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What Is Next for US Economy presented by Rodney Johnson Dent Research Boom & Bust Survive and Prosper Real Personal Consumption Expenditures Billions of Chained 2005 Dollars 1995-2012 Data Source: Bureau of Economic Analysis, 2012 Missing Growth Spending By Age Changes in Spending at each Age & Stage of Life 46-50 22-30 31-42 Family, 50+ 18-22 Young Young College Empty Single Married Family Kids Nesters 60+ Retired Immigration Adjusted Birth Index Immigration Adjusted Births 5,500,000 5,000,000 4,500,000 4,000,000 3,500,000 3,000,000 2,500,000 1930 1950 1970 1990 2010 Simple Four Season Economic Cycle Eighty Years in Modern Times Consumer Prices/ Inflation Generation Spending Boom Stocks/ Economy Spring 1940 1950 Source: HS Dent 1960 Summer 1970 1980 Fall 1990 2000 Winter 2010 2020 2030 Daily Consumer Spending 2008-2012 Data Source: Gallup.com, 2012 Not Soup Lines Like This Instead, In the Mail Americans on Disability Tough Road Ahead for Jobs Index 100= 2000 Fall in Real Median Household Income Since 2000 Data Source: U.S. Census Bureau, 2012 % of Re-Employed That Lost Pay Drop in Pay for Re-Employed Amount of Pay Reduction Data Source: “Out of Work and Losing Hope: The Misery and Bleak Expectations of American Workers,” Cliff Zukin, Carl Van Horn, Charley Stone. 9/2011 % of Re-Employed Drop in Pay for Re-Employed by Age Amount of Pay Reduction Data Source: “Out of Work and Losing Hope: The Misery and Bleak Expectations of American Workers,” Cliff Zukin, Carl Van Horn, Charley Stone. 9/2011 Comparing Jobs Lost to Jobs Gained Use a matrix of three levels of pay to compare jobs lost to those gained (each a third of 2008 employment) Lower wage - $7.69/hr. to $13.83/hr ($16,049 to $28,863) Median wage - $13.84/hr to $21.13/hr ($28,884 to $44,098) Upper wage - $21.14/hr to $54.55/hr ($44,119 to $113,845) Comparing Jobs Lost to Jobs Gained Lower-wage occupations were 21 percent of recession losses, but 58 percent of recovery growth. Mid-wage occupations were 60 percent of recession losses, but only 22 percent of recovery growth. Higher-wage occupations were 19 percent of recession job losses, and 20 percent of recovery growth. Comparing Jobs Lost to Jobs Gained Comparing Jobs Lost to Jobs Gained Comparing Jobs Lost to Jobs Gained Comparing Jobs Lost to Jobs Gained Comparing Jobs Lost to Jobs Gained ` ` Home Purchase Applications Index 100= 1990 1990-2013 Data Source: Bloomberg, 2013 New Home Completions 1990-2012 Data Source: St. Louis Federal Reserve, 2013 New Home Sales Seasonally Adjusted In Thousands 1963 – September 2012 Data Source: Calculated Risk, US Census Bureau, 2012 U.S. Spending on Construction Billions 1990-2012 Data Source: St. Louis Federal Reserve, 2013 Construction as Percent of GDP 1990-2012 Data Source: St. Louis Federal Reserve, 2013 Total Construction Workers 1990-2013 Data Source: St. Louis Federal Reserve, 2013 Construction Workers, Share of All Employees, 1990-2013 Data Source: St. Louis Federal Reserve, 2013 The Face of the Recovery Share of Job Gains and Losses Since June 2009 +3.8 Million +781 Thousand -479 Thousand -842 Thousand Data Source: Bureau of Labor Statistics, 2012 Percent of Part Time Workers 1968-2012 Data Source: Bureau of Labor Statistics, 2012 The Blunt Instruments of Government US Government deficit spending, targeted stimulus Federal Reserve interest rates, bond purchases, printing dollars The Fed Is Here to Help! Federal Reserve Balance Sheet 2000-2013 Data Source: St. Louis Federal Reserve, 2013 Outcomes – Desired vs.. Actual Wanted – inflation expectations, increased borrowing and spending, falling unemployment, higher