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Gerald J. Swanson, Ph.D.

Gerald J. Swanson, Ph.D. Professor Emeritus of Economics Thomas R. Brown Professor in Economics Education. GOOD NEWS – OUR ECONOMY IS GROWING WE ARE NOT IN A RECESSION WE HAVE A LONG WAY TO GO TO A FULL RECOVERY WORST RECOVERY SINCE GREAT DEPRESSION. unemployment.

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Gerald J. Swanson, Ph.D.

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  1. Gerald J. Swanson, Ph.D. Professor Emeritus of Economics Thomas R. Brown Professor in Economics Education

  2. GOOD NEWS – OUR ECONOMY IS GROWING WE ARE NOT IN A RECESSION WE HAVE A LONG WAY TO GO TO A FULL RECOVERY WORST RECOVERY SINCE GREAT DEPRESSION

  3. unemployment October 2009 unemployment rate = 10.0 % September 2013 unemployment rate = 7.2% STILL 2.2 MILLION FEWER WORKERS THAN BEFORE THE FINANCIAL CRISIS Number unemployed Sept 2013 = 11.3 million

  4. UNEMPLOYMENT NEW NORMAL Participation rate = % population over age of 16 in labor force January 2001 67.2% September 2013 63.2% 136,000 left the labor force in September 2013 515,000 left the labor force in August 2013

  5. unemployment NEW NORMAL Employment rate = % of population over the age of 16 employed January 2001 64.4% September 2013 58.6%

  6. unemployment September 2013 Population 25 years and over Participation Rate Employment Rate Less than H.S. 44.5% 39.9% H.S. no college 59.0% 54.5% Some college 67.2% 63.2% Bachelor’s Degree 75.3% 72.5% or higher

  7. unemployment REASONS FOR UNEMPLOYMENT September 2013 Job Losers 3.8% Job Leavers 0.6% Reentrants 2.0% New Entrants 0.8% Total unemployment = 7.2%

  8. Unemployment Government Payroll Decline since 2006 Federal Government - 74,000 State Government -161,000 Local Government -560,000 State and local governments are starting to hire again

  9. UNEMPLOYMENT WH0 HAS BEEN HIRING? RETAIL HEALTH CARE PROFESSIONAL & BUSINESS SERVICES MANUFACTURING WHO IS STARTING TO HIRE? GOVERNMENT CONSTRUCTION

  10. Bifurcation of recovery Those with homes and jobs are on the road to recovery Those who lost jobs and/or homes are stalled - No recovery

  11. 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% GROWTH FOR Q1 2013 = 1.1% GROWTH FOR Q2 2013 = 2.5%

  12. GROWTH NEW NORMAL GDP AVERAGE GROWTH 1950 – 1999 3.6 % GDP AVERAGE GROWTH 2007 – 2012 2.0% HOW IMPORTANT IS THE CHANGE IN GROWTH? 3.6% GR0WTH - GDP DOUBLES IN 20 YRS 2.0% GROWTH – GDP DOUBLES IN 36 YRS

  13. INFLATION RATE 2013 INFLATION RATE = 1.5%

  14. AGGREGATE DEMAND C+I+G+X CONSUMER SPENDING INVESTMENT SPENDING GOVERNMENT SPENDING NET EXPORTS (EXPORTS-IMPORTS)

  15. CONSUMER SPENDING PENT UP DEMAND – BUYING CARS & TRUCKS SAVINGS RATE UP = 4.6% NET WORTH OF HOUSEHOLDS UP CONFIDENCE UP & DOWN REAL WAGES STAGNANT

  16. CONSUMER SPENDING ECONOMY WORKED THROUGH FISCAL DRAG INCREASE IN PAYROLL TAX JAN 2013 4.2% to 6.2% TAX INCREASE ON AVERAGE WAS $40 PER BI-WEEKLY PAYCHECK CUT TAKE-HOME PAY BY $125 BILLION

  17. INVESTMENT SPENDING HOUSING 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

  18. EXPORTS EXPORTS HAVE BEEN A DRIVING FORCE IN OUR ANEMIC RECOVERY EXPORTS ARE SLOWING DOWN EXPORTS ACCOUNT FOR 14% OF OUR GDP

  19. FOREIGN TRADE BRIC Nations 2012 2013 est BRAZIL 2.4% 8.9% RUSSIA 1.8% 3.4% INDIA 4.2% 3.4% CHINA 8.0% 7.8% 40% OF WORLD POPULATION

  20. EUROZONE UNEMPLOYMENT AT RECORD HIGH 17 COUNTRIES THAT USE THE EURO HIT THE HIGHEST UNEMPLOYMENT RATES IN THE HISTORY OF THE CURRENCY. = 12.2% MAY 2013 CURRENT UNEMPLOYMENT RATE = 12.1%

  21. EUROPE IS STAGNANT SEPTEMBER 2013 UNEMPLOYMENT GREECE 27.9% SPAIN 26.2% ITALY 12.2% FRANCE 10.5% GERMANY 6.9% UK 7.7% SCHADENFREUDE!

