This Agenda contains a brief general description of each item to be considered. Copies of the Staff reports or other written documentation relating to each item of business referred to on the Agenda are on file in the Office of the City Clerk and are available for public inspection. Any person who has a question concerning any of the agenda items may call the City Manager at (310) 603-0220, ext. 200.
Procedures for Addressing the Council
IN ORDER TO EXPEDITE CITY COUNCIL BUSINESS, WE ASK THAT ALL PERSONS WISHING TO ADDRESS THE
COUNCIL SUBMIT YOUR COMMENTS IN ADVANCE TO
[email protected]
OR FILL OUT A FORM
PROVIDED AT THE PODIUM, AND TO TURN IT IN TO THE CITY CLERK PRIOR TO THE START OF THE MEETING. FAILURE TO FILL OUT SUCH A FORM WILL PROHIBIT YOU FROM ADDRESSING THE COUNCIL IN THE ABSENCE OF THE UNANIMOUS CONSENT OF THE COUNCIL.
AGENDA
Lynwood Public Financing Authority
TO BE HELD ON
January 17, 2023
COUNCIL CHAMBERS - 11350 BULLIS RD. LYNWOOD, CA 90262 or Web conference via ZOOM - To participate via Zoom or by telephone: 1-669-900-9128 or 1-253-215-8782 Meeting ID: 835 2029 8238
Duly Posted on 1/12/2023 By MQ
6:00 PM
1. CALL TO ORDER
2. CERTIFICATION OF AGENDA POSTING BY SECRETARY
3. ROLL CALL OF MEMBERS
Oscar Flores, President
Rita Soto
, Vice President
Gabriela Camacho, Member
Juan Munoz-Guevara
, Member
Jose Luis Solache, Member
4. GOVERNMENT CODE SECTION 54954.3
Members of the City Council are also members of Lynwood Public Financing Authority, which is concurrently convening with the City Council this evening and each Council Member is paid an Additional Stipend of $100 for Attending the Lynwood Public Financing Authority Meeting. Further, the Authority is scheduled to meet four (4) timer per year. If additional meetings are required beyond the scheduled four (4) meetings, the City Council will only get paid for the first four(4) meetings.
PUBLIC HEARING
CONSENT CALENDAR
ALL MATTERS LISTED UNDER THE CONSENT CALENDAR WILL BE ACTED UPON BY ONE MOTION Lynwood Public Financing Authority - Page 1 of 33
AFFIRMING THE ACTION RECOMMENDED ON THE AGENDA. THERE WILL BE NO SEPARATE DISCUSSION ON
THESE ITEMS PRIOR TO VOTING UNLESS MEMBERS OF THE COUNCIL OR STAFF REQUEST SPECIFIC ITEMS TO BE REMOVED FROM THE CONSENT CALENDAR FOR SEPARATE ACTION.
5. TREASURER'S MONTHLY INVESTMENT REPORT
Comments:
The purpose of this item is to have the Honorable President and Members of the Public Finance Authority review the Treasurer’s Monthly Investment Report as required by State Statutes. (CT)
Recommendation:
The following is the Investment Report for the month ending December 31, 2022. This report is provided to ensure City Council is informed of the Department’s investment activities. The report satisfies the recommended reporting requirements of the City of Lynwood, which addresses the City Council’s request for monthly financial information.
It is recommended that the City Council for the City of Lynwood receive and file the attached Monthly Investment Report.
NEW/OLD BUSINESS
ADJOURNMENT
THE LYNWOOD PUBLIC FINANCE AUTHORITY MEETINGS WILL BE POSTED AS NEEDED. THE NEXT MEETING WILL BE HELD IN THE COUNCIL CHAMBERS OF CITY HALL ANNEX, 11350 BULLIS ROAD, CITY OF LYNWOOD, CALIFORNIA.
Lynwood Public Financing Authority - Page 2 of 33
Agenda Item # 5.
AGENDA STAFF REPORT
DATE:
January 17, 2023
TO:
Honorable President and Members of the Public Finance Authority
APPROVED BY:
Ernie Hernandez, City Manager
PREPARED BY:
Sheila Harding, Deputy City Treasurer
SUBJECT:
TREASURER'S MONTHLY INVESTMENT REPORT
Recommendation:
The following is the Investment Report for the month ending December 31, 2022. This report is provided to ensure City Council is informed of the Department’s investment activities. The report satisfies the recommended reporting requirements of the City of Lynwood, which addresses the City Council’s request for monthly financial information.
It is recommended that the City Council for the City of Lynwood receive and file the attached Monthly Investment Report.
