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GERALD J. SWANSON, PH.D.Professor Emeritus of Economics
February 25, 2015
REMNANTS OF THE GREAT RECESSION
GOOD NEWS OUR ECONOMY IS GROWING
WE ARE NOT IN A RECESSION
BAD NEWSWORST RECESSION SINCE GREAT
DEPRESSION
WORST RECOVERY SINCE GREAT DEPRESSION
2
LABOR MARKETOctober 2009 unemployment rate = 10.0 %
January 2015 unemployment rate = 5.7%
Number employed exceeds high hit in Jan 2008
146 million
Number unemployed Jan. 2014 = 9 million3
LABOR MARKET Unemployment rate – including
marginally attached workers and part-time workers
Jan 2000 7.1%Jan 2015 11.3%
4
LABOR MARKETNEW NORMAL
Participation rate = % population over age of 16 in labor force
January 2000 67.5%January 2015 62.9%
If we had the same participation rate
today as we did in 2000 8.7 million more people would be in the labor force
5
LABOR MARKETWhy the change in the participation rate?
1. Boomers (1946-1964) retiring2.Worker’s skills not meeting employers
needs3. Increase in workers claiming disability4. Expanded safety net5. Mothers staying home with children6. Obama care7. Criminal record
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LABOR MARKET
NEW NORMAL
Employment rate =% of population over the age of 16
employed
January 2000 67.1% January 2015 59.3%
If we had the same employment
rate as we did in 2000 19.4 million more people would be working today
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January 2015 UNEMPLOYMENT BY LEVEL OF EDUCATION
Less than H.S. 8.5 % H.S. no college 5.4% Some college 5.2% Bachelor’s degree 2.8% or higher
EDUCATION MATTERS!
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EDUCATION MATTERS
January 2015 Population 25 years and over
Participation Rate Employment Rate
Less than H.S. 46.0% 42.1%
H.S. no college 57.9%54.8%
Some college 67.2%63.8%
Bachelor’s Degree 74.4%72.3%
or higher
STRUCTURAL UNEMPLOYMENT
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UNEMPLOYMENTREASONS FOR UNEMPLOYMENTSeptember 2014Job Losers 2.7% Job Leavers 0.5% Reentrants 1.8% New Entrants 0.7% Total unemployment = 5.7%
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BIFURCATION OF RECOVERY
Those with homes and jobsOn the road to recovery
Those who lost job and/or homes
Stalled - minimal recovery
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GDP GROWTH
UNDERPERFORMING 2009 GDP 2010 GDP 2011 GDP 2012
GDP Q1 -6.4% Q1 3.7% Q1 0.4% Q1 3.7% Q2 -0.7% Q2 1.7% Q2 1.3% Q2 1.2% Q3 1.6% Q3 2.5% Q3 1.8% Q3 2.8% Q4 5.0% Q4 2.3% Q4 3.0% Q4 0.1%
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GDP GROWTH GDP 2013 GDP 2014 Q1 2.3% Q1 -2.1 Q2 1.8% Q2 4.6% Q3 4.3% Q3 5.0% Q4 3.3% Q4 2.6%
GROWTH ESTIMATE FOR 2014 = 2.4%
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GROWTH NEW NORMAL
GDP AVERAGE GROWTH 1950 – 1999 3.6 %
GDP AVERAGE GROWTH 2009 – 2014 2.3%
HOW IMPORTANT IS THE CHANGE IN GROWTH?
3.6% GR0WTH - GDP DOUBLES IN 20 YRS
2.3% GROWTH – GDP DOUBLES IN 31 YRS
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GROWTH BRIC Nations GDP Growth 2013 2014est. BRAZIL 8.9% 0.5%RUSSIA 3.4% 0.2%INDIA 3.4 5.6%CHINA 7.8% 7.4%
40% OF WORLD POPULATION 15
GROWTHGROUP OF SEVEN – SLOW TO NO
GROWTH GDP GROWTH 2014 est.
