2 -24.9 30.8 46.0 15.4 6.9 -5.4 40.0 17.1 4.5

 Diversified** 9.9 38.0 -22.3 -28.2 17.0 23.8 2.8 12.2 4.3 27.2 -0.5 10.3

 Lodging/Resorts** 9.8 28.2 -22.4 -59.7 67.2 42.8 -14.3 12.5 27.2 32.5 -24.4 24.3

 Health Care** 1.8 44.5 2.1 -12.0 24.6 19.2 13.6 20.4 -7.1 33.3 -7.2 6.4

 Self Storage** 26.5 40.9 -24.8 5.0 8.4 29.3 35.2 19.9 9.5 31.4 40.6 -8.1

 Timber** N/A N/A N/A N/A N/A N/A 7.7 37.0 7.9 8.6 -7.0 8.3

 Infrastructure** N/A N/A N/A N/A N/A N/A N/A 29.9 4.8 20.2 3.7 10.0

Mortgage REITs -23.2 19.3 -42.3 -31.3 24.6 22.6 -2.4 19.9 -2.0 17.9 -8.9 22.9

 Home Financing -26.0 14.8 -38.2 -20.0 28.2 21.0 -0.9 16.4 -12.7 19.4 -9.8 25.9

 Commercial Financing -16.1 30.3 -48.8 -74.8 -41.0 42.0 -11.3 43.0 41.8 14.5 -6.0 14.3

Source of data: National Association of Real Estate Investment Trusts (NAREIT).

Notes: 

* FTSE NAREIT All Equity REIT Index. Does not include Mortgage REITS.

** Components of the FTSE NAREIT All Equity REIT Index.

rates in recent years, refinance volume will decrease even though rates in the 5% range are still very low by historical standards. The MBA believes purchase originations will total $1.1 trillion in 2017, an 11.0% increase from 2016. 

The gains in the purchase market are driven by strong household formation, coupled with continued job growth, 

rising wages, and continuing growth in home prices. The MBA expects overall origination volume to total $1.56 trillion in 2017, compared to $1.89 trillion in 2016. 

(See Exhibit 15 for forecasted figures from MBA.)

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

NATIONAL ASSOCIATION OF REAL ESTATE INVESTMENT TRUSTS

Investment returns for properties, as measured by the National Association of Real Estate Investment Trusts (NAREIT), rose 8.63% in 2016. Industrials were the strongest performing segment for the year, followed by residentialsingle family homes and data centers. The worst performing segment in 2016 was self-storage and regional malls. 

Home financing and commercial financing ended the year with positive gains. 

(See Exhibit 16 for more REIT return figures from NAREIT.)

NATIONAL COUNCIL OF REAL ESTATE INVESTMENT FIDUCIARIES

Property index returns, as measured by the National Council of Real Estate Investment Fiduciaries (NCREIF), remained positive in the fourth quarter. The total return for the quarter was 1.73%, which was down from 1.77% in 

the third quarter. For the year ended 2016, the total return of the index was 7.97%. Of the property-type indexes, 

industrial had the best returns for the third quarter in a row, followed by apartments. Of the regional indexes, the 

West outperformed the others for the seventh straight quarter. 

The NCREIF Property Index (NPI) is a quarterly time series composite total rate of return measure of investment 

performance of a very large pool of individual commercial real estate properties acquired in the private market for 

investment purposes only. All properties in the NPI have been acquired, at least in part, on behalf of tax-exempt 

institutional investors—the great majority being pension funds. As such, all properties are held in a fiduciary environment.

(See Exhibit 17 for more property index returns from NCREIF.)

EXHIBIT 17: Property Index Returns Historical Data

QUARTERLY DATA

(%) 1Q 14 2Q 14 3Q 14 4Q 14 1Q 15 2Q 15 3Q 15 4Q 15 1Q 16 2Q 16 3Q 16 4Q 16

National* 2.7 2.9 2.6 3.0 3.6 3.1 3.1 2.9 2.2 2.0 1.8 1.7

East region* 2.1 2.3 2.2 2.5 3.0 2.9 2.6 2.3 1.7 1.7 1.5 1.4

West region* 3.1 3.4 3.0 3.5 3.8 3.4 3.6 3.6 2.8 2.5 2.2 2.2

South region* 3.4 3.2 2.8 3.2 4.2 3.1 3.1 3.0 2.2 1.8 1.6 1.6

Midwest 

region* 2.6 2.8 2.6 3.0 3.4 3.0 2.9 2.4 2.2 2.0 1.8 1.7

Hotel* 0.8 2.6 2.9 4.3 2.5 3.5 3.5 3.0 1.2 1.5 1.4 0.7

Apartment* 2.2 2.4 2.5 2.8 2.9 3.0 2.9 2.7 1.9 1.9 1.7 1.7

Retail* 4.3 3.2 2.3 2.7 4.9 3.0 3.1 3.5 3.0 2.2 2.0 1.7

Industrial* 2.8 3.3 2.9 3.9 3.5 3.8 3.7 3.2 3.0 2.9 2.9 3.0

Office* 2.2 2.9 2.8 3.1 3.3 3.1 3.0 2.6 1.7 1.7 1.3 1.4

Source of data: National Council of Real Estate Investment Fiduciaries (NCREIF).