Background:
Government Code Section 53607, last amended 1996, with reference to the reporting of investment transactions states that the Treasurer
shall
make a monthly report of those transaction to the legislative body. Government Code Section 53646 (b) (1), last amended 2004, with reference to discussion related to establishment of an Investment Policy and investment reporting states that “the Treasurer may render a quarterly report”. To determine the applicable code inasmuch as reference to Government Code Section 53607 or non-compliance thereof has never been included in past audit findings. While Government Code Section 53646 (b) (1) which is the most current version related to Investment Reporting utilizes the word “may” indicating the reporting mechanism is optional, to err on the side of caution, and in order to ensure that we are in compliance with all Government Codes, a new procedure of submitting monthly reports to the Council/Agency agenda was implemented. Attached for Council/Agency review is the City’s/Agency’s Monthly Treasurer’s Report.
Discussion and Analysis:
The investment transactions were executed in accordance with the City's Investment Policy and the California State Government Code Section 5346(b)(3) that requires the general fund is able to meet its expenditure requirements for the next six months.
Lynwood Public Financing Authority - Page 3 of 33 Agenda Item # 2 Fiscal Impact:
The action recommended in this report will not have a fiscal impact on the City.
Coordinated With:
FHN Financial Main Street Advisors currently monitors the City’s investment activities.
ATTACHMENTS:
Description
ACTIVITY & SUMMARY REPORT - DECEMBER 2022
FHN ECONOMIC REPORT - DECEMBER 2022
NRF & CONFERENCE BOARD GLOBAL - DECEMBER 2022
Lynwood Public Financing Authority - Page 4 of 33 Agenda Item # 2
ACTIVITY & PERFORMANCE SUMMARY
DECEMBER 2022
1 The following is the City’s cash flow and the monthly investment report. The monthly report includes a summary of the City’s investment portfolio, a monthly review of the investment market as prepared by the investment managers and detailed information on monthly transactions, cash flows and investments by issuer.
FHN Investment Advisors manage the portion of investments not invested by LAIF (State Local Agency Investment Fund).
The tables below provide key statistics regarding the City’s cash flow and investment portfolio as of December 31, 2022.
Type Balances Held
Cash - US Bank $48,689,265.10
Cash - JPMorgan Chase Bank $8,056,091.92
Local Agency Investment Fund $9,595,678.13
FHN Investment Advisors/BNY 25,744,440 .91
TOTAL $66,341,035.15
FHN ACCOUNT SUMMARY
31-Dec 30- Nov
Market Value $35,344,239 $35,314,063
Book Value $36,481,176 $36,466,189
Variance (1,136,936) ($1,152,126)
Par Value $36,500,250 $36,492,754
Net Asset Value $96.88 $96.84
Book Yield 2.38% 2.35%
Market Yield 3.95% 3.88%
Years to Maturity 1.69 1.75
Effective Duration 1.45 1.45
FHN INVESTMENT COMPLIANCE
% %
Company Book Value of
Portfolio
Allowed
by Policy
US Treasuries 6,499,374.86 17.82% 100%
US Federal Agencies 10,450,169.07 28.65% 100%
Supranational Obligations $0.00 0% 30%
LAIF 9,595,678.13 26.30% 75%
Commercial Paper 1,478,968.63 4.05% 25%
Money Market Funds 52,571.67 0.14% 20%
Negotiable Certificates of Deposit 4,915,622.91 13.47% 30% Lynwood Public Financing Authority - Page 5 of 33 Agenda Item # 2
ACTIVITY & PERFORMANCE SUMMARY
DECEMBER 2022
2 Corporate Obligations 3,488,790.30 9.56% 30%
State and Local Governments $0.00 0% 100%
Total 36,481,175.57 100.00%
All of the City’s rated investments were rated “A” or higher by at least two rating agencies on December 2022.
The City’s investments comply with its current investment policy, which emphasizes the safety, liquidity, and return of its investments, allowing the city to meet its expenditures for the next six months.
PURCHASES & MATURITIES
No Purchases or Redemptions for the month of December 2022.
