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McCombs Knowledge To Go
May 8, 2012
An Economic Outlook and School Update
by Dean Tom Gilligan
Knowledge To Go Webinar Goal: Virtually connect alumni to the most
current and thought-provoking business knowledge that McCombs has to offer.
Thanking those who’ve contributed MBA and BBA/MPA Alumni Advisory Boards Committee Leadership: Neal Meadows,
BBA/MPA Faculty Liaison: Jim Nolen Presenters: Lew Spellman, Kevin Williams, Sandy Leeds
Knowledge To Go Webinar Participation Open to all McCombs alumni and students Average 185 attendees per session
Outlining plans for the future Continue monthly webinars featuring faculty and
alumni experts on cutting edge business topics Link with Alumni Affinity Group topic areas Private Equity – Jonathan Spillman Marketing – Erin Patten Energy – Jim Bohart Innovation – Kurt Parekh
Outline for Today What professional economic forecasters are telling us
and why? Still a very modest recovery Slow employment growth and inflation, but quickening
Falling labor participation
What’s happening at McCombs? Texas Venture Labs Campaign for Texas Undergraduate Real Estate Certificate UT Energy Poll Proposed New McCombs Degrees Healthcare Symposium Scholarships
UT McCombs Front Budget Going Forward
Economic Forecasts Research Department, Federal Reserve
Bank of Philadelphia “Survey of Professional Forecasters” First quarter (Feb. 10, 2012); new survey next week Doing this since 1968
42 “Professional Forecasters” Provide advice used by large commercial institutions Members of National Association for Business
Economics (NABE) Use a variety of techniques and assumptions to arrive
at forecasts
Real GDP Growth Last 16 Quarters
0.6%
-3.7%
-8.9%
-6.7%
-0.7%
1.7%
3.8%3.9%3.8%
2.5%2.3%
0.4%1.3%1.8%
3.0%2.2%
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%Change from Preceding Period; Seasonally Adjusted at Annual Rates
10 Q1
09 Q4
09 Q2
09 Q1
08 Q4
08 Q3
08 Q2
09 Q3
50 yr Avg. 3.14%
Source: Bureau of Economic Analysis, April 27, 2012
10 Q2
10 Q3
11 Q1
10 Q4
11 Q2
11 Q3
11 Q4
12 Q1
Economic Recoveries in Perspective
2008 1957 1973 1981 1953 1980
Source: National Bureau of Economic Research
GDP declines are measured from peak real GDP to trough GDP GDP recoveries are growth over subsequent 4 quarters
Contributions to Change in Real GDP
3.90%
1.92%
3.25%
-0.18%
-0.97%
0.40%
1.47%
0.47%
-1.23%
-0.34%
2.20% 2.04%
0.77%
-0.60%
-0.01%
-2.00%
-1.00%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%Seasonally Adjusted at Annual Rates
10Q111Q112Q1
Real GDP Consumption Investment Government Net Export
Source: Bureau of Economic Analysis, April 27, 2012
Mean Forecasted Real GDP Growth
3.0% 2.9%
3.4%3.1%
2.9%
1.7%
2.3%2.7%
0%
1%
2%
3%
4%
5%
2010 2011 2012 2013
Old Forecast New Forecast
Actu
al
Source: Federal Reserve Bank of Philadelphia
Act
ual
Forecasters turned out to be too optimistic in 2010-2011
Forecasters are adjusting their growth numbers down
Unemployment Rate: Civilian Workforce
9.9% 9.0% 8.1%10.1%
8.8%7.5%
25.7% 24.9% 24.9%
0%
5%
10%
15%
20%
25%
30%
April 2010 April 2011 April 2012
Total Adult Men Teens
Source: Bureau of Labor Statistics, May 4, 2012
Seasonally Adjusted
Mean Forecasted Unemployment Rate
9.8%9.2%
8.3%
7.3%
9.4%8.5% 8.5%
7.8%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
2010 2011 2012 2013
Old Forecast New Forecast
Source: Bureau of Labor Statistics and Federal Reserve Bank of Philadelphia
Act
ual
Act
ual
Okun’s Rule of Thumb Crude empirical relationship between
unemployment and potential GDP growth Potential GDP growth is typically defined as
highest sustainable without accelerating inflation Potential GDP growth approximately 2.00%
(controversial) Okun’s rule: unemployment declines by 0.5%
for every 1% that real GDP grows above its potential
Growing at 3% (4%) it would take about ten (five) years for unemployment to get to 5%
Labor Force Participation Percentage of Labor Force Employed
or Seeking Employment ~ 66% from 2004-2008 ~ 64% now (lowest since 1981)
Size of Civilian Labor Force ~ 154 million people (same past 4 years)
Discouraged Workers Bureau of Labor Statistics estimates number at
about 1 million (low end of estimates) Impact is greater for younger workers
Source: Bureau of Labor Statistics, May 6, 2012
Actual and Forecasted Inflation
2.5%
4.1%
0.1%
2.7%
1.5% 1.7%
3.0%
2.1% 1.9% 2.0% 2.2% 2.2%
Headline CPI Inflation
50 yr average = 4.1%
Source: Bureau of Labor Statistics and Research Dept. FRB of Philadelphia
Actual Forecasted
2006 2008 2007 2009 2010 2012 2011
Act
ual
Actual or old forecast New forecast
Act
ual
2012
Summary of Economic Forecasts Economic recovery continues, slowly Recovery is forecasted to be mild; in
the range of 3.0% real GDP growth (slightly down from before) Unemployment will improve only
slightly; at this rate it will be seven to ten years before unemployment reaches the historical average Inflation will be moderate . . . perhaps! Particularly if capacity utilization remains low Particularly if house-price deflation continues
Evidence of Economic Recovery Dow is up about 95% over its Spring 2009 low, but still