Notes: 

* NCREIF Property Index. 

The NCREIF Property Index is a quarterly time series composite total rate of return measure of investment performance of a very large 

pool of individual commercial real estate properties acquired in the private market for investment purposes only. All properties in the NPI 

have been acquired, at least in part, on behalf of tax-exempt institutional investors, the great majority being pension funds. As such, all 

properties are held in a fiduciary environment.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

15. ECONOMIC OUTLOOK

Consensus Economics Inc., publisher of Consensus Forecasts—USA, reports that the consensus of U.S. forecasters believe that real GDP will increase at a seasonally adjusted annual rate of 2.1% in the first quarter of 2017 and 

2.2% in the second quarter of 2017. Every month, Consensus Economics surveys a panel of 30 prominent U.S. 

economic and financial forecasters for their predictions on a range of variables, including future growth, inflation, 

current account and budget balances, and interest rates. The forecasters expect GDP to be 2.3% in both 2017 and 

2018.

They forecast that consumer spending will increase at a rate of 2.3% in the first quarter of 2017 and 2.3% in the 

second quarter of 2017. They expect consumer spending to increase 2.5% in 2017.

The forecasters believe unemployment will average 4.7% in the first quarter of 2017 and 4.7% in the second quarter of 2017. They predict that unemployment will average 4.9% in 2016 and 4.6% in 2017.

The forecasters believe that the three-month Treasury bill rate will be 0.6% at the end of the first quarter of 2017 

and 0.8% at the end of the second quarter of 2017. They estimate that the three-month Treasury bill rate will rise to 

1.2% at the end of 2017. They predict the 10-year Treasury bond yield will be 2.3% at the end of the first quarter of 

2017 and 2.5% at the end of the second quarter of 2017. They believe the 10-year Treasury bond yield will move 

up to 2.7% at the end of 2017.

They also believe consumer prices will rise at a rate of 2.1% in the first quarter of 2017 and 2.4% in the second 

quarter of 2017. They expect consumer prices to increase 1.2% in 2016 before rising to 2.3% in 2017. They expect 

producer prices to increase at a rate of 1.7% in the first quarter of 2017 and 2.1% in the second quarter of 2017. 

The forecasters anticipate producer prices will fall 0.9% in 2016 before rising 2.0% in 2017.

The forecasters believe real disposable personal income will rise at a rate of 2.3% in the first quarter of 2017 and 

2.4% in the second quarter of 2017. They believe real disposable personal income will increase 2.7% in 2016 and 

2.5% in 2017.

The forecasters expect industrial production to increase at a rate of 1.4% in the first quarter of 2017 and 2.0% in 

the second quarter of 2017. They forecast that industrial production will decrease 0.9% in 2016 before rising 1.5% 

in 2017. 

Nominal pretax corporate profits are expected to decline 0.2% in 2016 before rising 4.0% in 2017. The forecasters 

also project housing starts will be 1,170,000 in 2016 and 1,260,000 in 2017.

The most recent release of The Livingston Survey (the Survey) predicts higher growth for the second half of 2016 

than had been predicted in its prior survey. The Survey, conducted by the Federal Reserve Bank of Philadelphia, is 

the oldest continuous survey of economists’ expectations. It summarizes the forecasts of economists from industry, government, banking, and academia. The participants project real GDP to grow at an annual rate of 2.7% in 

the second half of 2016 and 2.2% in the first half of 2017. They believe that GDP will grow 2.3% annually over the 

next 10 years.

The Survey forecasts the unemployment rate to be 4.9% in December 2016 and to fall and then remain at 4.7% 

into June 2017.

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

The forecasters in the Survey expect consumer price inflation (CPI) to be 1.3% in 2016 and 2.4% in 2017. The Survey expects CPI to average 2.3% over the next 10 years. The Survey also expects producer price inflation (PPI) to 

be -1.0% in 2016 and 2.7% in 2017.

The Survey predicts the interest rate on three-month Treasury bills will be 0.55% at the end of December 2016. 

From there, the forecasters expect that the rate will increase to 0.83% in June 2017, to 1.12% in December 2017, 

and to 2.00% in December 2018. They predict the interest rate on 10-year Treasury bonds will reach 2.30% at the 

end of December 2016. According to the Survey, the rate will then rise to 2.50% in June 2017, to 2.75% in December 2017, and to 3.35% in December 2018.

