u.s. economy still on the mend - milken institute...u.s. economy still on the mend u.s. real gross...

U.S. economy still on the mend

U.S. real gross domestic product

Sources: Bureau of Economic Analysis, IHS Global Insight.

20132012201120102009200820072006200520042003200220012000

10

5

0

-5

-10

Compound annual growth rate

Source: IMF, April 2013.

Uneven global economic recovery

Annual real GDP growth projections (%)

Projections

2012 2013 2014

World 3.2 3.3 4.0

United States 2.2 1.9 3.0

Euro area -0.6 -0.3 1.1

Japan 2.0 1.6 1.4

Advanced economies 1.2 1.2 2.2

Brazil 0.9 3.0 4.0

China 7.8 8.0 8.2

India 4.0 5.7 6.2

Mexico 3.9 3.4 3.4

Russia 3.4 3.4 3.8

South Africa 2.5 2.8 3.0

Source: IMF WEO, April 2013.

Three-speed economic recovery

Projection after 2012

-6

-4

-2

0

2

4

6

8

10

1992 1996 2000 2004 2008 2012 2016

GDP growth, percent

Euro area

Emerging market and developing economies

U.S.

-8

-6

-4

-2

0

2

4

6

8

10

1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51

Months after the start of recession

Percent change in total nonfarm employment from the start of recession

2007-09

2001

1981-82

1973-75

1990-91

Weak U.S. jobs recovery

compared with previous recoveries

Sources: U.S. Bureau of Labor Statistics, Milken Institute.

Unemployment remains high in euro zone

2

4

6

8

10

12

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

US

Euro zone

Japan

UK

Unemployment rates (%), seasonal adjusted

Source: Datastream.

1312111009080706050403

4.0

2.0

0.0

-2.0

-4.0

-6.0

600

400

200

0

-200

-400

-600

-800

-1000

Percent change, year ago Difference from previous month, thousands

Payrolls rose by 168,000 per month in 2013…but faltered in March Employment, United States

Sources: Bureau of Labor Statistics, Moody’s Analytics.

% change,

(left)

Absolute

change, (right)

Unemployment rate falls to 7.6%...but Civilian unemployment rate


1210080604020098969492908886848280

11

10

9

8

7

6

5

4

3

Percent

Labor force participation rate lowest since 1979

United States

Source: U.S. Bureau of Labor Statistics.

1311090705030199979593918987858381797775737169

68

66

64

62

60

58

Percent

100500959085807570

20

18

16

14

12

10

30

25

20

15

10

5

Millions Percent

Manufacturing jobs start to grow again, but slowly Manufacturing employment, United States

Sources: Bureau of Labor Statistics, IHS Global Insight.

Manufacturing

employment,

(left)

Share of total

employment,

(right)

Purchasing manager’s index indicates slower growth ahead U.S. ISM diffusion indices

Sources: Institute for Supply Management, Moody’s Analytics.

Manufacturing

Non-

Manufacturing

201320122011201020092008200720062005

65

60

55

50

45

40

35

30

Index

Unit labor costs rise moderately United States


20122011201020092008200720062005200420032002

4

2

0

-2

-4

-6

Percent change, year ago

Productivity growth slows

Output per hour among non-farm businesses, United States


20122011201020092008200720062005200420032002

8

6

4

2

0

-2


Source: Gallup News Service.

Congressional job approval ratings remain low

5

15

25

35

45

55

65

75

85

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Percent

Source: Datastream.

Major equity indices

In local currency

20

40

60

80

100

120

Dow Jones

Nikkei 225

Euro Stoxx 50

Shanghai A Share

Previous DJIA peak = 100

20132012201120102009200820072006200520042003

6.0

4.0

2.0

0.0

-2.0

-4.0


Headline CPI inflation a non-issue, for now Overall vs. core Consumer Price Index


Overall

Less food

and energy

Lower oil prices restrain inflationary pressures West Texas Intermediate Crude

Sources: Commodity Research Bureau, IHS Global Insight.

20132012201120102009200820072006200520042003

160

140

120

100

80

60

40

20

0

US$ per barrel

Source: Energy Information Administration.

Natural gas and crude oil production

United States

40

45

50

55

60

65

70

4

5

6

7

8

9

10

80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12

Billion cubic feet per dayMillion barrels per day

Oil production(left)

Natural gas production(right)

Sources: National Federation of Independent Business, Moody’s Analytics.

U.S. small business mood less gloomy… but still suppressed Small Business Optimism Index

12100806040200

120

115

110

105

100

95

90

85

Index

12100806040200

20

15

10

5

0

-5

-10

-15

Percent

Sources: National Federation of Independent Business, Moody’s Analytics.