FHN INCOME EARNED SUMMARY
December
Month End
Fiscal Year to
Date
INTEREST
Interest Received/Purchased. 7,495.34 191,919.53
Plus Accrued Interest at End of Period 165,558.38 165,558.38 Less Accrued Interest at Beginning of Period -124,829.88 -74,680.06 Interest Earned During Period 48,223.84 282,797.85
Total Adjustments for Amortization/Accretion 7,491.20 25,036.43 Total Capital Gains or Losses 0.00 0.00
Total Earnings During Period 55,715.04 307,834.28
Lynwood Public Financing Authority - Page 6 of 33 Agenda Item # 2 Quarterly Economic and Market Update
December 2022
Lynwood Public Financing Authority - Page 7 of 33 Agenda Item # 2 Economic and Market Update
*Estimates for the current quarter/month, some data are lagged Sources: FHN Main Street and Bloomberg Case-Shiller Home Prices YOY* 8.6% 16.0% (7.4%)
Consumer Confidence 108.3 103.2 5.1
Gold (per ounce) $1,824.02 $1,660.61 $163.41
Dollar Index 103.52 112.12 (8.60)
U.S. Avg Regular Unleaded $3.21 $3.80 ($0.59)
Retail Sales YOY* 8.7% 8.4% 0.3%
S&P 500 3,840 3,586 7.1%
Consumer Price Index YOY* 7.6% 8.2% (0.6%)
1-5 Yr A-AAA Corporate Spread 0.69% 0.81% (0.12%)
Dow Jones 33,147 28,726 15.4%
30 Year Mortgage Rate 6.66% 5.83% 0.83%
1-5 Yr Agency Spread 0.07% 0.03% 0.04%
10 Year T-Note 3.88% 3.83% 0.04%
U.S. Fed Debt Avg Yield* 2.30% 1.99% 0.31%
3 Year T-Note 4.23% 4.29% (0.06%)
5 Year T-Note 4.01% 4.09% (0.09%)
2 Year T-Note 4.43% 4.28% 0.15%
3 Month T-Bill 4.37% 3.27% 1.10%
Labor Force Participation 62.3% 62.3% 0.0%
Effective Fed Funds Rate 4.33% 3.08% 1.25%
U.S. Payrolls Monthly Change 223,000 269,000 (46,000)
Unemployment Rate 3.5% 3.5% 0.0%
12/31/2022
Item 12/31/2022 9/30/2022 Change
2 Lynwood Public Financing Authority - Page 8 of 33 Agenda Item # 2 Economic and Market Update
* Real Rate (Inflation Adjusted)
Source: Bureau of Economic Analysis
Estimate: Bloomberg's Survey of Economists
As of: 12/31/2022
12/31/2022
-1.4
5.2 4.7
1.8 3.3
2.3 1.3
0.6 2.4
1.2 2.4
2.0 1.7
2.0 3.4
4.1 2.8
2.8 2.9
0.7 2.2
2.7 3.6
1.8 -4.6
-29.9
35.3 3.9
6.3 7.0
2.7 7.0
-1.6
-0.6
3.2 1.1
0.0 -0.6
0.0 -45
-35
-25
-15
-5
5 15
25 35
45 Q1 2014
Q2 2014
Q3 2014
Q4 2014
Q1 2015
Q2 2015
Q3 2015
Q4 2015
Q1 2016
Q2 2016
Q3 2016
Q4 2016
Q1 2017
Q2 2017
Q3 2017
Q4 2017
Q1 2018
Q2 2018
Q3 2018
Q4 2018
Q1 2019
Q2 2019
Q3 2019
Q4 2019
Q1 2020
Q2 2020
Q3 2020
Q4 2020
Q1 2021
Q2 2021
Q3 2021
Q4 2021
Q1 2022
Q2 2022
Q3 2022
Q4 2022
Q1 2023
Q2 2023
Q3 2023
Percent
U.S. GDP (Quarter over Quarter Annualized)*
Estimates
3 Lynwood Public Financing Authority - Page 9 of 33 Agenda Item # 2 Economic and Market Update
* Real Rate (Inflation Adjusted)
Source: Bureau of Economic Analysis
12/31/2022
Estimate: Bloomberg's Survey of Economists
As of: 12/31/2022
8.7 8.0
4.1 4.7
-0.6
7.1 2.1
2.1 -0.7
6.9 2.6
2.6 6.1
4.4 5.8
6.5 6.6
2.7 4.9
3.1 0.2
3.3 5.3
5.6 -0.5
-0.2
5.4 4.6
5.5 3.2
-0.3
2.5 -1.8
4.6 7.2
4.2 3.5
3.5 4.2
3.7 1.9
-0.1
3.5 2.8
4.0 2.7
3.8 4.4
4.5 4.8
4.1 1.0
1.7 2.8
3.9 3.5
2.8 2.0
0.1 -2.6
2.7 1.5
2.3 1.8
2.3 2.7
1.7 2.2
2.9 2.3
-2.8
5.9 1.9
-10
-9
-8
-7
-6
-5
-4
-3
-2
-1
0 1
2 3
4 5
6 7
8 9
10 1950
1952
1954
1956
1958
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
2014
2016
2018
2020
2022
Percent
U.S. Annual GDP *
1980s 3.2% 1990s 3.2% 2000s 1.9% 2010s 2.3%1960s 4.5% 1970s 3.3%1950s 4.2% 4 Lynwood Public Financing Authority - Page 10 of 33 Agenda Item # 2 Economic and Market Update
Source: Bureau of Labor Statistics
12 Month Average Job Change 375,250
12/31/2022
-22
-20
-18
-16
-14
-12
-10
-8
-6
-4
-2
0 2
4 6
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Millions
U.S. Monthly Non-Farm Payrolls Change
-25.0
-20.0
-15.0
-10.0
-5.0
0.0 5.0
10.0 15.0
20.0 Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Millions
U.S. Monthly Non-Farm Payrolls YOY Change
5 Lynwood Public Financing Authority - Page 11 of 33 Agenda Item # 2 Economic and Market Update
