Download Managing in a Weak Recovery

Economic Outlook 2013 – 2014
Steel Manufacturers Association
Annual Members Conference
Mayflower Hotel
April 30, 2013
Washington, DC
Peter Morici
University of Maryland
[email protected]
Twitter @pmorici1
How “Great” a Recession
1854 - 2012: 33 Recessions
Average Length: 16 Months
Long Depression: 1873-79 (65 mos.)
Great Depression: 1929-33 (43 mos.); 1937 – 38 (18 mos.)
Volcker Recession (Reagan): 1980 (6 mos.); 1981-82 (16
mos.)
Great Recession (Obama): 2007–09 (18 Months)
Peak Unemployment
1876, 14% – Long Depression
1933, 24.9% – Great Depression
November, 1982, 10.8% – Volcker Recession (Reagan)
October, 2009 10% - Great Recession (Obama)
Reasons for Optimism
U.S. Innovation Continues at a Strong Pace
New and Improved Products
Strongest Manufacturing Productivity Growth Among Industrialized
Countries
Logistics
Shale Gas/Oil Revolution
Heavy Transportation
Intercity and Urban Transport
Manufacturing Revival
Repricing of U.S. Labor
Superior Higher Education System
Morrill Act of 1862 – Colleges of Science and Engineering
Scientific Management – America’s Business Colleges
Potential Growth
Potential Trend GDP Growth: 3% Per Year
Average Productivity Growth: 2% Per Year
Average Labor Force Growth: 1% Per Year
After Deep Recession Growth of 4 – 6% Possible
Potential Productivity Growth: 2 – 4%
Potential Employment Growth: 2 – 4%
Growth Above 3 % Is Needed to Reduce
Unemployment
Unemployment Has Been Falling Because Adults
Are Leaving the Labor Force
Lessons of History
Stronger Growth is Possible
Reagan Recovery: 1982 - 1990
Unemployment Rate
November 1982: 10.8
June 1986: 7.2%
GDP Growth
1982:Q3 – 1986:Q2: 5.0%
Obama Recovery: 2009 –
Unemployment
October 2009: 10.0%
March 2013: 7.6%
GDP Growth
2009:Q2 – 2013:Q1: 2.1%
Obstacles to Growth
China Slowing?
Europe: Euro; Bank and Sovereign Debt
Chinese/German/Japanese Mercantilism
US: Trade Deficit: Oil, China
U.S. Regulatory Overreach
Tax System
High Individual and Corporate Rates Raise the Price
of Capital
Misplaced Efforts to Obviate Income Inequality
Runaway Health Care
Social Security and Federal/State Pensions
Chinese Growth Model Running
Out of Steam?
Modernization and Inexpensive Labor Has Limits
Growing Trade Surpluses with U.S. Has Limits
Undervalued Yuan
Subsidies/High Tariffs/Other Forms of
Protection
Trade Deficits Slow Growth in U.S.
Competition from Pakistan, Vietnam, Others
Overseas Resource and Energy Investments
Europe: Festering Problems in
Eurozone and Debt
Disparate Productivity Growth—North vs. South
Balkanized Labor Markets
Absence of Fiscal Union
Limited ECB Powers/Mandate
Absence of Unified Banking Regulation and Bank
Resolution Tools/Authority
Absence of Sovereign Lender of Last Resort
Result: Sovereign, Bank and Private Debt
Global Variables
Global
US
Eurozone
China
India
Mexico
Brazil
Russia
Japan
Oil (WTI)
Oil (Brent)
2012
1.5%
2.2
-0.5
7.7
5.0
3.9
0.9
3.4
2.0
$94
113
2013
1.5
2.0
-0.5
7.8
5.7
3.2
2.7
3.1
0.4
96
108
2014
2.0
2.2
0.0
8.0
6.5
3.6
3.4
3.5
2.4
103
115
National Economic Forecast
GDP: Annual
Q412
Q113
0.4
2.5
Q213 Q313 Q413 2012 2013 2014
1.8
2.3
2.1
GDP: Q4/Q4
2.2
2.0
2.3
1.7
2.2
2.4
CPI: Year/Year
1.9
1.7
2.2
2.4
2.6
2.1
2.2
2.8
Core CPI:
Year/Year
1.9
2.0
1.9
2.0
2.1
2.1
2.0
2.1
Unemployment
7.8
7.7
7.7
7.8
7.8
8.1
7.7
7.8
0.125
0.125
0.125
0.125
0.125
0.125
0.125
0.125
Federal
Funds
U.S. Autos and Housing
Vehicle Sales
2012
14.4 M
2013
15.4
2014
16.0
Housing Starts
780K
1000K
1200K
Retail Sales
2012
2013
2014
Nominal
5.0
5.1
5.6
Real
2.9
2.9
2.8
U.S. Policy Fixes
Fix Trade With China – Currency Reform
Develop Domestic Oil & Gas
Federal Deficit – Entitlement Reform
Health Care – Fewer Subsidies, Genuine Reform
Social Security – Raise Retirement Age
Banking
Rollback Dodd Frank
Restructure Banks – Glass Steagall
Broader Regulatory Reform
Personal/Corporate Income Tax Reform – VAT
Secondary Education Reform – Costs/Orientation to Labor
Market (More Vocational Training)
Post Secondary Reform – Cost Issues
Fixing the Trade Deficit
China’s Yuan, Japan’s Yen
General Currency Reform – Euro?
Recalibrate Trade Agreements and
World Trade Organization
Education/Infrastructure/R&D
Corporate/Personal Income – Value
Added Tax Swap
Energy Policy
Energy Policy
Crude Oil Supply
Domestic Production
Net Imports
Total
Gasoline Consumption
Diesel for Transportation
9.5 MBD
6.6
14.1
8.4
2.7
Health Care Policy
Price Not Provider Is the Issue
U.S. and Germany Both Have Generous
Government Payment Systems
U.S. Cost Per Capita - $9000; Germany - $6000
Germany Better Regulates Prices for Drugs,
Insurance Co, Admin Costs, Hospitals, etc.
U.S. Malpractice System
Lessons of Great Recession
Global Economy Is Fundamentally Altered (Destabilized)
by New Technologies, Global Finance, Government
Efforts to Insulate Citizens
Strong Firms Continue Growing by Winning Market
Share During Recessions and Periods of Slow Growth
Customer Focus is Critical to Success
Cost Control
Cutting Edge Technologies
Transparency: Accomplishments & Shortcomings
Profits Are Earned by Exploiting Windows in the
Marketplace: Mini-Monopolies
Issues for Businesses/Investors
Moderate/Slow GDP Growth—Recession Risk
Structural Changes in the Market Place
Continuing Challenges for U.S. Manufacturing
Autos – Fundamentally Altered Core Product
Tougher Environmental/Mileage Standards
Emphasis on Infrastructure, Skill-Specific Education
Strengthening Competitiveness
Customer Focus/Customer Relations
Altering Mix of Products and Markets – More ValueAdded Products
Innovation and New Products
Costs and Employment Policies