professor emeritus of economics october 24, 2015 the new normal october, 2015
TRANSCRIPT
![Page 1: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/1.jpg)
GERALD J. SWANSON, PH.D.Professor Emeritus of Economics
October 24, 2015
The New Normal
October, 2015
![Page 2: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/2.jpg)
GOOD NEWS Relative to the rest of the world’s
economies we are in good shape
BAD NEWS Our new normal growth rate is
significantly below the old normal growth rate
October, 2015
![Page 3: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/3.jpg)
LABOR MARKETOctober 2009 unemployment rate = 10.2 %
September 2014 unemployment rate = 5.9%
September 2015 unemployment rate = 5.1%
Number employed back to high hit in Jan 2008
148.8 millionNumber unemployed
Oct. 2009 =15.7 millionSept. 2014 = 9.3 millionSept. 2015 = 7.9 million
October, 2015
![Page 4: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/4.jpg)
September 2015 UNEMPLOYMENT BY LEVEL OF EDUCATION
Less than H.S. 7.9 % H.S. no college 5.2% Some college 4.3% Bachelor’s degree 2.5% or higher
Cognitive skills win in today’s labor market
STAY IN SCHOOL! October, 2015
![Page 5: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/5.jpg)
LABOR MARKET Unemployment rate – including
marginally attached workers and part-time workers
SEPT 2000 7.2%Sept 2014 11.8%Sept 2015 10.0%
October, 2015
![Page 6: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/6.jpg)
LABOR MARKETNEW NORMAL
Participation rate = % population over age of 16 in labor force
September 2000 67.4%
September 2014 62.7%
September 2015 62.4%
Between Aug 2015 & Sept. 20015
350,000 worker left the labor force
October, 2015
![Page 7: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/7.jpg)
LABOR MARKETNEW NORMAL
Employment rate =% of population over the age of 16
employed
September 2000 67.1% August 2014 59.4% September 2015 59.2%
Between Aug 2015 & Sept 2015
236,000 fewer people working
October, 2015
![Page 8: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/8.jpg)
EDUCATION MATTERS
September 2015 Population 25 years and over
Participation Rate Employment Rate
Less than H.S. 44.8% 41.3%
H.S. no college 56.9%54.0%
Some college 66.0%63.1%
Bachelor’s Degree 74.4%72.6%
or higher
NEW NORMAL STRUCTURAL UNEMPLOYMENT
October, 2015
![Page 9: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/9.jpg)
UNEVEN RECOVERY Selected States Unemployment – Aug.
2015
Top unemployment Lowest unemployment
1. West Virginia 7.6% 1.Nebraska 2.8%
2. Nevada 6.8% 2. North Dakota 2.9%
3. D C 6.8% 3. Hawaii 3.6%
4. New Mexico 6.7% 4. South Dakota 3.7%
5. Alaska 6.6% 5. Utah 3.7%
6. Arizona 6.3% 6. Minnesota 4.0%
7. Mississippi 6.3% 7. Texas 4.1%
8. Alabama 6.2% 8. Montana 4.1%
9. California 6.1% 9. Colorado 4.2%
October, 2015
![Page 10: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/10.jpg)
LABOR MARKET Facts 1. Jobs requiring middling skills have
declined sharply.2. Employment in low skill jobs have increased. (service sector)3. Employment in high skilled occupations
have increased significantly.
5.8 million job openings in September
October, 2015
![Page 11: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/11.jpg)
LABOR PAINS
NEW NORMAL
Labor’s share of national income is declining
1947-2001 70% 2010-2014 62%
October, 2015
![Page 12: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/12.jpg)
LABOR PAINSWhy stagnant wages for many?1. Globalization of markets2. Substitution of capital for labor3. Weakening of workers’ bargaining
power4. Lower price of technology and
investment5. Opportunities to shift capital overseas 6. Massive increase in world supply of
labor* since 1980s
*Think – China, India, former USSR,
Viet Nam, Thailand, Cambodia
October, 2015
![Page 13: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/13.jpg)
GDP GROWTH GDP 2013 GDP 2014 GDP 2015 Q1 1.9% Q1 -0.9% Q1 0.6% Q2 1.1% Q2 4.6% Q2 3.7% Q3 3.0% Q3 4.3% Q3 1.0%*
Q4 3.8% Q4 2.1%
GDP GROWTH FOR 2014 = 2.4%GDP GROWTH FOR 2015 = 2.5%** estimate
October, 2015
![Page 14: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/14.jpg)
GROWTHWhy do we have slow growth?Multiple explanations
1. Hangover from financial crisis2. Foreign economic problems3. Failure of government to spend enough4. Taxes are too high/too many
regulations5. We have an aging population/shrinking
labor force
October, 2015
![Page 15: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/15.jpg)
GROWTH Countries that use the Euro = Euro zone
Unemployment in the Euro zone is 11%
Growth rate in the Euro zone is 0.9%
If the Euro zone was a country it would bethe second largest economy in the
world –22% of world GDP
October, 2015
![Page 16: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/16.jpg)
GROWTHGROUP OF SEVEN – SLOW TO NO
GROWTH GDP GROWTH 2015 est.