Source: Bureau of Labor Statistics
12/31/2022
0 5
10 15
20 25
30 Jun-18
Aug-18
Oct-18
Dec-18
Feb-19
Apr-19
Jun-19
Aug-19
Oct-19
Dec-19
Feb-20
Apr-20
Jun-20
Aug-20
Oct-20
Dec-20
Feb-21
Apr-21
Jun-21
Aug-21
Oct-21
Dec-21
Feb-22
Apr-22
Jun-22
Aug-22
Oct-22
Dec-22
Percent
Unemployment Rates
U.S.A Nevada California Idaho Washington Hawaii Oregon Utah 6 Lynwood Public Financing Authority - Page 12 of 33 Agenda Item # 2 Economic and Market Update
Source: Bureau of Labor Statistics
12/31/2022
128
130
132
134
136
138
140
142
144
146
148
150
152
154
156
Dec-12
Jul-13
Feb-14
Sep-14
Apr-15
Nov-15
Jun-16
Jan-17
Aug-17
Mar-18
Oct-18
May-19
Dec-19
Jul-20
Feb-21
Sep-21
Apr-22
Nov-22
Millions
U.S. Number of Employed
Full-Time and Part-Time
60.0 60.5
61.0 61.5
62.0 62.5
63.0 63.5
64.0 Dec-12
Jul-13
Feb-14
Sep-14
Apr-15
Nov-15
Jun-16
Jan-17
Aug-17
Mar-18
Oct-18
May-19
Dec-19
Jul-20
Feb-21
Sep-21
Apr-22
Nov-22
Percent
U.S. Labor Force Participation Rate
7 Lynwood Public Financing Authority - Page 13 of 33 Agenda Item # 2 Economic and Market Update
Source: Department of Labor and Bloomberg
12/31/2022
Weekly Initial Jobless Claims is the actual number of people who have filed for Unemployment benefits for the first time. The following five eligibility criteria must be met in order to file for unemployment benefits: 1. Meet the requirements of time worked during a 1 year period (full time or not). 2. Become unemployed through no fault of your own (cannot be fired). 3. Must be able to work; no physical or mental holdbacks. 4. Must be available for work. 5. Must be actively seeking work.
0.0 0.5
1.0 1.5
2.0 2.5
3.0 3.5
4.0 4.5
5.0 5.5
6.0 1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
2022
Millions
Weekly Initial Jobless Claims
(4 Week Moving Average)
8 Lynwood Public Financing Authority - Page 14 of 33 Agenda Item # 2 Economic and Market Update
*Real: Inflation Adjusted
Source: U.S. Census Bureau Source: Conference Board
12/31/2022
-30
-20
-10
0 10
20 30
40 50
60 Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Percent
U.S. Real* Retail Sales YOY % Change
40 50
60 70
80 90
100
110
120
130
140
Jun-12
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Dec-22
Index Value
U.S. Consumer Confidence
9 Lynwood Public Financing Authority - Page 15 of 33 Agenda Item # 2 Economic and Market Update
CPIX: Consumer Price Index, excluding food and energy PCEC: Personal Consumption Expenditure Core Source: Bureau of Labor Statistics and Bureau of Economic Analysis 12/31/2022
0.0 1.0
2.0 3.0
4.0 5.0
6.0 7.0
8.0 9.0
10.0 Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Percent
CPI and CPIX YOY % Change
CPI
CPIX
0.0 1.0
2.0 3.0
4.0 5.0
6.0 7.0
8.0 Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Percent
PCE and PCEC YOY % Change
PCE
PCEC
10 Lynwood Public Financing Authority - Page 16 of 33 Agenda Item # 2 Economic and Market Update
Sources: New (U.S. Census Bureau),Existing (National Assoc. of Realtors) Source: Case-Shiller Seasonally Adjusted Annual Rate
12/31/2022
0 2
4 6
8 10
12 14
16 18
20 22
24 Jul-14
Dec-14
May-15
Oct-15
Mar-16
Aug-16
Jan-17
Jun-17
Nov-17
Apr-18
Sep-18
Feb-19
Jul-19
Dec-19
May-20
Oct-20
Mar-21
Aug-21
Jan-22
Jun-22
YOY Percent
Case-Shiller 20 City U.S. Home Price Index
YOY % Increase
200
300
400
500
600
700
800
900
1,000
1,100
3.0 3.5
4.0 4.5
5.0 5.5
6.0 6.5
7.0 Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
New-Thousands
Existing-Millions
U.S. New and Existing Home Sales
Existing-Left
New-Right
11 Lynwood Public Financing Authority - Page 17 of 33 Agenda Item # 2 Economic and Market Update
Source: U.S. Treasury
12/31/2022
$12
$13
$14
$15
$16
$17
$18
$19
$20
$21
$22
$23
$24
$25
$26
$27
$28
$29
$30
$31
$32
$33
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Trillions
U.S. Federal Debt Outstanding
1.3 1.5
1.7 1.9
2.1 2.3
2.5 2.7
Dec-12
Jun-13
Dec-13
Jun-14
Dec-14
Jun-15