The forecasters have increased their previous projections for future S&P 500 index values. They expect the S&P 

500 index will sit at 2,200.0 by the end of December 2016, 2,254.8 at the end of June 2017, 2,314.5 at the end of 

December 2017, and at 2,400.0 at the end of December 2018.

The Energy Information Administration predicts that the West Texas Intermediate crude oil spot price will average 

approximately $53.46 per barrel in 2017 before rising to $56.18 per barrel in 2018, compared with $43.33 per barrel 

in 2016. The EIA expects retail prices for regular-grade gas to average $2.39 per gallon in 2017 before increasing 

to $2.44 per gallon in 2018, compared with $2.15 per gallon in 2016. 

The Energy Information Administration believes the Henry Hub natural gas spot price will average $3.43 per million 

Btu (MMBtu) in 2017 and $3.70 per MMBtu in 2018, compared with $2.51 per MMBtu in 2016. The cost of coal 

delivered to electric generating plants, which averaged $2.13 per MMBtu in 2016, is expected to average $2.17 per 

MMBtu in 2017 and $2.21 per MMBtu in 2018. Residential electric prices, which averaged 12.55 cents per kilowatthour (kWh) in 2016, are expected to average 12.93 cents per kWh in 2017 then rise to 13.24 cents per kWh in 2018. 

The airline ticket price index, which averaged 282.95 in 2016, is expected to be 294.40 in 2017 before rising to 

308.10 in 2018. 

The National Association of Realtors’ Realtors Confidence Index for future conditions increased in December, remaining generally optimistic. The RCI for the outlook of single-family homes trended up 2.0 points in December, 

to 76.0, and remained up 4.0 points from one year ago (strong = 100; moderate = 50; weak = 0). The RCI for the 

outlook for townhomes increased 3.0 points in December, to a reading of 61.0, while the outlook for condos increased 2.0 points, to 56.0. The RCI is a key indicator of housing market strength based on a monthly survey of 

over 50,000 real estate practitioners. Practitioners are asked about their expectations for home sales, prices, and 

market conditions. 

NAR recorded existing-home sales in 2016 at 5.42 million (+3.3%) compared to 5.52 million (+1.8%) in 2017. It 

believes that new single-family home sales will be 565,000 (+12.8%) in 2016, before increasing to 620,000 (+9.7%) 

in 2017. NAR believes the median existing-home price will be $234,200 (+5.3%) in 2016, before increasing to 

$243,300 (+3.9%) in 2017. NAR believes the median new-home price will increase to $306,600 (+3.4%) in 2016, 

before rising to $314,700 (+2.6%) in 2017. It expects housing starts to increase to 1,177,000 (+5.8%) in 2016, then 

to 1,311,000 (+11.4%) in 2017. NAR believes the 30-year fixed mortgage rate will average 3.6% in 2016, before 

rising to 4.4% in 2017, and the 5-1 hybrid adjustable rate mortgage will average 2.9% in 2016 and 3.2% in 2017.

The most recent three-year outlook from the Urban Land Institute (ULI) and Ernst & Young (EY) found that real estate economists and analysts believe the economy will continue to expand between 2016 and 2018, though at a 

somewhat slower pace than in the prior two years. The ULI/EY Real Estate Consensus Forecast, a semiannual publication, is based on a survey of 51 of the industry’s top economists and analysts representing 37 of the country’s 

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ECONOMIC OUTLOOK UPDATE QUARTERLY 4Q 2016

leading real estate investment, advisory, and research firms and organizations. The forecast for each indicator is 

the median forecast from the 51 survey respondents. The key findings from the Real Estate Consensus Forecast 

include:

• Annual commercial property transaction volume is expected to decline over the three forecast years to $428 

billion in 2018, ending six years of growth. However, forecast volume in 2016 and 2017 is only surpassed by 

that in 2007 and 2015, and forecast volume in 2018 is also surpassed by that in 2006 and 2014. 

• The issuance of commercial mortgage-backed securities (CMBS), a key source of financing for commercial 

real estate, is expected to decline in 2016, to $70 billion, before resuming growth in 2017 and reaching $90 

billion in 2018. Before 2016, CMBS issuances had been growing consistently from 2009 to 2015.

• Commercial real estate prices are projected to grow at slowing rates during the next three years, at 5.0% in 

2016, 4.0% in 2017, and 2.5% in 2018. These are all below the long-term average growth rate of 5.7%.

• Institutional real estate assets are forecasted to provide total returns of 8.3% in 2016 before moderating to 

7.0% in 2017 and 6.0% in 2018. By property type, 2016 returns are expected to range from 10.0% for industrial to 7.5% for office. Total returns in 2018 are expected to range from 7.0% for industrial to 5.6% for apartments.