U.S. small businesses find less difficulty in accessing credit

Small Business Optimism Index

Net percent of firms reporting credit is

harder to get

Net percent of firms planning to add

inventory

Source: FDIC.

-100

-80

-60

-40

-20

0

20

40

60

80

100

Q4

06

Q1

07

Q2

07

Q3

07

Q4

07

Q1

08

Q2

08

Q3

08

Q4

08

Q1

09

Q2

09

Q3

09

Q4

09

Q1

10

Q2

10

Q3

10

Q4

10

Q1

11

Q2

11

Q3

11

Q4

11

Q1

12

Q2

12

Quarterly change, US$ billions

U.S. commercial and industrial lending

Consumer spending recovery has been restrained U.S. real personal consumption expenditures


20132012201120102009200820072006200520042003

6

4

2

0

-2

-4


Consumers show signs of caution

University of Michigan Consumer Sentiment

Sources: Thomson Reuters/University of Michigan, ECONODAY.

20132012201120102009200820072006200520042003

110

100

90

80

70

60

50

Index 1966Q1= 100

With more cautious consumers comes slower growth in sales

Total retail sales, excluding motor vehicle and parts dealers

Sources: U.S. Census Bureau. Moody’s Analytics.

20132012201120102009200820072006200520042003

10

5

0

-5

-10

-15


Auto sales are the brightest spot Light vehicle sales, United States


20132012201120102009200820072006

18

16

14

12

10

8

Millions, SAAR

U.S. households reduce financial debt obligations

Debt service payments as a percentage of disposable income

Sources: Federal Reserve Board, Moody’s Analytics.

12100806040200

12

10

8

6

4

Percent

Mortgage debt

Consumer debt

Source: Federal Reserve.

-10

-5

0

5

10

15

20

25

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Change, percent

U.S. consumer credit increases from 2009 low

Outstanding credit extended to household and personal expenditures

Source: Federal Reserve Bank of New York.

0

2

4

6

8

10

12

14

2004Q1 2006Q1 2008Q1 2010Q1 2012Q1

US$ trillions Mortgage HE Revolving Auto Loan

Credit Card Student Loan Other

The composition of the U.S. household debt:

are student loans a problem?


0

2

4

6

8

10

12

14

16

2004Q1 2006Q1 2008Q1 2010Q1 2012Q1

Percent

Credit card

Mortgage

Auto loan

Student loan

Most types of U.S. loan delinquencies decreased except

for student loans Percent of balance 90+ days delinquent

Sources: Federal Reserve, Milken Institute.

Note: Financial obligation ratio: An estimate of the ratio of revolving and non-revolving debt payments to disposable personal income.

14

15

16

17

18

19

20

1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010

U.S. household financial obligation ratio, percent1984-86

Rapid growthin mortgages,

credit carddebt, and auto loans

1991-92Nonrevolving

consumer debtcontracting;

mortgages growslowly

1994-96Credit card

debt and autoloans rising

rapidly

1999-2000All types ofdebt rising

briskly

2005-07Rapid growth

in all typesof debt

2008-09Housing andcredit market

meltdown

Historical trend of U.S. household financial obligation ratio Quarterly, 1980 to 2012

Housing recovery gains momentum

Single-family home sales

Source: National Association of Realtors.

200

500

800

1100

1400

3

4

5

6

7

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Millions Thousands

Existing (left axis)

New (right axis)

Source: National Association of Realtors.

Housing values appreciate above 10 percent

Median price of existing home sales, single family

-20

-10

0

10

20

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013



0

100

200

300

400

500

600

2004Q1 2006Q1 2008Q1 2010Q1 2012Q1

Thousands

U.S. home foreclosures decline from peak in 2009 Number of consumers with new foreclosures

Source: Bloomberg.

580

600

620

640

660

680

700

720

740

760

780

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012

Average FICO of purchase origination loans

Fannie/Freddie

FHA

Mortgage lending standards are still tight

Nondefense capital goods (excluding aircraft) recovering

Value of U.S. manufacturers’ new orders

Sources: U.S. Census Bureau, IHS Global Insight.

20132012201120102009200820072006200520042003

30

20

10

0

-10

-20

-30

-40


Spending on ICT equipment and software an important driver

Real U.S. private domestic investment and pers. cons. expend.


201320122011201020092008200720062005200420032002

20

15

10

5

0

-5

-10

-15


U.S. corporate profits at record levels Profits before tax (without IVA and CCadj.)

Sources: Federal Reserve Board, IHS Global Insight.

20122011201020092008200720062005200420032002

2.5

2.0

1.5

1.0

0.5

US$ trillions

Source: Citi.