Dec-15
Jun-16
Dec-16
Jun-17
Dec-17
Jun-18
Dec-18
Jun-19
Dec-19
Jun-20
Dec-20
Jun-21
Dec-21
Jun-22
Percent
U.S. Treasury Interest Bearing Debt Avg Rate
12 Lynwood Public Financing Authority - Page 18 of 33 Agenda Item # 2 Economic and Market Update
Fed Funds Anticipated Rate from the September 21, 2022 FOMC Meeting Source: Bloomberg
12/31/2022
2.00 2.50
3.00 3.50
4.00 4.50
5.00 5.50
Dec-2022
Jan-2023
Feb-2023
Mar-2023
Apr-2023
May-2023
Jun-2023
Jul-2023
Aug-2023
Sep-2023
Oct-2023
Nov-2023
Dec-2023
Jan-2024
Feb-2024
Mar-2024
Apr-2024
May-2024
Jun-2024
Jul-2024
Aug-2024
Sep-2024
Oct-2024
Nov-2024
Dec-2024
Jan-2025
Feb-2025
Mar-2025
Apr-2025
May-2025
Jun-2025
Jul-2025
Aug-2025
Sep-2025
Oct-2025
Nov-2025
Dec-2025
Jan-2026
Percent
Fed Funds FuturesFed's Anticipated Rates
Fed Funds Futures
13 Lynwood Public Financing Authority - Page 19 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
Figures may not total due to rounding
12/31/2022
3Y 4.23 4.29 -0.06
30Y 3.97 3.78 0.19
5Y 4.01 4.09 -0.09
10Y
4.37 3.88 3.83 0.04
Change9/30/2212/30/22
3M
Maturity
0.154.284.432Y
0.723.994.711Y
0.833.934.766M
1.103.27
0.0 0.5
1.0 1.5
2.0 2.5
3.0 3.5
4.0 4.5
5.0 3M 6M 1Y 2Y 3Yr 5Y 10Y 30Y
Percent
U.S. Treasury Yield Curve Change
12/30/22
9/30/22
-20
0 20
40 60
80 100
120
3M
6M
1Y
2Y
3Yr
5Y
10Y
30Y
Basis Points
Basis Point Change
14 Lynwood Public Financing Authority - Page 20 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
12/31/2022
0.00 0.25
0.50 0.75
1.00 1.25
1.50 1.75
2.00 2.25
2.50 2.75
3.00 3.25
3.50 3.75
4.00 4.25
4.50 4.75
5.00 Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Percent
U.S. Treasury Yields: 3M and 1Y
1Y
3M
0.00 0.25
0.50 0.75
1.00 1.25
1.50 1.75
2.00 2.25
2.50 2.75
3.00 3.25
3.50 3.75
4.00 4.25
4.50 4.75
Dec-17
Mar-18
Jun-18
Sep-18
Dec-18
Mar-19
Jun-19
Sep-19
Dec-19
Mar-20
Jun-20
Sep-20
Dec-20
Mar-21
Jun-21
Sep-21
Dec-21
Mar-22
Jun-22
Sep-22
Dec-22
Percent
U.S. Treasury Yields: 2Y and 5Y
5Y
2Y
15 Lynwood Public Financing Authority - Page 21 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
12/31/2022
0 1
2 3
4 5
6 7
8 9
10 11
12 13
14 15
16 17
18 19
20 21
Jan-54
Jan-56
Jan-58
Jan-60
Jan-62
Jan-64
Jan-66
Jan-68
Jan-70
Jan-72
Jan-74
Jan-76
Jan-78
Jan-80
Jan-82
Jan-84
Jan-86
Jan-88
Jan-90
Jan-92
Jan-94
Jan-96
Jan-98
Jan-00
Jan-02
Jan-04
Jan-06
Jan-08
Jan-10
Jan-12
Jan-14
Jan-16
Jan-18
Jan-20
Jan-22
Percent
U.S. Treasury Yields 2Yr and 5Yr - Fed Funds Target Rate 5Yr
2Yr
Fed Funds
16 Lynwood Public Financing Authority - Page 22 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
12/31/2022
Global Treasury Rates
2 Year Yields 5 Year Yields 10 Year Yields
0.03%
1.22%
2.74%
2.77%
2.83%
2.89%
3.24%
3.40%
3.53%
4.05%
4.43%
-2.0% 0.0% 2.0% 4.0%
Japan
Switzlnd
Germany
Portugal
France
Spain
Italy
Australia
England
Canada
USA
0.23%
1.42%
2.57%
2.87%
2.95%
3.14%
3.41%
3.60%
3.68%
4.00%
4.00%
-1.0% 1.0% 3.0% 5.0%
Japan
Switzlnd
Germany
France
Portugal
Spain
Canada
England
Australia
Italy
USA
0.41%
1.58%
2.57%
3.11%
3.30%
3.58%
3.65%
3.66%
3.87%
4.05%
4.70%
0.0% 1.0% 2.0% 3.0% 4.0% 5.0%
Japan
Switzlnd
Germany
France
Canada
Portugal
Spain
England
USA
Australia
Italy
17 Lynwood Public Financing Authority - Page 23 of 33 Agenda Item # 2 Economic and Market Update
ICE BofAML Index (option adjusted spread vs. Treasury) ICE BofAML Index (option adjusted spread vs. Treasury) 1-5Yr Non-Callable Agency (GVPB) Corporate A-AAA Excluding Yankee (CVAC) Source: ICE BofAML Indices
12/31/2022
Current Spread is 7 Current Spread is 69
-20
0 20
40 60
80 100
120
140
160
180
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Basis Points
Spread: 1-5Yr Agency vs Treasury
0 50
100
150
200
250
300
350
400
450
500
550
600
650
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Basis Points
Spread: 1-5Yr A-AAA Corporate vs Treasury
18 Lynwood Public Financing Authority - Page 24 of 33 Agenda Item # 2 Economic and Market Update