U.S. 2.4%JAPAN .9%GERMANY 1.5%BRITAIN 2.6%FRANCE 0.3%CANADA 2.2%ITALY -1.9%
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INFLATION RATE
2014 INFLATION RATE = 1.4%
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AGGREGATE DEMAND
C+I+G+XCONSUMER SPENDINGINVESTMENT SPENDINGGOVERNMENT SPENDINGNET EXPORTS – EXPORTS-
IMPORTS 18
CONSUMER SPENDINGPENT UP DEMAND – BUYING CARS &
TRUCKS
SAVINGS RATE UP
NET WORTH OF HOUSEHOLDS UP
CONFIDENCE UP
REAL WAGES STAGNANT
GASOLINE PRICES DOWN19
INVESTMENT SPENDINGHOUSING MARKET IS STABILIZING
CONSTRUCTION IS SLOWLY PICKING UP
BUSINESS PROFITS ARE STRONG
BUSINESSES HAVE LOTS OF CASH
BUSINESSES ARE READY TO SPEND
UNCERTAINTY IS A MAJOR PROBLEM 20
EXPORTS
EXPORTS HAVE BEEN A DRIVING FORCE IN OUR ANEMIC RECOVERY
EXPORTS ARE SLOWING DOWN
EXPORTSACCOUNT FOR 13% OF OUR GDP
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FISCAL POLICYANNUAL BUDGET DEFICIT2009 $1.4 TRILLION2010 $1.3 TRILLION2011 $1.3 TRILLION2012 $1.1 TRILLION2013 $ 680 BILLION
2014 $483 BILLION
TOTAL DEBT = $17.8 TRILLION + 22
FISCAL POLICYFACT FISCAL 2014
Tax revenues are up 8.6%2013 = $2,775 trillion2014 = $3,013 trillion
Government spending up 1.6%
2013 = $3,455 trillion2014 = $3,512 trillion .
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FISCAL POLICY
GOOD NEWSDEFICIT AS A PERCENT OF GDP IS
SHRINKING
DECEMBER 2009 10.1 % GDPDECEMBER 2010 9.0% GDPDECEMBER 2011 8.7% GDPDECEMBER 2012 7.0% GDPDECEMBER 2013 4.1% GDP DECEMBER 2014 2.8% GDP
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CURRENCY WARS
CENTRAL BANKS HAVE FLOODED THE WORLD FINANCIAL SYSTEM WITH MORE THAN $11 TRILLION IN CASH
25
UNCONVENTIONAL MONETARY POLICY
MOST EXPANSIVE MONETARY POLICY IN THE HISTORY OF THE FEDERAL RESERVE
PRINTING TONS OF MONEY
FEDERAL RESERVE BALANCE SHEET
HAS INCREASED BY
$3.5 TRILLION SINCE AUGUST 2007
26
MONETARY POLICY
UNCONVENTIONALQE1 NOVEMBER 2008
QE2 NOVEMBER 2010
QE3 SEPTEMBER 2011(operation twist)
QE4 SEPTEMBER 2012 (print $85B/mth)
27
MONETARY POLICYBANKS CURRENTLY HAVE $2.3 TRILLION IN EXCESS RESERVES
THESE RESERVES COULD CREATE $23 TRILLION IN NEW MONEY
OVER TWICE THE AMOUNT OF MONEY CURRENTLY IN OUR ECONOMY
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MONETARY POLICY TREASURY YIELD CURVE INTEREST RATES TO MATURITY
SEPTEMBER 2000 FEBRUARY 2015
6 MTH RATE = 5.8% 0.06%1YR RATE = 6.0% 0.11%5YR RATE = 6.5% 1.50%10YR RATE = 6.6% 2.08%30YR RATE = 6.6% 2.71%
NEGATIVE REAL SHORT-TERM INTEREST RATES
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MONETARY POLICY
OVER SIX YEARS WITH ZERO SHORT-TERM INTERST RATES
WHAT NEXT?
PATIENCE!
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CONCLUSION
HEADWINDS FOR 2015
1. SLOW GROWTH IN EUROPE2. U.S. STRUCTURAL UNEMPLOYMENT RATE3. STOP- AND START NATURE OF CONSUMER
SPENDING4. ISIS5. RUSSIA/UKRAINE6. CONTINUED POLITICAL BRINKSMANSHIP7. FEAR THAT IT ALL COULD HAPPEN AGAIN8. MOTHER NATURE
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CONCLUSIONSIX REASONS TO BE SLIGHTLY OPTIMISTIC
1. BALANCE SHEETS HAVE IMPROVED2. INFLATION IS TAME3. WE ARE GROWING FASTER THAN MOST
OF OUR COMETITORS4. MONEY IS CHEAP5. DEFICIT IS DECLINING6. WE ARE GAINING ENERGY
INDEPENDENCE7. BOOMERS ARE GETTING OLDER
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