The Economy & Jobs: Where We’re Heading &

What You Can Do About It

•  Robert Genetski, Ph.D. •  Website: classicalprinciples.com •  Phone: 616-990-1354

Modern Economic Principles

Frugal Families Aggravate Nation’s Economic Woes

WSJ January 6, 2009 As layoffs and store closures grip the U.S., families hope frugality will see them through. But thriftiness is a major reason the downturn may not soon end.

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1921 1922 1923 1924 1925 1926 1927 1928 1929 1930 1931 1932 1933 1934 1935 1936 1937 1938 1939 1940

Government Spending & Stock Prices

Federal Government Outlays (right axis)

Dow Jones Index

Dow Jones Industrial Average (left axis)

Millions of dollars

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1920 1932 1944 1956 1968 1980 1992 2004

Government Spending & Stock Prices

Dow Jones Average (left scale)

natural log year over year percent change

natural log

Government Outlays (right scale)

Classical Principles

•  Low tax rates •  Free Markets •  Protect Individual Property Rights •  Stable Prices

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1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Effective Marginal Tax Rates: Individuals (Data are based on Genetski estimates of MTR for indiv. In 70th-95th percentile)

percent

source: classicalprinciples.com; Dr. Robert Genetski

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1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010

Marginal Tax Rates: Capital Gains (Maximum capital gains tax paid by indiviudals) percent

source: classicalprinciples.com; Dr. Robert Genetski

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3.8

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4.8

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5.2

1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015

Productivity Trends (annual rates of change; private nonfarm business; similar periods of capacity utilization)

natural log of the index

1950-65: 2.6%

1965-75: 2.2%

1976-81: 0.7%

1997-08: 2.6%

1986-96: 1.5%

1981-86: 2.0%

classicalprinciples.com

2010-15: 1.0%

2008-10: 1.5%

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Adjusted Bank Reserves billions of dollars (monthly averages)

source: Federal Reserve Bank of St. Louis

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1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Adjusted Bank Reserves billions of dollars (monthly averages)

source: Federal Reserve Bank of St. Louis; classicalprinciples.com

Total Adjusted Bank Reserves

Total Adjusted Bank Reserves less excess reserves held at the Fed (1 and 6-month average)

Feb. $758 billion

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01 02 03 04 05 06 07 08 09

U.S. Dollar Index

Trade-weighted G-10 Index

Avg. value 1967-2008=101

4-year average

Government “Stimulus” (billions of dollars)

•  Beginning deficit $250 •  Early stimulus 170 •  Bailout Fannie & Freddie 200+ •  Fallout from Fannie & Freddie bailout 700 •  Citi, AIG bailouts 500+ •  Help auto companies retool 25 •  Bailout Detroit so it can retool 25 •  Obama “stimulus” 790

•  Total over $2,500

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Long-Term Interest Rates percent

10-year Treasury Notes

Moody's AAA Bonds

Moody's BAA Bonds

Fannie, Freddie Bailout

$700 billion Bailout

$14.00

$15.00

$16.00

$17.00

$18.00

$19.00

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$29.00 15

-Mar

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Broadest Stock Index (over 8,000 stocks)

50-day average

10-day

Daily Index

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

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01 02 03 04 05 06 07 08 09

Housing Starts (millions per year)

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2000 01 02 03 04 05 06 07 08

Home Sales & Inventory

Total Existing Home Sales (saar)

Inventories All Homes

millions of units

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6-Mar 2-May 28-Jun 24-Aug 20-Oct 18-Dec 15-Feb 15-Apr 11-Jun 7-Aug 3-Oct 29-Nov 29-Jan 27-Mar

Interest Rate Spreads

2007 2008

BAA bonds minus 10-year Treasury Notes

AAA bonds minus 10-year Treasury Notes

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

2000-05 2005-10 2010-15 2015-20

Working Age Population Growth (annual growth rates)

India

Western Europe China

United States

Brazil Mexico

Eastern Europe

Japan

Business Environment •  Cascading recession—international weakness •  Government borrowing—scarcity of credit •  Some relief due later this year—hiring 2010 •  Sharp increase in spending followed by rapid

wage, price increases 2011 •  Rising costs—financing, environment, etc.

Pressure on Your Clients

•  Survival mode—focus on cash flow •  Conserve capital, allocate funds cautiously •  Budgets being monitored, adjusted monthly •  Credit sources scarce/expensive •  Need to adapt to major swings in spending

Strategies for Recruiters

•  Recognize economic pressures on clients •  Need to deliver greater value added

– Anticipate labor needs as economy recovers – Upcoming shortage of qualified labor – Creative ways to overcome cost constraints – Provide input on wage adjustments to inflation

Key Points

•  Monetary stimulus-recovery this summer •  Labor markets improve in 2010 •  Recovery, growing labor demand 2011 •  Cost constraints affect your clients •  Need for creativity to provide solutions