0 2 4 6 8 10 12 14

Municipal High-Yield Bonds

US High-Yield Corporate

US Corporate Investment Grade

Municipal Bonds

US Treasuries

percent

US fixed income, comparative year-to-date returns (as of Q2 2012)

Investors sought yields in high yield and municipal bonds

in 2012

Record low ten-year treasury yields

Source: Bloomberg.

0

2

4

6

8

10

12

14

16

18

1964 1968 1972 1976 1980 1984 1988 1992 1996 2000 2004 2008 2012

Average since 1964: 6.7 percent

Ten-year Treasuryyield, percent

Sources: Federal Reserve, Bloomberg, Milken Institute.

Has the Fed kept rates too low for too long?

-4

-2

0

2

4

6

2001 2003 2005 2007 2009 2011 2013

Percent

Federal funds target rate

Taylor Rule estimate

Sources: Federal Reserve, U.S. Bureau of Labor Statistics.

Real treasury yields fell in negative territory

-6

-4

-2

0

2

4

6

8

10

1957 1961 1965 1969 1973 1977 1981 1985 1989 1993 1997 2001 2005 2009 2013

October 30, 2012:

-0.41%

U.S. real 10-year treasury yield, percent

The Fed has engaged in quantitative easing repeatedly

Sources: Federal Reserve, Milken Institute.

0

1

0.0

1.0

2.0

3.0

4.0

2005 2006 2007 2008 2009 2010 2011 2012 2013

11/2008:

QE1 announced

11/2010:

QE2 announced

9/2012:

QE3 announced

03/2009:

QE1 expanded

09/2011:

"Operation Twist"

Total assets of Federal Reserve banks (U$ trillions)

Note: All other include repurchase agreements, gold and cash reserves and all other assets

Source: Federal Reserve.

Federal Reserve’s balance sheet asset compositions

0

500

1,000

1,500

2,000

2,500

3,000

3,500

US$ billions

Federal agency debt securities

Loans and other credit extensions

All other

U.S. Treasury securities

Mortgage-backed securities

Source: Bloomberg.

Expansion of balance sheets of major central banks

0

5

10

15

20

25

30

35

Q1 2006 Q1 2007 Q1 2008 Q1 2009 Q1 2010 Q1 2011 Q1 2012

BoJ

ECB

BoE

Fed

Central bank total assets (% of GDP)

Source: Financial Times

-6

-4

-2

0

2

4

6

8

10

12

2009 2010 2011 2012

Corporate bonds, net new cash flow (US$ billions)

Capital flowed into corporate bonds

Source: SIFMA, January 2013.

0.0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US$ trillions

Investment

grade

High yield

U.S. corporate bond issuance

Source: Datastream.

0

100

200

300

400

500

600

700

Jan 2006 Jan 2007 Jan 2008 Jan 2009 Jan 2010 Jan 2011 Jan 2012 Jan 2013

Basis points

BBB rated

A rated

U.S. corporate bond spreads stayed stable 7-year corporate bonds (spread over U.S. Treasury)

Source: Citi.

0

100

200

300

400

500

600

700

1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011

Broad Investment Grade Credit Index

Leveraged

buy-out

boom

Russian

crisis

Tech bubble

Subprime

credit crisis

European

debt

crisis

Average

U.S. corporate bond spreads reach pre-crisis levels

Note: BOFA MLUS High Yield Master II Index

Source: DataStream.

U.S. high-yield corporate bond spread

Over 10-year U.S. Treasury

0

400

800

1,200

1,600

2,000

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Basis points

Long-term average

Note: BOFA MLUS High Yield Master II Index

Source: DataStream.

Yields on U.S. high-yield bond hit record low

4

8

12

16

20

24

1986 1989 1992 1995 1998 2001 2004 2007 2010 2013

Yield, %

Average, 1986-2013:10.9%

Source: Congressional Budget Office.

U.S. budget deficits/surpluses

CBO budget outlook

-12

-10

-8

-6

-4

-2

0

2

4

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Percent of GDP

CBO’s baseline projection


U.S. government spending and revenues

Historical perspective

Revenues Outlays

10

15

20

25

30

1970 1975 1980 1985 1990 1995 2000 2005 2010

Percent of GDP


Publicly held debt as share of GDP

Congressional Budget Office outlook

Actual Projected

20

30

40

50

60

70

80

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Percent of GDP

Ownership of publicly held U.S. debt

Source: U.S. Treasury Department.