BRITAIN 2.7%U.S. 2.5%GERMANY 2.1%FRANCE 1.1%CANADA 1.0%JAPAN 0.8%ITALY 0.7%
October, 2015
![Page 17: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/17.jpg)
GROWTH
BRICS Nations Drag on global economy World GDP Growth
GDP Rank 2014 2015 est.
8 BRAZIL 0.1% -1.5% 14 RUSSIA 0.6% -
3.7% 7 INDIA 7.2% 7.0% 2 CHINA 7.3% 6.9% 34 SOUTH AFRICA 1.4% -
1.3%
42% OF WORLD POPULATION 20% OF WORLD GDP
October, 2015
![Page 18: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/18.jpg)
CHINA SYNDROMENew normalAs China goes, so goes the global
economyFacts about China1. Population 1.4 billion2. Second largest economy in the world (maybe
largest)
3. Accounts for 19% of world GDP4. Largest exporting nation in the world5. Second largest importing nation in the world6. Average growth rate 1989-2015 10.9%7. China’s current growth rate at 25yr low –
6.9%*
*estimate
October, 2015
![Page 19: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/19.jpg)
CHINA SYNDROME What countries will be most
affected by China’s slowdown? % of China’s imports(2014)
1. Japan 18.0% 2. South Korea 14.0% 3. United Sates 11.0% 4. Germany 8.3% 5. Australia 6.6% 6. Brazil 3.8%
October, 2015
![Page 20: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/20.jpg)
INFLATION RATE
SEPTEMBER 2015
CURRENT ANNUAL INFLATION RATE =
0.0%
CURRENT ANNUAL CORE INFLATION RATE =
1.9% (omits food and energy prices)
October, 2015
![Page 21: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/21.jpg)
AGGREGATE DEMAND
C+I+G+XCONSUMER SPENDINGINVESTMENT SPENDINGGOVERNMENT SPENDINGNET EXPORTS – EXPORTS-
IMPORTS October, 2015
![Page 22: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/22.jpg)
CONSUMER SPENDING
PENT UP DEMAND – RECORD CAR & TRUCK SALES
SLOWLY STARTING TO SPEND GAS SAVINGS
NET WORTH OF HOUSEHOLDS AT RECORD LEVEL
CONFIDENCE UP & DOWN
REAL WAGES STILL STAGNANT FOR MANYOctober, 2015
![Page 23: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/23.jpg)
INVESTMENT SPENDINGHOUSING MARKET IS STABILIZING
CONSTRUCTION IS PICKING UP
BUSINESSES HAVE LOTS OF CASH TO SPEND
$2 TRILLION IN CASH ABROAD
BUSINESS CONFIDENCE IS STAGNANT
UNCERTAINTY IS A MAJOR PROBLEM
October, 2015
![Page 24: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/24.jpg)
EXPORTS
EXPORTS ARE SLOWING DOWN
Strong dollarSlow global growth EXPORTSACCOUNT FOR 14% OF OUR GDP October, 2015
![Page 25: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/25.jpg)
FOREIGN TRADETrade deficit growing - drag on our
economy
U.S. Trade Deficit (exports-imports) billions
2013 -$478.394b2014 -$508.324b2015 Jan. – Aug -$345.450b
Why? Strong dollar – more imports – fewer
exportsWeak global economy – fewer exports
October, 2015
![Page 26: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/26.jpg)
SEQUESTRATION
ANNUAL BUDGET DEFICIT2009 $1.4 TRILLION2010 $1.3 TRILLION2011 $1.3 TRILLION2012 $1.1 TRILLION2013 $ 680 BILLION 2014 $ 483 BILLION
2015 $435 BILLION
TOTAL DEBT = $18.4 TRILLION
October, 2015
![Page 27: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/27.jpg)
FISCAL POLICY
GOOD NEWSDEFICIT AS A PERCENT OF GDP IS
SHRINKING
DECEMBER 2009 10.1% GDPDECEMBER 2010 9.0% GDPDECEMBER 2011 8.7% GDPDECEMBER 2012 7.0% GDPDECEMBER 2013 4.1% GDP DECEMBER 2014 2.8% GDP DECEMBER 2015 2.4% GDP
October, 2015
![Page 28: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/28.jpg)
FISCAL POLICYFACTFiscal 2015
Tax revenues are up 8.0%
Government spending up 5.2%
October, 2015
![Page 29: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/29.jpg)
FEDERAL OUTLAYS AS PERCENTAGE OF GDP
SEQUESTRATION Year Share of GDP Current dollars (trillions)