*ICE BofAML Index (option adjusted spread vs. Treasury) *ICE BofAML Index (option adjusted spread vs. Treasury) AAA Rated ABS (R0A1) CMO Agency 0-3Yr PAC (CM1P)
Source: ICE BofAML Indices
12/31/2022
Current Spread is 88 Current Spread is 71
0 50
100
150
200
250
300
350
400
450
500
550
600
650
700
750
800
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Basis Points
Spread: AAA Asset Backed vs Treasury
-150
-100
-50
0 50
100
150
200
250
300
Nov-08
Nov-09
Nov-10
Nov-11
Nov-12
Nov-13
Nov-14
Nov-15
Nov-16
Nov-17
Nov-18
Nov-19
Nov-20
Nov-21
Nov-22
Basis Points
Spread: 0-3Yr Agency CMO vs Treasury
19 Lynwood Public Financing Authority - Page 25 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
12/31/2022
-7.0
-1.9
-0.1
0.6 0.7 0.9 1.6 1.9 2.0 2.4
4.3 4.7 4.8
7.4 7.6
8.6 9.0 9.7
10.8 15.8 15.9
17.7 (10)
(5)
0 5
10 15
20 Percent
Selected Sector Quarterly Total Returns
20 Lynwood Public Financing Authority - Page 26 of 33 Agenda Item # 2 Economic and Market Update
Source: Bloomberg
12/31/2022
-32.6 -31.2
-26.2
-21.9 -21.2
-18.2 -18.0 -16.2 -15.2 -14.4 -13.1 -13.0 -12.2 -12.2
-7.0 -5.6 -3.9
-0.6
0.9 9.5
17.5 29.0
(40)
(30)
(20)
(10)
0 10
20 30
40 Percent
Selected Sector Year-Over-Year Total Returns
21 Lynwood Public Financing Authority - Page 27 of 33 Agenda Item # 2 Economic and Market Update
Sources: Bloomberg, FHN Main Street
12/31/2022
3.50 3.60
3.70 3.80
3.90 4.00
4.10 4.20
4.30 4.40
4.50 9/30/22
10/3/22
10/6/22
10/9/22
10/12/22
10/15/22
10/18/22
10/21/22
10/24/22
10/27/22
10/30/22
11/2/22
11/5/22
11/8/22
11/11/22
11/14/22
11/17/22
11/20/22
11/23/22
11/26/22
11/29/22
12/2/22
12/5/22
12/8/22
12/11/22
12/14/22
12/17/22
12/20/22
12/23/22
12/26/22
12/29/22
Percent
5 Year Treasury Note Yield
Yields Higher After
Bank Of Japan Raises
Cap On 10-Year Japan
Government Bonds
Core CPI Up 0.6%
Month Over Month
Fed Hikes Rates
75bpsUnemployment Rate
Dropped To 3.5%, The
Lowest Level In Decades
Q3 GDP Up 2.6%
Powell Says Fed May
Slow Down Pace Of
Rate Hikes
Treasuries Post Biggest
Annual Loss Ever, As
Inflation Takes Toll
CPI YoY Up 7.1% Versus
Expected 7.3%, Beating
Expectations
San Francisco Fed's Daly
Says Rate Pause Is Off
The Table
October CPI 0.4% MoM
Core 0.3%
22 Lynwood Public Financing Authority - Page 28 of 33 Agenda Item # 2 Economic and Market Update
Sources: Bloomberg, FHN Financial, FHN Main Street
12/31/2022
28,000
29,000
30,000
31,000
32,000
33,000
34,000
35,000
9/30/22
10/3/22
10/6/22
10/9/22
10/12/22
10/15/22
10/18/22
10/21/22
10/24/22
10/27/22
10/30/22
11/2/22
11/5/22
11/8/22
11/11/22
11/14/22
11/17/22
11/20/22
11/23/22
11/26/22
11/29/22
12/2/22
12/5/22
12/8/22
12/11/22
12/14/22
12/17/22
12/20/22
12/23/22
12/26/22
12/29/22
Dow Jones Industrial Average
Sales Forecast By Best Buy
Dampens Concerns High
Inflation Would Lead To
Poor Holiday Shopping
Season
Upbeat Corporate Earnings
And Economic Data Cause
Stocks To Rally
August Job
Openings Fall To 14-
Month Low
Powell Says Fed Could
Slow Down Pace Of
Interest Rate Hikes As
Early As December
University Of Michigan Inflation
Expectations Rise For First Time
In Seven Months
Lower Than Expected
October CPI Raises Hopes
For Slower Tightening
Apple Gains On Earnings
Help Push Stocks Higher
Smaller Than Expected
Increase In CPI Lifts
Investor Confidence
Pace Of Rate Hikes
Expected To Slow
23 Lynwood Public Financing Authority - Page 29 of 33 Agenda Item # 2 Disclosure
This report represents the opinions of FHN Financial Main Street Advisors, LLC and should not be considered predictive of any future market performance. Opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are based upon proprietary research and should not be considered investment advice or a recommendation of any particular security, investment strategy, or investment product.