• Both availability and vacancy rates for almost all property sectors are expected to continue to improve in 2016. 

The apartment vacancy rate, which is already near historic lows, is expected to remain stable in 2016 and, 

while staying below the long-term average, is expected to show the most change among the various sectors 

as it climbs in 2017 and 2018. The industrial and office sectors are expected to plateau in 2017 and 2018, while 

the retail sector is expected to continue improving in 2017 before hitting a plateau in 2018. The hotel sector is 

expected to reverse direction very slightly starting in 2017.

• Commercial property rent is expected to continue to increase in the next three years across all sectors, although at somewhat lower rates than in recent years. In 2016, rent increases are expected in the four major 

property types, which will range from 2.0% for retail to 4.7% for industrial. Rent increases in 2018 are forecasted to range from 1.3% for retail to 2.9% for apartments. Hotel RevPAR is expected to increase by 4.0% 

in 2016 and 3.0% in 2018.

• Single-family housing starts are projected to increase from 714,500 units in 2015 to 875,000 units in 2018, 

remaining below the 20-year annual average.

(See Exhibits 2A, 2B, 3, 14, and 15 for more forecasted figures.)

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Bloomberg. Available from www.bloomberg.com.

Bureau of Economic Analysis, U.S. Department of Commerce. Available from www.bea.gov.

Bureau of Labor Statistics, U.S. Department of Labor. Available from www.bls.gov.

CFA Institute. Available from www.cfainstitute.org.

CNN Money. Available from www.money.cnn.com.

Conference Board. Available from www.conference-board.org.

Consensus Economics Inc., Consensus Forecasts—USA. Available from www.consensuseconomics.com.

Council of Economic Advisers, The White House. Available from www.whitehouse.gov/cea.

Economic Policy Institute, GDP Picture. Available from www.epi.org.

Energy Information Administration. Available from www.eia.gov.

Federal Reserve Bank of Philadelphia. Available from www.phil.frb.org.

Federal Reserve Bank of St. Louis. Available from www.stlouisfed.org.

Federal Reserve Board Press Release. Available from www.federalreserve.gov.

Federal Reserve Board, The. Available from www.federalreserve.gov.

Forbes. Available from www.forbes.com.

Hamilton Project, The. Available from www.hamiltonproject.org.

Institute for Supply Management. Available from www.ism.ws.

Investopedia. Available from www.investopedia.com.

MarketWatch. Available from www.marketwatch.com.

Mortgage Bankers Association. Available from www.mbaa.org.

National Association of Homebuilders. Available from www.nahb.org.

National Association of Real Estate Investment Trusts. Available from www.reit.com.

National Association of Realtors. Available from www.realtor.org.

National Council of Real Estate Investment Fiduciaries, NCREIF Property Index Returns. Available from www.ncreif.com.

National Federation of Independent Business. Available from www.nfib.com.

National Retail Federation. Available from www.nrf.com.

RSM US. Available from www.rsmus.com.

T. Rowe Price. Available from www.troweprice.com.

Thomson Reuters. Available from www.thomsonreuters.com.

U.S. Census Bureau, U.S. Department of Commerce. Available from www.census.gov.

Urban Land Institute. Available from www.uli.org.

Wall Street Journal Online, The. Available from online.wsj.com.

Vanguard Group, The. Available from www.vanguard.com.

Yahoo! Finance. Available from www.finance.yahoo.com.

ECONOMIC OUTLOOK UPDATE DATA SOURCES

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This Economic Outlook UpdateTM reflects the general economic conditions at the end of the fourth quarter of 2016. 

No statement in this report is to be construed as advice for a valuation engagement. It is the responsibility of the 

individual appraiser or analyst to relate the information contained herein to the particular valuation engagement. The 

editors and Business Valuation Resources, LLC, while considering the contents to be accurate as of the date of 

publication of this report, take no responsibility for the information contained herein.

As long as the individual subscriber to the Economic Outlook UpdateTM is in compliance with the Single User License Agreement, he or she may quote portions of the Update or the entire Update in a valuation report, provided 

the following attribution and disclaimer are included as a footnote:

“Part/All [choose one] of the contents of the economic outlook section of this valuation report are quoted from the 

Economic Outlook UpdateTM 4Q 2016 published by Business Valuation Resources, LLC, © 2016, reprinted with 

permission. The editors and Business Valuation Resources, LLC, while considering the contents to be accurate as 

of the date of publication of the Update, take no responsibility for the information contained therein. Relation of this 

information to this valuation engagement is the sole responsibility of the author of this valuation report.”

DISCLAIMER AND PERMISSION STATEMENT

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