2009 24.4% $3.52 2010 23.4% 3.46 2011 23.4% 3.60 2012 22.0% 3.54 2013 20.8% 3.45 2014 20.3% 3.51 2015 20.6%* 3.68**Estimate
October, 2015
![Page 30: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/30.jpg)
FISCAL POLICY
Total National Debt2007 $ 8.506 trillion2008 $10.024 trillion2009 $11.909 trillion2010 $13.561 trillion 2011 $14.790 trillion2012 $16.066 trillion2013 $16.738 trillion2014 $17.824 trillion2015 $18.397 trillion
2007 - 2015 $9.891 trillion increase October, 2015
![Page 31: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/31.jpg)
INTEREST ON THE NATIONAL DEBT
YR Avg. interest rate INTEREST ON DEBT
2015 2.074% $381.6 billion
2014 2.013% 430.8 billion
2013 1.975% 415.7 billion
2012 2.365% 359.8 billion
2002 4.373% $332.5 billion
2001 5.283% 359.5 billion
2000 6.665%* 361.9 billion
*This used to be the average rate
October, 2015
![Page 32: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/32.jpg)
FISCAL POLICY 2000 Avg. interest on debt = 6.665% 2015 national debt = $18.397 trillion
6.665% X $18,397 trillion = $1.226 trillion
Actual interest paid 2015 =$381.6 billion
$844.4 billion in additional interest expense if average rate returned to 2000 level.
October, 2015
![Page 33: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/33.jpg)
UNCONVENTIONAL MONETARY POLICY
Interest rates have been at zero since December 2008 – Approx. 7 years
The last time the Federal Reserve Bank raised interest rates was
July 2006, more than 9 years ago
October, 2015
![Page 34: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/34.jpg)
TRAPPED AT ZEROWhy is the Federal Reserve Bank reluctant
to raise interest rates?
1. Our economy is too weak. 2. Dollar is already too strong. 3. Inflation is too low. 4. Increased cost of servicing
national debt. 5. The International Monetary
Fund and the European Central Bank
say “don’t do it now!” 6. FRB can’t find the Phillips
Curve.
I
October, 2015
![Page 35: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/35.jpg)
UNCONVENTIONAL MONETARY POLICY
The Federal Reserve stopped quantitative easing in October 2014.
The European Central Bank started quantitative easing in
January 2015.October, 2015
![Page 36: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/36.jpg)
MONETARY POLICYBANKS CURRENTLY STILL HAVE LOTS
OF EXCESS RESERVES $2.5 TRILLION
BANKS STILL HAVE HIGH LENDING STANDARDS
NOT OVERLY ANXIOUS TO MAKE LONG-TERM LOANS AT LOW INTEREST RATES
October, 2015
![Page 37: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/37.jpg)
HEADWINDS FOR 20151. SLOW GROWTH IN EUROPE2. SLOW GROWTH IN CHINA/ASIA3. U.S. STRUCTURAL UNEMPLOYMENT PROBLEM4. ISIS IS STILL ALIVE AND WELL5. FRACTIOUS AND DYSFUNCTIONAL POLITICS6. GROWING DIVIDE IN OUR INCOME DISTRIBUTION7. MOTHER NATURE
NEW NORMAL OUR FUTURE GROWTH NOW DEPENDS GREATLY
ON THE WORLD ECONOMY.
October, 2015
![Page 38: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/38.jpg)
Reality Easy money is really only a lubricant
for growth. It can’t be the underlying driver of
growth.
Central Banks are pushing on a string
The world is currently awash with cash
–yet world growth is subpar.October, 2015
![Page 39: Professor Emeritus of Economics October 24, 2015 The New Normal October, 2015](https://reader035.vdocuments.net/reader035/viewer/2022062804/5697bf9e1a28abf838c94423/html5/thumbnails/39.jpg)
CONCLUSION REASONS TO BE SLIGHTLY
OPTIMISTIC
1. HOUSEHOLD NET WORTH AT RECORD LEVEL
2. INFLATION NON-EXISTANT3. WE ARE GROWING FASTER THAN MOST
OF OUR COMETITORS4. GAS IS CHEAP AND WILL REMAIN
CHEAP THE REST OF THE YEAR5. OUR GLASS IS MORE THAN HALF FULL
October, 2015