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PROVIDERS SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY WITH RESPECT TO THE QUALITY, ADEQUACY, ACCURACY, TIMELINESS OR COM PLETENESS OF THE INDICES OR THE INDEX DATA OR ANY COMPONENT THEREOF, AND THE INDICES AND INDEX DATA AND ALL COMPONENTS THEREOF ARE PROVIDED ON AN "AS IS" BASIS AND SUBSCRIBER'S USE IS AT SUBSCRIBER'S OWN RISK. ICE DATA, ITS AFFILIATES AND THEIR RESPECTIVE THIRD PARTY DO NOT SPONSOR, E NDORSE, OR RECOMMEND FHN FINANCIAL MAIN STREET ADVISORS, LLC, OR ANY OF ITS PRODUCTS OR SERVICES. 24 Lynwood Public Financing Authority - Page 30 of 33 Agenda Item # 2 1 MONTHLY ECONOMIC REVIEW
DECEMBER 2022
NATIONAL RETAIL FEDERATION
After two straight quarters of year-over-year decline, the third quarter’s 2.6% annualized growth in gross domestic product was a solid improvement and much better than expected. The third quarter’s results clearly dispelled the notion that the U.S. economy is in a recession, and the silver lining was the ongoing resiliency in consumption. Even though consumers made fewer purchases, they continued to spend on both goods and services and helped lift GDP. A strong labor market, rising wages and access to excess savings built up during the pandemic have given households strong balance sheets that have helped spending continue despite inflation and higher interest rates.
Nonetheless, the economy is cooling and interest-sensitive sectors, in particular, have seen a significant pullback in spending. This has been especially notable in housing, where the Federal Reserve's aggressive efforts to rein in inflation have resulted in a sharp rise in mortgage rates that have left many potential buyers unable to afford a home. Correspondingly, builder confidence in the market for newly built single-family homes posted its 11th straight monthly decline in November and builders are cutting back on single-family construction.
GDP is expected to grow very gradually in the closing months of 2022, at best about half of what was recorded in the third quarter. Consumers are stepping back to a degree and changing how they allocate their resources, spending more on food and less on other retail goods. At the same time, spending on services has been hearty in recent months and there is no reason to expect that it will moderate even with the continued upward pace of service sector inflation.
Even with inflation, the willingness to spend has been stable for the better part of this year, with retail sales growing 7.5% year over year for the first 10 months. That is on track with NRF’s forecasts that overall, 2022 retail sales and November-December holiday sales will both grow between 6% and 8% over 2021. The pace slowed to 6.5% in October, but that was largely due to the comparison against strong early holiday shopping in 2021.
Many eyes have focused on October’s inflation data, and a range of measures was better than expected.
The big questions are whether inflation has peaked, and will it be coming down? The Consumer Price Index was up 7.7% year over year, down from 8.2% in September for the lowest inflation level since January. At the same time, core inflation (which excludes food and energy) was at 6.3%, down from September’s 40-year high of 6.6%. Meanwhile, average hourly earnings for October were up 4.7% year over year compared with 5% in September, also sending a message that inflation may be receding.
While these changes were all in the right direction, it is too soon to see if they are the beginning of a stable downward trend.
Overall job growth has clearly slowed since the start of the year, but labor demand is not cooling as quickly as the Fed – and markets – would like. Additions are moderating but job openings bounced back in September to 10.7 million from 10.3 million in August. The labor market eased somewhat in October as payrolls increased by 261,000.