wages, asset inflation (re-inflation) Got – split prices – deflation in services and real estate, inflation in commodities – local vs.. global Who Gets Helped, Who Gets Hurt? QE favors real assets, hurts dollars, so the question becomes, what is more important to your household, real dollars (dividends, interest, paycheck) or assets such as stocks, metals, commodities? Assets Income Who Gets Helped, Who Gets Hurt? Wealthy households tend to hold assets, poor households tend to rely on income. While higher food/energy costs might annoy rich households, the increase in their assets more than offsets the price difference. Not so for the poor. Affluent households own more hard assets Modest households rely on earned income Percent of After-Tax Income Spent on Food and Energy by Income Source: U.S. Bureau of Labor Statistics, CEX, 2009 Inflation since 2000 Through September 2012 Core CPI Categories CPI Data Source: Bureau of Labor Statistics, HS Dent, 2012 Dollars Spent on Essential and Non-Essentials vs.. Inflation (2000- Sept. 2012) on Those Items Young Families Peak Spending Data Source: Bureau of Labor Statistics, HS Dent, Bloomberg; 2012 Retirees Growth of Consumer Credit Index 100= 2006 2006-2011 Data Source: Federal Reserve Flow of Funds Report, 2012 The Term for Where We Are: Financial Repression When interest rates are held artificially low given the rate of inflation, resulting in savers being taxed/punished in order to provide borrowers greater incentives/benefits Normal Yield Curve US Treasury Yield Curve 5/1/1995 (normal market) www.treasurydirect.gov 8.00% 7.00% 6.00% 5.00% Real Rate of Return 4.00% 3.00% 2.00% CPI 2.8% 1.00% 0.00% 1 mo 3 mo 6 mo 1 yr 2 yr 3 yr 5 yr 7 yr 10 yr 20 yr 30 yr Yield Curve Manipulated While US Economy Not Shrinking, Growth Is Anemic at Best In Billions U.S. Federal Government Spending vs. Receipts, 1980-2011 Data Source: Bureau of Economic Analysis, 2012 Distribution of Federal Spending Data Source: Office of Management and Budget, 2012 Recent Tax Increases and Spending Cuts Payroll Tax $126 billion Unemployment 12 ACA – personal 24 Bush-era Upper 56 Sequestered Cuts 45 Total $263 billion in Tax Cuts / Spending Reductions at Federal Level State Budget Gaps Source: Center on Budget and Policy Priorities, 2012 How States Closed Budget Gaps What A Major Downturn Could Bring • Tremendous reduction in private debt outstanding – another $5 trillion at least • Commensurate reduction in mortgage debt, freedom of workers to move • Continued reduction in home values so that next generation can afford them • Wage reduction to make US more competitive with other labor markets What A Major Downturn Could Bring • Actually, a lot has already occurred…what an economic downturn HAS BROUGHT… – Debt reduction, lower home values, falling wages What we are missing is falling prices outside of homes, thanks to the Fed and other central banks. We have not given commodity prices the opportunity to reset with other areas of life. What Lies Ahead Anemic US growth, Euro crises, deleveraging, and more Fed action The US as well as other economies is facing a very difficult future, but stocks are near all time highs. Are they worth it? Does it feel like we should be at historic highs, given stubborn unemployment, unbalanced books, falling real wages, and Fed intervention? Be careful, and be cautious. Expect tough times ahead. What About the Next Generation? Falling Pay for College Graduates, 2000-2011 Data Source: U.S. Census Bureau, 2013 Borrowers and Balances Young People with Student Debt Share of Borrowers Late Effect of Recession on Household Composition, 1989-2012 Source: US Census Bureau, 2012