remains 5% below it’s Fall 2007 high Other leading indicators are generally positive Conference Board’s Index of leading indicators has risen
consistently since March 2009 Retail sales of new passenger cars and trucks continue
to increase year-over-year, but remain about 10% lower than the previously typical annual level (14.5 versus 16 million units): Kelly Blue Book
Actual sales of recreation vehicles in 2011 were about 70% of those in 2007 (252.3 versus 353.4 thousand units; 165.7 in 2009); Recreational Vehicle Industry Association
Why the predicted slow growth Household wealth, income, and
personal consumption expenditures Consumers are recovering and deleveraging Business investment keys off them
Economic recovery in the wake of a financial crisis Excessive leverage retards growth, limits the
effectiveness of monetary policy, and constrains fiscal policy U.S. indebtedness of all forms (households,
corporate, government) quadrupled from 1980-2010
Balance Sheet of U.S. Households
-$14,346.4-$14,229.7-$14,048.0-$13,905.7-$13,773.9
$27,970.0 $24,454.0 $23,738.6 $23,477.4 $23,161.8
$51,574.6
$42,234.6 $45,434.3 $49,252.4 $49,067.2
-$20,000
$0
$20,000
$40,000
$60,000
$80,000
$100,000
(billions of dollars)
Financial assetsTangible assetsLiabilities
2007 2008 2009
Source: Board of Governors, Federal Reserve System Flow of Funds Accounts, March 8, 2012
2010
• Financial Assets are recovering
• Tangible Assets continue to deteriorate
• Net Worth is improving; still down ~ $6.7 trillion
2011
Personal Income of U.S. Households
$12,460.2$11,930.2
$12,373.5
$13,005.3$13,281.7
$0
$7,500
$15,000
2008 2009 2010 2011 2012
Billions of Dollars: Seasonally Adjusted at Annual Rates
Savings rates have fallen to 3.5% range
Source: Bureau of Economic Analysis, April 27, 2012
Disposable personal income is growing about 3.5%/yr in real terms
Why households won’t lead robust recovery Higher savings rates reduced spending (7.5% to
3.5%) Negative wealth effects (particularly in real
estate) Extreme caution; tougher credit conditions Slow growth in personal income But getting better (from less than zero to 3.5%)
Potential relief Stock market roars back Housing prices rebound quickly
Forecast is for continued trouble in residential housing markets
Growth in exports markets (But where?)
Is there a “New Normal” Cause De-globalization Wealth destruction De-leveraging pressures Increased government regulation
Effects Slower global economic growth Higher savings rates Lower consumer spending Constraints in financial intermediation
What’s Happening at McCombs? Texas Venture Labs $6 million gift from Jon Brumley, which
supports… Campaign for Texas McCombs reached $100 million milestone in
donations Undergraduate Real Estate Certificate
Program Raised $3.2 million of the $4.0 million needed
University of Texas Energy Poll Release of second poll results April 10-11, 2012
What’s Happening at McCombs? New McCombs Masters Degrees Masters of Finance – Fall 2012 Masters of IROM, concentration in Business
Analytics – Fall 2013
Healthcare Symposium: Doing More With Less Third annual symposium held April 26-27, 2012
Scholarship Initiative Raised $4.25 million to date
One 40 Acre (full-ride) Scholarship 9 McCombs Presidential Scholarships 10 McCombs Dean’s Scholarships
UT McCombs Front Budget 15% reduction in state support Undergraduate tuition freeze Effect on McCombs
Going Forward Still striving to “educate leaders that generate
value for society” Still striving to sustain our reputation as one of
the world’s most prominent business schools New Masters Programs Growth in graduate programs
Upcoming Webinars May May 17 – Tips and Tricks in PowerPoint 2010 – Part 2
– A Career Webinar with Ben Bond, BBA ’99
June June 12 – Our Turn Campaign – A Knowledge To
Go Webinar with Ed Tonkon, BBA ’78 and Keary Kinch, BA ’86
Jeffrey Matthew Bock August 16, 1972 – April 29, 2012
Jeffrey Matthew Bock, 39, of Austin, was born to Walter and Ruth Bock, August 16, 1972, in Appleton, WI. Jeff graduated from Fox Valley Lutheran High School in 1991, received a BS in Chemical Engineering from the University of Wisconsin in 1996 and a MBA from The University of Texas in 2003. He married Tonya Tesch Bock in 1996. Jeff was a Global Marketing Director at Freescale Semiconductor. He was a past President of the local University of Wisconsin Alumni club in Austin and was Chair-Elect of the UT McCombs School of Business MBA Alumni Advisory Board. He is survived by his wife, Tonya, of Austin; his mother, Ruth Bock Neeck, of Menasha, WI; his twin brother Jonathan (Cristin) Bock and his family, of Wauwautosa, WI, and his older brother David Bock and his family, of Germantown, WI. In lieu of flowers, the family is requesting that donations be made out to the scholarship fund of the local chapter of the University of Wisconsin Alumni Club at uwalumni.com/austin.
Please Give Back to McCombs!
Percentage of Alumni Who Give to Business School (FY2010)
Percentage of Alumni Giving
29
Please Give Back to McCombs! This webinar has been brought to you by the McCombs MBA & BBA Alumni Advisory Boards, coordinated by alumni for the benefit of the Alumni Network.
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