  22. FOREIGN TRADE GROUP OF SEVEN: SLOW TO NO GROWTH GDP GROWTH 2013 est U.S. 2.2% JAPAN 1.9% GERMANY 0.9% BRITAIN 1.3% FRANCE -0.1% CANADA 1.6% ITALY -1.0%

  23. WE WENT OVER THE FISCAL CLIFF AND LIVED TO TALK ABOUT IT WE DID GET HIGHER TAXES WE DID GET SEQUESTRATION

  24. FISCAL POLICY 2009 $1.4 TRILLION 2010 $1.3 TRILLION 2011 $1.3 TRILLION 2012 $1.1 TRILLION 2013 $642 BILLION est. TOTAL DEBT = $17 TRILLION +

  25. Fiscal policy FACT FISCAL 2013 Tax revenues are up by $383 billion Government spending is down $75 billion

  26. FISCAL POLICY GOOD NEWS DEFICIT AS A PERCENT OF GDP IS SHRINKING DECEMBER 2009 10.1 % GDP DECEMBER 2010 9.0% GDP DECEMBER 2011 8.7% GDP DECEMBER 2012 7.0% GDP DECEMBER 2013 4.0% GDP est.

  27. Fiscal Policy Three Reasons for Deficit Decline !. Recession is over - economy is growing 2. Sequestration remains in effect 3. Govt health care costs lower than expected

  28. Fiscal policy DEBT AS A PERCENT OF GDP IS GROWING 2000 57.7% 2005 64.6% 2008 71.1% 2010 95.1% 2012 101.7% 2013 103.0% est.

  29. MORE FUN TO COME December 13, 2013 Conference Committee Fiscal 2014 Budget Due January 15, 2014 Second Round of Sequester Budget Cuts February 7, 2014 Reach New Debt Ceiling

  30. Monetary policy MOST EXPANSIVE MONETARY POLICY IN THE HISTORY OF THE FEDERAL RESERVE FEDERAL RESERVE BALANCE SHEET INCREASED BY $2.9 TRILLION SINCE AUGUST 2007

  31. MONETARY POLICY UNCONVENTIONAL QE1 NOVEMBER 2008 QE2 NOVEMBER 2010 QE3 SEPTEMBER 2011(operation twist) QE4 SEPTEMBER 2012 (print $85B/mth)

  32. MONETARY POLICY UNCONVENTIONAL FEDERAL RESERVE IS PRACTICING TRANSPARENCY INFLATION TARGET 2.5% UNEMPLOYMENT TARGET 6.5% KEEP INTEREST RATES AT ZERO INDEFINITELY PUMP $85 BILLION PER MONTH INTO ECONOMY

  33. Monetary policy TAPER TANTRUM September 2013 FED ANNOUNCES IT IS GOING TO TAPER DOWN THE AMOUNT OF MONEY IT IS PRINTING EVERY MONTH Stock market falls World currencies devalue Mortgage interest rate jump October 2013 FED REVERSES POSITION – WILL KEEP PRINTING INDEFINITELY

  34. MONETARY POLICY FUTURE EFFECT OF MONETARY POLICY IS VERY LIMITED PUSHING ON A STRING WE HAVE HAD 58 MONTHS OF ZERO INTEREST RATES SEPTEMBER 2013 BANKS HAD $2.2 TRILLION IN EXCESS RESERVES

  35. CONCLUSION HEADWINDS FOR 2013-14 1. DEBT CRISIS PLAGUING EUROPEAN GOVERNMENTS 2. HIGH U.S. UNEMPLOYMENT RATE 3. STOP-AND-START NATURE OF CONSUMER SPENDING 4. LACK OF CONFIDENCE AMONG CEO’S 5. LACK OF CONSUMER CONFIDENCE 6. CONTINUED POLITICAL BRINKSMANSHIP 7. FEAR THAT IT ALL COULD HAPPEN AGAIN

  36. CONCLUSION FIVE REASONS TO BE SLIGHTLY OPTIMISTIC • BALANCE SHEETS HAVE IMPROVED • INFLATION IS TAME • WE ARE GROWING FASTER THAN MANY OF OUR COMPETITORS • DEFICIT IS DECLINING • WE ARE GAINING ENERGY INDEPENDENCE

  37. CONCLUSION IF WASHINGTON DOES NOT GET ITS ACT TOGETHER -- 2014 WILL LOOK A LOT LIKE 2013 OUR ECONOMY WILL CONTINUE TO GROW AT A SLOW PACE OUR UNEMPLOYMENT RATE WILL REMAIN UNACCEPTABLY HIGH

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