Transcript NE Mortgage Bankers Association

The Economy of the Next Decade:
A New Normal for Rural & Urban America?
 Day with the Superintendent
 Ernie Goss Ph.D. Professor of Economics, Creighton
University, MacAllister Chairholder
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www.twitter.com/erniegoss
Websites:
www.ernestgoss.com www.outlook-economic.com
Podcast: Itunes http://coba3.creighton.edu/econoutlook/gossrss3.xml
Debt/Savings
Value of $,
Inflation,
Interest Rates &
Exports
Uncertainty
U.S., and Iowa Job Growth 2000-10
3.0%
1.0%
10
bFe
01
nJu
00
nJu
-1.0%
-3.0%
-5.0%
-7.0%
-9.0%
Iowa
US
D.C. Uncertainties
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Health care reform & taxes to pay for program
Cap & Trade & taxes to pay for program
Making home affordable program
Cash for “clunkers, appliances, caulking, etc.”
Another stimulus program?
What is your bra size? 34B & above?
End of 2001 & 2003 tax cuts
2 stimulus packages, TARP, auto bailouts, AIG,
etc. = $2,000 billion - $3,000 billion
Trade & Value of Dollar
U.S. & Iowa Export Growth, 1999-2009
250%
Total
Food
227.0%
200%
150%
121.0%
104%
100%
52%
50%
0%
U.S.
Iowa
Chinese manipulation of dollar
 By buying $1.0 Trillion+ in U.S. Treasury
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bonds, Chinese have pushed dollar up in value
Has meant lower U.S. inflation
Has meant lower U.S. short & long term
interest rates
Forcing the Chinese to float their currency
would mean higher U.S. inflation & interest
rate.
It would mean a significant boost to farm
income (12%+).
Bullish on Agriculture/food, Energy & Stock Market:
Long term
 Fast growth for emerging economies (China,
India): Food & energy demand income
elastic (e.g. income up 8%, food demand up
12%)
 Cheap value of dollar (makes U.S. food &
energy more competitive abroad): U.S.
trade deficit, budget deficit, higher
inflation.
 Biofuels & alternative fuel production: wind
farms, ethanol, solar.
Public Debt
U.S., Greece & Great Britain Public Debt, 2010
$14,000
120.0%
$12,600
113.0%
$12,000
100.0%
94.0%
$10,000
$8,000
Debt (billions) (left axis)
68%
60.0%
As % GDP (right axis)
$6,000
40.0%
$4,000
$2,000
$1,496
20.0%
$525
$0
0.0%
U.S.
Greece
Great Britain
Debt as % GDP
Debt in billions
80.0%
U.S. Interest Rates on 10-Year bond, 1960 - 2010
12.0%
10.6%
10.0%
Debt in billions
8.0%
7.5%
6.6%
6.0%
4.9%
4.4%
4.0%
4.0%
2.0%
0.0%
1960s
1970s
1980s
1990s
2000s
Current
The Mainstreet Economy
 A monthly survey of community bank CEOS
 Colorado, Illinois, Iowa, Kansas, Minnesota,
Missouri, Nebraska, North Dakota, South Dakota,
Wyoming
 Intended to gauge the economic conditions in the
non-urban areas of region
 Average community size is 1,300 population
 Available at:
 www.outlook-economic.com
 www.economictrends.blogspot.com
The Rural Mainstreet Economy
(index over 50 indicates expansion)
Apr-09
Mar-10
April 2010
Area economic index
21.7
47.4
44.2
Loan volume
50.8
55.2
61.1
Checking deposits
66.7
56.2
62.7
Certificates of deposit
61.0
54.4
52.5
Farmland prices
41.2
58.2
59.5
Farm equipment sales
29.6
41.4
57.2
Home sales
30.8
46.5
52.5
Hiring in area
15.8
45.7
46.7
Retail business
20.5
42.4
43.4
Confidence index
45.6
54.3
60.2
Rural Mainstreet Economy, 2007-10
90.0
80.0
70.0
60.0
50.0
40.0
30.0
Economy
20.0
Farm land prices
10.0
0.0
Farm equipment sales
The Regional Economy:
Survey of Purchasing Managers&
Business Leaders
 A Partnership Among Creighton, and State
Supply Managers Associations
Monthly Survey of Business Conditions
 Leading Economic Indicator
 Released First Business Day of Each Month to
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Media
Released Via WWWeb:
www.outlook-economic.org
www.ernestgoss.com
Appears in media throughout U.S.
Survey of supply managers in over 900 firms
U.S. & Mid-America PMIs, 2007-10
70
65
60
55
50
45
U.S.
40
MA
35
30
Ja
n07
Fe
A
b. pr'0 0 9
9
Au
g09
M
ar
-1
0
U.S. & Mid-America Price Indices, 2003-10
100
90
80
70
60
50
40
30
U.S.
Mid-America
20
10
0
r-1
Ma
0
'0 8
'07
07
-09
Sep
.
Jan
July
Jan
Economic Medicine:
>Make 2001 and 2003 tax cuts on
dividends & capital gains permanent
>Reduce Gov. spending to less than 20%
of GDP
> Reject lifting the cap on taxable
social security wages
>Artificially supporting the dollar is
a losing proposition
>Reduce barriers to trade
>”Draw a line in the sand” bailouts
are over
Important indicators: keep an eye on:
 The employment report for April will be released on May 7th . I expect the
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report to show job gains but less than 100,000 with no change in the
unemployment rate (9.7%) (www.bls.gov).
First time and continuing claims for unemployment insurance. Released every
Thursday. First time claims above 460,000 will be bearish (www.doe.gov ).
The first and most important indicator for May will be the Mid-America and
U.S. January PMIs released May 3rd .( www.outlook-economic.com and
www.ism.ws ). Another increase will be very bullish.
Keep an eye on the yield for 10-year U.S. Treasuries. If this yield approaches
4.0% within the next month the Fed will be “between a rock and a hard
place.” The rapidly rising yields reflect: 1) Concerns regarding the large
increases in the U.S. budget deficit, 2) Rising inflation expectations (but not a
large factor yet) and 3) Investors reduced the risk perceptions and are pulling
money out of treasuries and putting it into equity markets (a good thing)
(http://finance.yahoo.com ).
Investors will be closely watching the value of the dollar, especially against the
Euro.
A New Normal? A Trifecta!
 1) Higher taxes, 2) inflation rates, 3)
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interest rates.
Less $$s available for consumption (taxes
higher)
China allows Yuan to rise in value—cheap
dollar, upward pressure on U.S. prices.
Federal Reserve keeps interest rates higher
Businesses & government must move to
defined contribution plans & away from
defined benefit plans