Lynwood Public Financing Authority - Page 31 of 33 Agenda Item # 2 2 It is hard to anticipate whether the Fed’s monetary tightening will lead to a recession or how bad one might be if it does occur. The risk is clearly elevated by the current framework of rate hikes, but the full effects remain to be seen and one key is how much slowing in the labor market is needed to bring wage growth in line with the Fed’s long-run inflation goals.
As the labor market slows further, as expected in 2023, income growth should slow with it. The good news is that slower job gains should sap momentum from both consumer spending and rising labor costs, hopefully reducing inflationary pressure.
Even though both may slow, employment will still be growing, and consumer spending should remain positive. There will be economic hardships, and some may feel like they are in a recession. But for those who have jobs and feel secure about their employment, careful spending will continue. The downside risk is that “sticky” wages and prices for services – both tend to stay up once they go up – will keep inflation aloft and push the Fed to hold rates higher for longer.
So, what does this all mean? The slowdown in economic growth in 2022 combined with the expansion in the labor market have clearly helped bring economic activity in better balance with labor. But there is a long journey ahead between where we are now and where we need to be. If inflation pressures continue to lessen, the Fed may not be inclined to persist with aggressive interest rate hikes, but that remains to be seen. In the meantime, if prices for gas, groceries and other products decelerate, we will all be able to breathe a little easier.
CONFERENCE BOARD GLOBAL ECONOMIC REPORT
Global real GDP growth is slowing rapidly, from 5 percent year over year in Q3 of 2021 to 3.3 percent in Q3 of 2022. As headwinds to global growth are intensifying, we expect yearly global GDP growth to moderate further to about 2 percent from Q4 2022 onward. Headwinds include persistent inflationary pressures limiting demand and production, very rapid tightening of global financial conditions, and low levels of business and consumer confidence in large economies around the world.
The Conference Board Global Leading Economic Index has contracted for a couple of months now, pointing to rising risks of a downturn. Our forecast for global GDP is for 3.2 percent growth in 2022 and
2.1 percent in 2023. Global growth of 2.1 percent does not formally constitute a global recession, but if achieved it would be the weakest growth rate since 2001 (outside of global recession years 2009 and 2020). In 2024, the global economy likely will experience a modest revival to 2.7 percent growth as shocks related to the pandemic, inflation, and monetary tightening fade. However, growth rates in 2024 After growing by an estimated 1.9 percent in 2022, real GDP is forecast to stagnate for the full year of 2023 and pick up again in 2024 with 1.7 percent growth.
Europe
Europe has likely entered into recession as of Q4 2022 and probably will remain so into the early part of 2023. European economies expected to experience recession include large economies such as Italy, Germany, and the UK, as well as smaller economies such as Czech Republic, Denmark, Hungary, Poland, Romania, Sweden, and Switzerland. CEO confidence fell to an all-time low in H2 2022, reflecting the Lynwood Public Financing Authority - Page 32 of 33 Agenda Item # 2 3 challenging outlook ahead. Still, a variety of factors including fading supply chain woes, a robust labor market, and fiscal stimulus portend a short and shallow recession.
After growing by an estimated 3.5 percent in 2022, real GDP is forecast to slow to 0.2 percent growth for the full year of 2023 and pick up again in 2024 with 1.1 percent growth.
China
The Chinese economy has been buffeted by significant challenges from the pandemic, housing, and external trade in 2022. Businesses and consumers chafed at mobility restrictions and lockdowns, and the government has responded by softening its dynamic zero-COVID-19 policies. Confidence among multinational company CEOs improved in H2 2022 in anticipation of better economic performance in 2023. Still, China is not ready to fully shift away from the polices, given low vaccination rates among the elderly and widespread fear of the virus among the general population. Even once restrictions are lifted, there will be an adjustment period as the fear factor subsides. This points to H2 2023 as the period for a resurgence of consumer spending on services, limiting full-year 2023 growth.
After growing by an estimated 2.7 percent in 2022, real GDP is forecast to pick up to 5.1 percent growth for the full year of 2023 and 4.8 percent for 2024.
Emerging Markets
Economic conditions for economies outside China, Europe, and the US are expected to be mixed. While Asian economies apart from China have fared well from reopening, postpandemic, slowing external demand as the US and Europe head toward recession is beginning to cloud growth prospects. The same is true for Latin American economies dependent upon trade with the US and in commodities, whose prices have retreated from early-year peaks. Tighter monetary policy and political instability threatening fiscal outlooks are also troubling select Latin American economies. Elsewhere, Turkey will experience materially slower growth in 2023, but it will avoid recession. Russia and Ukraine will remain in recession due to the ongoing conflict, sanctions (Russia), and widespread destruction (Ukraine).
Lynwood Public Financing Authority - Page 33 of 33 Agenda Item # 2