United States52.4%

China11.0%

Japan10.2%

Oil exporters2.5%

Brazil2.1%

Other foreign21.8%

Total federal debt held by the public = US$10.7 trillion (February 2012)

Government debt-to-GDP ratios still rising

2011 vs. 2013 (projection)

Source: OECD.

0

20

40

60

80

100

120

140

160

180

200

Greece Italy Ireland Portugal France U.S. U.K. Germany Spain

2011 2013 (Projected)

Gross debt, percent of GDP

20132012201120102009200820072006200520042003

30

20

10

0

-10

-20

-30

-40


Export growth slows

U.S. international trade in goods and services


Imports

Exports

20122011201020092008200720062005200420032002

40

20

0

-20

-40


U.S. exports to BRICs, Japan and EU Merchandise exports

BRICs

EU


Japan

U.S. trade in goods and services

Merchandise exports by region, 2012

Source: U.S. Census Bureau.

Country Value (US$ bil.) Share of U.S. (%)

Canada 292.4 18.9%

EU 265.1 17.1%

Mexico 216.3 14.0%

South America 127.8 8.3%

China 110.6 7.1%

Japan 70.0 4.5%

United Kingdom 54.8 3.5%

Germany 48.8 3.2%

South Korea 42.3 2.7%

11100908070605040302010099989796959493929190

70

60

50

40

30

20

10

0

Percent of GDP

China’s attractiveness for foreign direct investment wanes FDI relative to size of economy

U.K.

China*

U.S.

Germany

Sources: UNCTAD World Investment Report, MAPI, Milken Institute. * Includes Hong Kong

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

U.S. Germany United Kingdom Japan China

The U.S. is competitive but not dominant in total R&D investment

Sources: OECD, MAPI.

U.S.

Germany

U.K.

China

Japan

Gross expenditures on R&D as a percent of GDP

R&D spending gap narrows between U.S. and emerging countries

Sources: OECD, IMF, MAPI.

0

50

100

150

200

250

300

350

400

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

United States China China Plus Other Key Emerging Economies**

Billions of PPP*-Adjusted U.S. Dollars

U.S.

BRICs + S. Korea

China

80

90

100

110

OECDAverage

U.S. Canada Japan Germany U.K. CzechRepublic

Poland Mexico

Science literacy

Math literacy

Average science and math scores of 15-year-old students 2009

Sources: U.S. National Center for Education Statistics, MAPI.

Scores (scaled to OECD average)

U.S. lags significantly in graduating engineers 2008 (or most recent year)

Sources: National Science Foundation, MAPI.

Percent of first university degrees in engineering

0

5

10

15

20

25

30

35

U.S. U.K. Canada Germany Japan Korea China

7

17

20

21

29

48

80

0 20 40 60 80 100

Customer service (including call centers)

Unskilled production

Management and administration (HR, IT, finance, executives)

Sales and marketing

Scientists and design engineers

Production support (industrial engineers, manufacturing engineers, planners, etc.)

Skilled production (machinists, operators, craft workers, distributors, technicians)

Shortage of skilled labor supply

Percent of manufacturers anticipate the greatest hiring

challenge during the next 3-5 years, by workforce segment, 2011

Percent Note: Based on a survey of 1123 manufacturers.

Sources: Deloitte, Manufacturing Institute.

Source: Georgetown University: Center on Education and the Workforce.

STEM majors tend to earn more

Average U.S. annual earnings by occupations and degree (2009)

All majors STEM majors

Source: NSF S&E Indicators 2012.

S&E degrees have increased but not as a percent of all degrees

U.S. science and engineering degrees (2009)

S&E degrees (R)

S&E Degrees as a percentage

of all degrees (L)

Sources: Department of Homeland Security, Brookings Institution, The Economist, Bureau of Economic Analysis.

Number of employment-based green cards idle with H1B cap

Thousands

-4

-3

-2

-1

0

1

2

3

4

0

50

100

150

200

250

300

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Th

ou

san

ds

GDP (right)

H1B cap (left)

Employment-based green cards (left)

Percent change, previous year

Equities rally in 2013 Equity indices in major countries

Note: U.S. (S&P 500), Eurozone (German DAX), UK (FTSE 100), Japan (Topix).

Source: Bloomberg.

70

80

90

100

110

120

130

140

150 U.S.

Eurozone

Japan

U.K.

Index (January 1, 2010 = 100)

Flight to safety

Decline in the government bond yields in major advanced countries

Source: Bloomberg.

0

1

2

3

4

5

6

2006 2007 2008 2009 2010 2011 2012 2013

Germany U.K. U.S.

Japan

10-year government bond yield (%)

Europe enters a double dip

Source: Oxford Economics.

Germany

Italy

France

Europe: Industrial Production

Exports to the euro zone

% of total exports, 2012

Country Share (%)

U.K. 47.2

Central and Eastern Europe 44.5

India 12.8

U.S. 12.6

China 11.9

Developing Asia 11.2

Sources: Datastream, IMF.

0

5

10

15

20

25

30

35

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

United States China Germany Japan

China moving up in global manufacturing

Sources: United Nations, MAPI.

Percent of value-added in global manufacturing

U.S.

China

Germany

Japan

Corporate taxes falling in most countries except in U.S.

Sources: OECD, MAPI.

Statutory

(1997)

Statutory

(2012)

Effective

(2011)

United States 40.0 40.0 34.6

Japan 57.1 38.0 29.5

France 36.6 33.3 34.1

Mexico 34.0 30.0 17.5

Germany 57.4 29.4 23.8

Canada 44.6 28.0 20.5

China 33.0 25.0 16.6

Korea 30.8 24.2 29.5

United Kingdom 31.0 24.0 27.9

Taiwan 25.0 17.0 10.9

Growth returns over the next decade

0 1 2 3 4 5 6 7

Eurozone

US

Latin America

Middle East &

North Africa

Sub Saharan

Africa

Emerging Asia

Economic growth prospects: 2011-2021 Annual growth, US$ basis

Source : Oxford Economics.

Needed infrastructure investment

Sources: "Failure to Act: The Impact of Current Infrastructure Investment on Amerca's Economic Future," ASCE, Milken Institute.

Source: The Saint Consulting Group.

Public support and opposition for energy infrastructure

by project type, United States

0%

10%

20%

30%

40%

50%

60%

70%

80%

Nuclear Power Plants

Oil Drilling Natural Gas Drilling Windfarm

Oppose

Support

Source: McKinsey (U.S. figures)

Changing View of Companies

The ‘Trust Gap’ is Widening

Percent that agree the overall contribution of large corporations is ‘generally’ or ‘somewhat’ positive

75% 40% Executives Individuals

Attributes of the Customer: Several Tectonic Shifts

#1: Changing Perception of Large Institutions

Trusting

Loyal

Dependent

Cynical

Self-Maximizing

Resourceful


#2: Changing View of the Firm’s ‘Purpose’

Shareholder Value

Self-Driven

Transactions

Societal Value

Mission-Driven

Relationships


#3: Changing Relationship with the Firm

Mass Media

Top Down

Customized, Local

Bottom Up

Personal Shared

Aligning Our Company With These Trends

Where we Play and How we Win Connects Us To Our Customers

• Unserved / underserved areas

• Community Focus

• Local Engagement


Our Broadband Product Plays a Critical Role in Driving our Local Communities

Greater broadband availability / penetration: + Job Creation (+$10bn = +180,000 jobs per year)

+ Employment (+10% penetration = +2.0-3.0% employment)

+ Productivity (+10% penetration = +1.3% productivity)

GDP (+10% penetration = +0.9-1.5% GDP)

Even higher in low population density areas Sources: ITU; Public Policy Institute of California (PPIC); Broadband Commission; Atkinson & Schultz


More Investment Is Required to Drive the Full Potential of Broadband

• Adoption (70%) lags availability (90%) – Continue to grow availability and speeds and educate the market

• $2Bn in to our network since 2009

• Fiscal Uncertainty Delayed Investments – Downsizing and cost cutting – Reduced CapEx by 20% YOY

Sources: ITU; Atkinson & Schultz

Sources: The Pennsylvania Marcellus Natural Gas Industry: Status, Economic Impacts and Future Potential

The Pennsylvania State University

College of Earth and Mineral Sciences

Department of Energy and Mineral Engineering

(July 20, 2011)

New Industry = New Prosperity

Fracking’s Impact in Frontier Pa.

In millions of 2010 dollars Year Value Added State & Local Taxes Employment 2009 $4,703 $573 60,168 2010 $11,161 $1,085 139,889 Forecast 2015 $17,195 $1,677 215,979 2020 $20,246 $2,003 256,420

Broadband Expansion

Fracking in Northern Tier of Pa. = Positive Change for Frontier

No Fracking in Southern Tier = More Negative Picture for State

Cyber Security

Danger, Will Robinson!

Attackers typically reside on systems 240 days before

detection

70% of all threats are through Web applications

Valid credentials are used to break in

Three industries are prime targets: telecom, aerospace &

defense, computer hardware & software

Cyber security is a bottom line issue; compromised assets

cannot drive economic growth Sources: Business Roundtable, Mandiant Mtrends, Mykonos

u.s. economy still on the mend - milken institute...u.s. economy still on the mend u.s. real gross...

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